Companies often consider trade secrets to be their crown jewels, particularly in Silicon Valley. In the digital age, where copying vast amounts of data and transmitting it via the Internet is as easy as one click, protecting trade secrets has become ever more challenging for highly competitive technology companies. Losing control over your trade secrets can mean losing an edge over competitors or possibly the entire value of a product line or entire company.
A Cautionary Tale
In arguably the biggest trade secret case since General Motors sued several former high ranking executives and Volkswagen AG for stealing massive amounts of GM’s trade secrets, the prosecution and sentencing of Anthony Levandowski, a former executive at Google’s self-driving car subsidiary Waymo, is a cautionary tale for any high flying engineer who thinks that taking his employer’s confidential business information is easy and lucrative.
The U.S. Justice Department prosecuted Mr. Levandowski for his crimes. He pleaded guilty to one count of trade secret theft under the Economic Espionage Act. He was sentenced to 18 months in prison. He was then sued by his former employer under federal and state law in a civil action and found liable in damages to the tune of $179,000,000. He filed for personal bankruptcy. He will find it difficult to find a job in Silicon Valley or tech ever again.
Trade Secret Law Continues to Develop
In 1996, Congress enacted the Economic Espionage Act (“EEA”), which made trade secret theft a federal crime. Before the Act, trade secret law was largely the domain of the states and primarily litigated in civil court. For the first time the Act provided a federal definition of trade secret that includes all forms and types of information that an owner takes reasonable steps to keep secret, and that derives independent economic value from not being generally known to others who can obtain economic value from the information.
In 2016, Congress amended the Act to add the Defend Trade Secrets Act (“DTSA”), which created a private federal cause of action for trade secret theft and allowed companies to obtain injunctive relief and monetary damages for unlawful use of one’s trade secrets. Although the DTSA created civil remedies under federal law, it did not replace state law. It left criminal prosecution available under the EEA, and private civil actions available under both the DTSA and state law to remedy trade secret theft.
Levandowski’s Cases
In Mr. Levandowski’s case he confronted all three types of action — a trade secret trifecta of sorts. In December 2015, Levandowski, a manager at Google’s self-driving car company Waymo, left the company. Before doing so he allegedly downloaded more than 14,000 confidential business documents. He proceeded to start his own self-driving vehicle companies, Ottomoto and Otto Trucking. Uber purchased Otto in August 2016 for $680 million.
In February 2017, Waymo filed a civil complaint alleging DTSA and state law trade secret violations that Uber and Otto relied on documents Levandowski stole from Waymo to develop imaging technology for their self-driving cars. Five days into the jury trial, the parties entered into a settlement agreement under which Uber agreed to refrain from using any of Waymo’s technology in its self-driving vehicles, and to grant Waymo a 0.34% equity stake in Uber, an amount equivalent to roughly $243 million at the time.
In August 2019, a federal grand jury in San Jose, California indicted Levandowski on criminal charges for trade secret theft under the EEA. The indictment charged Levandowski with 33 counts of violating federal law. Each count corresponded to a different document allegedly taken by Levandowski.
In March 2020, Levandowski pleaded guilty to one count of trade secret theft for taking a single document from Waymo. For the purpose of determining his sentence, Levandowski agreed to a value for the document at between $550,000 and $1.5 million, which brought his recommended sentence as a first-time offender to between 24 and 30 months. The court ultimately sentenced Levandowski to 18 months in prison, followed by three years of supervised release. He was fined $95,000 and ordered to pay Waymo $756,499.22 in restitution.
At the sentencing, the court stated that Levandowski committed the biggest trade secret crime it had ever seen, and that a non-custodial sentence would be a green light to every future brilliant engineer to steal trade secrets. Mr. Levandowski declared bankruptcy in March 2020, but restitution as part of a criminal sentence cannot be discharged through a bankruptcy proceeding.
Lessons Learned
The Levandowski disputes highlight important lessons for companies seeking to ensure their trade secrets are adequately protected and, if anything happens, that they will be protected under the relevant laws.
1. Require employees to sign NDAs. The initial, and most critical, step your company should take to protect its trade secrets is to create an NDA and require all of your employees to sign it. NDAs are legally binding contracts that put employees on notice that they are not permitted to share the company’s confidential information at any time, including after the employment relationship has ended.
2. Identify your company’s trade secrets early and often. Your company should have a written policy to tell all your employees how to identify and protect your trade secrets. This assists employees in understanding what belongs to the company and prevents inadvertent trade secret disclosure.
3. Take thorough actions to protect confidential information and enforce them. In addition to making clear to employees what information is considered trade secrets, you should take steps to ensure that access to confidential business information is appropriately restricted and protected. For example, store documents reflecting trade secrets in locked cabinets, or house electronic documents in secured data rooms that are password-protected and restricted to only those employees who require access.
4. Inform your employees that using and copying documents is monitored by the company, and then monitor that activity. In the Levandowski case, forensic analysis of electronic devices provided damning proof that Levandowski had taken confidential documents with him when he left Waymo. Tracking the use and copying of documents internally can help prove trade secret theft when it happens, and informing employees that document use is being monitored can also deter theft.
5. If trade secrets are stolen, consider pursuing both civil and criminal remedies. Levandowski’s theft of Waymo’s trade secrets resulted in both criminal prosecution and penalties, and a civil action and settlement against Uber. The criminal penalty against Levandowski benefits Waymo by showing its current employees how seriously it takes its trade secrets, providing a deterrent effect on future trade secret theft. The civil case likewise benefitted Waymo by giving it an ownership stake in one of its biggest competitors. While the trade secret disclosure cannot be undone, the civil remedy may undo some of the competitive damage Levandowski caused to Waymo by giving its secrets to Uber. The ownership stake also gives Waymo some insight into Uber’s operations, allowing easier enforcement of the non-use provision of the settlement.