NY Court Finds Computer Code ‘Tangible’ & Reinstates Conviction

MANHATTAN (CN) — New York’s highest court on Thursday reinstated former Goldman Sachs programmer Sergey Aleynikov’s conviction for illegally using his employer’s source code.

Aleynikov’s see-saw case has bounced between federal and state courts for eight years, but Manhattan District Attorney Cyrus Vance said after the ruling that it may finally be heading to the finish line.

“This unanimous decision makes abundantly clear that unlawful appropriation of intellectual property is a crime, whether that information is obtained by traditional or more modern means,” Vance said in a statement.

“In a city where bright ideas are prized and fiercely safeguarded, my office is committed to protecting valuable, proprietary information and will hold accountable those who engage in theft,” he added.

Federal prosecutors indicted Aleynikov in 2010 for stealing his employer’s open-source code for high-frequency trading software, which uses algorithms to place trades millionths of a second faster than competitors.

Sentenced to eight years in prison after a federal jury convicted him, Aleynikov was freed after the Second Circuit vacated the verdict on technical grounds. It found that the statute punished theft of “goods,” not intangible ones and zeroes — reasoning that the New York Court of Appeals explicitly rejected in its closely argued ruling.

The Manhattan District Attorney’s Office picked up the case where federal prosecutors left off, leading to a state trial in which a jury delivered a mixed verdict, convicting on only one count: unlawful use of the code.

The trial judge dismissed that count too, setting off another round of appeals.

On Thursday, New York Court of Appeals Judge Eugene Fahey contested the reasoning of his counterparts on the federal bench.

“Ideas begin in the mind,” Fahey’s opinion begins. “By its very nature, an idea, be it a symphony or computer source code, begins as intangible property,” the 28-page ruling continues.

“However, the medium upon which an idea is stored is generally physical, whether it is represented on a computer hard drive, vinyl record, or compact disc. The changes made to a hard drive or disc when information is copied onto it are physical in nature. The representation occupies space. Consequently, a statute that criminalizes the making of a tangible reproduction or representation of secret scientific material by electronically copying or recording applies to the acts of a defendant who uploads proprietary source code to a computer server.”

Judges Janet DiFiore, Jenny Rivera, Leslie Stein, Michael Garcia, Rowan Wilson and Paul Feinman agreed that Aleynikov’s case should be remanded for sentencing.

Aleynikov’s attorney Kevin Marino said he would ask that the verdict be set aside, and took particular aim at the “tangibility element.”

“We are disappointed in the Court of Appeals decision but are confident that its reasoning — in particular, its definition of the word tangible and its interpretation of the tangibility element of the Unlawful Use statute — ensures the success of our forthcoming motion to set aside the jury’s verdict under Rule 330.30 of the New York Criminal Procedure Law,” Marino said in an email. “That motion will also demonstrate that Mr. Aleynikov’s conviction was secured in violation of New York’s double jeopardy statute.”

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