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Programmer Appropriates Inappropriately in a Tangible Transgression: People v. Aleynikov
Posted on Categories Court Decisions, Securities/Commodities RegulationTags , ,

By Noah D. Sorkin

A defendant violates New York Penal Code §165.07 when he reproduces a company’s proprietary computer code in a tangible form with the intent to do so and without authorization, even though he does not deprive the company of the continued use of the code.

People vs. Aleynikov, No. 47, 2018 NY Slip Op 03147 (N.Y. Ct. of App., 5/3/18).

The Computer Programmer

This criminal case grapples with the nature of a “tangible reproduction” in our digital age. Defendant Sergey Aleynikov worked at Goldman Sachs as a computer programmer supporting Goldman’s high-frequency trading software. An extremely competitive line of business, high-frequency trading uses sophisticated electronic algorithms and other proprietary formulas to analyze market data and trade securities at very rapid speeds. The proprietary computer codes supporting this activity were essential to Goldman’s competitive advantages over other firms (established and start-up) also involved in high-frequency trading.

In June 2009, Aleynikov resigned from Goldman to accept a significantly more lucrative offer to work for a Chicago-based firm just entering this field, but first he transferred Goldman’s high-frequency trading source code to his own home computer via a server in Germany, eventually making it available to select corporate users who had been granted access to his website. The FBI arrested Aleynikov soon afterward, a federal grand jury indicted him for violating the National Stolen Property Act, and he was convicted in 2010, but the U.S. Court of Appeals for the Second Circuit reversed his conviction, ruling that the code was “intangible property” and therefore not covered by that Act (SOLA 2012-19).

The Penal Statute

Nonetheless, Aleynikov’s criminal proceedings were not concluded. In 2012, New York state charged him with unlawful use of secret scientific material, pursuant to NY Penal Law §165.07. A person is guilty of this crime when, “with intent to appropriate … the use of scientific material … and having no right to do so, [he or she] makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing … or electronically reproducing or recording such secret scientific material.”  The jury convicted him, but the trial judge granted his motion for dismissal (SOLA 2015-27). The Appellate Court reversed and reinstated the conviction, and Aleynikov appealed to New York’s highest court, the Court of Appeals.

What Is “Tangible”?

The Court affirms, denying both of Aleynikov’s arguments. First, he asserts again that the source code was not “tangible” within the meaning of Penal Law §165.07, because it was not “touchable.” Since the term “tangible” is not defined in the Penal Law, the Court imbues the term with its ordinary and common usage. Rejecting Aleynikov’s narrow reading, it holds that “tangible” can also denote “material” or “having physical form.” Moreover, the statutory language of §165.07 is clear: the crime occurs when a defendant makes a “tangible reproduction” of secret scientific material. Therefore, the Court concludes, what must be tangible in order to implicate the statute is not the secret scientific material itself (here, the source code), but, rather, the reproduction of that material. Here, a rational jury could have found that when Aleynikov uploaded the source code to the German server, it was tangible in the sense of being “material” or “having physical form.”

What Is “Intent to Appropriate”?

Aleynikov also argued that the jury could not have found him to have had the necessary mens rea of “intent to appropriate” needed for PL §165.07 because there was no evidence that he intended to deprive Goldman Sachs of the source code. The Court responds that “appropriate” does not imply “deprive”: larceny, in general, is defined as involving either intent to appropriate or intent to deprive, with the clear implication that the two terms refer to separate concepts. Here, it was sufficient that Aleynikov intended to reproduce the source code without having authority to do so.

(N. Sorkin: As the Court of Appeals notes in an interesting portion of its opinion, PL §165.07 has its roots in a federal case: United States v. Bottone, 365 F2d 289 (1966), where scientific documents were taken from a drug company, photocopied, and then returned. The issue in Bottone was whether the documents had actually been “stolen” within the meaning of the relevant federal statutes. The NY State legislature, hoping to avoid such challenges, enacted PL §165.07, which criminalizes misappropriations of intellectual property that are not traditional thefts but result in tangible reproductions of the protected materials.)

(SOLA Ref. No. 2018-27-07)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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