Shareholders File Lawsuit as Justice Department Investigates Uber

(CN) – Uber faces a shareholder lawsuit over claims it stole self-driving car technology, which was filed on the same day the U.S. Department of Justice acknowledged it is investigating the company for criminal misconduct.

The suit, filed Wednesday by shareholder Lenza H. McElrath III in Delaware’s Court of Chancery, accuses Uber’s board of directors of breaching its fiduciary duties by approving Uber’s $680 million acquisition of Ottomotto, a driverless trucking startup founded by engineer Anthony Levandowski. Levandowski worked for Waymo and then Uber.

McElrath says the deal led Waymo, Google’s self-driving car subsidiary, to sue Uber and Ottomotto for trade secret theft, potentially resulting in billions of dollars in damages to Uber. The deal also prompted a Justice Department investigation against Uber, according to the complaint.

“[I]t was so obvious that Otto would not have been able to be a viable company for Uber to buy for $680 million within mere weeks after founding that only bad faith could lead the board to not consider Otto’s likely violation of Google intellectual property,” the 26-page complaint states.

It goes on to claim that each of Uber’s seven board members, including ousted chief executive Travis Kalanick, approved the summer 2016 acquisition even though they knew Levandowski had stolen trade secrets from Waymo. Kalanick and “others at Uber” even helped Levandowski with the theft, according to the complaint.

In June, Uber admitted that Kalanick instructed Levandowski to destroy five disks of proprietary Google information Levandowski kept after leaving Waymo, according to briefs filed by Waymo in its litigation.

Waymo, which sued in San Francisco federal court in February, claims Levandowski downloaded 14,000 of its trade-secret files before resigning in January 2016 to start Ottomotto, and that Uber quickly bought the company and hired him to build autonomous vehicles using Waymo’s technology.

“In the span of less than one month, Levandowski resigned from Google’s self-driving division, Waymo; started Otto; hired over a dozen former Google employees to join him; and signed a term sheet to sell Otto to Uber,” the complaint states. “This rapid sequence of events in itself constituted a red flag of warning to Uber’s board that its acquisition of Otto was simply an improper and potentially criminal raiding of Google’s assets.”

Uber did not return a request for comment Thursday.

The U.S. Attorney’s Office in San Francisco abruptly halted a planned December trial in the Waymo litigation when it sent presiding U.S. District Judge William Alsup a letter informing him it had opened a federal inquiry into Uber. The Nov. 22 letter was unsealed Wednesday, confirming the investigation for the first time.

Although the Justice Department letter does not specify what the agency is investigating, it describes a demand letter – made public Friday – that alleges Uber set up a secret intelligence team to steal trade secrets from Waymo and unnamed competitors overseas.

The demand letter was sent in May to Uber’s top in-house counsel Angela Padilla by former Uber security manager Richard Jacobs after Jacobs was forced to resign. Padilla turned it over to the Justice Department a month later to pre-empt its “fantastical” allegations, according to court testimony by her earlier this month.

Calling Jacobs an “extortionist” looking for a payout, Padilla testified that Uber fired Jacobs for downloading confidential documents to his personal email account to blow the whistle on Uber. Nonetheless, the company settled Jacobs’ employment claims in August for $4.5 million and hired him to consult for it on issues surrounding them. It paid his lawyer another $3 million as part of the settlement.

His lawyer says Uber demoted and then fired Jacobs because he refused to sufficiently cooperate with its illegal policies, including policies for hiding evidence so that it couldn’t be used in court.

According to Jacobs, Uber stores its competitors’ trade-secret information on computers that bypass its servers. Jacobs had also testified that the letter alleges that Uber employees communicate about the information using encrypted messaging applications that erase messages after a certain amount of time.

On Friday, the special master in the Waymo litigation submitted a report to Alsup concluding Uber should have produced the Jacobs letter to Waymo ahead of the trial. In this month’s evidentiary hearings, Alsup said Uber could be in trouble for not producing it.

McElrath seeks, on behalf of Uber, compensatory damages and a finding that Uber’s board members breached their fiduciary duties.

He is represented by Stuart Grant with Grant & Eisenhofer in Wilmington, Delaware. Grant could not be reached for comment Thursday.

 

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