Monthly Archives: October 2011

U.S. v. Aleynikov: Source Code as a Stolen “Good” in a Case of Interstate Economic Espionage

On March 16, 2011, the Southern District of New York denied former Goldman Sachs programmer Sergey Aleynikov’s motion to dismiss his conviction for theft of trade secrets under the Economic Espionage Act (“EEA”). The court held that the evidence was sufficient to show that Aleynikov had stolen trade secrets and transported them across state lines, and further held that the stolen source code from Goldman Sachs’ high frequency stock trading system was a “good, ware or merchandise” under the National Stolen Property Act (“NSPA”). Aleynikov’s trial was one of two recent cases involving theft of source code for high frequency trading systems, both of which were tried in New York’s Southern District under the Economic Espionage Act.

 

High Frequency Trading

High frequency trading involves the use of computerized algorithms and highly sophisticated programs to trade securities. Firms that engage in such trading hold onto positions for seconds at a time, and generally end a trading day with no net positions. Decisions are made through high-speed mathematical analysis of market data, taking advantage of trading opportunities that open up for fractions of a second. The field is technologically complex, highly competitive, and very lucrative. High frequency trading systems require significant time and resources to develop and maintain. Court documents in the Aleynikov case estimate that it would cost roughly $10 million and two years to build a high frequency trading system from scratch.

 

Aleynikov – Theft, Subversion, and Espionage

Goldman Sachs employed Sergey Aleynikov as a programmer from May of 2007 to June of 2009, when he accepted an offer from a Chicago-based startup called Teza. About two months prior to his last day at Goldman Sachs, Aleynikov began uploading proprietary data to a subversion site on a German server. He went out of his way to avoid detection, deleting his encryption key and attempting to clear his bash history. The files he stole included, in the court’s words, components “connecting to the various securities exchanges; reading the incoming price data; pricing algorithms; trading strategies; the infrastructure for routing the trading decisions back to the exchanges; and applications for monitoring the performance of all of these intricate parts of the trading system.” Continue reading

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Stent Wars: Cordis Corp v. Boston Scientific Corp., Fed. Cir. (2011)

The Stent Wars

The Court of Appeals for the Federal Circuit (“CAFC”) decision in Cordis Corp v. Boston Scientific Corp., 2011 (“Cordis”), is the latest episode in the ongoing Stent Wars, and provides an example of CAFC review of JMOL verdicts and review of the intent prong of inequitable conduct under the new standard in Therasense.

The Stent Wars involve four major players: Abbott Labs, Boston Scientific, Medtronic, and Johnson & Johnson.  These manufacturers have been engaged in bitter patent lawsuits against each other since the mid 1990s. A stent is a small tubular expanding scaffold that is inserted into a blocked artery during balloon angioplasty surgery.  The stent expands with the balloon and then prevents the artery from collapsing after the surgery is complete. However, many question the medical efficacy of stents in relation to their high cost.  The most recent development in the Stent Wars is that J&J’s stent-manufacturing subsidiary, Cordis, announced it will exit the stent market by the end of this year.

Cordis is the latest ruling in a 14 year lawsuit of Cordis Corp. (“Cordis”) against Boston Scientific Corp and Boston Scientific Scimed, Inc (“BSC”).  In Cordis, the CAFC held that, first, the BSC NIR stent did not literally infringe claim 25 of the Cordis ‘370 patent, and, second, that the Cordis U.S. Patent No. 5,879,370 (‘370) was not unenforceable due to inequitable conduct.

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Patent Trolls Under the Patent Reform Act

On September 16th, 2011, President Obama signed the (Leahy-Smith) America Invents Act.  The official White House Press Release and countless blogs describe the Act as “the most significant reform of the Patent Act since 1952.”  One of the stated objectives of the Act is to let American companies and inventors focus on innovation and job creation rather than costly, and sometimes unnecessary, litigation.  The Act attempts to achieve this goal through several changes to the patent system, most notably including a transition from a first-to-invent to a first-to-file patent regime.

There is much debate as to whether the various components of the Act will accomplish this goal.  One way to approach this question is by examining the impact it will have on patent troll behavior.  Some conceive of patent trolling as a “tax on innovation” through the brandishing of invalid patents.  A Boston University study claims patent trolls “have cost innovators $500 billion in lost wealth from 1990 through 2010.”  Many assert that the new Act does nothing to hinder patent troll litigation; however, that remains unclear.  A deeper analysis of this question will also elucidate some of the salient features of the Act.

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