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Federal Appeals Court Says Taking Source Code Not a Federal Crime

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On Wednesday, in another big setback for companies fighting computer-related fraud, the 2nd U.S. Circuit  Court of Appeals in New York threw out the conviction of a former Goldman Sachs Group Inc. computer programmer. After a December 2010 conviction for stealing a secret high-frequency trading computer code from Goldman Sachs,  Sergey Aleynikov served 11 months of an eight-year prison term. In the decision released Wednesday, the 2nd Circuit Court cited that the taking of source code was not a crime under a 1996 law that makes it illegal to steal trade secrets as the code did not qualify as stolen goods. In the decision, Chief Judge Dennis Jacobs wrote for the unanimous three judge panel: “We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age.”

According to Reuters, Aleynikov was originally arrested in July 2009 after Goldman Sachs reported suspicions to the FBI that Aleynikov was “copying and removing trading code as he was preparing to take a new job at Teza Technologies, LLC, a high frequency start-up in Chicago.” Eventually, Aleynikov was criminally charged with violating the federal Economic Espionage Act and the National Stolen Property Act. However, according to Chief Judge Jacobs, the source code does not qualify as “goods,” “wares,” or “merchandise” as accounted for under the National Stolen Property Act. With regards to Economic Espionage Act, Jacobs contends that Goldman’s system was neither “produced for” nor “placed in” interstate or foreign commerce, causing the theft of source code to not be an offense under the EEA.

Although the earlier decision was overturned, Jacobs did end the decision by writing: “The conduct found by the jury is conduct that Aleynikov should have known was in breach of his confidentiality obligations to Goldman, and was dishonest in ways that would subject him to sanctions; but he could not have known that it would offend this criminal law or this particular sovereign.”

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