Code 'not physical property', court rules in Goldman Sachs espionage case

Summary:Code cannot be stolen under federal law, a court has ruled, in the case of a former Goldman Sachs employee who had his conviction for code theft and espionage overturned.

A U.S. federal court has ruled that programming code cannot be stolen under federal law.

In the case of former Goldman Sachs employee Sergey Aleynikov, an appeals judge found he was wrongly charged with the theft of programming code, and as a result had his conviction overturned.

42-year-old Aleynikov was convicted in December 2010 of downloading Goldman Sachs' high-frequency trading (HFT) code used on equity markets, and alleged to have emailed fragments of code to his personal email account. After working at the banking giant, he left to develop his own HFT platform for a Chicago-based startup.

HFT uses complex algorithms to exploit the minute price discrepancies in the market, and engage in rapid trading. It can generate millions of dollars on a daily basis.

He was charged under the National Stolen Property Act, which criminalises the theft of trade secrets. He was sentenced to 97 months in jailed and fined $12,500.

He was acquitted in an appeals court after the judges found that Aleynikov had been wrongly charged under the Economic Espionage Act, sister site CNET reports, which served as a blow to the U.S. Department of Justice, which makes such cases a high priority.

But despite his acquittal, the appeals court remained quiet on the reason why, and said it would disclose the reason "in due course".

Chief Judge Dennis Jacobs wrote in the court's unanimous decision: "Because Aleynikov did not 'assume physical control' over anything when he took the source code, and because he did not thereby 'deprive [Goldman] of its use,' Aleynikov did not violate the NSPA."

"We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age," Jacobs added.

"The enormous profits the system yielded for Goldman depended on no one else having it," Jacobs ruled. Highlighting that the code was not to be sold on or licensed to others, he added: "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."

Image credit: Seth Rosenblatt/CNET.

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Topics: Software Development

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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