The dismissal marks a significant victory for Sergey Aleynikov, who was a highly paid programmer for Goldman's high-frequency trading operation, designing complex code to make split-second trades.
Aleynikov won an appeal against federal charges in April 2012, but prosecutors refiled new charges against him under New York state laws different than the federal acts he was previously accused of violating.
In May, he was convicted by a jury of one count of Unlawful Use Of Secret Scientific Material, a rarely-used statute enacted in 1967. The jury did not reach a verdict on a similar count and dismissed another count of unlawful duplication.
On Monday, Judge Daniel P. Conviser of New York's State Supreme Court dismissed the count Aleynikov was convicted of by the jury.
Conviser wrote in his ruling that Aleynikov acted wrongfully by taking the code, but his actions did not meet the standard under the law in which he was charged.
"The evidence did not prove he intended to appropriate all or a major portion of the codes economic value," Conviser wrote.
Aleynikov's lawyer, Kevin Marino, said via email that the judge's decision is a defeat for Goldman, which "is powerful enough to provoke two failed criminal prosecutions to settle a private score."
Aleynikov put his faith in the court system and "it has been rewarded," Marino wrote. Goldman will be pursued in court to pay Aleynikov's legal fees, he said.
In the first criminal case against him, federal prosecutors alleged he uploaded proprietary code for the company's high-frequency trading (HFT) system to a computer server in Germany on his last work day at Goldman on June 5, 2009.
Aleynikov was due to start a new job at a Teza Technologies in Chicago, which had recently hired him. He long maintained that he copied the code for intellectual pursuits rather than profit, and maintained it was open-source code.
He was convicted of violating the National Stolen Property Act (NSPA) and the Economic Espionage Act (EEA) after a jury trial in U.S. District Court for the Southern District of New York, and sentenced to 97 months in prison.
But in April 2012, the Second Circuit Court of Appeals found those acts did not actually apply to Aleynikov's actions and set him free.
New York state prosecutors then took up his case, charging him in August 2013 under different laws but for the same actions, avoiding a conflict with the U.S. Constitution's Fifth Amendment protection against being tried twice for the same crime.
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