United States: Understanding The New Theft Of Trade Secrets Clarification Act Of 2012

On December 28, 2012, President Obama enacted the Theft of Trade Secrets Clarification Act of 2012, which clarifies the scope of the Economic Espionage Act of 1996 (18 U.S.C. §§ 1831-39). The newly enacted amendments are intended to reverse the recent Second Circuit decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012).

In the heavily-criticized Aleynikov decision, the Second Circuit overturned a conviction against a former employee accused of stealing trade secret computer source code under the Economic Espionage Act. To understand purpose of the Theft of Trade Secrets Clarification Act, it is necessary to review the facts of the Aleynikov ruling.

In Aleynikov, the defendant was previously employed by Goldman Sachs & Co. as a computer programmer. He helped develop source code for the company’s proprietary high-frequency trading (HFT) system that was used in securities and commodities trading for making large volumes of trades within fractions of a second. On the last day of his employment in June 2009, he encrypted and uploaded more than 500,000 lines of source code for the HFT system to a server in Germany. After uploading the source code, the defendant deleted the encryption program and his history of computer commands. When he returned to his home in New Jersey, he then downloaded the encrypted source code for use at his new employment with a Chicago-based startup that sought to create its own HFT system. In July 2009, after returning from Chicago following a meeting with his new employer’s principals with a flash drive and a laptop containing portions of the Goldman HFT source code, he was arrested by the FBI.

Following a federal jury trial, the defendant was convicted of violating both the Economic Espionage Act and the National Stolen Property Act. He was sentenced to 97 months plus three years under a supervised release program. Aleynikov appealed on the grounds that district court erred in denying his motion to dismiss the indictment in its entirety.

For the purposes of the Economic Espionage Act, despite the egregious facts before it, the Second Circuit Court of Appeals narrowly construed section 1832. The Second Circuit analyzed the portion of section 1832 that required the converted trade secret to be “related to or included in a product that is produced for or placed in interstate or foreign commerce.” The Second Circuit concluded that under section 1832: “Goldman’s HFT system was neither ‘produced for’ nor ‘placed in’ interstate commerce or foreign commerce. Goldman had no intention of selling its HFT system or licensing it to anyone.” As a result, the Second Circuit overturned the defendant’s criminal conviction.

To correct the obvious injustice of the Aleynikov ruling, the Theft of Trade Secrets Clarification Act of 2012 struck the language from section 1832(a) that requires that the product must be produced for or placed in  interstate or foreign commerce, and replaced the language of that requirement with “a product or service used in or intended for use in” interstate or foreign commerce.

The practical effect of the new law is to expand the scope of the Economic Espionage Act in two major ways. First, the amendment expands the scope by including products or services. Thus, an employee could be charged with the conversion of trade secrets used for services that are actually or intended for use in interstate or foreign commerce. Prior to the 2012 amendment, the Economic Espionage Act’s applicability to services was unclear.

Second, the amendment expands the scope of trade secrets covered by  section 1832 from those trade secrets “included in a product which is produced for or placed in” interstate or foreign commerce, to the broader protections afforded to trade secrets found in “a product or service used in or intended for use in” interstate or foreign commerce. Thus, if an employer has a product or service that is either actually used in interstate or foreign commerce or is “intended for use” in interstate or foreign commerce, the Economic Espionage Act should now support criminal charges for the conversion of such trade secrets. For example, a company’s proprietary software developed for its own internal use should be protected under the new amendments, provided that the proprietary software is part of the company’s products or services that are used or “intended for use in” interstate or foreign commerce.

The new clarifications made by the Theft of Trade Secrets Clarification Act should afford employers broader protections over trade secret information and should also widen the scope of the Economic Espionage Act for federal prosecutors.

 

http://www.mondaq.com/unitedstates/x/215714/employee+rights+labour+relations/Understanding+The+New+Theft+Of+Trade+Secrets+Clarification+Act+Of+2012

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s