New Trade Secrets Law and Technology Companies
When an employee leaves a company for a competitor, there is a concern that trade secrets and confidential information belonging to the company may leave for the competitor as well. Protecting trade secrets is important in order for businesses to remain technologically competitive.1 The following case raises important questions about what constitutes a trade secret and what sources of law protect trade secrets.
WAYMO V. UBER
In February, Waymo, the self-driving car unit of Alphabet, filed a lawsuit against Uber for misappropriation of trade secrets, patent infringement, and unfair competition.2 Central to Waymo’s claim is that one of its former employees, Anthony Levandowski, allegedly misappropriated 14,000 highly confidential files before he left the company in January 2016 to found his own self-driving truck startup.3 Waymo claimed that these files contained information about a number of different cost-effective and high-performing laser sensors, known as Light Detection and Ranging technology (LiDAR).4 Levandowski helped develop Waymo’s key detection system, LiDAR, in self-driving cars that enables vehicles to detect their surroundings, traffic, pedestrians, bicyclists and other objects. Levandowski’s startups, Ottomotto LLC and Otto Trucking LLC, were later bought by Uber in August 2016, and Levandowski became the head of Uber’s self-driving efforts.5 Waymo claimed that Otto and Uber were building LiDAR systems, or components of the system, using Waymo’s trade secrets.6 This high-profile case was scheduled to go to trial from December 4th until December 20th in the United States District Court for the Northern District of California.7 There are currently nine trade secrets in question that were allegedly compromised by Anthony Levandowski.8
The protection of trade secrets is critically important as both Uber and Waymo are rivals in the race to perfect self-driving car technology. The Uniform Trade Secrets Act (UTSA) is a model statutory cause of action for misappropriation of trade secrets drafted and amended by the National Conference of Commissioners on Uniform State Laws.9 Prior to 2016, trade secrets were protected by states, many of which adopted the UTSA. Despite the word “uniform,” companies had to sue in state courts, where definitions of a trade secret differ from state to state.
On May 11, 2016, a significant change in the legal landscape took place with a goal to establish a uniform law of trade secret misappropriation.10 The Defend Trade Secrets Act (DTSA) was signed into law and for the first time created a federal civil cause of action for trade secret misappropriation.11 The DTSA was originally proposed as an alternative to the UTSA because of the burden of obtaining discovery from other states, especially in the case of prompt discovery for temporary restraining order proceedings.12 However, current cases have demonstrated that DTSA and UTSA claims are frequently paired together, with the UTSA claims falling under the federal court’s supplemental jurisdiction.13
In this case, Waymo claimed violation of the DTSA and the California Uniform Trade Secrets Act (CUTSA) and moved for provisional relief.14 In determining whether Waymo should get provisional relief, the United States District Court for the Northern District of California applied a four-prong test to the trade secret misappropriation claims, including likelihood of success on the merits, likelihood of irreparable harm, public interest, and balance of hardships.15 The District Court issued an order in May 2017.16
The Court first decides on the likelihood of success on the merits. The judge determined that information is a trade secret if the owner used reasonable efforts to maintain its secrecy and the information derives independent economic value from not being generally known to the public.17 By reaching this conclusion, the Court did not distinguish between the requirements in the DTSA and CUTSA.18 Instead, it determined that both of the Acts offer essentially the same definitions under this context.19 Therefore, since the federal law has only been in effect for one year, given the state courts’ familiarity with the UTSA cases, state courts’ interpretation of the UTSA in previous years might inform how federal courts interpret the DTSA. This can lead to different DTSA outcomes from federal courts in different states.20
Like most companies involved in disputes regarding the misappropriation of trade secrets, Waymo made broad assertions of how many trade secrets were contained in the files. Waymo asserted that as many as 121 trade secrets were likely contained in the 14,000 files.21 However, not all 121 alleged trade secrets qualify as such, and few have actually been traced to the self-driving technology Uber was accused of misappropriating. The District Court examined two examples and decided that Waymo had merits in two trade secrets claims.22
Second, for the likelihood of irreparable harm, the Court was concerned that Levandowski remains in possession of over 14,000 confidential files from Waymo that may contain trade secrets. Waymo presented sufficient evidence to show likelihood of irreparable harm as a result of misuse of its files.23 Third, the court balanced the public interest in protecting intellectual property rights and in prohibiting unfair competition.24 Granting relief would not discourage legitimate competition in a field where intellectual rights are important to innovation.25 Lastly, the Court stated that this order mainly prohibits Levandowski from working on Uber’s LiDAR so that the hardship on Uber will be minimal.26 In conclusion, the court granted Waymo limited provisional relief.27
For the rest of the asserted trade secrets, the court rejected and condemned Waymo’s overreaching attempt to claim ownership over general principles and approaches in the field. For instance, Waymo claimed a trade secret related to light sources.28 The court stated that general approaches dictated by well-known principles of physics are not secret, since they consist essentially of general engineering principles that are simply part of the intellectual equipment of technical employees.29
For the upcoming trial, although the total amount of damages requested has not been publicly disclosed, Waymo is seeking $2.6 billion in remedies for the alleged theft of one of several trade secrets.30 Out of the 9.7 gigabytes of confidential information downloaded by Levandowski, Uber’s lawyer will seek to limit the amount that could qualify as trade secrets under the law. Uber’s legal team stated that Waymo has already spent 4,450 hours reviewing materials and that it is unlikely to find additional evidence in the old collection of documents.31 In contrast, Waymo is looking for new evidence to add new trade secrets into trial.
NON-COMPETE AND INEVITABLE DISCLOSURE AGREEMENTS
Although Levandowski is not a defendant in this case, another part of the Waymo story involves what happens after an employee leaves a company to work for a competitor. The transfer of documents that contain trade secrets has become easier as technology has advanced. A global survey from Symantec shows that half of employees worldwide who left or lost their jobs in the last 12 months kept confidential corporate data, with 40 percent of those planning to use it with their new employer.32 Typically, to prevent the disclosure of trade secrets to competitors, employees sign non-compete agreements which forbid them to leave their job to work for a competitor or to start their own competing business.
California offers a different yet successful case study within the tech industry. California believes strongly in the freedom to walk out of a job and work for a competing company. The California Supreme Court reinforced the state’s long-standing public policy favoring employee mobility.33 This public policy is also codified in the California’s Business and Professions Code Section 16600, which invalidates contractual restraints on a person’s ability to engage in a profession, trade, or business.34 California disfavors efforts that restrict employees who want to quit their jobs to establish their own enterprises and encourages entrepreneurship, innovation, and economic growth. The best talent does not have to remain in established firms. California’s approach to voiding non-compete agreements benefits California, as it has become the tech center of the world.35
Section 2(a) of the UTSA states that actual or threatened misappropriation of trade secrets may be enjoined.36 Based on section 2(a) and common law principles, some states have adopted the inevitable disclosure doctrine. The inevitable disclosure doctrine can be used to obtain an injunction to prevent employees from changing jobs in the absence of concrete evidence of actual or threatened use of stolen trade secrets.37 Courts will enjoin a company’s former employee from working for a competitor if the company establishes that the employee would “inevitably” use its trade secrets in his or her new position. This doctrine has been criticized as effectively allowing courts to impose a non-compete obligation on someone who never signed a non-compete agreement.38 Not surprisingly, some states, including California, Maryland, and Virginia, have rejected the doctrine.
The DTSA appeared to prohibit a trade secret owner from invoking the inevitable disclosure doctrine.39 Specifically, under the new federal law, the DTSA authorizes a court to grant an injunction to prevent actual or threatened misappropriation, provided that it does not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of “threatened misappropriation” and not merely on the information the person knows.40 When there is no proof that the employee took information improperly, trade owners and former employers cannot invoke the inevitable disclosure doctrine. However, because federal courts might seek guidance from state courts’ interpretations, a federal court in Illinois analyzed the DTSA claim under the standards of the Illinois UTSA for inevitable disclosure in Molon Motor & Coil Corp. v. Nidec Motor Corp. In this case, the plaintiff sued a competitor after an employee who had allegedly downloaded the plaintiff’s designs and technical data went to work for the competitor.41 More surprisingly, in June 2017, in Fres-co Systems USA, Inc. v. Hawkins, the United States Court of Appeals for the Third Circuit also applied the inevitable disclosure doctrine.42 The court ruled that given the substantial overlap between the employee’s work for his former employer and his intended work for the new employer—same role, same industry, and same geographic region—the District Court was well within its discretion to conclude that the employee would likely use his confidential knowledge to the former employer’s detriment.43
It is not clear whether the Third Circuit’s application of the inevitable disclosure doctrine was based on the Pennsylvania Uniform Trade Secrets Act or the DTSA.44 It appears that the mere threat of misappropriation based on the knowledge of a former employee has been sufficient to warrant granting a preliminary injunction. Since employees in technology companies are highly likely to have specialized skills in a specific field of technology in tech-oriented states,45 their new jobs might easily fall into Third Circuit’s description of “same role, same industry, and same geographic region.” Technology workers in states where the inevitable disclosure doctrine is not permitted under state law will face uncertainty if they work for previous employers’ competitors.
Misappropriation of trade secrets by former employees is a balance between recognizing intellectual property rights and freedom of employment. Currently, existing state trade secrets laws might be the best sources of what should be expected even under a DTSA federal law claim. It remains to be seen how the UTSA and DTSA will develop among the Federal Circuit Courts. Trade secret owners and employees need to pay close attention to and continue to monitor how case law will affect the fate of the inevitable disclosure doctrine in different jurisdictions.
GLTR Staff Member; Georgetown Law, J.D. expected 2019; University of North Carolina at Chapel Hill, B.A. 2016. © 2017, Flora Feng.