Can you steal something that has no physical properties? That’s a tough nugget to crack, as arguments abound over whether taking software code constitutes theft.

Sergey Aleynikov would definitely say no. The programmer was convicted for theft of trade secrets when he left Goldman Sachs with some exclusive code in tow. And it seems the 2nd Circuit Court of Appeals agrees — it overturned the conviction a couple of months ago. The reasoning for the decision has just been published, and it hits the controversial topic straight between the eyes: Code isn’t a physical thing, says the court, so therefore it can’t be stolen, only copied. Goldman Sachs didn’t experience a loss here; it could still use the code. At most, maybe Aleynikov’s action constitutes piracy. But it wasn’t actually theft.

As you let that one sink in, consider that the court didn’t view it as a trade secret to begin with, since the code wasn’t “related to or included in a product that is produced for or placed in interstate or foreign commerce.” (In other words, it wasn’t directly used to make a product that was sold to customers. Think Coca-cola’s super-secret recipe or the exact blend of spices in KFC’s fried chicken.) Things might be different if Goldman Sachs’ code was part of a software solution for clients or destined for some sort of licensing. But it wasn’t. It was intended for internal use to help staffers make faster trades, therefore, it was not protected. Aleynikov was off the hook.

For some people, the gut reaction might be to cheer for the little guy winning out against the big, bad company, but it’s not as simple as that. Patent laws and the “criminalizing” of stealing trade secrets are intended to protect developers and owners (big and small). Of course, as we all know, this has turned into a perversion these days, what with all the trumped up litigation that keeps landing in the headlines.

It will be interesting to see how the lawyers take this precedent to justify other arguments. It’s merely a matter of time — we’re only going to see more courtroom drama, as the law attempts to catch up with today’s business world and its newfangled modern technologies.

[via Geekosystem, Wired (pdf)]