3 minute read | August.13.2013
Whenever an appeals court kicks off a 65-page opinion by describing you (or your client) as a thief, and posits that the question before it is whether you’ve been properly convicted of thievery, you know you’re in trouble. That’s what defendant Samarth Agrawal must have thought when the Second Circuit issued its decision last week upholding his conviction under the Economic Espionage Act and the National Stolen Property Act for theft of his employer’s source code.
The other emotion Agrawal probably felt was shock: just 15 months earlier, the Second Circuit reached the opposite conclusion in a case involving almost the same law and facts. In United States v. Aleynikov, the court overturned the defendant’s conviction and set him free.
What gives? Both cases involved employees who stole proprietary source code used in the financial industry to execute high frequency trades. Both employees peddled those secrets to their employers’ competitors in the hopes of landing a higher-paying, lucrative job. Both were charged under the same federal statutes that criminalize misappropriation of trade secrets.
The difference? Agrawal printed the source code, making it “tangible”; Aleynikov kept everything electronic. That’s right. The difference between freedom and jail time was a simple press of the “print” button.
In Aleynikov, the Second Circuit held that the NSPA criminalizes theft of physical, tangible goods, but not intangible property such as the bytes contained in software code. Aleynikov accomplished his theft of source code in the cloud, uploading and encrypting his employer Goldman Sachs’ HFT source code to a remote server in Germany before downloading it to his personal laptop at his home in New Jersey. Because the code was not in tangible form when he misappropriated it, Aleynikov beat the NSPA.
In contrast, Agrawal was old school. He copied the company’s HFT source code from a digital file into a Word file, printed it out in hard copy on the company’s printers, and took the papers home with him. The simple act of reducing his employer’s source code to tangible form made Agrawal a thief under the NSPA while Aleynikov was set free.
The Second Circuit Court acknowledged the fundamental unfairness of these similar cases: “We recognize that, in terms of moral culpability, there may be little to distinguish Agrawal from the defendant in Aleynikov. But it is Congress’ task, not the courts’, to define crimes and prescribe punishments.” In other words, Aleynikov was lucky that he stole the source code through electronic means and didn’t print.
The Second Circuit’s contradictory interpretations of the EEA are a bit murkier. Its Aleynikov decision met with heavy criticism and led Congress to amend the EEA in December 2012. But because the amended EEA was not retroactive, the old version of the statute applied in Agrawal. As a result, Agrawal’s case seems indistinguishable from Aleynikov’s. So why were the results different? According to the majority opinion, the jury charge in Agrawal was better. Judge Pooler’s dissent was more cynical, suggesting the decision was result-oriented: “No doubt the majority’s misapprehension of both law and fact is in part driven by its conviction that the defendant is a ‘thief’ and its wish to retroactively apply Congress’s amendment to the EEA.”
The conflicting Aleynikov and Agrawal decisions serve as a cautionary tale to those accused of trade secret misappropriation. Freedom or a jail cell may depend on a simple keystroke.