April 20, 2018

Waymo (Alphabet) versus Uber: A 21st Century Trade Secrets Case

One of the biggest trade secret cases ever began this week in San Francisco between Waymo, Google’s self-driving car company owned by Alphabet, and Uber, the worldwide ride sharing service. Waymo has accused Uber of conspiring with Anthony Levandowski to steal trade secrets from their project. Levandowski worked on Google’s autonomous car team until January 2016 at which point he left to start his own company, Otto, which was then acquired by Uber in late July 2016. Before leaving Waymo, Levandowski allegedly downloaded 14,000 files of data.

Uber has a lot riding on this case: Waymo is claiming as much as $3.7 billion in damages and is seeking to prevent Uber from using any technology in the future that it may have stolen from Waymo’s self-driving cars. This could be a huge set back for Uber’s program. Indeed, during his first day of being questioned, the former CEO of Uber, Travis Kalanick, agreed that developing autonomous vehicles amounts to an “existential question” for Uber, and that the market for driverless cars is likely to be “winner-take-all.”

Waymo’s lead attorney tried to set the tone for the trial during opening statements, suggesting no less than a contest between good and evil is at issue. He claimed that Kalanick, who was CEO at the time of the events in question, “made a decision that winning was more important than obeying the law.” The attorney asserted that “[t]here will be documents… internal documents from Uber where the CEO of the company said ‘we want their cheat codes.’” He also claimed that there are texts between Levandowski and Kalanick in which they discussed the need to win at all costs. Levandowski even said in one text, “we need to think through the strategy to take all the shortcuts we can find.” In another, he said, “I just see this as a race and we need to win, second place is the first looser [sic].”

In response, Uber is expected to argue that none of the files Levandowski downloaded reached Uber’s servers, that none of the information stolen by Levandowski is a trade secret, that Levandowski is entirely responsible, and that Uber’s only crime was in hiring Levandowski.

Although it is always difficult to predict the outcome of a trial, from a high-level vantage point Waymo appears to be in the driver’s seat for a variety of reasons. First, jurors will question why Levandowski downloaded 14,000 files before departing Waymo, even if those files do not contain any trade secrets. It looks really bad and it will be difficult for Uber to overcome this perception. Moreover, Judge Alsup, who is presiding at trial and is widely regarded as one of the smartest federal judges, has referred the matter to the Justice Department for criminal investigation. This means that Levandowski will assert the Fifth Amendment right against self-incrimination when questioned and, unlike criminal cases, jurors can draw an adverse inference about the facts he refuses to discuss. Although Judge Alsup has warned that the case is “not whether or not Uber is an evil corporation,” the jury is likely to hold Levandowski’s failure to testify and his downloading of Waymo’s files against Uber, regardless of how often Judge Alsup attempts to clarify the issue.

Assuming Uber doesn’t completely lose the war of good versus evil, the jurors will be asked to decide based on the facts whether Waymo has proven that Uber misappropriated eight trade secrets, mostly relating to LIDAR, an abbreviation for “light detection and ranging” devices that measure distances using lasers. These are critical in the operation of autonomous vehicles. One of the other alleged trade secrets relates to “negative know-how,” a term describing what doesn’t work, which can be almost as valuable as a trade secret relating to what does work, since it allows a company to appropriate money to potentially more fruitful projects.

In order to prevail, Waymo must prove, among other things, that the technology meets the definition of a trade secret, which is generally defined as information that has value based on it not being generally known in the industry (secret) and is the subject of “reasonable measures” to maintain its secrecy. In response, Uber will argue that to the extent it has or has used similar technology, it developed the technology or it was available from public sources and Waymo did not do enough to protect the technology.

Another very important issue that will be closely watched and may have an impact on the future hiring of engineers by competitors in Silicon Valley is the distinction between general skills and knowledge—an engineer’s “tool kit,” so to speak—that can be taken from one job to another, and proprietary information that cannot. To put it another way, how does a prospective new employer differentiate between someone who knows an awful lot about a certain technology and someone whose knowledge is based on stolen trade secrets? The answer to this question is particularly important to companies in Silicon Valley, where engineers move freely from one company to another taking their knowledge with them. In a pretrial proceeding, Judge Alsup expressed the difficulty in making this distinction. He also expressed concern about how to protect engineers in the advancement of their careers, where their former employers designate “everything in the universe” as a trade secret. Judge Alsup then suggested that employees are not required “to get a frontal lobotomy before they go to the next job”

Even if Waymo does not prevail in this trial, the lawsuit, the stakes involved, and Judge Alsup’s referral to the DOJ have generated so much publicity that it is likely to have a major impact on how companies—especially in Silicon Valley—do business. If companies have not already done so, they need to rethink their management of trade secrets and hiring practices to make sure that they do not become ensnared in major trade secret litigation with literally billions of dollars at stake. Worse still, they may have to defend their actions to a United States Attorney’s Office in order to show that they did not violate the Economic Espionage Act.

Whether Uber took adequate steps to protect itself when it hired Levandowski ultimately will be left to a jury to decide. Critics, including investors suing the company, say it could have done more to anticipate and avoid the legal mess and accompanying negative publicity from hiring him. Companies are more likely than ever to resort to litigation when an important engineer or high-level employee leaves for a competitor. The enactment of the Defend Trade Secrets Act in May 2016 makes it far easier for victims to sue in federal court for theft of trade secrets, even if the trade secrets are contained only in the mind of a departing employee.

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