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Source Code

On February 16, the Second Circuit overturned the conviction of Sergey Aleynikov, a former Goldman Sachs programmer, bringing to an end a critical prosecution by the federal government for the act of stealing source code.  Aleynikov had been found guilty after trial last year of violating the Economic Espionage Act of 1996 (“EEA”), 18 U.S.C. §1832, and the Interstate Transportation of Stolen Property Act (“ITSPA”), 18 U.S.C. § 2314.  He allegedly downloaded source code for Goldman Sachs’s high-frequency trading (“HFT”) system.  Aleynikov had served one year of a 97 month sentence before being released on February 17 after the Second Circuit ruling.  The Government may appeal the ruling to the Supreme Court.

Information available from the briefs filed before the Second Circuit give a good indication of the reasons for the ruling.  Aleynikov maintained in the court below and on appeal that downloading source code did not violate either of the two statutes.  Defendant argued that Goldman Sachs’s HFT was not produced for interstate commerce within the meaning of the EEA, having been produced for strictly internal use.  He also argued that the ITSPA, which prohibits interstate transportation of “goods, wares or merchandise,” did not include in its prohibition intangible, intellectual property such as source code.

Defendant asserted that every court that has addressed ITSPA has found that the statute does not criminalize the theft of intangible property.  Defendant also argued that the Government failed to establish a market – even a thieves market – for the stolen source code, as required to prove theft of “goods, wares or merchandise,” within the meaning of ITSPA.

Regarding the EEA, Defendant asserted that that statute proscribes theft of trade secrets “related to or included in a product that is produced for or placed in interstate or foreign commerce.”  Aleynikov argued that the statute does not federalize theft of trade secrets in the form of source code for a proprietary HFT system that was never intended to be placed in the stream of commerce.  The District Court below adopted a broader definition despite the language of the statute, namely, “produced for the purpose of engaging in” interstate commerce.  Defendant also maintained that the Government failed to prove that Defendant intended or knew his conduct would harm Goldman Sachs as required by the EEA.

Aleynikov had quit Goldman Sachs and was about to begin employment with Teza Technologies.  The founder of Teza, Misha Malyshev, had designed an HFT system for Citadel Investment Group.  Malyshev testified at trial that the system he built for Citadel made nearly four times what Goldman Sachs’s system earned in a year from HFT.  Malyshev testified further that he did not consider Goldman Sachs a significant competitor and would not have taken Goldman Sachs’s trading system if Goldman had offered it to him.

Aleynikov was sentenced to 97 months’ imprisonment, four times the recommendation of the United States Probation Office.  The Government asserted that the intended loss was $7 to $20 million.  Defendant argued this was unrealistic because he did not intend to harm Goldman Sachs and there was no market for the source code divorced from the rest of Goldman Sachs’s system.

The end result of the reversal is a significant setback to the Government’s effort to stem the tide of stolen source code through prosecutorial efforts.

The decision is reported at 676 F.3d 71 (2d Cir. 2012).

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On October 1, 2011, over 700 Occupy Wall Street protesters were arrested by New York City police as they marched on the Brooklyn Bridge. Trials of these demonstrators are now scheduled to start on June 13, 2012.  Most of the demonstrators were charged with disorderly conduct for allegedly impeding traffic.  During the demonstration, the main contingent of police officers met the demonstrators at the bottom of the bridge in Manhattan and then turned and appeared to lead the demonstrators onto the roadway and up the bridge toward Brooklyn.   Near the apex of the Bridge, the police suddenly turned on the crowd and unfurled netting at both the front and the rear of the march and arrested every person caught between the two nets.  

The Brooklyn Bridge mass arrest was one of a series of mass arrests undertaken by the New York City police and its mayor, Michael Bloomberg, to chill dissent over the favorable treatment accorded Wall Street after the 2008 economic debacle, which sent the country’s economy into a tailspin.  Many of the 99% lost their savings as the market dropped after the manipulations of Wall Street deep-sixed the economy.  Many of the 99% have never recovered the loss of their hard-earned savings and the nation’s economy continues to lope along at a snail’s pace as a result of the severity of the downturn.  Not only does the Republican Party continue to advocate preservation of huge tax cuts for the 1%, they also seek on a nationally-organized level to cut-off voter registration by passing bills in many states that  require the poor and disenfranchised to apply for state-issued identification cards to vote and enact punitive measures against organizations that hold voter registration drives. In this context, the chilling of dissent on the streets is just one more measure the 1% are taking to foster their anti-people agenda.   

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Brooklyn Bridge.