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ViChip v. Lee: Employment Issues

California Federal Court Grants Summary Judgment Under CFAA (Computer Fraud and Abuse Act) Following Seventh Circuit Opinion In Citrin

On June 9, 2006, the federal district court for the Northern District of California granting summary judgment in favor of an employer (ViChip) against its former CEO, CFO, president, secretary, and sole director (Tsu-Chang Lee), for several wrongful acts, including violating the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030. ViChip Corp. v. Lee, 2006 WL 1626706 (N.D. Cal. 2006), Case No. C 04-2914 PJH. The court rejected defense arguments that Lee’s action did not fall within the class of conduct intended to be covered by CFAA because his actions were “authorized.” Slip Opn., at 11-12.

The case arose out of a 2002 joint venture entered into by ViVoDa (through its president Lee) with two other companies; the joint venture created ViChip to “research, develop, and outsource the production of a particular type of integrated circuit.” Slip Opn., at 1. All ViChip employees, including Lee, signed employment agreements that, in pertinent part, assigned to the company anything the employee invented and promised to maintain in confidence any proprietary information. ViChip filed a patent application in June 2003. Id., at 2.

In early 2004, the Chairman of ViChip learned that Lee was still working for ViVoDa, and learned of “’questionable’ contracts that Lee had entered into with ViChip on behalf of ViVoDa. In May 2004, ViChip’s board decided to fire Lee. Lee responded by engaging in a series of unwise acts that included:

removing from ViChip’s offices and ViChip’s patent counsel’s office hard copies relating to ViChip’s provisional patent application, including the original executed copy of the patent assignment form; accessing ViChip’s file server and deleting the contents of computer files that Lee had generated as an employee; deleting the contents of Lee’s ViChip-issued laptop computer; and removing the executed copy of his employee confidentiality agreement. . . . He has also admitted that he tore up the original executed copy of his employee confidentiality agreement, and the original and copy of ViChip’s patent assignment form (in which all 5 inventors had assigned their exclusive rights to ViChip). . . . Slip Opn., at 3 (italics added, citations omitted).

For present purposes, we discuss only that portion of the district court order addressing the CFAA claims. “To make out a claim thereunder, ViChip must prove that Lee has (1) intentionally accessed (2) a protected computer (3) without authorization, and (4) as a result of such conduct, has (5) intentionally, recklessly or otherwise caused (6) damage.” Slip Opn., at 11 (citing 18 U.S.C. §§ 1030(a)(5)(A-B)). ViChip relied on Lee’s admission that he deleted computer files; Lee argued that “his actions were technically authorized, since he deleted the above files while still an officer and director of ViChip.” Id. The court rejected Lee’s argument, relying on the Seventh Circuit opinion in International Airport Centers, L.L.C. v. Citrin, 440 F.3d 418 (7th Cir. 2006), discussed in a prior article.

It cannot be disputed that Lee, as both employee and officer, had a duty of loyalty that he owed ViChip, and therefore an agency relationship. . . . Accordingly, when Lee decided-the night before his termination and after knowing that he was being asked to step down and give up his duties at ViChip-to delete all information from ViChip’s server and his ViChip-issued computer, he similarly breached his duty of loyalty and terminated his agency relationship to the company. . . . In doing so, and as the Citrin court held, he also terminated his authorization to access the files.

Slip Opn., at 12 (italics added, citations omitted). The district court therefore granted ViChip’s motion for summary judgment on its CFAA claims.