EF Cultural Travel BV v. Explorica, Inc. , 274 F.3d 577 ( 2001 )

United States Court of Appeals
For the First Circuit
No. 01-2000
EF CULTURAL TRAVEL BV, EF CULTURAL TOURS BV,
EF INSTITUTE FOR CULTURAL EXCHANGE, INC.,
EF CULTURAL SERVICES BV, AND GO AHEAD VACATIONS, INC.,
Plaintiffs, Appellees,
v.
EXPLORICA, INC., OLLE OLSSON, PETER NILSSON,
PHILIP GORMLEY, ALEXANDRA BERNADOTTE, ANDERS ERIKSSON,
DEBORAH JOHNSON, AND STEFAN NILSSON,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morris E. Lasker, Senior U.S. District Judge]
Before
Boudin, Chief Judge,
Coffin, Senior Circuit Judge,
and Lynch, Circuit Judge.
Anthony M. Feeherry, with whom James W. Nagle, R. David
Hosp, and Goodwin Proctor LLP were on brief, for appellants.
Nathaniel H. Akerman, with whom Seyfarth Shaw was on brief,
for appellees.
December 17, 2001
COFFIN, Senior Circuit Judge. Appellant Explorica, Inc.
("Explorica") and several of its employees challenge a
preliminary injunction issued against them for alleged
violations of the Computer Fraud and Abuse Act ("CFAA"), 18
U.S.C. § 1030.1 We affirm the district court's conclusion that
appellees will likely succeed on the merits of their CFAA claim,
but rest on a narrower basis than the court below.
I. Background
Explorica was formed in 2000 to compete in the field of
global tours for high school students. Several of Explorica's
employees formerly were employed by appellee EF, which has been
in business for more than thirty-five years. EF and its
partners and subsidiaries make up the world's largest private
student travel organization.
Shortly after the individual defendants left EF in the
beginning of 2000, Explorica began competing in the teenage tour
market. The company's vice president (and former vice president
1 The individual defendants-appellants are Olle Olsson,
Peter Nilsson, Philip Gormley, Alexandra Bernadotte, Anders
Erikkson, Deborah Johnson, and Stefan Nilsson. They are all
former employees of plaintiffs-appellees, EF Cultural Tours BV,
EF Institute for Cultural Exchange, Inc. ("EFICE"), EF Cultural
Services BV, and Go Ahead Vacations, Inc. The appellees are
collectively referred to as "EF."
The injunction was also issued against a second company,
Zefer Corporation ("Zefer"), which also appealed. After
briefing was completed, Zefer filed for bankruptcy. We granted
a joint motion to sever Zefer's appeal, which has been stayed.
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of information strategy at EF), Philip Gormley, envisioned that
Explorica could gain a substantial advantage over all other
student tour companies, and especially EF, by undercutting EF's
already competitive prices on student tours. Gormley considered
several ways to obtain and utilize EF's prices: by manually
keying in the information from EF's brochures and other printed
materials; by using a scanner to record that same information;
or, by manually searching for each tour offered through EF's
website. Ultimately, however, Gormley engaged Zefer,
Explorica's Internet consultant, to design a computer program
called a "scraper" to glean all of the necessary information
from EF's website. Zefer designed the program in three days.
The scraper has been likened to a "robot," a tool that is
extensively used on the Internet. Robots are used to gather
information for countless purposes, ranging from compiling
results for search engines such as Yahoo! to filtering for
inappropriate content. The widespread deployment of robots
enables global Internet users to find comprehensive information
quickly and almost effortlessly.
Like a robot, the scraper sought information through the
Internet. Unlike other robots, however, the scraper focused
solely on EF’s website, using information that other robots
would not have. Specifically, Zefer utilized tour codes whose
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significance was not readily understandable to the public. With
the tour codes, the scraper accessed EF's website repeatedly and
easily obtained pricing information for those specific tours.
The scraper sent more than 30,000 inquiries to EF's website and
recorded the pricing information into a spreadsheet.2
Zefer ran the scraper program twice, first to retrieve the
2000 tour prices and then the 2001 prices. All told, the
scraper downloaded 60,000 lines of data, the equivalent of eight
2 John Hawley, one of Zefer's senior technical associates,
explained the technical progression of the scraper in an
affidavit:
[a.] Open an Excel spreadsheet. The spreadsheet
initially contains EFTours gateway and
destination city codes, which are available
on the EFTours web site.
[b.] Identify the first gateway and destination
city codes [on the] Excel spreadsheet.
[c.] Create a [website address] request for the
EFTours tour prices page based on a
combination of gateway and destination city.
Example: show me all the prices for a London
trip leaving JFK.
[d.] View the requested web page which is
retained in the random access memory of the
requesting computer in the form of HTML
[computer language] code. * * *
[e.] Search the HTML for the tour prices for each
season, year, etc.
[f.] Store the prices into the Excel spreadsheet.
[g.] Identify the next gateway and city codes in
the spreadsheet.
[8.] Repeat steps 3-7 for all gateway and
destination city combinations.
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telephone directories of information.3 Once Zefer “scraped” all
of the prices, it sent a spreadsheet containing EF’s pricing
information to Explorica, which then systematically undercut
EF's prices.4 Explorica thereafter printed its own brochures and
began competing in EF's tour market.
The development and use of the scraper came to light about
a year and a half later during state-court litigation regarding
appellant Olsson’s departure from appellee EFICE. EF then filed
this action, alleging violations of the CFAA; the Copyright Act
of 1976, 17 U.S.C. § 101; the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1961; and various related state
laws. It sought a preliminary injunction barring Explorica and
Zefer from using the scraper program and demanded the return of
all materials generated through use of the scraper.
On May 30, 2001, the district court granted a preliminary
injunction against Explorica based on the CFAA, which criminally
and civilly prohibits certain access to computers. See 18
3 Appellants dispute the relevance of the size of the
printed data, arguing that 60,000 printed lines, while
voluminous on paper, is not a large amount of data for a
computer to store. This is a distinction without a difference.
The fact is that appellants utilized the scraper program to
download EF's pricing data. In June 2000, EF's website listed
154,293 prices for various tours.
4 Explorica later varied its prices slightly to mask its
across-the-board discount of EF’s prices.
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U.S.C. § 1030(a)(4). The court found that EF would likely prove
that Explorica violated the CFAA when it used EF's website in a
manner outside the "reasonable expectations" of both EF and its
ordinary users. The court also concluded that EF could show
that it suffered a loss, as required by the statute, consisting
of reduced business, harm to its goodwill, and the cost of
diagnostic measures it incurred to evaluate possible harm to
EF's systems, although it could not show that Explorica's
actions physically damaged its computers. In a supplemental
opinion5 the district court further articulated its “reasonable
expectations” standard and explained that copyright, contractual
and technical restraints sufficiently notified Explorica that
its use of a scraper would be unauthorized and thus would
violate the CFAA.
The district court first relied on EF’s use of a copyright
symbol on one of the pages of its website and a link directing
users with questions to contact the company,6 finding that “such
5 Zefer, Explorica's consultant, had objected to the
initial decision on the ground that it could face liability
under the preliminary injunction even though it had not had an
opportunity to respond to EF's preliminary injunction motion.
The district court allowed all of the parties to submit
supplemental briefs and issued a further decision on July 2,
2001.
6 The notice stated in full:
Copyright © 2000 EF Cultural Travel BV
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a clear statement should have dispelled any notion a reasonable
person may have had that the ‘presumption of open access’
applied to information on EF’s website.” The court next found
that the manner by which Explorica accessed EF’s website likely
violated a confidentiality agreement between appellant Gormley
and EF, because Gormley provided to Zefer technical instructions
concerning the creation of the scraper. Finally, the district
court noted without elaboration that the scraper bypassed
technical restrictions embedded in the website to acquire the
information. The court therefore let stand its earlier decision
granting the preliminary injunction. Appellants contend that
the district court erred in taking too narrow a view of what is
authorized under the CFAA and similarly mistook the reach of the
confidentiality agreement. Appellants also argue that the
district court erred in finding that appellees suffered a
"loss," as defined by the CFAA, and that the preliminary
injunction violates the First Amendment.
II. Standard of Review
A district court may issue a preliminary injunction only
upon considering "(1) the likelihood of success on the merits;
(2) the potential for irreparable harm if the injunction is
EF Educational Tours is a member of the EF group of
companies.
Questions? Please contact us.
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denied; (3) the balance of relevant impositions . . . ; and (4)
the effect (if any) of the court's ruling on the public
interest." Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102
F.3d 12, 15 (1st Cir. 1996). Appellants challenge only the
district court's finding that appellees are likely to succeed on
the merits, and we thus confine our review to that factor. As
in any other appeal, we review the merits of a preliminary
injunction depending on the issue under consideration.
"Generally speaking, pure issues of law (e.g., the construction
of a statute) are reviewed de novo, findings of fact for clear
error, and 'judgment calls' with considerable deference. . . ."
Langlois v. Abington Hous. Auth., 207 F.3d 43, 47 (1st Cir.
2000). Each of these is applicable here, where the district
court's judgment relied on both its analysis of the CFAA and its
assessment of the voluminous documentary evidence.
III. The Computer Fraud and Abuse Act
Although appellees alleged violations of three provisions
of the CFAA, the district court found that they were likely to
succeed only under section 1030(a)(4).7 That section provides
[Whoever] knowingly and with intent to defraud, accesses a
protected computer without authorization, or exceeds
authorized access, and by means of such conduct furthers
7 Appellees have not challenged the district court's
finding that they were unlikely to succeed on claims brought
under 18 U.S.C. §§ 1030(5)(C) and(6)(A).
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the intended fraud and obtains anything of value . . .
shall be punished.
18 U.S.C. § 1030(a)(4).8
Appellees allege that the appellants knowingly and with
intent to defraud accessed the server hosting EF's website more
than 30,000 times to obtain proprietary pricing and tour
information, and confidential information about appellees'
technical abilities. At the heart of the parties' dispute is
whether appellants' actions either were "without authorization"
or "exceed[ed] authorized access" as defined by the CFAA.9 We
conclude that because of the broad confidentiality agreement
appellants' actions "exceed[ed] authorized access," and so we do
not reach the more general arguments made about statutory
8
Although the CFAA is primarily a criminal statute, under
§ 1030(g), "any person who suffers damage or loss . . . may
maintain a civil action . . . for compensatory damages and
injunctive relief or other equitable relief."
9
At oral argument, appellants contended that they had no
"intent to defraud" as defined by the CFAA. That argument was
not raised in the briefs and thus has been waived. See Garcia-
Ayala v. Parenterals, Inc., 212 F.3d 638, 645 (1st Cir. 2000)
(failure to brief an argument constitutes waiver despite attempt
to raise the argument at oral argument). Likewise, at oral
argument Explorica attempted to adopt appellant Zefer's argument
that the preliminary injunction violates the First Amendment.
The lateness of Explorica's attempt renders it fruitless. See
id.-10-
meaning, including whether use of a scraper alone renders access
unauthorized.10
A. "Exceeds authorized access"
Congress defined "exceeds authorized access," as accessing
"a computer with authorization and [using] such access to obtain
or alter information in the computer that the accesser is not
entitled so to obtain or alter." 18 U.S.C. § 1030(e)(6). EF is
likely to prove such excessive access based on the
confidentiality agreement between Gormley and EF. Pertinently,
that agreement provides:
Employee agrees to maintain in strict confidence and not to
disclose to any third party, either orally or in writing,
any Confidential or Proprietary Information . . . and never
to at any time (i) directly or indirectly publish,
disseminate or otherwise disclose, deliver or make
available to anybody any Confidential or Proprietary
Information or (ii) use such Confidential or [P]roprietary
10 Congress did not define the phrase "without
authorization," perhaps assuming that the words speak for
themselves. The meaning, however, has proven to be elusive.
The district court applied what it termed the "default rule"
that conduct is without authorization only if it is not "in line
with the reasonable expectations" of the website owner and its
users. Appellants argue that this is an overly broad reading
that restricts access and is at odds with the Internet's
intended purpose of providing the "open and free exchange of
information." They urge us to adopt instead the Second
Circuit's reasoning that computer use is "without authorization"
only if the use is not "in any way related to [its] intended
function," United States v. Morris, 928 F.2d 504, 510 (2d Cir.
1991). Appellees contend that the result would be the same
under either test, but we need not resolve this dispute because
we affirm the court's ruling based on the "exceeds authorized
access" prong of § 1030(a)(4).
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Information for Employee's own benefit or for the benefit
of any other person or business entity other than EF.
* * *
As used in this Agreement, the term "Confidential or
Proprietary Information" means (a) any trade or business
secrets or confidential information of EF, whether or not
reduced to writing . . . ; (b) any technical, business, or
financial information, the use or disclosure of which might
reasonably be construed to be contrary to the interests of
EF. . . .
The record contains at least two communications from Gormley
to Zefer seeming to rely on information about EF to which he was
privy only because of his employment there. First, in an email
to Zefer employee Joseph Alt exploring the use of a scraper,
Gormley wrote: "[m]ight one of the team be able to write a
program to automatically extract prices . . . ? I could work
with him/her on the specification." Gormley also sent the
following email to Zefer employee John Hawley:
Here is a link to the page where you can grab EF's prices.
There are two important drop down menus on the right. . .
. With the lowest one you select one of about 150 tours. *
* * You then select your origin gateway from a list of
about
100 domestic gateways (middle drop down menu). When you
select your origin gateway a page with a couple of tables
comes up. One table has 1999-2000 prices and the other has
2000-2001 prices. * * * On a high speed connection it is
possible to move quickly from one price table to the next
by hitting backspace and then the down arrow.
This documentary evidence points to Gormley's heavy involvement
in the conception of the scraper program. Furthermore, the
voluminous spreadsheet containing all of the scraped information
includes the tour codes, which EF claims are proprietary
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information. Each page of the spreadsheet produced by Zefer
includes the tour and gateway codes, the date of travel, and the
price for the tour. An uninformed reader would regard the tour
codes as nothing but gibberish. 11 Although the codes can be
correlated to the actual tours and destination points, the codes
standing alone need to be "translated" to be meaningful.
Explorica argues that none of the information Gormley
provided Zefer was confidential and that the confidentiality
agreement therefore is irrelevant. 12 The case on which they
rely, Lanier Professional Services, Inc. v. Ricci, 192 F.3d 1,
5 (1st Cir. 1999), focused almost exclusively on an employee's
non-compete agreement. The opinion mentioned in passing that
there was no actionable misuse of confidential information
because the only evidence that the employee had taken protected
information was a "practically worthless" affidavit from the
employee's successor. Id. at 5.
Here, on the other hand, there is ample evidence that
Gormley provided Explorica proprietary information about the
11 An example of the website address including the tour
information is http://www.eftours.com/tours/PriceResult.asp?
Gate=GTF&TourID=LPM. In this address, the proprietary codes are
"GTF" and "LPM."
12 The Agreement provides that confidential information
does not include anything that "is or becomes generally known
within EF's industry."
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structure of the website and the tour codes. To be sure,
gathering manually the various codes through repeated searching
and deciphering of the URLs13 theoretically may be possible.
Practically speaking, however, if proven, Explorica's wholesale
use of EF's travel codes to facilitate gathering EF's prices
from its website reeks of use--and, indeed, abuse--of
proprietary information that goes beyond any authorized use of
EF's website.14
Gormley voluntarily entered a broad confidentiality
agreement prohibiting his disclosure of any information "which
might reasonably be construed to be contrary to the interests of
EF."15 Appellants would face an uphill battle trying to argue
that it was not against EF's interests for appellants to use the
tour codes to mine EF's pricing data. See Anthony's Pier Four,
13
URL is the acronym for "uniform resource locator," the
technical name for the web address typed in by an Internet user.
For example, EF's URL is http://www.eftours.com.
14
Among the several emails in the record is one from
Zefer employee Joseph Alt to the Explorica "team" at Zefer:
Below is the information needed to log into EF's site as a
tour leader. Please use this to gather competitor
information from both a business and experience design
perspective. We may also be able to glean knowledge of
their technical abilities. As with all of our information,
this is extremely confidential. Please do not share it
with anyone.
15Ironically, appellant Olsson countersigned Gormley's
confidentiality agreement as the representative of EF.
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Inc. v. HBC Assoc., 411 Mass. 451, 471, 583 N.E.2d 806, 820
(1991) (imposing a duty of good faith and fair dealing in all
contracts under Massachusetts law). If EF's allegations are
proven, it will likely prove that whatever authorization
Explorica had to navigate around EF's site (even in a
competitive vein), it exceeded that authorization by providing
proprietary information and know-how to Zefer to create the
scraper.16 Accordingly, the district court's finding that
Explorica likely violated the CFAA was not clearly erroneous.
16 EF also claims that Explorica skirted the website's
technical restraints. To learn about a specific tour, a user
must navigate through several different web pages by "clicking"
on various drop-down menus and choosing the desired departure
location, date, tour destination, tour length, and price range.
The district court found that the scraper circumvented the
technical restraints by operating at a warp speed that the
website was not normally intended to accommodate. We need not
reach the argument that this alone was a violation of the CFAA,
however, because the apparent transfer of information in
violation of the Confidentiality Agreement furnishes a
sufficient basis for injunctive relief.
Likewise, we express no opinion on the district court's
ruling that EF's copyright notice served as a "clear statement
[that] should have dispelled any notion a reasonable person may
have had the 'presumption of open access'" to EF's website.
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B. Damage or Loss under section 1030(g)
Appellants also challenge the district court's finding that
the appellees would likely prove they met the CFAA's "damage or
loss" requirements. Under the CFAA, EF may maintain a private
cause of action if it suffered "damage or loss." 18 U.S.C.
§ 1030(g). "Damage" is defined as "any impairment to the
integrity or availability of data, a program, a system, or
information that . . . causes loss aggregating at least $5,000
in value during any 1-year period to one or more individuals .
. . . " 18 U.S.C. § 1030(e)(8). "Loss" is not defined.
The district court held that although EF could not show any
"damage" it would likely be able to show "loss" under the
statute. It reasoned that a general understanding of the word
"loss" would fairly encompass a loss of business, goodwill, and
the cost of diagnostic measures that EF took after it learned of
Explorica's access to its website. 17 Appellants respond that
such diagnostic measures cannot be included in the $5,000
threshold because their actions neither caused any physical
damage nor placed any stress on EF's website.
17It is undisputed that appellees paid $20,944.92 to
assess whether their website had been compromised. Appellees
also claim costs exceeding $40,000 that they will incur to
"remedy and secure their website and computer." We need not
consider whether these expenses constitute loss because the
initial $20,944.92 greatly exceeds the threshold.
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Few courts have endeavored to resolve the contours of damage
and loss under the CFAA. See, e.g., Shaw v. Toshiba Am. Info.
Sys., 91 F. Supp. 2d 926 (E.D. Tex. 1999) (noting the paucity of
decisions construing the Act). Two district courts that have
addressed the issue have found that expenses such as those borne
by EF do fall under the statute. In Shurgard Storage Center v.
Safeguard Self Storage, Inc., 119 F. Supp. 2d 1121 (W.D. Wa.
2000), the district court found that the need to assess whether
a defendant's actions compromised the plaintiff's computers was
compensable under the CFAA because the computer's integrity was
called into question. The court based its finding on the
legislative history of the 1996 amendments to the CFAA:
The 1994 Amendment required both "damage" and "loss," but
it is not always clear what constitutes "damage." For
example, intruders often alter existing log-on programs so
that user passwords are copied to a file which the hackers
can retrieve later. After retrieving the newly created
password file, the intruder restores the altered log-on
file to its original condition. Arguably, in such a
situation, neither the computer nor its information is
damaged. Nonetheless, this conduct allows the intruder to
accumulate valid user passwords to the system, requires all
system users to change their passwords, and requires the
system administrator to devote resources to re-securing the
system. Thus, although there is arguably no "damage," the
victim does suffer "loss." If the loss to the victim meets
the required monetary threshold, the conduct should be
criminal, and the victim should be entitled to relief.
S. Rep. No. 104-357, at 11 (1996) (quoted in Shurgard, 119 F.
Supp. 2d at 1126). Another district court held that this
legislative history makes "clear that Congress intended the term
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'loss' to target remedial expenses borne by victims that could
not properly be considered direct damage caused by a computer
hacker." In re Doubleclick Inc. Privacy Litig., 154 F. Supp. 2d
497, 521 (S.D.N.Y. 2001).
We agree with this construction of the CFAA. In the
absence of a statutory definition for "loss," we apply the well-
known rule of assigning undefined words their normal, everyday
meaning. See Inmates of Suffolk Cty. Jail v. Rouse, 129 F.3d
649, 653-54 (1st Cir. 1997). The word "loss" means "detriment,
disadvantage, or deprivation from failure to keep, have or get."
The Random House Dictionary of the English Language 1137 (2d ed.
1983). Appellees unquestionably suffered a detriment and a
disadvantage by having to expend substantial sums to assess the
extent, if any, of the physical damage to their website caused
by appellants' intrusion. That the physical components were not
damaged is fortunate, but it does not lessen the loss
represented by consultant fees. Congress's use of the
disjunctive, "damage or loss," confirms that it anticipated
recovery in cases involving other than purely physical damage.
But see In re Intuit Privacy Litig., 138 F. Supp. 2d 1272, 1281
(C.D. Ca. 2001) (loss means "irreparable damage" and any other
interpretation "would render the term 'damage' superfluous");
Register.com, Inc. v. Verio, Inc., 126 F. Supp. 2d 238, 252 n.12
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(S.D.N.Y. 2000) (lost business or goodwill could not constitute
loss absent the impairment or unavailability of data or
systems). To parse the words in any other way would not only
impair Congress's intended scope of the Act, but would also
serve to reward sophisticated intruders. As we move into an
increasingly electronic world, the instances of physical damage
will likely be fewer while the value to the victim of what has
been stolen and the victim's costs in shoring up its security
features undoubtedly will loom ever-larger. If we were to
restrict the statute as appellants urge, we would flout
Congress's intent by effectively permitting the CFAA to languish
in the twentieth century, as violators of the Act move into the
twenty-first century and beyond.
We do not hold, however, that any loss is compensable. The
CFAA provides recovery for "damage" only if it results in a loss
of at least $5,000. We agree with the court in In re
Doubleclick Inc. Privacy Litigation, 154 F. Supp. 2d 497(S.D.N.Y. 2001), that Congress could not have intended other
types of loss to support recovery unless that threshold were
met. Indeed, the Senate Report explicitly states that "if the
loss to the victim meets the required monetary threshold," the
victim is entitled to relief under the CFAA. S. Rep. 104-357,
at 11. We therefore conclude that expenses of at least $5,000
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resulting from a party's intrusion are "losses" for purposes of
the "damage or loss" requirement of the CFAA.18
IV. Conclusion
For the foregoing reasons, we agree with the district court
that appellees will likely succeed on the merits of their CFAA
claim under 18 U.S.C. § 1030(a)(4). Accordingly, the preliminary
injunction was properly ordered.
Affirmed.
18 Only appellant Zefer raised the argument that the
preliminary injunction violated the First Amendment. Explorica
attempted to adopt that argument at oral argument. The lateness
of Explorica's attempt renders it fruitless. See Garcia-Ayala
v. Parenterals, Inc., 212 F.3d 638, 645 (1st Cir. 2000) (failure
to brief an argument constitutes waiver despite attempt to raise
the argument at oral argument); Piazza v. Aponte Roque, 909 F.2d
35, 37 (1st Cir. 1990) ("Except in extraordinary circumstances
. . . a court of appeals will not consider an issue raised for
the first time at oral argument.").
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