Wednesday, September 14, 2011

Speculative Future Losses Insufficient for CFAA Claim

GENERAL SCIENTIFIC CORP. v. SHEERVISION, INC., Dist. Court, ED Michigan 2011

Procedure:  Defendant's Motion to Dismiss Computer Fraud and Abuse Act Claim

Background:"General Scientific Corp. and SheerVision, Inc. both participate in the highly competitive market for surgical loupe products, which includes telemicroscopes, lights, video cameras, and related accessories used by surgeons, dentists, and dental technicians. In 2007, believing that SheerVision had engaged in importation and sale of goods infringing on Plaintiff's patents, Plaintiff initiated an action before the International Trade Commission ("ITC"). The ITC action settled: Plaintiff covenanted not to sue, and SheerVision promised to cease importation and sale of the allegedly infringing goods.


"Since early 2010, however, SheerVision has allegedly undertaken to poach members of Plaintiff's sales staff and use their knowledge of Plaintiff's business contacts and practices to compete against Plaintiff in the market for surgical loupe devices, some of which allegedly violate Plaintiff's patents. According to Plaintiff, SheerVision has hired five of Plaintiff's past employees, including Caouette. In particular, Plaintiff alleges that SheerVision and Caouette used a computer issued by Plaintiff and Caouette's access to Plaintiff's email servers to gather sales contacts, customer lists, pricing information, and copyrighted marketing material for use in SheerVision's commercial pursuits.


"Plaintiff filed suit against Defendants on October 6, 2010. Before the Court is a motion by Defendants to dismiss Counts I through V of Plaintiff's complaint or, in the alternative, for a more definite statement as to those same Counts"

Analysis: "Defendants move to dismiss Count III of Plaintiff's complaint, an alleged violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, on the ground that Plaintiff failed to sufficiently plead the damages required by the CFAA: namely, "loss . . . aggregating at least $5,000 in value." 18 USC § 1030(c)(4)(A)(i)(I)

"The CFAA defines "loss" as "any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service." 18 U.S.C. § 1030(e)(11) (emphasis added). Moreover, to be "plausible" under Twombly, Plaintiff must "plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Count III of Plaintiff's CFAA claim fails under both the statutory definition of "loss" and Twombly.

"First, Plaintiff has failed to allege specific facts suggesting the plausibility of damages required under the CFAA. Plaintiff merely "believes that it will incur" costs exceeding $5,000. (Pl.'s First Am. Compl. ¶ 19.) A mere belief in purported future damages is insufficient to survive a Rule 12(b)(6) motion because a complaint "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S. Ct. at 1964-65. Plaintiff has not alleged specific facts suggesting that it incurred at least $5,000 in losses as a result of Defendants' alleged activity.

"Second, to the extent Plaintiff has attempted to bolster its pleading through its Response to Defendants' Motion to Dismiss and the affidavit of Gregory S. Smith, Plaintiff demonstrates a misinterpretation of the "loss" standard under the CFAA, further undermining its claim. The crux of Plaintiff's response rests on the contention that Defendants' conduct has caused at least $5,000 in losses through usurped sales opportunities. (Pl.'s Resp. to Mot. to Dismiss 6-7.) Lost sales and profits per se are not the measure of loss under the CFAA, however. As the statutory language makes clear, "losses" under the CFAA are limited to costs incurred and profits lost as a direct result of interrupted computer service. 18 U.S.C. § 1030(e)(11) (listing applicable types of loss incurred "because of interruption of service"). The CFAA's damage requirement is not concerned with sales lost through the use of the information accessed. See, e.g., Nexans Wires S.A. v. Sark-USA, Inc., 166 Fed. App'x. 559, 562-63 (2d Cir. 2006) ("the plain language of the statute treats lost revenue as a different concept from incurred costs, and permits recovery of the former only where connected to an `interruption in service'"). The CFAA only covers lost revenue if the loss occurred as a result of interrupted service. Id. 
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