Court Rules That Source Code Theft Was Not a Crime

Corporate espionage may be more difficult to prosecute criminally after a recent appeals court ruling. The U.S. Court of Appeals for the Second Circuit overturned the conviction of former Goldman Sachs programmer Sergey Aleynikov who was accused of stealing trade secrets and essentially committing espionage against his former employer. Aleynikov allegedly uploaded Goldman's source code to its high-frequency trading system to a remote server in Germany before downloading it to his personal computer and flash drive in Chicago, all before leaving to take a new position with a competitor, Tezza Technologies. Goldman took action and contacted the FBI, who arrested him.

Aleynikov was charged with (and convicted of) violating the National Stolen Property Act (NSPA) and the Economic Espionage Act (EEA). He was sentenced to eight years in prison.

However, the Second Circuit overturned his conviction, ruling that his actions did not violate the NSPA, since he did not assume physical control over the code or deprive Goldman of its use. Applying the plain language of the statute, the court ruled that Aleynikov took "purely intangible property embodied in an intangible format" and did not transfer the code with the knowledge that it was stolen. As such, he did not "steal" the code, as defined under the law.

The three judge panel also found that Aleynikov did not violate the EEA since he did not (or intend to) profit from selling or licensing the code. Writing for the unanimous panel, Chief Judge Dennis Jacobs explained, "Because the HFT system was not designed to enter or pass in commerce, or to make something that does, Aleynikov's theft of source code relating to that system was not an offense under the EEA."

Nevertheless, the court noted that Aleynikov should have known that his actions violated his confidentiality agreement with Goldman Sachs and could have led to civil sanctions, but they ultimately did not constitute a crime.