§ 5.05 Interstate Transportation of Stolen Property (18 U.S.§ 2314)

• Jurisdiction: United States
• Publication year: 2020

§ 5.05 Interstate Transportation of Stolen Property (18 U.S.C. § 2314)

Prior to Congress enhancing the penalties for criminal copyright infringement and to the passage of the Economic Espionage Act in 1996,⁷⁵⁷ federal prosecutors routinely used the Interstate Transportation of Stolen Property Act (ITSP) to prosecute criminal copyright infringement and thefts of trade secrets.⁷⁵⁸ However, the Supreme Court in 1985 reversed a conviction for the interstate transportation of copyrighted Elvis Presley records holding that it was not Congress's intention that the ITSP function to criminalize copyright infringement.⁷⁵⁹ This decision meant that federal prosecutors could not bring an ITSP charge in connection with criminal copyright infringement, thus, limiting its reach in the intellectual property context. While these decisions have greatly reduced the importance of the ITSP in prosecuting violations of intellectual property rights a number of prosecutions involving theft of trade secrets suggest that the statute may still be relevant in this area.⁷⁶⁰

To determine whether the misappropriation of a trade secret is a violation of the ITSP courts have examined two basic issues: (1) whether the trade secrets were "goods, wares and merchandise," and (2) whether they were worth more than $5,000. To obtain a conviction, however, the government must also prove that the trade secrets were transported in "interstate or foreign commerce" and that the defendant knew that the were "stolen, converted or taken by fraud."

[1] Elements of the Offense

[a] Goods, Wares and Merchandise

The threshold issue in a prosecution Section 2314 is whether "stolen" property qualifies as goods, wares or merchandise. In most instances this is not much of an issue since there can be no question that an automobile, for example, is a good within the meaning of the ITSP. This analysis is not as straightforward with regard to whether a trade secret qualifies since a trade secret by definition is not a tangible item but is considered intangible property.⁷⁶¹ The issue, therefore, is whether an intangible item is a good, ware or merchandise.

The Second Circuit, in United States v. Aleynikov,⁷⁶² held that the interstate transmission of source code did not violate Section 2314. The defendant was a computer programmer for Goldman Sachs & Co who was responsible for developing source code for Goldman's proprietary high-frequency trading ("HFT") system. In general, an HFT system is a mechanism for making large volumes of trades in securities and commodities based on trading decisions effected in fractions of a second. Based on the trial evidence, on Aleynikov's last day of work at Goldman, before beginning a new job to develop a competing HFT system at a Chicago start-up company, Aleynikov encrypted and uploaded to a server in Germany hundreds of thousands of lines of proprietary HFT source code. Aleynikov then attempted to erase his digital tracks and downloaded the source code from the server in Germany to his home computer. A jury convicted Aleynikov of violating Section 2314 and Section 1832 of the Economic Espionage Act.⁷⁶³ He was sentenced to ninety-seven months imprisonment.

With regard to Section 2314, the Second Circuit agreed with other circuits, relying on United States v. Dowling,⁷⁶⁴ that the theft and subsequent interstate transmission of purely intangible property is beyond the scope of Section 2314. In particular, the court relied on decisions by the Tenth Circuit,⁷⁶⁵ Seventh Circuit,⁷⁶⁶ and the First Circuit.⁷⁶⁷ The Second Circuit concluded:

"By uploading Goldman's proprietary source code to a computer server in Germany, Aleynikov stole purely intangible property embodied in a purely intangible format. There was no allegation that he physically seized anything intangible from Goldman, such as a compact disc or thumb drive containing source code, so we need not decide whether that would suffice as a physical theft. Aleynikov later transported portions of the source code to Chicago, on his laptop and flash drive. However, there was no violation of the statute unless the good is transported with knowledge that 'the same' has been stolen; the statute therefore presupposes that the thing stolen was a good or ware, etc., at the time of the theft. he wording 'contemplate[s[a physical identity between the items unlawfully obtained and those eventually transported.' The later storage of intangible property on a tangible medium does not transform the intangible property into a stolen good."⁷⁶⁸

Thus, according to the court, "[b]ecause Aleynikov did not 'assume physical control' over anything when he took the source code, and because he did not 'thereby deprive Goldman of its use,' Aleynikov did not violate [Section 2314]."⁷⁶⁹

The court also distinguished its holding in United States v. Bottone,⁷⁷⁰ on the ground that there was no physical taking of intangible property. The defendant, therein, photocopied documents outlining manufacturing procedures for certain pharmaceuticals that were transported across state lines. Since the actual processes themselves (as opposed to photocopies) were never transported across state lines, the "serious question" was whether "the papers showing [the] processes were transported in interstate or foreign commerce were 'goods' which had been 'stolen, converted or taken by fraud' in view of the lack of proof that any of the physical materials so transported came from [the manufacturer's] possession."⁷⁷¹ The court held that Section 2314 was violated there, observing that was "stolen and transported" was, ultimately, "tangible goods,' notwithstanding the "clever intermediate transcription [and] use of a photocopy machine."⁷⁷² However, the court suggested that a different result would obtain if there was no physical taking of tangible property whatsoever: 'To be sure, where no tangible objects were ever taken or transported, a court would be hard pressed to conclude that 'goods' had been stolen and transported within the mean of § 2314."⁷⁷³ Hence, the court observed, "the statute would presumably not extend to the case where a carefully guarded secret formula was memorized, carried away in the recesses of a thievish mind and placed in writing only after a boundary had been crossed."⁷⁷⁴ According to the Aleynikov court, "Bottone itself treats its holding as the furthest limit of a statute that is not endlessly elastic: Some tangible property must be taken from the owner for there to be deemed a 'good' that is 'stolen for purposes of [Section 2314]."⁷⁷⁵

"[W]hen the physical form for the stolen goods is secondary in every respect to the matter recorded in them, the transformation of the information in the stolen papers into a tangible object never possessed by the original owner should be deemed immaterial. It would offend common sense to hold that these defendants fall outside the statute simply because, in efforts to avoid detection, their confederates were at pains to restore the original papers to [their employer] and transport only copies or notes, although an oversight would have brought them within it." Id. at 294.

In United States v. Farraj, 142 F. Supp. 2d 484 (S.D.N.Y. 2001), the court denied defendant's motion to dismiss charges under the ITSP for the electronic transfer across state lines of an eighty page trial plan that the defendants had allegedly taken from the law firm where one of them worked. "This holding could not have survived the Second Circuit's opinion in Aleynikov." United States v. Zhang, 2014 WL 199855, at *7 (E.D. Pa. Jan. 17, 2014) (agreeing that NSPA requires that "goods, wares, and merchandise" have some form of tangible existence, but noting: "In the digital era, we think that intangible products could reasonably be understood to constitute personal property that ordinarily are the subject of commerce. For example, we agree with the government that one could reasonably conclude that a consumer who pays for and downloads a digital copy of Microsoft Windows has purchased a good."). Similarly, in United States v. Kwan, 2003 U.S. Dist. LEXIS 8423 (S.D.N.Y. May 20, 2003), the court denied defendant's motion to dismiss charges under the ITSP for having accessed and secretly removed confidential documents, computer files and diskettes from the victim's New York offices and to have transported them across state lines to New Jersey. The court noted that "in determining what should be considered 'goods, wares or merchandise' under Section 2314, the Second Circuit has long considered the stolen items' commercial nature to be more significant than their tangibility."

See also, United States v. Riggs, 739 F. Supp. 414 (N.D. Ill. 1990). Defendant violated Section 2314 when he downloaded a text file containing proprietary information onto a home computer, transferred it over a computer network to his co-defendant in another state, who then uploaded it onto a computer bulletin board. The court reasoned that just because the defendant stored the information on a computer, rather than printing it on paper, his acts were not removed from the purview of the statute:

"[I]n the instant case, if the information in Bell South's E911 text file had been affixed to a floppy disk, or printed out on a computer printer, then [the defendant's] transfer of that information across state lines would clearly constitute the transfer of 'goods, wares or merchandise' within the meaning of § 2314. This court sees no reason to hold differently simply because [the defendant] stored the information inside a computer instead of printing it out on paper. In either case, the information is in a transferable, accessible, even salable form." Id. at 421.

The court noted that "[r]eading a tangibility requirement into the definition of 'goods, wares or merchandise might unduly restrict the scope of § 2314, especially in this modern technological age,' and recognized that although not tangible in a conventional sense, the stolen property was...