In the annals of U.S. innovators, there are many infamous disputes between technology companies from Shockley and Fairchild in semiconductors to Microsoft and Apple in operating systems to today’s high-profile lawsuit of Waymo v. Uber in driverless car technology. What initially started as a trade secrets litigation has mushroomed into a high stakes game involving patent infringement, unfair competition, private arbitration, unlawful termination and the Fifth Amendment right against self-incrimination. It’s a virtual Gordian Knot of legal entanglements.
To the outside observer, this could seem like a Wagner opera or Shakespearean tragedy writ large. But to those used to padding the cubicle alleys and boardrooms of Silicon Valley technology companies, it seems like another day at the office. With the demand high for job applicants in Silicon Valley—especially for engineers and marketing—technology companies seem resigned to the fact that they will have to endure at least the threat of litigation when they hire away top talent from a competitor.
“As a Silicon Valley attorney, it is almost inevitable that when an employee of one company leaves and goes to another company in the same industry—as is almost always the case—the former company will start sending out legal letters to the new company claiming that its new employee is misappropriating its trade secrets and breaching an agreement signed with the former employer,” says Kristie D. Prinz, attorney at law and principal, The Prinz Law Office, a Silicon Valley-based boutique IP law firm. “The letters often demand that the company fire the new employee. A similar letter is often sent to the former employee.”
What’s unusual about the Waymo vs. Uber case is that the legal tussle did not stop at the threatening letter stage. According to the complaint filed with the court, Waymo states that its server tracked tens of thousands of downloads of trade secrets allegedly made by engineer Anthony Levandowski.
“So Waymo allegedly had more evidence of sensitive file downloads than is probably typical in these types of disputes,” Prinz says. “Also, if you know Silicon Valley, autonomous driving technology is the single hottest issue being debated right now—particularly among the engineering community. Numerous companies are investing significant resources in autonomous driving technology at the moment, and an intense race is underway to lead the industry. That competition is so fierce in this area also makes this scenario different from the norm.”
An Un-Google-like Tactic to Sue
But while it may be quite typical for other technology companies to become very belligerent and bellicose in their out-of-court written rhetoric and legal filings, some in the intellectual property community find it out of step for Alphabet’s Google and its associated companies. Spun out of Google into a new legal entity in December 2016, Waymo was organized to continue the pursuit of fully autonomous driverless technology that the search giant had initially begun as an in-house project in 2009. And with its penchant for projects that may or may not have actual commercial applications and open sourcing its APIs, Android operating system and other technologies, Google’s image doesn’t bring to mind one that is formally confrontational. Maybe that’s how important driverless car tech has become to make it such an exception.
“A couple of things are interesting about this Waymo vs. Uber case,” says Sonia F. Lakhany, attorney and founder, Lakhany Law. “That Waymo (i.e., Alphabet, Google) even filed the case at all may be an indication of how invested they are about pioneering self-driving technology and what they perceive to be the gravity of the offense. Google is typically not known for pursuing intellectual property claims through litigation.”
Uber Tries to Use Google’s Arbitration Clause Against Itself
In a novel twist, Uber is attempting to use Google and now Waymo’s arbitration clause against itself. While Uber’s request to put the dispute into private arbitration was denied by Judge William Alsup, who is overseeing the case, and is currently on appeal even as the trial has been scheduled for an early fall start, it still represents what Alsup has called “poetic justice” if the legal strategy Google created to blanket itself ends up being used against it instead.
“It’s very surprising that Uber would even attempt to push this into arbitration where there’s no contractual right to do so,” says Braden Perry, white collar defense attorney, Kennyhertz Perry, LLC, and former federal enforcement senior trial attorney. “Maybe not so surprising due to the amount of very negative press they are and will soon receive based on the facts as outlined in the judge’s order.”
Even so, arbitration clauses are increasingly common, and Google/Waymo is not alone in using them, according to other attorneys familiar with the practice. They also feel that large companies like these prefer arbitration to keep legal matters private.
“Large companies in particular like private arbitration because it lets them resolve sensitive disputes with employees outside of the public’s eye and a jury,” says Jason M. Wejnert, Principal, Much Shelist. “Some legal experts also believe that arbitration forums tend to favor corporations over employees. However, Uber may insist that the matter is handled by the arbitration procedure because it’s a Google employee dispute. Uber may prefer all claims be dealt with in arbitration because they concern a dispute between Waymo and Levandowski, not Uber.”
On the other hand, Waymo may see a jury trial as an opportunity to present a compelling story of “stealing the crown jewels,” according to Wejnert.
Uber and its Due Diligence
All these troubles could have been headed off if Uber’s due diligence had properly outlined the risks in acquiring Levandowski’s self-driving truck technology startup Otto, which it closed for a reported $680 million in December 2016. And at least some legal experts are wondering if Uber knows what “due diligence” means, or if it cares.
“The most interesting question in the Waymo vs. Uber case is does Uber know what due diligence is?” asks Josh King, chief legal officer, Avvo, an online legal marketplace. “Companies that buy nascent startups for hundreds of millions of dollars—as Uber did when buying trucking automation startup Otto from Anthony Levandowski—are doing so for the promise and potential of the technology held by such companies. And part of the process of doing such a deal is rigorously examining the provenance of that technology: Where did it come from? Who developed it? Are there potential patent, trade secret or competitive issues? Those questions should have been blindingly obvious to Uber’s deal team.”
According to various sources, Levandowski had used an internal Google program that allows employees to utilize 20 percent of their company time on individual projects, which Levandowski took advantage of to work on self-driving technology. Then after leaving Google’s self-driving car unit, Levandowski and a co-founder started Otto, which was less than a year old when Uber bought it, according to King.
“So you’d think the folks from Uber would have gone to great lengths to satisfy themselves that the tech they were paying $680 million for didn’t have any hair attached to it,” King says. “Yet it appears they did none of that—or completely overruled the findings of their diligence team in a rush to lock Otto down. It may end up being a case study in how not to let deal fever overrule the very ugly realities that go into building a new company.”
In any event, Waymo will find out what Uber knew before acquiring Otto because a federal magistrate has ordered that Uber turn over the due diligence report that its attorneys prepared before the December 2016 acquisition. The report could help strengthen Waymo’s trade secret claims but perhaps not any further alleged patent violations because Waymo has already withdrawn its initial patent infringement claims in conjunction with a May 11 order by Alsup that found Waymo’s theories of patent infringement were “too weak to support any provisional relief,” but that Waymo’s trade secret claims were strong enough to warrant such relief.
Should Unicorn Startups Even Pursue Patents?
This ruling by Alsup and initial withdrawal of patent infringement claims by Waymo against Uber brings an open question into sharp relief for the intellectual property professions: Should billion-dollar unicorn startups bother putting much effort into patents or just use a trade secrets strategy in their quest to scale fast and move to profitability?
“The tension between pursuing patent protection for core technology versus keeping it as a trade secret is an interesting aspect of this case,” says David B. Gornish, Member, Eckert Seamans Cherin & Mellott. “Waymo’s complaint against Uber included patent infringement and trade secret misappropriation claims—among other things—vis-à-vis Waymo’s LiDAR technology. One may think the takeaway is that trade secrets are more potent than patents and that unicorn startups should delay patent filing or not even bother. In my view, that would be a mistake. A healthy IP strategy for highly valued startups generally requires protecting and leveraging IP with patents and trade secrets.”
According to convention, patents and trade secrets are mutually exclusive because patents require public disclosure of inventions whereas trade secrets rely on confidentiality to protect intellectual property. However, in practice, it is not so black and white.
“Patent applications generally only publish 18 months after the earliest filing date, so for at least that time period, anything disclosed in the application may still be kept confidential,” Gornish says. “And there are exceptions to the 18-month publication rule. High-tech inventions are often multi-faceted and may include some aspects that are more appropriately protected by patents, while others may be more appropriately protected as trade secrets.”
Project managers, engineers, and patent attorneys need to convene with regularity to determine the strategy of which inventive aspects fit into which IP protection buckets and then follow through, according to Gornish.
Levandowski Firing, Fifth Amendment, Criminal Prosecution
As the Waymo vs. Uber case has proceeded, interesting and unusual developments have occurred. Under direction from the court, Uber fired Levandowski from his position as head engineer for the company’s driverless car project on May 26 when he refused to return 14,000 computer files at the center of the dispute. Levandowski contended that to return the files would amount to waiving his Fifth Amendment right against self-incrimination.
Uber may also have removed Levandowski from its control in an attempt to delay the trial, set for October. That’s because his departure might require Waymo to add Levandowski as a named party, according to IP experts.
“A development like that would likely provoke a new schedule to allow the pleading of new or different defenses and positions by Levandowski individually that he may not have had as an Uber employee,” says Scott Anderson, IP practice co-chair, Culhane Meadows. “Uber moved without success to force the parties to arbitration, a tactic that aligns with the goal of delaying a trial on the merits.”
Nevertheless, the court itself felt sufficient evidence existed in the case to refer the matter for potential criminal prosecution, which former federal prosecutors say is a rare move to do on its own, though it’s possible a sealed motion could have been filed by Waymo urging the court to take the action.
“It is very unusual for a federal judge to refer a civil trade secret dispute to criminal prosecutors for investigation,” says Sara O’Connell, a former federal prosecutor who now works on intellectual property litigation cases for McNamara Benjamin LLP. “If Waymo had wanted to go the route of law enforcement involvement, then it could have itself requested that the case be prosecuted criminally. And perhaps it did—such a request would not necessarily be public.”
And any criminal prosecution could make things very complicated for Waymo, potentially leading to a stay of the civil action while a federal probe gets underway. Also, putting the trade secrets into the hands of government third parties runs the risk of possible additional, inadvertent disclosure, according to O’Connell.