Intellectual Property, Business Law, Personal Injury

COURT RULING: APPROPRIATING ELECTRONIC CODE NOT STEALING TRADE SECRETS

In business, you have a vested interest in the information that keeps your enterprise profitable. Increasingly, such information is taking the form of digitally encoded data bytes.

However, laws designed to protect trade secrets in simpler times are often inadequate in protecting information during an age in which the pace of technology is lightning quick. Reflecting this reality, a recent ruling by a U.S. Appeals Court seems to indicate that businesses may not, in fact, enjoy the commonsense legal protections they thought they were entitled to regarding proprietary information.

Goldman Sachs Programmer's Sentence for Stealing Source Code Reversed

Sergey Aleynikov worked as a programmer for financial giant Goldman Sachs. But, when competitor Teza Technologies came courting, he left Goldman Sachs with the source code for the company's high-frequency trading system.

Aleynikov was charged with theft of property under the National Stolen Property Act, a federal law that prohibits misappropriation of trade secrets. He was sentenced to eight years in prison.

Yet, after serving just 11 months, Aleynikov is now a free man. In April, 2012, an appeals court ruled that the source code he stole could not be classified as a trade secret the theft of trade secrets is punishable under the National Stolen Property Act or the Economic Espionage Act.

Before leaving Goldman Sachs, Aleynikov uploaded the source code to an overseas remote server. Then, he downloaded it to his personal computer at home. According to the appeals court, he obtained the data legally while he was still working at Goldman Sachs - and the source code was never physical removed from Goldman Sachs' premises. Therefore, it was not physical "goods," "wares" or "merchandise" covered by the National Stolen Property Act, the law used to prosecute Aleynikov. Furthermore, as the source code was for internal use only at Goldman Sachs, it was not a type of product licensed or used by some other entity that would fall under the Economic Espionage Act.

Business Implications of the Case

Aleynikov may not be completely out of accountability's way just yet. Although the appeals court ruling seems to suggest that stealing source code cannot be classed as theft of a trade secret unless it is transported on a physical device, Aleynikov may still face criminal charges under other laws or a civil lawsuit from Goldman Sachs.

What does this case mean for the future of trade secrets in business? First, it makes it clear that U.S. law is in desperate need of updates to reflect the current state of technology. Second, it highlights the importance of taking careful steps on the front end - such as implementing legally sound partnership agreements, non-competes and nondisclosure agreements - to properly discourage sharing of company trade secrets. To obtain assistance in shielding your business from the potential fallout of a losing a trade secret to a competitor, contact an experienced intellectual property attorney today to explore your legal options.

Free Case Consultation