Why Breach of Contract Should Never Be A Crime

In the face of efforts to reform the Computer Fraud and Abuse Act (CFAA), some buinesses have told lawmakers that the CFAA should be used to punish breach of contract where the breacher acted "for purposes of commercial advantage or private financial gain".  Such a proposal does not fix the ability of prosecutors to go after people for disregarding terms of service. 

Worse, the idea is unprecedented, dangerous and unacceptable.

Breach of contract is not a crime or even a tort.  Punitive damages are generally not an available remedy.  The only remedies are to make the non-breaching party whole.  The main theory behind this rule is that the law should not punish economically efficient breach. No punitive damages for breach is contract law 101, and based on a long standing social agreement about the role of contracts in American business relations.  See Restatement (Second) of Contracts. §355. PUNITIVE DAMAGES: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

A majority of states adhere to the traditional rule that bars punitive damages unless the conduct constituting the breach is also an independent tort or falls within a few other limited exceptions.  Only a few jurisdictions allow punitive damages against opportunistic breachers and almost none permit punitive damages even upon a showing of willful, malicious and economically harmful breach. I emphasize, no punitive damages, never mind jail time. This is especially true when the breacher does it for "private financial gain".  Making more money by breaching is what efficient breach means.  

For a short window of time, due to a misinterpretation of the CFAA, Oracle, Korn-Ferry and other companies have had a way to get around this rule and impose heavy penalties on contract breachers.  This is a temporary, unfortunate and dangerous accident which we are trying to fix. 

If we craft the CFAA to allow not just punitive damages but prison time for breach of contract, we will (1) be federalizing contract law, at least where those contracts concern computer use (2) reversing settled state precedent, and (3) upending 150 years of economic thinking about and experience with the proper scope contract law remedies.

This is unthinkable.  

Add new comment