Code Cannot Be Stolen under Federal Law, Says 2nd Circuit

Entrepreneurs — if your business depends on a piece of proprietary code or software that gains its value from only your business having it, be sure to take extra precautions to protect it, for if it is stolen in an act of “corporate espionage”, it may not be possible to prosecute the responsible party.

The Federal 2nd Circuit Court of Appeals recently ruled that programmer Sergey Aleynikov’s act of copying the proprietary code from Goldman Sachs’ computerized trading system to an overseas server did not meet the statutory definition of the National Stolen Property Act, which made it illegal to steal trade secrets.

While acknowledging that the code was valuable, the 2nd Circuit ruled that Aleynikov’s act failed to fall under the National Stolen Property Act because the programming was not intended to enter into the stream commerce or make something that would enter the stream of commerce — its value derived from only Goldman Sachs having it alone. Furthermore, because Aleynikov merely copied the code from one server to another, and never actually assumed physical control of the code at any time, he never deprived Goldman Sachs of its use. The 2nd Circuit believed that holding Aleynikov’s case under the National Stolen Property Act would stretch the “plain and ordinary meaning” of the statute’s words, and declined to make such a stretch.

If your startup depends on proprietary code like Goldman Sachs’ trading formulas, then you should take additional steps to protect it, not only by putting in reasonable security measures to limit access to the code, prevent copying of the code, or prevent removal or transmission of the code, but by also holding employees and independent contractors civilly liable for misappropriation of your trade secrets through the use of noncompete, nondisclosure, and intellectual property protection agreements.

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