All Alerts & Newsletters

Second Circuit Affirms Conviction for Theft of Computer Code Under Federal Criminal Trade Secrets Statutes

Aug.08.2013

Last week, in United States v. Agrawal, the Second Circuit upheld a jury's 2010 conviction of a former Société Générale trader under the Economic Espionage Act (EEA) and the National Stolen Property Act (NSPA). The three-judge panel unanimously affirmed the NSPA conviction, but split on whether the EEA conviction could stand in light of the Second Circuit opinion in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012), in which the court vacated an ex-Goldman Sachs trader's convictions under the same statutes for very similar conduct. 

During his employment with Société, Samarth Agrawal copied and printed thousands of pages of computer code that his current employer used for a high-frequency trading program. He intended to provide the code to his future employer, another investment firm, and was arrested on the day he was scheduled to begin his new job. Agrawal was indicted by a grand jury and convicted following a jury trial for violating the EEA and NSPA. 

On appeal, Agrawal contested his convictions under both statutes. After observing that "[t]he question on this appeal is thus not whether Agrawal is a thief. He is," U.S. Circuit Judge Reena Raggi, writing for the majority, rejected Agrawal's arguments and upheld both convictions.

  • NSPA: Agrawal argued that his NSPA conviction should be vacated (as Aleynikov's was) because the code was not tangible property and its theft was therefore not an offense under NSPA. The court unanimously affirmed the NSPA conviction on the grounds that Agrawal had printed the code onto sheets of paper, which he then transported to his home in New Jersey. The court held that this distinguished Agrawal's conduct from Aleynikov's, because the latter had only electronically transferred the code to a remote server and never placed it in tangible form. 
  • EEA: Agrawal argued that his EEA conviction, like Aleynikov's, was invalid because the proprietary code he had stolen was part of Société's trading system and not, as required by the EEA, a trade secret "related to or included in a product that is . . . placed in interstate or foreign commerce." Because the code was not a "product" within the meaning of the EEA as the Aleynikov court had interpreted the term, Agrawal argued that his conviction for stealing it should be vacated under Aleynikov

The majority rejected Agrawal's argument, explaining that the EEA applies to trade secrets that are "related to" products produced for or used in interstate commerce, and that the government had charged and proven that the stolen code was "related to" securities used in interstate or foreign commerce. The majority found this sufficient to establish jurisdiction, even under Aleynikov's restrictive interpretation of what qualifies as a trade secret under the EEA. According to Judge Raggi, this distinguished Agrawal's case from Aleynikov, which reversed the conviction where the government had asserted that the stolen code was the actual product used in interstate commerce.

U.S. Circuit Judge Rosemary Pooler – who was one of the judges on the unanimous panel in Aleynikov – dissented on this issue. Judge Pooler cited both the indictment and the government's appellate brief as proof that the prosecution had consistently proceeded on the theory that the source code was the "product" Agrawal had stolen in violation of the EEA – a theory that was untenable under Aleynikov's interpretation of the statute. In Judge Pooler's view, Agrawal's case presented a "nearly identical fact pattern" to Aleynikov, and posited that Agrawal's EEA conviction should be reversed.

The court's ruling on the NSPA issue indicates that printing code or other intangible embodiments of trade secrets on paper can form the basis for an offense under the statute, which is often used as a back-up charge where the government may have problems meeting all the elements of trade secrets theft. 

On the EEA issue, the impact of Agrawal would be more significant had Congress not recently overruled the holding in Aleynikov by statute, amending the EEA to apply to theft of secrets relating to services as well as products. The panel in Agrawal was bound to consider Aleynikov's narrower interpretation of the EEA only because Aleynikov was the applicable governing law at the time. 

The combine effect of Agrawal, including its interpretation of the NSPA, and Congress's amendment of the EEA in response to Aleynikov is that a broader array of cases involving the theft of proprietary information can be charged as federal crimes. That in turn makes seeking criminal prosecution a more viable weapon for the protection of trade secrets and confidential information by victimized companies.

Email Twitter LinkedIn Facebook Google+

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Stephen M. Byers
Partner – Washington, D.C.
Phone: +1 202.624.2878
Email: sbyers@crowell.com