Reducing Automotive Trade-Secret Litigation Risks

Trade-secret litigation often involves information access and information sharing by former employees or business partners. This means companies have some control to reduce the risk of being sued for trade-secret misappropriation.

Zoox autonomous-vehicle (Zoox)
Zoox autonomous vehicle was target of Tesla trade-secret litigation.Zoox

Trade secrets can be a company’s most valuable assets, for example, Google’s search algorithm or Coca-Cola’s recipe. Such confidential information often is what makes a business unique and provides advantages over a competitor.

Because of that, companies may have an interest in knowing about their competitors’ trade secrets. Trade-secret theft in U.S. costs hundreds of billions of dollars annually, and over a thousand trade-secret cases are filed each year.

In emerging and highly competitive and technical fields such as electric vehicles and autonomous vehicles, the value of confidential and proprietary information can be very high. So can be the risk of trade-secret misappropriation, especially with a growing number of partnerships between automotive companies and technology companies, the mobility of employees and the remote working environment.

There have been a number of high-profile trade-secret disputes in the automotive industry. Learning about these cases can provide insight as to how to avoid or reduce the risk of trade-secret litigation.

A well-known case is Waymo v. Uber, involving lidar, a technology that allows autonomous vehicles to “see” the surrounding environment. Waymo sued Uber for trade-secret misappropriation, alleging Uber conspired with a former Waymo employee to steal its trade secrets and seeking $1.8 billion in damages. In 2018, Uber and Waymo settled the case for approximately $245 million.

Another recent case involved electric-vehicle batteries. In 2021, LG Chem sued SK Innovation, alleging SK Innovation misappropriated LG Chem’s trade secrets through former LG Chem employees. SK Innovation was found in default as a result of its spoliation of evidence. The parties later settled their dispute, with SK Innovation agreeing to pay $1.8 billion.

Tesla, as the leading BEV manufacturer, has filed several lawsuits relating to trade-secret misappropriation and/or breach of contract against former employees and related companies. Between 2017 and 2021 Tesla sued four former employees as well as Zoox, Amazon’s autonomous-vehicle subsidiary, and BEV startup Rivian.

Other car companies have been involved in similar trade secret disputes:

  • In 2018, Faraday Future, an electric-car company founded in 2014, sued its competitor Evelozcity for trade-secret misappropriation relating to AI electric vehicles and related technology.

  • In 2018, WeRide, an autonomous-vehicle company, sued its former CEO and former head of hardware technology and their new companies, alleging misappropriation of confidential information relating to autonomous-vehicle mapping and localization technologies.

  • In 2019, QuantumScape sued BEV maker Fisker, alleging a former QuantumScape employee brought to Fisker thousands of confidential documents relating to solid-state lithium-ion battery technology.

  • In 2020, Karma Automotive sued a former employee and Lordstown Motors, alleging Lordstown stole trade secrets relating to infotainment technology.

As these cases show, trade-secret litigation often involves information access and information sharing by former employees or business partners. This means companies have some control to reduce the risk of being sued for trade-secret misappropriation.

John Caracappa.jpg

John Caracappa

For example, when hiring from competitors, companies should interview candidates carefully, make sure they do not bring with them competitors’ confidential and trade-secret information and confirm they are not violating any non-compete agreement with the prior employer. Similarly, when starting a collaboration project with other companies or receiving confidential trade-secret information from business partners, companies should implement procedures to protect and segregate third parties’ confidential information.

Companies also can take necessary steps to protect their own confidential and proprietary information to avoid the need to initiate an offensive trade-secret action. First of all, companies should ensure safeguards are in place to protect such information, including the use of non-disclosure agreements. When employees are leaving, monitor their downloading behavior, conduct computer inspections and obtain written confirmation that all confidential company documents have been returned.

Boyd Cloern.jpg

Boyd Cloern

Companies also should limit the number of individuals with access to such information. And if suspicious activity is discovered, act swiftly to mitigate the potential harm.

In summary, the automotive industry is experiencing rapid development of new technologies, increasing competition among traditional car manufacturers and technology companies and constant collaborations and partnerships. In combination with employee mobility and remote-working environments, automotive companies can expect more trade secret disputes in the future and should prepare in advance to deal with them.

Li Guo.jpg

Li Guo

John Caracappa (pictured, top left) is a partner at Steptoe & Johnson in Washington, DC, and is co-chair of the firm’s Intellectual Property group and chair of the firm’s ITC practice. Boyd Cloern (pictured, above left) is a partner at Steptoe & Johnson in the firm’s Intellectual Property group. Li Guo (pictured, left) is an associate at Steptoe & Johnson in the firm’s Intellectual Property group.

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