Appeals Court Limits Scope of Corporate Espionage Laws in Goldman Programmer Case

The New York Times on April 11, 2012 released the following:

“BY MICHAEL J. DE LA MERCED AND PETER LATTMAN

A federal appeals court has restricted the use of a federal law cited in federal prosecutors’ efforts to prosecute a former Goldman Sachs programmer accused of illegally downloading computer code from his onetime employer.

In an opinion released on Wednesday, the United States Court of Appeals for the Second Circuit ruled that the former employee, Sergey Aleynikov, did not violate the Electronic Espionage Act of 1996 or federal stolen property laws.

The opinion elaborates on the decision by a three-judge panel of the appeals court to overturn Mr. Aleynikov’s conviction in February. That move set the programmer free, dealing a blow to one of the most prominent federal prosecutions of corporate espionage in recent years.

Mr. Aleynikov was arrested nearly three years ago, after Goldman accused him of downloading programming code for its high-speed computerized trading operations.

The act was almost literally on Mr. Aleynikov’s way out the door, shortly before a going-away party. He had accepted a job at a software company catering to other trading firms.

Mr. Aleynikov’s lawyers had argued that while their client had violated Goldman’s confidentiality policy, he had not broken the law.

Writing for the appeals court, Chief Judge Dennis Jacobs, who presided over the February hearing, agreed. While conceding that Goldman’s code was “highly valuable,” the investment bank’s trading program was never intended to be sold. That fell short of the interstate commerce requirements of the Electronic Espionage Act, according to the appeals court’s reading of the statute.

Because the high-frequency trading “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,” Judge Jacobs wrote in the opinion.

The judge also found that while Mr. Aleynikov had taken code and uploaded it to his own computers, he had not actually taken a physical object — and therefore did not violate the letter of federal law. That he later transferred the code to a thumb drive still did not make his actions a federal crime.

“We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age,” Judge Jacobs wrote.

In a separate opinion, Judge Guido Calabresi said that while he agreed with the court’s analysis, it was hard for him “to conclude that Congress, in this law, actually meant to exempt the kind of behavior in which Aleynikov engaged.”

Judge Calabresi said he hoped Congress would return to the issue and clarify what it meant to make criminal under the Electronic Espionage Act.

A spokeswoman for the United States attorney’s office for the Southern District of New York, which prosecuted the case, declined to comment.”

US v Sergey Aleynikov – 2nd Circuit Opinion

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Douglas McNabb – McNabb Associates, P.C.’s
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