Earlier today Alphabet subsidiary Waymo settled with Uber in the midst of a trade secret infringement trial. This lawsuit originated when Waymo brought suit against Uber in 2017, alleging that a former Waymo engineer Anthony Levandowski, who was hired by Uber to lead Uber’s self-driving car project, took with him thousands of confidential documents.
Uber will reportedly pay $245 million in shares to Waymo in order to settle the case, a settlement that took place prior to the start of the fifth day of testimony.
In an article published in October 2017, trade secret expert James Pooley, explained the factual basis for the ongoing legal battle between Waymo and Uber. Pooley wrote:
When Waymo, the Google self-driving car company, filed its lawsuit against Uber earlier this year, the story was remarkable enough. Anthony Levandowski, the head of Waymo’s research team for several years, had left to start Otto, supposedly to make autonomous long-haul trucks. Six months later Uber had purchased the new company (for $680 million) and hired Levandowski ($250 million in Uber stock) to lead its own team. Thanks to an errant email, Waymo suspected Uber had accessed its secrets, and ultimately discovered that just before leaving Levandowski had downloaded over 14,000 confidential files.
The U.S. Department of Justice is conducting a separate, criminal investigation into the alleged theft of trade secrets. Levandowski has claimed a Fifth Amendment privilege and has not spoken about the events leading to this dispute.
“While we do not believe that any trade secrets made their way from Waymo to Uber, nor do we believe that Uber has used any of Waymo’s proprietary information in its self-driving technology, we are taking steps with Waymo to ensure our Lidar and software represents just our good work,” Uber CEO Dara Khosrowshahi said in a statement.
According to Pooley, at an injunction hearing Uber had made an impressing showing that none of the secret Waymo files had found their way to Uber. So why settle then? Conversations Levandowski might have had with the Uber team, or suggestions he may have made based on knowledge learned at Waymo, could have provided an independent basis for trade secret misappropriation even if no documents were actually brought to Uber from Waymo. “Trade secret misappropriation applies to information carried in one’s head, just as if it were on paper or in an electronic file,” Pooley explained.
Despite whatever the relative merits of the case may have been, it is not everyday that one sees a settlement in the middle of a trial, particularly a high profile trial such as the battle between Waymo and Uber.
”While it’s certainly not unheard of to settle a case midway through trial, it’s not the typical scenario,” said J. Michael Keyes, a partner at the international law firm Dorsey & Whitney. “Usually, by the time both sides get to trial, all of the relevant stakeholders are aware of the risks and believe that their respective ‘world views’ will prevail before the jury. It’s hard to know what altered that calculus, and we may never know,” Keyes said.
“Uber’s CEO acknowledged that they should have handled their acquisition of OttoMotto—the company founded by the former Google driverless technology engineer— ‘differently.’ That’s probably the understatement of 2018,” Keyes explained. “I think what Uber is saying is that it should have done much more vetting of OttoMotto and its IP to ensure compliance with the law of trade secrets,” Keyes adds.
“Tech heavyweights and non-heavyweights alike need to be vigilant about making sure that employees that are hired and companies that are acquired are not tainted with potential claims of misappropriation, Keyes explained. “Extreme vetting of employees to make sure they did not take files and other information from the prior employer is a must. Careful due diligence during the acquisition process of a company is also paramount. The IP of that company needs to be traced back to its origins to ensure it is free of claims by third parties.”
In his October 2017 article, Pooley concluded by offering this cautionary note: “[T]his case is instructive for any business considering hiring an executive from a competitor: be aware that the cost of this recruitment might include the legal fees, disruption and liability risk of a trade secret claim. Manage accordingly.”
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9 comments so far.
AnonFebruary 11, 2018 10:29 am
Fabulous additions, Mr. Martillo. My sincere thanks.
I will note again, that my own learning of Schumpeter did NOT carry the baggage that you mention (and that appears to be coming MORE from those who followed Schumpeter and tried to deflate or deflect his pure innovation work INTO a politico/econ control mechanism. As such, I do NOT associate those wayward secondary effects with Schumpeter at all. That may form the basis of my initial advice to you above at post 3.
Joachim MartilloFebruary 11, 2018 09:22 am
Here is an online link to Schumpeter’s Business Cycles, Vol. 2.
Joachim MartilloFebruary 11, 2018 09:20 am
BTW, here is an online link to Schumpeter’s Business Cycles,
Joachim MartilloFebruary 11, 2018 09:18 am
I should have mentioned both National Socialism and also Soviet Communism. During the early 30s Schumpeter found Stalin more threatening than Hitler (a not unreasonable objective calculation).
Schumpeter was in his early works (more in German than in English) concerned about the crisis of capitalism. He seems to have become in his later work more interested in evolutionary economics or the development of economic systems.
It has been a long time since I attended lectures at the Nation Bureau of Economic Research. Back in the 70s I remember that many of Schumpeter’s students tended to emphasize stability more than economic development (possibly more than Schumpeter himself did — but I don’t know, for he died in 1950).
I associate the debased economic analysis that seems to be taking place at the USPTO with the former Schumpeter focus — especially when USPTO officials babble about “settled expectations.”
Anyway, it might be worthwhile to reread Business Cycles and to start reading NBER papers again.
Here are some patent-related economics papers.
I don’t know how much the influence of Schumpeter persists.
AnonFebruary 11, 2018 08:35 am
“He saw the problem in inventions introduced by upstarts and thought that if invention could be confined to stable established firms, revolutionary movements like National Socialism could be discouraged.”
I think that you read too much into this, as my reading of Schumpeter carried NONE of those connotations.
You may very well be carrying your own baggage into the discussion – not making any accusation, just a note for you to be on guard as to your own feelings creeping in.
Joachim MartilloFebruary 10, 2018 07:00 pm
As I pointed out, Sombart originated the concept of “creative destruction” and not Schumpeter. Sombart has been libeled as an anti-semite — he wasn’t. He actually wrote some of the first good political economic and sociological works about E. European Jews. Unfortunately because of the libel, there is a tendency to denigrate Sombart’s achievements and to ignore his introduction of important ideas in economics.
Schumpeter picked up on the idea of creative destruction, but he probably misinterpreted the chaos in the former Hohenzollern and Habsburg empires after WW1. He saw the problem in inventions introduced by upstarts and thought that if invention could be confined to stable established firms, revolutionary movements like National Socialism could be discouraged. (In retrospect the logical leap seems mind-boggling, but Schumpeter lived through an extremely strange time period that requires a lot of effort for people of the 21st century to comprehend.)
Schumpeter put a lot of thought into his theory of economics and certainly would not have advocated the crap that the USPTO is pulling.
I have seen internal USPTO documents that suggest at least some of the senior officials at the USPTO act of the basis of some weird misinterpretation of Schumpeter to the effect that for the good of the US economy, inventions must be expropriated from lone inventors, small business, and startups so that they can be made freely available to all market players.
In point of fact, USPTO expropriation of inventions makes the USA far less competitive in the world economy.
AnonFebruary 10, 2018 08:55 am
The only recommendation that I would make would be to coin a different phrase than the “vulgar Schumpeter” phrase, as it appears to discredit Schumpeter as opposed to praise his disruptive innovation view (a view that appears to be one that you wish to be protected with a strong patent system).
AnonFebruary 10, 2018 06:47 am
I look forward to reading your article Joachim.
Joachim MartilloFebruary 9, 2018 11:45 pm
Efforts to limit American worker mobility go back to the end of Reconstruction and the beginning of the Long Depression.
Today, the destruction of the US patent system along with concomitant emphasis on trade secrets is unmistakably an effort at American serrata.
The US Patent System, la Serrata of Venice, and Schumpeter