The Software IP Report

Second Circuit Holds Software Is Not A Good Under Criminal Statute

By Charles Bieneman

Categories: The Software IP Report

In the context of the National Stolen Property Act, 18 U.S.C. § 2314 (“NSPA”), the Second Circuit has held that software is not a good.  United States v. Aleynikov, No. 11-1126 (2nd Cir. April 11, 2012).  In the law, of course, context is everything, so this holding may not have much bearing on other questions of interpretation, such as the question (much discussed, but not very often dispositive to issues of contract interpretation) of whether software is a “good” under Article 2 of the Uniform Commercial Code.  In any event, software attorneys should take note of the Court’s reasoning.

The criminal defendant, Aleynikov, celebrated his last day of work at Goldman Sachs by stealing, via an upload to a server in Germany, source code related to Goldman’s proprietary trading system.  While employed by Goldman, Aleynikov was responsible for “infrastructure programs that facilitate the flow of information throughout the trading system and monitor the system’s performance.”  As he returned to New Jersey from a trip to visit his new employer in Chicago, having carried with him a flash drive and a laptop with Goldman’s source code, Aleynikov was arrested.  An indictment charged him with three counts, two of which were, respectively, violating the NSPA and the Economic Espionage Act of 1996, 18 U.S.C. § 1832 (“EEA”).

(The third count, an allegation of “unauthorized computer access and exceeding authorized access in violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030,” was dismissed by the district court.  Standards for determining “unauthorized access” and “exceeding authorized access” under the CFAA have been previously discussed on this blog.)

Under the NSPA, it is illegal to “transport[], transmit[],or transfer[] in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.” 18 U.S.C. § 2314.  The statute leaves “goods, wares, [and] merchandise” undefined.  The court held that the software code that Aleynikov stole and transported was not a “good.”  The NSPA historically has not been applied to intellectual property.  Instead, “[s]ome tangible property must be taken from the owner for there to be deemed a ‘good’ that is ‘stolen’ for purposes of the NSPA.”  Therefore, in accord with a number of cases from other circuits, “theft and subsequent interstate transmission of purely intangible property is beyond the scope of the NSPA.”

The court reversed Aleynikov’s conviction under the EEA, in addition to reversing his NSPA conviction.  The EEA only applies to trade secrets “related to or included in a product that is produced for or placed in interstate or foreign commerce.”  18 U.S.C. § 1832(a).  The code that Aleynikov stole related to an internal Goldman system that was not produced for or used in interstate commerce.

The court concluded by acknowledging that it was reversing convictions for some fairly noxious conduct:

The conduct found by the jury is conduct that Aleynikov should have known was in breach of his confidentiality obligations to Goldman, and was dishonest in ways that would subject him to sanctions; but he could not have known that it would offend this criminal law or this particular sovereign.