Website in transition, please check back.

How Silicon Valley Handles Trade Secrets - Google Waymo vs. Uber

,

In 2011, Anthony Levandowski was a star engineer at Google. Instrumental in the development of the company’s self-driving car program, he was also responsible for the worldwide mapping efforts that gave life to Google Maps.

Levandowski was famous for his unorthodox workarounds, like purchasing dozens of cars for his program with company expense accounts and making Google acquire technology he had developed with his own robotics’ companies, in order to move faster with the tech he was developing.

An unidentified colleague of Levandowski’s told The New Yorker that the prospect of buying technology from the eccentric engineer’s firms “seemed shady, but at the same time everyone wanted to move as fast as possible... so we didn’t ask a lot of questions. That ended up being a mistake.” The colleague also referred to Levandowski as a “gifted a-hole,” and related how he told him he expected to make a billion dollars with the technology he was developing.

But when the star of Google’s self-driving program started meeting with competitors, rumors that he might get fired began. When confronted by management, Levandowski announced he might actually leave to focus on his own company, Anthony’s Robots. Instead of firing him, Google decided to acquire Levandowski’s companies, and gave him even more power.

In the fast-paced environment of Silicon Valley, the fact that engineers can move freely between companies functions as a stimulus for innovation. As tech journalist Charles Duhigg put it, “knowing that your rival will soon hire your best employees, and learn all your secrets, encourages firms to avoid resting on their laurels.”

In 2015, Google found out that Levandowski was actively trying to recruit colleagues for a new self-driving endeavor, and they decided to fire him. However, he was confident that California laws, which protect the rights of employees to go work for a competitor, would allow him to leave, taking with him both the tech he had helped develop and a team of high-skilled employees. With this in mind, he started talking to Uber as a potential investor for his new project.

As Anthony started preparing his exit strategy, his supervisor at Google’s self-driving division, Project Chauffeur, wrote in an email, “I have just heard today... that Anthony is approaching members of their team attempting to set up a package deal of people that he could sell en masse to Uber.”

Google still didn’t want to lose Levandowski, but when they tried to negotiate with him, they learned that he had already made his decision.

Then began a war over Anthony’s Project Chauffeur teammates. Google offered them bonuses to try to get them to stay, as they already had firm offers from Levandowski’s new startup, Ottomoto (now Otto). Six of them decided to leave in spite of Google’s efforts.

When Uber offered hundreds of millions of dollars to acquire Ottomoto, the teammates who had stayed behind at Google saw the potential for growth at Levandowski’s company. Then, more and more Project Chauffeur engineers started leaving, not only to join Uber’s self-driving effort, but also in search of other promising startups.

In mid-2016, Google decided to try to stop the deal between Levandowski’s company and Uber. They wanted to find evidence that he had taken trade secrets with him when he left. Eventually, they hit the jackpot: Levandowski had made a copy of thousands of files in an external drive, then deleted them from his computer at Google. Investigators also found a message from Anthony to a coworker, where he asked him to “delete all the messages tonight on both your PC and iPhone.”

Google now felt it had enough evidence that Ottomoto might never had come to be, had it not been for an influx of Project Chauffeur tech that had taken years to develop. Eventually Google’s self-driving operation, now baptized as Waymo, found out that certain circuit boards being developed at Uber were almost identical to some designs that had been part of Levandowski’s controversial 14,000-file download.

Waymo filed a $1.85 billion lawsuit in February 2017. They claimed Levandowski had stolen extremely valuable trade secrets. Under the terms of his employment contract, Google couldn’t sue him directly, so, they decided to sue Uber and Ottomoto.

Before the trial began, the legal costs for both tech giants already amounted to dozens of millions of dollars. The judge quickly made it clear that he believed the files Levandowski had taken with him contained trade secrets. But there was another problem; Google would have to prove that Uber had actually had access to the trade secrets.

Another problem for Google was the fact that the trade secrets had not been especially secured. In fact, Google had at some point considered storing the files downloaded by Levandowski in non-company servers.

Courts take many factors into account to determine if information is a trade secret. To fit into that category, it must not be widely known, and the employer must take measures to guard its secrecy. In addition, it must also be valuable for both the employer and its competitors, and it must be difficult to duplicate.

As the case progressed, the number of trade secrets in dispute was reduced from 21 to eight. Uber fired Levandowski, and the judge suggested there might be grounds for filing a criminal case against him.

Google/Waymo feared that if they lost and court records were unsealed, its valuable trade secrets might fall into the public domain. So, they decided to settle. They withdrew the suit in exchange for $250 million worth of Uber stock, just over 0.3 percent of their competitor’s equity. The rideshare company also agreed to refrain from using the contested trade secrets in its projects.

But in spite of the settlement, Levandowski is still not off the hook. On the one hand, Google is trying to reclaim from him a bonus of $120 million. On the other hand, the government has started exploring the possibility of a criminal investigation into the former Google engineer.

A criminal conviction in a high-profile trade secret case in Silicon Valley would have an enormous impact on the industry, perhaps changing the way business is done on the cutting edge of the tech sector. In fact, the case is already having a significant impact on the Valley’s culture.

Some of Levandowski’s former coworkers have been receiving letters from Google, telling them that the company is going to sue them if they make use of trade secrets belonging to their former employer in their current firms. One of them told reporters, “We made a deliberate decision not to do anything that might compete in any way with Waymo. It’s terrifying to think they might come after you.”

The case has had negative consequences for Uber’s self-driving projects, which lost momentum and were greatly slowed down, causing significant financial losses. In the larger picture, it appears to have redefined the concept of trade secret for the sector, while also setting a boundary as to how far these ultra-dynamic companies can go in the name of innovation.

Steve Hochfelsen is an Orange County, California business litigation lawyer and author. To connect with Steve: [hidden email] or 714-907-0697.


IMAGE by shinnygogo, Creative Commons license

Share


Steve Hochfelsen is an Orange County, California business litigation lawyer and author.
To connect with Steve: [hidden email] or 714-907-0697.



Recent articles:

David Kani & Steve Hochfelsen are represented by Elite Lawyer Management, managing agents for America's best attorneys.
[hidden email]