Worker Mobility & Trade Secrets Still at Odds After Waymo-Uber War

(CN) – The blockbuster Waymo-Uber case over the theft of autonomous vehicle technology settled during trial last month for $245 million in Uber stock, allowing both companies to refocus on launching self-driving cars for the ride-hail market.

But the absence of a verdict in what could have become precedence on how to balance an engineer’s right to work for a competitor with a company’s right to safeguard its trade secrets means legal questions remain.

“This case presents the right of employees to leave their employment and continue their profession at some other company,” U.S. District Judge William Alsup said during a pretrial hearing in San Francisco this past November. “Silicon Valley and the rest of the technical world out there in the United States is very interested to know how we balance these competing factors here.”

The saga began when Google spinoff Waymo accused ride-hail giant Uber of stealing its autonomous vehicle technology by hiring away its lead engineer. Waymo said the engineer swiped hundreds of thousands of confidential and trade-secret files before resigning and used them to design a self-driving car for Uber.

Alsup recognized the veracity of Waymo’s claims about the data theft early on, ordering Uber to make the engineer return the files. In the end, however, Waymo never proved the missing information had made it to Uber.

But one of the eight trade secrets it said the engineer used at the ride-hail was a negative trade secret: knowledge of what technical approaches don’t work that is rarely written down. Waymo said it cost $50 million to find out what didn’t work, and its lessons would benefit Uber immeasurably by knowing where – and where not – to invest.

Thomas Edison “was very careful not to let his competitors know about all the different compounds and materials he tried for a long-lasting light bulb filament,” trade-secret expert James Pooley said by phone. “Any of his competitors who found out anything about what hadn’t worked or worked less well would have been able to jump in the game and get completely caught up without investing anything.”

The debate over what constitutes a trade secret can affect an engineer’s ability to work for a competing firm, especially in Silicon Valley where companies routinely poach their rivals’ best employees. To secure trade secrets, many tech companies ask new recruits to sign noncompetition agreements generally lasting a year: if an employee goes to work for a rival, their old employer’s trade secrets will inevitably be disclosed.

But research shows non-competes can suppress job mobility, innovation and growth. So unlike most states, California prohibits non-competes and the doctrine of inevitable disclosure. An employer in California must instead go to court and show real or threatened misappropriation of trade secrets to get an injunction barring competitive employment.

When the California Legislature adopted the Uniform Trade Secrets Act in 1984, however, it also adopted Congress’ comments on the statute, for the first time expanding the definition of a trade secret to negative information.

Employee-mobility advocates criticized the new definition, arguing the classification of negative knowledge as a trade secret conflicts with the long-standing rule that employees can use general skills and knowledge gained on the job at subsequent employers. Some portray it as an absurd demand to unlearn something, forcing engineers to spend months repeating mistakes and squandering resources.

“Having to basically forget what doesn’t work” is “wasteful for the goal of innovation,” Orly Lobel, a professor at the University of San Diego School of Law, said by email.

Waymo v. Uber thus brought up a controversial question: Is the concept of negative trade secrets compatible with California’s policy favoring employee mobility?

Some legal experts want to go further than California’s prohibition on non-competes and exclude all negative knowledge from trade-secret protection. In fact, they advocate firms sharing information to design products faster.

Northwestern University Pritzker School of Law professor Laura Pedraza-Farina argues innovative ideas usually start in informal information-sharing networks spread across competing firms, not within firms. According to her 2017 study, Silicon Valley’s early success was built on collaborations between IBM and other Silicon Valley firms.

“Advances in complicated technological frontiers are simplified enormously,” Pedraza-Farina wrote, “if all involved share information on false starts and blind alleys, and on specific ‘tricks’ for getting a public protocol to work, so that experimental failures need not be repeated.”

Pooley, the trade-secret expert and a past deputy director general at the World Intellectual Property Organization, counters that since California began protecting negative information, Silicon Valley and California have become centers of innovation.

“Just look around,” he said.

Pooley and other critics of the information-sharing model predict companies will spend less on research and development if negative information isn’t protected as trade secrets. He says more than 90 percent of research and development money goes toward learning what doesn’t work.

“If someone can sort of pick it up and walk it out the door to a competitor, why would you do it?” he asked.

Seyfarth Shaw attorney Robert Milligan conceded the information-sharing model has some merit. But, he noted in a phone interview, “How are they going to justify it to shareholders?

“If they allow competitors to be part of that dialogue and conversation, how does the corporation benefit? How do shareholders benefit?”

Other experts predict losses in keeping negative information secret.

Uber attorney Arturo Gonzalez with Morrison & Foerster used the field of surgical-robotics as an example. An engineer learns at her job that a surgical device she’s designing will hit a patient’s nerve if it moves left, he said by phone. Later, at a new job, the engineer’s boss tells her to rig a competing device to move left, unaware of the outcome.

“Are you supposed to just sit there and do X and now the patient is paralyzed? Because it would violate a trade secret?” Gonzalez asked.  “It’s a gross violation of public policy to prevent those employees from saying, ‘Oh no, don’t do that, that’s going to lead to something bad happening.’ They’ve got to be able to say that as employees.”

Gonzalez’s hypothetical raises questions about engineers who go to work for rival firms. Some don’t even go, he said, fearful of being sued for using their employer’s negative trade secrets. They get stuck, and productivity suffers.

Meanwhile, engineers who think they can dodge a lawsuit by carefully repeating mistakes at new jobs can get into trouble anyway, according to attorney Charles Tait Graves of Wilson Sonsini Goodrich & Rosati. He theorized in a 2007 study that engineers who repeat mistakes may accidentally use positive secrets, making them liable for misappropriation either way.

Graves’ theory dovetails with the fact that trade-secret cases typically involve claims for both positive and negative secrets. Companies don’t sue over negative information alone because it would be too hard to prove or even detect without files going missing first.

That’s why protection proponents call Graves’ theory deliberate theft. Waymo, for example, claimed its former engineer didn’t accidentally steer his Uber colleagues away from an approach he knew didn’t work – he told them to take an approach he knew did work and had Waymo’s trade secrets to prove it.

“The law respects the rights of employees to freely change jobs so long as they do not use their prior employer’s trade secrets, including negative trade secrets,” Waymo’s attorney Amy Candido, with Quinn Emanuel Urquhart & Sullivan, said through a spokeswoman.

“This was reflected in the penultimate jury instructions in the Waymo v. Uber case, which explained that accumulated on-the-job know-how that is well-known in the industry will not be considered a trade secret, whether it is knowledge of what to do or what not to do.”

With only a handful of cases addressing the intersection of negative trade secrets and California’s mobility policy, mobility advocates hoped Waymo v. Uber would make the law clearer. Protection proponents, however, say the law is already clear. According to Gonzalez, negative trade-secret claims where repeating an approach can hurt someone are easier for courts to resolve; it gets trickier when the possible approaches don’t threaten safety.

The category to which Waymo’s asserted negative secret belonged remains unknown. But the parties fervently disagreed about the difference between trade secret and skill, suggesting California’s laws may need refining.

“We as a society should not want employees pursuing avenues that have failed,” Gonzalez said. “That’s where I think the courts are going to end up.”

 

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