3 minute read | December.13.2013
On October 16, 2013, a federal judge in New Jersey ruled that Goldman Sachs must advance the legal fees of a former employee charged with stealing Goldman’s source code. The order is the latest twist in a case that previously gained notoriety for the Second Circuit decision reversing the ex-employee's conviction, an unpopular decision that led to the passage of the Theft of Trade Secrets Clarification Act of 2012.
Sergei Aleynikov worked for Goldman as a programmer of high-frequency trading software. In June 2009, just before Aleynikov left Goldman to join a Chicago start-up, he allegedly downloaded the source code for the software. Federal authorities charged Aleynikov with theft of trade secrets in violation of the Electronic Espionage Act and transportation of stolen property. Aleynikov was tried, convicted, and sentenced to 97 months in prison. But the Second Circuit overturned Aleynikov’s conviction in February 2012, and he was released.
Aleynikov’s time in court was not over, though. In August 2012, he was arrested again, this time by New York state authorities, and charged with unlawful use of secret scientific material and unlawful duplication of computer related material.
The case took a new turn when Aleynikov struck back, filing a civil suit against Goldman in New Jersey federal court in September 2012. Citing alleged indemnification obligations under Goldman’s bylaws and Delaware law, Aleynikov sought: (1) indemnification for fees previously accrued in defending the federal case, and (2) advancement of fees accrued and future fees to be accrued in defending the state case. Aleynikov moved immediately for summary judgment.
In October 2013, after court-ordered expedited discovery, the court granted the motion as to advancement and deferred its decision as to indemnity. Under the district court’s order, Goldman must advance Aleynikov’s current fees in defending the state case thus far (estimated at $700,000), plus future fees in that case. Goldman was also ordered to pay “fees on fees,” i.e. the fees Aleynikov’s lawyers billed in the indemnification/advancement suit (estimated at over $1,000,000).
Among the key factors relied upon by the judge in his 34-page decision were: