Another Aleynikov Trade Secrets Case Ends with Narrower Statute

by McDonnell Boehnen Hulbert & Berghoff LLP

In 2009, Sergey Aleynikov was a computer programmer employed by Goldman Sachs to write high-frequency trading code.  He accepted an offer to join a new Chicago-based company, Teza Technologies.  Before he left Goldman Sachs, however, he sent portions of Goldman's high frequency trading code to a German website for his own future use.  After Goldman found out, it went to the FBI; Aleynikov was then arrested on a flight home from Chicago.  With that arrest began a circuitous journey through the U.S. legal system, governed by two different sovereigns and under two different legal regimes -- neither one of which was ultimately found to cover his actions.

Aleynikov was first tried in the U.S. District Court for the Southern District of New York on charges of violating the Federal Economic Espionage Act of 1996 ("EEA").[1]  At that time, the EEA's trade secret misappropriation provision established that "[w]hoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly . . . without authorization . . . downloads, uploads, . . . transmits, . . . or conveys such information" would be guilty of a criminal offense punishable with up to ten years in jail.  18 U.S.C. § 1832.  The parties disputed the application of the EEA to Aleynikov's behavior, Aleynikov's intent in uploading the code to the German website, and the importance of the uploaded code.  Eventually, however, the jury found Aleynikov guilty under the EEA.

The U.S. Court of Appeals for the Second Circuit interpreted the EEA differently from the construction applied by the trial court.  It stressed that the EEA had been adopted as a response to the Supreme Court's decision that the National Stolen Property Act (18 U.S.C. § 2314) did not apply to purely intangible property, as found in Dowling v. U.S., 473 U.S. 207 (1985).  676 F.3d 71, 78 (2d Cir. 2012).  It then considered the differences in language between the economic espionage provision of the EEA (18 U.S.C. § 1831) and the trade secrets provision (18 U.S.C. § 1832).  The former did not require that the information be "related to or included in a product that is produced for or placed in interstate or foreign commerce," while the latter did.  Id. at 79.  Given the statutory language, the Second Circuit found that Goldman's was intended to remain confidential (and not be related to any product placed in interstate commerce).  Id. at 82.  It therefore overturned Aleynikov's Federal conviction.

Remarkably, the Second Circuit's decision in the Federal Aleynikov case led to a change in the statute.  Although it cannot apply to the Aleynikov case (under both the Constitution's ex post facto clause and double jeopardy case law), § 1832 was amended to apply to any trade secret "that is related to a product or service used in or intended for use in interstate or foreign commerce."  Thus, in future cases, misappropriation of computer code that is intended to remain confidential, but used in relation to a service performed in interstate commerce, will be an offense under the EEA.

Rather than returning Aleynikov's computer, other evidence, and passport, however, the U.S. Attorney's Office turned it all over to the New York County (Manhattan) prosecutor's office.  Ultimately, that evidence was ruled to be illegally transferred and inadmissible as evidence against Aleynikov.  The prosecutor's office decided to prosecute Aleynikov nonetheless.[2]  The state court prosecution proceeded under two statutes:  two counts of Unlawful Use of Secret Scientific Material (N.Y. Pen. L. 165.07) and one count of Unlawful Duplication of Computer Related Material (N.Y. Pen. L. 156.30).  The former statute provides, "A person is guilty of unlawful use of secret scientific material when, with intent to appropriate to himself or another the use of secret scientific material, and having no right to do so and no reasonable ground to believe that he has such right, he makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing, drawing, mechanically or electronically reproducing or recording such secret scientific material."  Aleynikov challenged his State indictment on numerous grounds, ranging from double jeopardy to the high-frequency trading code not being "secret scientific material" to not having made a "tangible reproduction or representation."  The trial court judge rejected those arguments and allowed the case to go forward to trial.

At trial in April 2015, Aleynikov argued that he had committed no crime, based both on his own lack of culpable intent and the technical language of the relevant statutes.  The jury returned with a split verdict:  guilty on one count of Unlawful Use of Secret Scientific Material, hung on the other count of Unlawful Use of Secret Scientific Material, and not guilty of Unlawful Duplication of Computer Related Material.

On July 6, 2015, however, the trial court judge entered an order overturning the jury's finding of guilt on the count of Unlawful Use of Secret Scientific Material.  The judge asserted that he had no doubt that Aleynikov's actions were wrongful, but also found that prosecutors "did not prove he committed this particular obscure crime."  His findings were based on two deficiencies by the prosecutors:  first, that they failed to prove that Aleynikov made a "tangible reproduction or representation of such secret scientific material" and, second, that they failed to prove that Aleynikov intended to take much of the value of the high-frequency trading code.  Thus, the trial court found, the prosecutors had not proven all of the elements of the charged offense and Aleynikov could not be convicted.

Under these circumstances, Sergey Aleynikov may finally be free from risk of criminal jeopardy from his actions at Goldman.  The Manhattan DA's office could still appeal, but it would be surprising to see an appellate court find that a virtual copy of information would constitute a "tangible reproduction," just as the Supreme Court found in Dowling.  But future defendants may not be so lucky:  the New York State Senate has already passed a bill that would criminalize the same sort of acts that Aleynikov undertook.  Thus, Aleynikov may end up with a unique position in legal history:  two vacated convictions based on the same acts and two laws changed because of those vacated jury decisions.

[1] 18 U.S.C. §§ 1831-39.
[2] The Manhattan DA’s office offered Aleynikov a plea bargain: if he pled guilty to one of the counts, they would agree to drop the other charges and seek no time beyond the one year he had already served awaiting trial on the Federal charges.  Aleynikov rejected the plea deal.


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McDonnell Boehnen Hulbert & Berghoff LLP

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