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May 26, 2013

prcode 34931845011 MA sequence

I was reading Eric Ostroff's fine post discussing customer lists as trade secrets, in the context of a

recent case involving Farmers Insurance Exchange and several of its former agents, Farmers Ins. Exch.

v. Steele Ins. Agency, 2013 U.S. Dist. LEXIS 70098 (E.D. Cal. May 16, 2013).

The trade secret at issue in that case involved an electronic compilation of data about insurance

customers. Farmers maintains that compilation for its captive agents through something called an

"Agency Dashboard." In the captive insurance setting, the insurer normally owns proprietary rights to

its customer information. This is in stark contrast to the independent agency system, where the agents

themselves retain rights to such data.

Eric does a nice job summarizing the steps Farmers takes to protect its customer data, including the

requirement that agents log in with passwords each time they gain access to the database. They must,

as Eric points out, acknowledge Farmers' proprietary rights upon entry to Farmers' dashboard system.

Full disclosure, now.

I litigated several matters against Farmers Insurance over the years. And I am well-familiar with the

way in which Farmers pursues trade secrets cases against ex-agents, and all too familiar with the

Agency Dashboard, what it looks like, and how it works.

So I won't summarize what Eric wrote, but instead I want to highlight a fact that came up in the case

and try to apply a claim Farmers hasn't (yet?) pursued.

Yes, I am talking about our old pal, the Computer Fraud and Abuse Act.

At least two of the defendants in the Farmers' case used passwords that did not belong to them to

access Agency Dashboard.

One of the defendants was an office employee (seemingly a customer service agent) who used another

Farmers agent's password to download reports out of Agency Dashboard. That agent, apparently not

complicit, had severe health problems.

Another defendant was the son of a Farmers agent (again, it didn't appear the agent was complicit)

and used his father's Farmers password to log in to Agency Dashboard. Though not crystal clear from

the record, the defendant then presumably used proprietary data from the dashboard to switch

customers away from Farmers. Neither of those defendants had password credentials of his or her


This case comes at an interesting time. John Marsh, Russell Beck, and I just recorded another episode

of the Fairly Competing podcast (which will be available Tuesday morning), and we discussed the latest

chapter in United States v. Nosal. The factual matrix in that case (also from California) involved something very similar to what I've just described: gaining access to a protected computer system

through password sharing. (For my prior post discussing Nosal in the District Court, click here.)

That is: X uses Y's password to log in to a protected database, when X can't otherwise gain access

through credentials assigned to him.

As the Nosal jury found, this conduct violated the CFAA because the individual is gaining access to a

protected computer without authorization. A password is the quintessential access barrier, familiar to


The Farmers case was teed up for a preliminary injunction around the time the Nosal verdict came

down, and there isn't much precedent available for extending the CFAA to the password-sharing

paradigm. In fact, given the Ninth Circuit's rather narrow interpretation of the CFAA, it's to be expected

that attorneys would pull back on civil claims under this statute.

But it appears that the agents who accessed Agency Dashboard without proper password credentials

may have violated the CFAA, at least under the statutory interpretation applied by the District Court in

Nosal. The case under the CFAA may be stronger than that against Nosal, because there's no indication

Nosal himself accessed the database with someone else's password. He was just directing traffic.

I still have not reconciled, personally, whether the CFAA should be extended to this fact pattern, though

I think it probably should. I have great reservations about the CFAA for many reasons. And given the

Ninth Circuit's narrow construction of the CFAA, it is possible we'll get further guidance on whether

password sharing implicates a statutory violation when Nosal II is decided.

prcode 34931845011 MA sequence


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Posted: Sunday May 26, 2013, 7:00 pm
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Violet W.
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