Nosal Trade Secrets Theft Conviction Upheld

A federal appeals court upheld the theft of trade secrets conviction against former Korn/Ferry Int. executive recruiter David Nosal Tuesday on all six counts that he accessed the company computer to steal client names in order to set up his own recruiting firm.

But the 9th U.S. Circuit Court of Appeals reversed the nearly $1 million restitution award against Nosal to cover the attorney fees for Korn/Ferry, which paid to help prosecutors investigate Nosal.

Nosal, 57, of Danville, Calif., was convicted of conspiring with two other employees in 2005 to gain access to the executive search firm’s files for large numbers of targeted job candidates developed by Korn/Ferry. Following his conviction in 2013, Nosal was sentenced to one year in prison.

The appeals court split 2-1 to uphold the six-count conviction. Judge Stephen Reinhardt dissented saying this was a case of password sharing. The Computer Fraud and Abuse Act (CFAA) does not make the millions of people who engage “in this ubiquitous, useful and generally harmless conduct into unwitting federal criminals.”

Reinhardt argued the majority give too sweeping a power to prosecutors to prosecute people criminally for such conduct.

Nosal’s case previously went to an 11-judge en banc review, which forced the government to throw out six counts of computer hacking against Nosal.

The majority in Tuesday’s ruling found the CFAA criminalizes accessing a company computer “without authorization,” which it held Nosal did under the plain meaning of the words.

Reinhardt countered, “If we interpret ‘without authorization’ in a way that includes common practices like password sharing, millions of our citizens would become potential federal criminals overnight.”

Prosecutors convinced jurors that Nosal colluded with two other Korn/Ferry employees to get them to sneak into the firm’s database and download source files.

Reinhardt argued that the “best reading” of “without authorization” under CFAA is narrow: “a person accesses an account ‘without authorization’ if he does so without having the permission of either the system owner or a legitimate account holder.”

“Nosal’s case illustrates some of the special dangers inherent in criminal laws which are frequently violated in the commercial world, yet seldom enforced,” Reinhardt said.

As for the $1 million attorney fee restitution, Korn/Ferry hired international corporate law firm, O’Melveny and Myers to investigate Nosal and the two employees accused of giving him access to the company computer after he left the firm. One of O’Melveny’s lead attorneys had recently left the U.S. Attorney’s office and referred the case to her former colleagues personally, the court said.

The law firm provided the government with liability theories it believed would help convict Nosal.  At the same time, the company filed a civil suit against him. It also sought $1 million in compensation for O’Melveny’s work to assist the criminal prosecution.

The panel unanimously said that award must go back to the trial court for reconsideration.

Case: U.S. v. Nosal, No. 14-10037

Click to access 14-10037.pdf



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