Yesterday, an intermediate New York State appellate court, the First Department of the Appellate Division of the New York Supreme Court, reinstated the conviction of an Ex-Goldman Sachs programmer, Sergey Aleynikov. At issue here are allegations that Mr. Aleynikov violated the New York penal code by copying source code for a proprietary high frequency trading system at Goldman Sachs before he left to join a competitor.  This case is noteworthy for the twists and turns it has taken through the federal and state criminal justice systems and how it evidences the trade secret protection challenges faced by employers on Wall Street and in other industries.

Mr. Aleynikov had previously been convicted of violating federal statutes, including a criminal provision of federal trade secret law, the Economic Espionage Act, by copying hundreds of thousands of lines of code in 2009 that related to the bank’s high speed trading platform. His conviction had been overturned by the Second Circuit because his actions did not violate the federal statutes in question, a decision that resulted in Congress amending the Economic Espionage Act in 2012. Subsequently, he was indicted by the New York County District Attorney for violating New York’s penal code based on the same conduct at issue in the federal case.   After double jeopardy motions were denied, he was tried by jury and found guilty on one count, specifically a 1967 New York penal statute directed to the unlawful use of secret scientific material. Penal Law, sec. 165.07.   In a post-verdict motion, the trial court granted a dismissal of the conviction based on a lack of proof that a tangible reproduction, as understood under this 1967 statute, was made of the source code in question when it was saved to a site in Germany for later access or that Mr. Aleynikov, who has claimed he copied source code to access non-proprietary open source code, had the required criminal intent.  Today, the First Department reversed and notably construed this statute to cover electronic copies, stating that “The fact that the defendant made the reproduction onto a physical hard drive, rather than onto a piece of paper, is of no consequence.  Both are tangible within the meaning of the unlawful use statute.”

While leave to appeal may be sought, and thus this may not be the last word on Mr. Aleynikov’s fate, this case taken with the federal case that preceded it, has broader implications concerning the emerging tools, including both criminal and civil provisions of federal and state law, that are available to businesses to protect against trade secret theft when programmers or other technical employees join competitors.