Case Report: United States v. Aleynikov

On April 11, 2012, Sergei Aleynikov was acquitted by the Second Circuit court of Appeals of violating § 1832 of the Economic Espionage Act of 1996 (EEA). Following the court's invitation to amend the wording of the interstate commerce requirement in the statute, Congress amended the EEA.

Facts:

Goldman Sachs ("Goldman") employed Aleynikov in the New York area from May 2007 through June 2009 to develop key high frequency trading ("HFT") source code. HFT software executes a large number of trades in a fraction of a second, generating substantial revenue: just three of Goldman's HFT groups generated a combined $300 million in revenue in 2009. Aleynikov was paid an annual salary of $400,000, the highest salary of the twenty-five programmers in his group.

In April of 2009, he accepted the position of Executive Vice President of Teza Technologies LLC in Chicago at an annual salary of $1.15 million. Teza's founder told Aleynikov that Teza expected to develop an HFT system in six months, whereas the court found that it usually takes years to develop an HFT system.

Over a period of several months, Aleynikov transferred files from his work computer to his home computer. The FBI arrested Aleynikov at Newark Liberty International Airport on July 3, 2009 when he returned from a trip to Teza in Chicago, where he had brought a laptop and flash drive containing Goldman source code. Aleynikov claimed that he had not given the data in the laptop and flash drive to Teva.

District Court:

Aleynikov was indicted on three counts:

  • Count one: three counts of theft of trade secrets in violation of 18 U.S.C. §§ 1832(a)(2) of the Economic Espionage Act of 1996 (EEA).
  • Count two: transportation of stolen property in interstate commerce, in violation of 18 U.S.C. § 2314 of the National Stolen Property Act (NSPA).
  • Count three: unauthorized computer access and exceeding authorized access in violation of 18 U.S.C. §§ 1030(a)(2)(C) and 1030(c)(2)(B)(i)-(iii) of the Computer Fraud and Abuse Act (CFAA).

The district court (Judge Denise Cote) dismissed count three. A jury found Aleynikov guilty on counts one and two and he was sentenced to 97 months of imprisonment followed by a three-year term of supervised release, and fined $12,500. Bail pending appeal was denied because Aleynikov, a dual citizen of the United States and Russia, was feared to be a flight risk. Aleynikov appealed.

Court of Appeals:

The Court of Appeals dismissed both remaining counts.

The court found that the NSPA did not criminalize the taking of intellectual property, citing numerous cases, of which Bottone and Dowling were the most important. In United States v. Bottone, 365 F.2d 389 (2d Cir.1966) (Friendly, J.), the court held that photocopied documents describing a valuable manufacturing process were tangible goods, but noted in dicta that had no photocopies been physically transported across state lines, there would have been no violation of the NSPA. In Dowling v. United States, 473 U.S. 207 (1985), the Supreme Court held in a 6-3 decision that the NSPA did not apply to a bootleg music business because the NSPA was designed to cover theft of physical goods, and the Court refused to extend the NSPA to cover patent and copyright infringement.

More controversially, the court found that the EEA did not cover the theft of source code that was never "produced for" or "placed in" interstate commerce. Under 18 U.S.C. § 1832, Aleynikov was charged with taking a trade secret "that is related to or included in a product that is produced for or placed in interstate or foreign commerce." The court noted that the language of § 1832 was narrower than the language of § 1831 (covering foreign espionage), and held that the court therefore had to construe § 1832 as protecting only those trade secrets that were placed in or were to be placed in interstate commerce. The Goldman Sachs source code, while perhaps used to conduct interstate commerce, was never intended to be placed in interstate commerce.

Thus, the court held that while what Aleynikov did was morally wrong; Aleynikov did not commit a federal crime.

Judge Guido Calabresi concurred, but asked Congress to "state, in appropriate language, what I believe they meant to make criminal in the EEA."

Trade Secrets Clarification Act of 2012

The Theft of Trade Secrets Clarification Act was signed into law by President Obama on December 28, 2012 (Pub. L. 112-236, 126 Stat. 1627 (2012)). It rewrites the EEA as follows:

Section 1832(a) of title 18, United States Code, is amended in the matter preceding paragraph (1), by striking "or included in a product that is produced for or placed in" and inserting "a product or service used in or intended for use in".