Tort – Business Tort – Va. Computer Crimes Act – Trade Secrets

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An entrepreneur who started several corporations to market optical imaging technology used in making tamper-proof ID cards, including a company later operated by his son-in-law, loses on summary judgment his suit claiming the son-in-law violated the Virginia Computer Crimes Act and the Virginia Uniform Trade Secrets Act, the 4th Circuit ruled in Othentec Ltd. v. Phelan (Lawyers Weekly No. 001-096-08) (12 pages).
The three elements of committing a violation of the VCCA, Va. Code Sect. 18.1-152.3, are: (1) using a computer or computer network; (2) without authority; and (3) intending to obtain, embezzle or convert the property of another. Simply put, plaintiff companies have produced no evidence outside of self-serving speculation that the defendants committed a violation of the VCCA.
The evidence shows that defendant son-in-law was clearly authorized to access the subsidiary’s bank account. Further, the defendant’s use of a computer was merely incidental to the withdrawal of the money. The defendant did not directly withdraw money from the account himself with the use of a computer. He would send an e-mail, and on one occasion a physical letter, to the corporate secretary for both companies, who was a signatory on the account. The secretary would withdraw the money and send it to the defendant. Another person, who was counsel and director of the corporation and a confidant of the entrepreneur, actually signed off on many of these withdrawals as well. The plaintiffs also failed to produce any evidence they disapproved of what the defendant was doing during the time period in question.
While the plaintiffs persist in their claim they were not aware the son-in-law was using the money to run one corporate entity instead of another one, the plaintiffs cannot create a genuine issue of fact through mere speculation or the building of one inference upon another. In the present case, that is precisely what the plaintiffs attempt to do, as they have produced no factual evidence that the defendant used a computer to withdraw funds he was not authorized to withdraw for an illegal or unauthorized purpose.
The District Court’s ruling that there simply was no evidence to go forward with the unauthorized use of computers to commit a crime is correct, and we uphold summary judgment for the defendant on the VCCA claim.
The plaintiffs also have failed to produce any objective evidence the defendants misappropriated any of the plaintiffs’ trade secrets and used them for EC4 USA, in violation of the VUTSA, Va. Code Sect. 59.1-336. The plaintiffs have not shown any evidence that the defendants were, in fact, using the cylinder technology in question, in making identification cards. As with their claim under the VCCA, the plaintiffs’ claim under the VUTSA relies exclusively on allegations and inferences instead of any sort of actual objective evidence.
While the defendants did have access to trade secrets, the plaintiffs were unable to produce any evidence, even after discovery, that EC4 USA was using such trade secrets. The plaintiffs’ allegations, speculation and inference are not enough to survive summary judgment, and we uphold the District Court ruling for defendants.
Othentec Ltd. v. Phelan (Lawyers Weekly No. 001-096-08) (12 pages) (Duffy, J.) (4th Circuit) Appealed from the U.S. District Court for the District of Virginia at Alexandria, Hilton, J.; Jerry W. Boykin for appellants; John F. Mardula for appellees (No. 06-2297) (May 12, 2008).