In Silicon Valley, the land of highly mobile (and sometimes less than loyal) professionals, concerns run high about ex-employees taking company trade secrets to rival firms. It’s part of a growing national trend, according to new data by legal analytics firm Lex Machina (part of LexisNexis). And it extends well beyond the high-tech sector: One of the seminal cases in recent years was over a recipe for jam.
Trade secret theft has gotten a lot of attention lately. In February, Uber paid about $245 million in company equity to settle allegations that it stole trade secrets for autonomous car sensors from Waymo, a sibling company to Google. But concerns go back further. Two years ago, President Obama signed the Republican-sponsored Defend Trade Secrets Act of 2016, the first federal law allowing companies to bring trade secret lawsuits.
Cases take off
Previously, trade secret cases were covered only under state laws, although if a suit involved parties in two states, a federal court would try the case. With passage of the Defend Trade Secrets Act, the number of federal-court cases spiked, from 860 filed in 2016 to 1,132 in 2017.
With no tagging for trade secret law cases in the federal government’s database, called PACER, Lex Machina used its natural language processing tech to scan federal-court cases, identifying over 9,600 entered in PACER since it went online on January 1, 2009. (Cases filed before that date, but still open, were included. Neither PACER nor Lex Machina track cases tried in state courts.) Of them, 1,132 were filed under the new federal law. The first verdict under the law, in February 2017, awarded Dalmatia Import Group $2.5 million in damages for theft of its fig jam recipe.
Data also shows that trade secrets cases extend well beyond Silicon Valley. “I don’t see a ton of tech companies in here. I would have guessed there’d be more,” says Owen Byrd, Lex Machina’s general counsel and chief evangelist.
For instance, Total Quality Logistics, a shipping logistics firm based out of Cincinnati, has sued 15 times and been sued once. The busiest company has been Allstate Insurance, as a plaintiff in 43 cases and a defendant in two. “Among plaintiffs with open cases, there are a noticeable number of insurance companies,” says Byrd. However, they might be bringing lawsuits on behalf of clients, he notes. In July, Lex Machina plans to publish a deeper dive and analysis of trade secret cases and parties, he says.
Among big tech companies with trade secret cases in federal court:
- Apple has been sued in nine cases. Eight have been “terminated,” meaning somebody won, or some settlement or other resolution (like dismissal by a judge) was reached.
- Facebook has been sued in five cases. Three are still open.
- Google has been sued in six cases, with two still open.
- Uber has been a defendant in three, with two open and the Waymo case settled.
Companies have a good shot
Regardless who the companies are, they appear to be increasingly using trade secret claims to protect their competitive advantage, says Byrd. In filing a patent, a company is required to reveal every bit of its technology, leaving it vulnerable to copying by rival firms. Though that’s illegal, it’s alleged to happen a lot. Lex Machina counts 64,911 patent cases in the U.S. since 2000.
“Trade secret is completely different,” says Byrd. “I don’t have to disclose it as the premise for getting protection from infringement for a period of years.” Patent rights expire, typically after 20 years. Trade secrets–and the ability to sue if they are revealed–last indefinitely. Think about the much-hyped 125-year-old recipe for Coca-Cola.
Lex Machina itself, according to Byrd, relies mostly on trade secrets. “Yes, we have some patents. Yes, we have some trademarks,” he says. “But our natural language processing secret sauce . . . is primarily protected through trade secrets.”
And companies get good results with trade secret cases. The median time to get a temporary restraining order against the employee accused of stealing information is just six days, which Byrd calls quick. Most cases are settled before trial, but of the 231 cases that went all the way through, companies claiming theft of trade secrets won 165 times. “It’s more likely at trial that a defendant will be found to have committed willful or malicious behavior as opposed to a defendant being cleared,” says Byrd.
Given those trends, it’s not surprising that Uber settled the Waymo case just five days into the trial. Uber might have paid much more in damages had the case continued. “Companies should feel emboldened in their claims of trade secret misappropriation,” says Byrd, “because this data says companies prevail far more often on the merits than the former employee and his or her new employer prevail.”