Five days into a trial that was set to last for weeks, Uber unexpectedly settled a lawsuit brought by Waymo over the alleged theft of trade secrets from the self-driving car company. Under the settlement, Uber has agreed to pay Waymo a .34% share of the company’s equity, which amounts to $244 million. Waymo, which is owned by Google parent company Alphabet, had been seeking damages of $1 billion.
Documents presented in the case remain sealed, including 14,000 emails that engineer Anthony Levandowski allegedly stole from Google when he left to form his own self-driving car company called Otto. In 2016, Uber purchased Otto for $680 million.
Although much of the details are still in the dark, the case sheds light on the cutthroat world of technology-based businesses and the race to produce the next big thing. It also raises interesting legal and moral questions about balancing the interests of a company over the rights of employees. To explore those questions, the Knowledge at Wharton radio show, which airs on SiriusXM channel 111, recently spoke with John Paul MacDuffie, Wharton management professor and director of the Program on Vehicle and Mobility Innovation at the Mack Institute for Innovation Management, and Eric Goldman, law professor at Santa Clara University and co-director of the school’s High Tech Law Institute. Following are key takeaways from their conversation:
So many questions, so few answers.
Big corporate cases are settled all the time, so the settlement here was not surprising. However, the timing was a bit of a shocker, the two experts said: Both parties had already spent a significant amount of time and money to get the case into court.
“It was a sign, perhaps, of some very rapid decision-making about how the trial was going,” Goldman said. “The timing of that certainly took everyone’s breath away.”
Despite all the information that did come out at trial, the trade secrets are still secret. Reporters were kicked out of the courtroom when those items were discussed, and the documents are not public record.
MacDuffie and Goldman defined trade secrets as information that creates value for a company because of its secrecy. “It can be something big and strategic, like the secret sauce of Google’s search engine algorithm, or it can be really tiny and minor, some differential way that the company knows how to do something that its competitors don’t know,” Goldman said. “We don’t have a really good sense about the trade secrets at issue here because so much of the case was put under seal. We know that there were 14,000 files that moved from Waymo’s servers into Levandowski’s possession, but we don’t have a full sense of clarity about what exactly those trade secrets were and whether they even qualified as a trade secret.”
It is difficult for employees not to import ideas from one company to another.
Goldman said the case casts a “crucial shadow” over the issue of employee mobility. California has strong laws that protect the ability of employees to move from one company to another, but the allegation that Levandowski stole so many documents makes it hard to feel favorably towards him.
“If [Levandowski] just walks out the door from Waymo, hands over his keys and takes his brain with him, this case looks very different or probably doesn’t get filed,” Goldman said. But in this case, it was both a person and “a big chunk of files that made the move.”
MacDuffie agreed, saying Uber’s business practices have raised eyebrows for a long time. This case was sparked when a supplier for Uber was shown email attachments of some plans for LIDAR, the laser-based technology behind self-driving vehicles, and was asked to bid on it.
“The supplier recognized it as looking very much identical to what Waymo was working on,” MacDuffie said. “That is a lot different than just knowledge in an employee’s head, if you’ve got exact blueprints that a competitor developed. Uber always claimed, ‘No, this is a fast-moving technology area. We’re doing our own stuff; that was coincidental.’ But there was this cloud of suspicion around just about everything Uber said, not just because of this case but because of other cases.”
Are non-compete laws the solution?
The laws surrounding intellectual property are pretty clear, Goldman said. “The general knowledge of the employee cannot be restricted or owned by the employer, but the specific knowledge that rises to a trade secret can.”
Applying that test is easier when dealing with documents because information can be cleaved into “two buckets”: general or proprietary. “When information is in an employee’s head, we don’t have any good solution for cleaving between the general knowledge that’s free to take and the proprietary knowledge that’s not,” he said.
“There was this cloud of suspicion around just about everything Uber said, not just because of this case but because of other cases.”–John Paul MacDuffie
Still, Goldman believes the law should err on the side of employees and not restrict them from moving. He mentioned California’s laws against non-compete clauses and the inevitable disclosure doctrine. “I think that’s been a key part of California’s success in allowing and encouraging employee mobility, even though they have information in their head that we can’t easily classify.”
According to MacDuffie, scientists have researched states where non-compete laws exist and found they have less innovation as measured by the number of patents filed. “Silicon Valley is what we all look to as the leader in the world in pioneering new technologies, and California has said we will not allow these kind of restrictions. The emphasis is on the side of allowing mobility as a priority,” he said.
There is no federal law against non-compete clauses, but Goldman thinks passing such a measure would be easy. Many employers love non-compete agreements because they keep employees in place and keep wages down by reducing competition for labor, but the employers ultimately pay a cost.
“It’s a way of actually restricting the efficiency of the labor market,” he said. “For many big employers, they’re trying to keep their key employees, but they’re also trying to hire the best talent in the marketplace, so non-compete agreements set up a thicket that makes it hard for even the biggest employers to get the talent that they want.”
MacDuffie pointed out that non-compete rules also fly in the face of evolving corporate culture.
“The way of thinking about talent and skill in most big American corporations has really shifted in the direction of valuing the outside hire who has some new and incredibly valuable skill, as opposed to developing people in those skills through an internal career over a long period of time,” he said. “With that shift, I would expect at least most large companies would see the logic that California has been applying and maybe back away from opposing this kind of federal law.”
“Uber has shot itself in the foot so many times, it’s hard to tell where this particular issue fits on the scale of problems that they face.” –Eric Goldman
Uber Has a Lot of ‘Trust-building’ to Do
Uber was already under scrutiny because of the behavior of former chief executive Travis Kalanick, who was removed last year amid a public relations fiasco over his behavior. He still sits on the board at the rideshare company.
On the day of the settlement, new CEO Dara Khosrowshahi expressed regret and said Uber’s acquisition of Otto “should have been handled differently.”
“It almost deflects from the big charge to the small charge,” MacDuffie said. “It wasn’t everything we’d like it to be, so let’s settle and get this behind us. It allows Uber and the board and new leadership to say, ‘This is over. Let’s look forward to an [IPO] maybe in 2019.'”
The case left behind a number of casualties at Uber, Goldman said, and the company will have to face the consequences.
“Uber has shot itself in the foot so many times, it’s hard to tell where this particular issue fits on the scale of problems that they face,” he said. “Uber has a lot of trust-building to do.”
Uber has agreed to an audit of its technology to ensure it is not stealing from Waymo. Goldman said that audit will be a nuisance to Uber, which has to realize they are now being watched.
“It’s just like having a cop on the beat,” he said. “It’s going to slow things down and make people stick to the speed limit more carefully.”