Judge Advances Uber Rival’s Claims Against Ex-Engineers

SAN JOSE, Calif. (CN) – Uber’s Chinese rival can forge ahead with a lawsuit accusing several of its former employees of stealing its trade secrets to start their own competing venture, a federal judge ruled.

UCAR, a ride-hailing service that competes with Uber in China, claims engineers Yan Li, Hua Zhong, Da Huo and Zhenzhen Kuo, spent a year and a half “secretly setting the stage to steal UCAR’s proprietary information.”

On Friday, U.S. District Judge Edward Davila allowed the bulk of UCAR’s misappropriation claims to move forward, finding UCAR’s claims that Li, when confronted, “effectively conceded” they had taken UCAR’s intellectual property and had “found at least $10 million worth of investment funds for them to start a competing venture that would be worth $70 million” sufficient to advance the lawsuit.

Davila also found UCAR’s claims the engineers accessed UCAR computers, stole the information on them and then wiped them clean are sufficient to proceed under the Computer Fraud and Abuse Act.

The four accused engineers were all hired between July 2015 and April 2016, and were immediately put to work for UCAR Technology (USA). The company, UCAR’s U.S. subsidiary headquartered in Silicon Valley, specializes in big-data analysis related to the ride-hailing industry and now in self-driving vehicles.

UCAR says it learned the engineers were considering leaving the company this past March, and all four resigned by email on March 14.

When they left, UCAR says, they absconded with trade secrets and intellectual property they had copied to other computers or to non-company computers through remote servers, leaving behind UCAR computers they had reformatted so they no longer contained any data.

In their counterclaims, the engineers said they learned UCAR was “part of a poorly defined mass of corporate entities which did not respect corporate formalities or job titles and was controlled by a small group of Beijing-based employees.”

They claimed UCAR was only using the Santa Clara engineering team as a fundraising tool, flatly refused to pay them the stock options and stock they were owed, and threatened to make “‘an example’ out of them through litigation” when they tried to leave the company.

Davila nixed their breach of contract, unjust enrichment and fraud counterclaims with leave to amend, finding they hadn’t shown that the company’s board of directors ever approved the stock options and stock.

He also ruled they hadn’t proven their employment agreements were invalid or unenforceable because they didn’t receive their stock.

“Insofar as the fraud claim is predicated on an alleged promise to grant stock or stock options, the claim is inadequately pled,” he added. “Counterclaimants fail to identify who made the promise to unconditionally grant stock or stock options, when the alleged promise was made and where the alleged promise was made. The only basis for the alleged promise appears to be the employment contracts. The alleged fraudulent promise to unconditionally grant stock or stock options, however, is inconsistent with the terms of the contracts, which as discussed previously, gave the board full discretion to grant or deny stock or options.”

UCAR is represented by Korula Cherian of Ruyak Cherian in Berkeley, California, and the engineers by Claude Stern with Quinn Emanuel in Redwood Shores, California.

Neither Cherian nor Stern responded to emails requesting comment.

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