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

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.

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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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Topic: Software Development

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35 comments
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  • Wow!

    I guess we will soon see Apple an Microsoft OS code stolen without any consequences.
    slickjim
    • ZDNet is missing the point

      I don't think that'll be the way things will go down. Since Microsoft and Apple OS code generate commercially-available products, the courts can rule the "taking" would be unrealized profits from sales of its software.

      In the case of this "theft", Goldman Sachs could still do everything that the code was intended to do. The court ruled that Goldman's claim of loss from "competition" in market trading was specious. I would imagine part of that resulted from the fact that GS isn't about to demonstrate what kind of economic impact using this software could have in moving the markets to a trader's advantage.

      For Goldman Sachs, that'd effectively be opening Pandora's Box.

      So the "taking" didn't deprive GS of control of its property, the code itself. And the use of it had no demonstrated impact on the originators -- at least none that GS was willing to document it was benefiting from -- in a public forum like a court of law. So, in street basketball terms, "No harm, no foul."

      I'm no lawyer -- I don't even play one on TV. But whenever the court finds a way to document this ruling, I think you're going to find that it's pretty narrow and that commercial software developers are in no danger. ZDNet is overstating the case, not the court.
      Randy Hagan
      • Goldman-Sahcts is a mad because someone else now knows how to steal

        Totally agree. The reason this guy???s conviction was overturned and why he did not violate the Economic Espionage Act is because of what he took from Goldman-Sachts. In short this guy took from Goldman Sachs the knowledge of how to steal from the system in a way that skirts the law and is therefore not illegal.

        No one should feel the least bit sympathy for Goldman-Sachts about this because it is a predator on the system and admitted as much when it admitted that this stolen code was used to plunder the system and steal money thru tiny cracks in the trading process. This is no different than if a successful con-man tried to sue prot??g?? who learned some secret con method from this guy and then left to do the con on his own.

        It would be one thing if Goldman-Sachts actually provided some wealth to the process but it???s just a pirate and the fact it can do it legally does not change the fact tat it steals from the system and now its upset that someone else has the secrete to how to steal from the system.
        BlueCollarCritic
    • MS & Apple

      MS & Apple put their code out their as a product for sale and would therefore be damaged by such a theft. That is completely different from GS. Perhaps you should re-read the judges decision.
      Tokamak123
    • Not at all

      The guy was convicted by the wrong law. That does not mean he broke no *other* laws. Like how it'd be wrong to charge somebody over armed robbery when he just took a snickers quietly and had a tiny knife in the pocket. Just sue using the right laws!
      Natanael_L
  • Computer Trading needs to be eliminated

    I am rather suprised by this outcome. Perhaps there was nothing in his contract that clearly and specifically forbade him from doing what he did. That said, however, I do think that computer trading systems that perform hundreds of trades per second are a menace to the economy. It used to be that investing was about picking strong companies or finding companies with good growth prospects to put your money into and, hopefully, reap rewards from their growth. Today, however, inesting too often seems to have devolved into an onanistic, solipsistic exercise, with sophisticated algorithms designed, not to find the best companies to help forster and grow, but instead, designed merely to stay a few steps ahead of the rest of the market and thereby sell a few fractions of a dollar higher and buy a few fractions of a dollar lower then the next guy.
    dsf3g
    • I'm sure it was in his contract

      Contract violations don't generally result in criminal penalties (like discussed here). That would be a civil lawsuit.
      gotamd@...
  • Criminal conviction or acquital does not preclude civil suit

    Dear Tech Friends:

    Just because the court held that his conduct was not a CRIME does not mean that he did not violate his contract with goldman sachs, or offend intellectual property laws, which would expose him (and maybe the competing company in Chicago) to money damages or maybe a court ordered injunction. If we learned anything from the OJ Simpson case, it's that criminal convictions and civil liability are not the same thing. If his contract forbid lifting the code, he can be sued by Goldman (and I would bet he already has been).
    Hykel Law
  • Fascination.

    He may not deprived Golman's of it's use, but he did deprive Goldman of it's competative advantage that they had invested and paid for.
    Tim Cook
    • not really

      If you're not selling the code as a product, there is no competitive (correct spelling) advantage. Trade secret? Maybe.
      Tokamak123
      • I used to have the only copy of the Magna Carta

        Nonsense. The whole point of the software is to beat other traders to transient arbitrage opportunities. If someone besides GS is running another copy of the software, the second copy can presumably find the same opportunities at the same time. That absolutely lowers the value of the software to GS.

        In the interests of leaving 1984 in the previous century where it belongs, I will refrain from expressing my participation in any Two Minutes' Hate directed at Goldman Sachs by The Party.
        Robert Hahn
  • Anything that makes Goldman Sachs unhappy should be rewarded, not punished.

    It's good to see a court not kowtow to a huge financial company like Goldman Sachs. Hopefully, it will give Lloyd Blankfein a stroke.
    thetwonkey
  • Like them or not, GS paid the R&D on the software

    The code is theirs. This is going to get thrown out.
    happyharry_z
    • The code is theirs. This is going to get thrown out.

      Criminal statutes must be strictly construed. That means a court cannot broaden the language of a criminal statue to cover acts not specified in the law. Basicly, the court said he did not violate the statute he was charged under--he may have violated some other criminal statute, but not this one.
      Reggie S
    • nope

      Not in a civil case it won't.
      Tokamak123
  • Unauthorized access to a computer

    Even if he can't be charged under this federal law, almost all U.S. states have statutes criminalizing "unauthorized access to a computer". Those statutes are not construed as just "did you have a username and password?" If the person did not have authorization to do what he did it violates "unauthorized access".

    Regarding "double jeopardy", that means that the [i]same[/i] sovereign can't bring the same charges against a person a second time. The U.S. has [i]dual sovereigns[/i]. Therefore, state charges are not precluded even if they arise from the same activity that led to federal charges.

    Routine practice is that if federal charges are brought the state normally doesn't bring charges even if it could. Common practice among people filing criminal complaints is that if they file a federal complaint they don't also file a state complaint. But those are just "common practice". Nothing requires them. Particularly with a situation like this, it is probably that Goldman, Sachs will now file state charges. And considering that this is probably under New York law, the District Attorney will pursue such a complaint.
    Rick_R
    • Unauthorized access to a computer...

      No doubt Goldman Sachs has all sorts of civil recourse against this guy. But, my problem is where does the Department of Justice get off charging this guy criminally and carrying water for corporate greed?
      Reggie S
      • Because,

        Goldman Sachs is a business in the US and should be afforded the same rights and coverage by the government as you or me. The justice dept should pursue criminals regardless if we have a dislike for the injured party. I would have a problem if I, an individual, were in this situation and the govt said they wouldn't pursue the case.
        WmTConqror
      • Where does this go?

        That's right! Anyone should be allowed to steal anything from a corporation! Only by abolishing private property rights will we be able to return to the Law Of The Jungle. If you want to keep anything you have, you should arm yourself and be prepared to shoot!
        Robert Hahn
  • impossible to prove

    Unless you have video of the screen and the fingers on the keys, in slow motion, showing which keys were pressed, you cannot prove beyond a shadow of a doubt that anyone did anything with any computer. Logs can be faked. The fact that anyone has ever been convicted of any computer crime proves our entire justice system is a scam.
    jdieter@...