Sergey Aleynikov, a former programmer for Goldman Sachs, recently became a free man. His conviction was overturned by the 2nd Circuit Court of Appeals after serving a year of his original eight year prison sentence. Aleynikov’s crime? He downloaded the highly sensitive source code of Goldman Sachs incredibly lucrative high frequency trading system. The system used a series of algorithms to make complex trades in a fraction of a second, and it provided Goldman with an important edge on the rest of the market.
Needless to say, Goldman was not pleased to see a former employee provide the same code for a competitor. Aleynikov was quickly arrested by the FBI and charged with violations under the National Stolen Property Act (NSPA) and the Electronic Espionage Act (EEA). In 2010, Aleynikov was found guilty under both statutes for theft and economic espionage. This case was largely seen as an “example of the Justice Department’s serious intent to prosecute the theft of intellectual property and trade secrets.” Aleynikov appealed and the 2nd Circuit conducted de novo review of both statutes.
After review, the 2nd Circuit reversed the convictions and found that Aleynikov’s acts did not “constitute an offense under either the NSPA or the EEA, and the indictment was therefore legally insufficient.”
In regards to the NSPA, the Court stated that source code is intangible in its digital form. They held that intangible computer code does not qualify as “goods,” “wares,” or “merchandise” under the NSPA. Therefore, Aleynikov never “assume[d] physical control” of anything that would violate the statute when he downloaded the code. In its decision, the court relied on Dowling v. United States 473 U.S. 207 (1985) for the “proposition that the theft and subsequent interstate transmission of purely intangible property is beyond the scope of the NSPA.”
Additionally, according to the Court, Aleynikov could not have committed electronic espionage. “Goldman’s HFT system was neither ‘produced for’ nor ‘placed in’ interstate or foreign commerce.” Without satisfying one of those conditions, there can be no violation of the EEA.
So what does this mean? For Aleynikov it means freedom, but can thieves now take this kind of sensitive proprietary information without fear of legal action? Can a thief avoid charges by keeping code in the cloud? Currently, the answer to these questions is yes. However, this does not mean that all code is now fair game. It must be code that was not produced for or placed in interstate or foreign commerce to escape suit entirely. This subset is small enough that repeat cases are unlikely to occur in large quantities. Furthermore, in a concurring opinion, Circuit Judge Guido Calabresi urged Congress to update and broaden the scope of the NSPA. Hopefully Congress heeds the suggestion. In this age of ever advancing technology, the law needs to reflect or at least be able to adapt to these new digital realities. Otherwise, it may just become obsolete.
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