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When Trade Secret Cases “Go Criminal”

At a time when the federal government is stepping up its enforcement of federal trade secret law in an effort to safeguard American intellectual property from national security threats from China and elsewhere, the recent criminal indictment of former Google and Uber executive Anthony Levandowski underscores the potential criminal specter that looms over civil trade secret disputes. Although his case is an egregious one, it also highlights the numerous risks involved for companies operating in any space involving trade secrets, including how to adequately protect such secrets, how to conduct diligence on mergers or acquisitions, how to adequately vet new hires, how to protect against reputational harm, how to take action once a theft has occurred (especially in light of arbitration clauses in most employee contracts), and, most importantly, how to avoid a federal criminal indictment.

Last week, former high-profile Silicon Valley engineer Anthony Levandowski was indicted on 33 counts of federal theft and attempted theft of trade secrets from Waymo, Alphabet’s self-driving technology component. Importantly, the indictment is issued against Levandowski individually and does not include charges against his former employer Uber. The indictment is significant nonetheless as until recently it was not a common practice for the federal government to prosecute trade secret cases. Such prosecutions are difficult because the statute itself is exacting, requiring prosecutors to prove a high level of intent and knowledge in three separate elements, including that the offender act with (1) “intent to convert a trade secret,” (2) intent or knowledge that this conversion will “injure any owner” of the trade secret, and (3) that the offender “knowingly” steals, appropriates, takes, carries away, conceals by fraud, artifice, or deception, copies or otherwise transmits the secret without authorization, or receives the same.

This is an indictment that grew out of an underlying civil case—Waymo v. Uber—and it may be that the conduct alleged was so egregious (it was even referred for criminal prosecution—a relative rarity—by Judge Alsup of the Northern District of California), and Levandowski himself was so high-profile that federal prosecutors had to take action. Levandowski was an engineer on Google’s self-driving car team at Waymo from 2009 until his resignation in 2016. Prior to his resignation, he allegedly downloaded more than 14,000 sensitive documents related to Waymo’s secret self-driving technology and launched his own self-driving car company called Ottomotto. After leaving Waymo, he entered into discussions with Uber about investing in or acquiring Ottomotto. Uber ultimately acquired the company for $680 million in August 2016, and Levandowski later joined Uber’s team.

The underlying civil suit that Waymo filed against Uber in early 2017 settled five days after trial began in early 2018, with Uber agreeing to (i) pay out 0.34% of its equity (about $244 million), and (ii) not use any technology derived from Waymo. By that point in the lawsuit, however, extensive discovery had been sought and obtained, which was then entirely accessible to federal prosecutors in their subsequent criminal case.

Although private companies have to be aggressive about enforcing their trade secret rights through civil litigation, the U.S. Government has recently announced its goal of stepping up enforcement of trade secret laws as part of its China Initiative. The Attorney General has announced a goal to “[i]dentify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner[.]” As the Levandowski case demonstrates, federal prosecutors are not only looking at foreign actors who violate such laws but to potential violations that occur by U.S. companies and individuals as well.

What This Means For You

This climate of increasing trade secret enforcement highlights that cases starting out in the civil arena are low-hanging fruit for prosecutors. This opportunity for prosecutors to piggy-back off the civil discovery efforts of parties engaged in litigation—which are often extensive—means that both federal and state prosecutors can gain documentary evidence without showing probable cause and with much less effort than if they needed to build the evidence from the ground up.

For corporations, the indictment underscores the need for thorough and extensive vetting at the hiring phase, thorough diligence of acquisitions, and solid compliance programs that include adequate training against theft. “One bad apple” who downloads schematics or trade secrets on their way out the door can spell huge monetary liability and extensive reputational harm for their next employer.

Finally, the indictment underscores the tension between effectively defending a trade secrets civil suit, while anticipating the possible fallout of any subsequent criminal probe. Individuals targeted for deposition in trade secret civil disputes will have to consider whether to invoke their Fifth Amendment privilege against self-incrimination. Likewise, companies will need to evaluate whether they will consider any such invocation as a failure to cooperate with an internal or government investigation. Indeed, in Waymo v. Uber, Levandowski invoked his Fifth Amendment privilege and refused to testify at trial, after which Uber fired him.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.