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Electronically Transmitted Source Code Not Stolen Goods Under the National Stolen Property Act

Posted: 04/13/2012 2:03 pm

In an opinion that indicates the need to revise U.S. federal intellectual property theft statutes, the Second Circuit reversed a jury's theft convictions under the National Stolen Property Act and the Economic Espionage Act (U.S. v. Aleynikov). Proprietary computer source code was taken by a computer programmer employed by Goldman Sachs in violation of confidentiality policies. He left his employment and began working at another firm. The source code was electronically transmitted to a server in Germany.

The Second Circuit on Feb. 17 issued a short order reversing the convictions, and on April 11, produced a fully reasoned opinion. Criminal statutes are narrowly interpreted. Consequently, while the National Stolen Property Act makes it an offense to transport interstate commerce items that are known to be stolen, the statute does not define the terms "goods, wares, or merchandise." The Second Circuit concluded that electronically transmitted source code was not included in the ordinary meaning of these words and that prior decisions favored this interpretation.

The Second Circuit in 1966 determined that transmitting photocopies of manufacturing procedures did violate the statute. Some tangible property must be taken to constitute the "good" that is stolen. A 1985 U.S. Supreme Court decision supports this reasoning (Dowling v. United States) as well as decisions of other federal courts. The Second Circuit further determined that a 1988 statutory amendment adding the words "transmit" only applied to electronic transfers of money.

In telling language, the Second Circuit wrote: "We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age."

Regarding the Economic Espionage Act conviction, the Second Circuit determined that its statutory language limited offenses to products "produced for or placed in" interstate commerce. In this case Goldman Sachs did not produce the source code for sale in commerce. Assuming a broader meaning would only create an ambiguity that is resolved in favor of leniency in criminal law. The Second Circuit opinion concluded that while the conduct in question "was in breach of his confidentiality obligations to Goldman, and was dishonest in ways that would subject him to sanctions..." it did not violate criminal law.

It is clear that Congress must act to address the electronic transmission of stolen property if the intellectual property theft statutes are to be meaningful in our digital environment.