Who Pays When Your New Employee Brings Your Competitor’s Trade Secrets?

Originally published by Cleve Clinton.

Days ago, engineer Anthony Levandowski was indicted on criminal charges accusing him of stealing information from Google-owned Waymo and taking it to Uber. While the indictment alleges he downloaded 14,000 documents containing trade secrets before he left Google, Levandowski insists the downloads were his. An arbitration panel ordered Levandowski to pay Google $127 million. After firing Levandowski – who repeatedly asserted his constitutional right against self-incrimination before the trial – his new employer, Uber, paid $245 million to settle its own civil lawsuit with Google.  The sitting federal judge recommended a criminal probe into a possible theft – now an indictment. Everybody does it, right? Who pays the $372 million? Does Uber have to protect Levandowski? Can Levandowski claim ownership of his ideas? Can Levandowski go to jail?

Yes, trade secret theft and resulting money judgments are mushrooming. The parties’ contracts will influence payments and defenses. No, Levandowski probably does not own his workplace ideas. Yes, he could go to jail.

Legally

Although trade secrets can “migrate” as employees change jobs, as Mom used to say, “everybody doing it does not make it right.” State legislatures and Congress support Mom: the federal Theft of Trade Secrets Act; the federal criminal (and now civil) Computer Fraud & Abuse Act; the criminal Texas Theft of Trade Secrets Act; and the Texas Uniform Trade Secrets Act. The last emulates similar laws in 47 other states, including California where Levandowski lived. The California 33 count indictment subjects him to up to 10 years imprisonment on each count plus fines up to $250,000.

Simply stated, if Levandowski was a resident of Texas subject to the Texas Theft of Trade Secrets Act, he committed a third degree felony if he: (i) stole valuable information, (ii) that Google took measures to protect from non-employees, and (iii) copied, communicated or transmitted it to a non-employee. And, no, it is more likely than not that Levandowski cannot successfully argue that he owned all or part of his “ideas.”

Practically – Observations

Non-competition agreements are common when employees with special talents and expertise are likely to be hired by competitors.  Frequently, the hiring employer agrees to pay to defend the new employee – even when the employee and his former employer signed an employment agreement agreeing that any employment disputes would go to arbitration.

For Levandowski, it’s likely that Uber would be contractually obligated to pay the $127 million arbitration judgment – unless his taking the 5^th amendment in his deposition breached his contract. Perhaps, that was the reason Uber fired him and settled out of court for $245 million? Even though cases involving ownership of employee inventions can become very fact intensive, because Levandowski works in the technology industry it is more likely than not that his employment contract assigned to Google any inventions and patentable rights that he might have created. Finally, for a sitting federal judge to recommend a criminal investigation is highly unusual. Perhaps the Levandowski “bad facts” were especially egregious and / or the settlement payment to Google was perceived to be too little. For any number of reasons, Mr. Levandowski is undoubtedly in the San Diego, California prosecutor’s cross-hairs.

Theft of company secrets is big business. The Chinese electronics giant Huawei has been accused of offering bonuses to its employees for stealing confidential information from outside companies, according to an indictment issued to the company recently by the US Department of Justice.

Tilting the Scales in Your Favor

If your company is hiring someone like Mr. Levandowski, you may want to consider:

1. Ask the new employee to disclose any employment agreements and their restrictive covenants
2. Identify any information a new employee intends to bring to the new employment – and eliminate possible trade secrets
3. Have the new employee sign your company’s proprietary information agreement
4. Confirm that agreement affirmatively requires the new employee to identify any information brought with him, and to assume any liabilities the old company may impose
5. IF you do expect to defend or indemnify your new employee from the claims of the former employer, consider providing that all beneficial rights are terminated upon the employee’s failure to cooperate with criminal inquiries or upon any indictment related to information allegedly taken

 

Related Posts:

Protecting Your Piece of the Pie: Texas Adopts the Uniform Trade Secrets Act

Publishing Trade Secrets

Protecting Your Customer List

Texas Non-Competition Agreements are Enforceable

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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