Company Must Pay Legal Fees for Ex-Employee Charged with Stealing Trade Secrets

A federal judge has ruled that Goldman Sachs must pay the legal costs of a former employee accused of theft of Goldman’s proprietary source code.

Sergei Aleynikov is a programmer who worked on Goldman’s high-frequency trading software.  In 2009, just before he went to work for a Chicago start-up, Aleynikov downloaded the Goldman source code in order to use it at his new company.

Aleynikov was charged with theft of trade secrets, in violation of the federal Electronic Espionage Act, and also with transportation of stolen property.  He was sentenced to 97 months in prison but his conviction was overturned in February of 2012 and he was released – only to be arrested again by New York authorities for state-law trade secret offenses.

The Second Circuit’s reversal of his conviction led to the passage of the Theft of Trade Secrets Clarification Act of 2012.

Aleynikov sued Goldman in New Jersey federal court in September 2012, seeking indemnification for his legal fees.

In October of 2013, the district court ordered Goldman to advance Aleynikov’s legal fees (about $700,000 so far) for defending himself in the state law case.  Goldman was also required to pay Aleynikov’s legal fees (over $1 million) in the indemnification suit.

Among other things, the district court judge noted that Aleynikov (along with 12,000 other Goldman employees) had the title of “Vice President,” and Goldman’s bylaws on indemnification of officers defined “officer” broadly.  Goldman had previously paid legal fees for 51 out of 53 employees who had incurred them – including 15 with the title of “Vice President.”

Aleynikov will be “required” to pay back the legal fees if he loses in state court.  However, since he has no job and no money, it is unlikely that Goldman would be able to collect.

Goldman has appealed the district court’s order.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

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