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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Aleynikov Case Continues to Grab Headlines in Trade Secrets Community

Posted in Data Theft, Espionage, Trade Secrets

Last year, Sergey Aleynikov, a computer programmer, beat federal charges of trade secret theft under the Economic Espionage Act. Although Aleynikov was initially convicted, the Second Circuit Court of Appeals overturned his conviction, finding that the trade secrets relating to the source code Aleynikov had taken were not related to a product “produced for. . . interstate or foreign commerce,” and thus, were not entitled to protection under the Act. See John Marsh’s excellent blog post for additional information on the Second Circuit case.

In response, Congress passed the Trade Secrets Clarification Act, which expands the original Economic Espionage Act to include a trade secret “that is related to a product or service used in or intended for use in interstate or foreign commerce.” The change was intended to prevent results like the Second Circuit’s decision in Aleynikov.

Although his federal case is now completed, Aleynikov is now facing a second prosecution by Manhattan District Attorney Cyrus Vance. In New York state court on Friday January 18, 2013, Aleynikov reportedly told Judge Ronald A. Zweibel that the District Attorney was “trying to convict him of stealing the bank’s high-frequency trading computer code only because federal prosecutors couldn’t get him. Aleynikov’s lawyer, Kevin Marino, reportedly explained that the prosecution was “inhuman,” and that state prosecutors had simply regurgitated prior arguments from the federal prosecution, forcing Aleynikov to fight a “many-headed Hydra.” Marino reportedly expressed frustration with the case, arguing it amounted to double jeopardy, and that Aleynikov was unlikely to serve any time even if he were convicted, since he’d already spent a year in prison following the federal case.

According to Marino, the statutes Aleynikov is being prosecuted under don’t even apply to him. Marino alleges Aleynikov was authorized to access the computers, and therefore, his use was not unlawful. Assistant Disstrict Attorney Joanne Li reportedly believes otherwise: “the misappropriation statutes cover exactly the type of wrongdoing Aleynikov is accused of.” According to Li, the fact that Aleynikov was given access to the algorithm “didn’t give him a right to copy and transfer this data to his own benefit. Furthermore, the state criminalizes behavior like this as a deterrent, and as such, there is an interest in pursuing that objective through prosecution.”

Marino also reportedly argued that the state case lacked any real purpose: as he indicated that Aleynikov is already penniless and homeless, and since he was released from jail he has had to resort to living on friend’s couches. According to Marino, the federal trial ended Aleynikov’s marriage, and Aleynikov is facing civil litigation with former employer. Marino further argued that the case should be dismissed in the interest of justice. Assistant District Attorney Li reportedly disagreed, arguing that the “interest of justice” exception did not apply to Aleynikov, who acted willfully and knowingly.

To alleviate his financial losses, Aleynikov sued his former employer in New Jersey federal district court in September 2012, arguing the company should pay the fees, which are now close to $2.5 million, which Aleyniko has spent defending himself in the two prosecutions. In the complaint, Aleynikov pleads that he had exhausted his own financial resources, and should be entitled to “indemnification for the reasonable fees and expenses incurred in his defense,” as he allegedly was still an officer of the company at the time of the trial. On December 14, 2012, the court denied Aleynikov’s motion for summary judgment and motion for a preliminary injunction to require the company to pay his legal fees, finding that there was insufficient evidence on the record at the time of the filing to support either conclusion. Similarly, the court denied the company’s motion for summary judgment and motion to dismiss for the same reasons.

Both the indemnification case and the state criminal case continue to be litigated, and we will continue to keep you apprised of future developments. Similarly, Judge Zweibel is expected to rule on Aleynikov’s motion to dismiss based on double jeopardy within the next month.