software – Page 2 – Attorney Evan Brown

July 17, 2008 Computer Crime

CFAA requires intent to cause harm, not merely intent to transmit

Kalow & Springnut, LLP v. Commence Corporation, 2008 WL 2557506 (D.N.J. June 23, 2008)

The federal Computer Fraud and Abuse Act (CFAA), 18 U.S.C. §1030 et seq. creates civil liability for anyone who “knowingly causes the transmissions of a program, information, code, or command, and as a result of such conduct intentionally causes damage without authorization, to a protected computer.” Does this mean that the defendant has to intend to cause harm, or does it simply mean that the defendant merely intended to cause the transmission? The U.S. District Court for the District of New Jersey chose the former in the recent case of Kalow & Springnut, LLP v. Commence Corporation, 2008 WL 2557506 (D.N.J. June 23, 2008).

Plaintiff Kalow got hooked on the defendant’s software, which converted and stored plaintiff’s data in a proprietary format. In March 2006 the software stopped working because of a purported “time bomb” that defendant included in the application. To get the program working again, Kalow had to upgrade at a cost of over $15,000.

Kalow sued, and claimed, among other things, violation of the Computer Fraud and Abuse Act. The defendant moved to dismiss, and the court granted the motion with leave to amend.

In its complaint, Kalow had alleged that the defendant “intentionally transmitted a software code” to Kalow’s computer system and that the “software code [that defendant] intentionally transmitted to these computer systems caused damage to them.” The court found that these allegations were insufficient, as Kalow had not actually averred that defendant intended to cause harm.

The court rejected Kalow’s reliance on the case of Shaw v. Toshiba America Information Systems, Inc., 91 F.Supp.2d 926 (E.D.Tex.1999), concluding that the plaintiffs therein not only pled that the defendants knowingly had transmitted code, but that the defendants “knew [it] would cause the loss and corruption of data….” The court similarly rejected Kalow’s reliance on North Texas Preventive Imaging, LLC v. Eisenberg, No. 96-0071, 1996 U.S. Dist. LEXIS 19990, observing that the 1994 amendments to the CFAA embodied Congress’s aim to emphasize harmful intent and resultant harm rather than just unauthorized access.

July 2, 2008 Contracts

Software distributor agreement violated New York’s Rule Against Perpetuities

McAllister Software Systems, Inc. v. Henry Schein, Inc., No. 06-0093, 2008 WL 922328 (E.D. Mo. April 2, 2008)

This case came out about three months ago, and I should have blogged about it then but it slipped by. It’s a quirky holding, what with the Rule Against Perpetuities, so it’s worth going back to pick it up. As it turns out, the Rule comes into play in real life, not just on the bar exam or in first year of law school Property class.

In 1990, McAllister and Schein entered into an Exclusive Distributor Agreement (EDA) whereby Schein would have the exclusive right to promote and sell veterinary management software. In 2006, McAllister sued, asking the court to declare the EDA void ab initio (from its creation), claiming that terms of the EDA violated New York’s Rule Against Perpetuities. (The EDA provided that New York law would apply).

McAllister moved for summary judgment on its claim, and the court granted the motion. And now for the legalese, because I know that’s the real reason you’re here.

The New York Estate Powers and Trust Law at Article 9, Section 1.1 prohibits the suspension of the absolute power of alienation of any present or future estate for a period beyond lives in being at the creation of the estate plus twenty-one years. Although usually thought of as a real property question, under New York law, the Rule applies to personal property as well. Yawn.

The court found that two provisions of the EDA violated the Rule because they permanently restrained McAllister from freely selling the software and developing and marketing new software in the same market space.

One provision provided that

Schein shall have the right to be the exclusive distributor of any other software designed for the Market that [McAllister Software] produces, develops, or acquires the rights to, hereafter.

Another provision stated that

McAllister Software will keep and maintain a current version of the Software’s source code and supporting documentation (“Escrow Materials”) in escrow with its attorney or a professional computer software escrow agent (“Escrowee”) …If [McAllister Software] fails to support the Software to the reasonable satisfaction of Schein and Schein’s customers or if [McAllister Software] ceases to do business, Schein shall have the right to immediately obtain the source code from the Escrowee, and [McAllister Software], by its execution hereof, hereby authorizes Escrowee to release the source code to Schein only under said circumstances.

Both the parties were corporations so there were no “measuring lives” to use for purposes of the Rule Against Perpetuities calculation. So the court simply considered whether the power of alienation was suspended for at least 21 years. This situation fit the bill, so the EDA was void.

February 15, 2008 Uncategorized

New guide to open source issues

[Update: Thanks, Dad, for alerting me to the typo. It’s a relief to know I’ll always have at least one reader!]

The Software Freedom Law Center, one of the leading influencers in the free and open source software movement, has released what appears to be a helpful guide on understanding the legal issues associated with the use and development of open source software. As anyone involved with open source (whether on the legal side or the technical side) knows, these kinds of issues are erudite at best, and incomprehensible at worst. Having a comprehensive review in one place provides a helpful tool. Thanks to my friend Alex Newson for pointing out this publication.