US v. Aleynikov Appeal
June 17, 2012
The original opinion of the Court is available here.
The Second Circuit Court of Appeals recently reversed a district court ruling on a source code theft case. The ruling, in accord with many trends, affirms the fact that source code is treated differently than other types of goods in the legal system. Additionally, it stresses that prosecutors must use the correct statutes when prosecuting defendants, and attempts to overstretch the word of the law will not be tolerated. Sergey Aleynikov was an infrastructure software developer specializing in high-frequency trading applications for Goldman Sachs. Naturally, Aleynikov had signed a confidentiality agreement that stated everything he did was confidential and could not be taken with him if he left the bank. He was hired as a vice president for an independent firm that developed high frequency trading software, and he subsequently copied and uploadedencrypted versions of Goldman Sachs source code to a German server before leaving the bank. He was arrested for violations of interstate commerce trade secrets under the Economic Espionage Act (EEA), stolen goods violations under the National Stolen Property Act (NSPA), and exceeding access under the Computer Fraud and Abuse Act (CFAA). He moved to dismiss the case, but only the CFAA charge was dismissed. He was convicted on the remaining two charges and subsequently appealed.
The Appellate Court first began by looking at the validity of the NSPA claim. Using Dowling v. U.S. as a precedent, the Appellate Court argues that the NSPA applies only to tangible goods and intangible monetary transfers, but not other forms of intangible property. The Court argues that the defendant stole "purely intangible property in a purely intangible format." Therefore, according to the court, source code does not meet the criteria necessary for a good protected by the NSPA. The Appellate Court also easily discredits the EEA claim. The EEA applies to products "produced for" or "placed in" interstate or foreign commerce. The Court explains that "placed in" applies to products already in a marketplace, and "produced for" applies to products that have not yet been released into the marketplace. The infrastructure software owned by Goldman Sachs did not meet either of these standards because Goldman Sachs had no intention of selling or licensing it. The software was used internally, and it was never intended be entered into the market. Therefore, based on the fact that the government’s claims do not meet the criteria set forth by the NSPA and EEA, the Appellate Court overruled the District Court’s ruling.
Rulings such as this, while appearing to be negative, are incredibly important to protecting our freedom. It is unfortunate that Aleynikov, a clearly dishonest man, was able to get away with his actions. However, the ruling of the Appellate Court sends a clear message (and a message that I have seen in many rulings): the clear, concise, and exact words of the law cannot be stretched to meet the needs or whims of the government. This is exceptionally important because, while it may occasionally allow for individuals such as Aleynikov to walk, it also protects the innocent from misapplication of statutes by the government. It also demonstrates the needs for new legislation that specifically addresses technological issues and defines proprietary source code as a good that is entitled to certain levels of legal protection against theft.