IP Law Daily Tesla can present evidence of punitive damages in trade secrets suit against former employee
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Monday, September 21, 2020

Tesla can present evidence of punitive damages in trade secrets suit against former employee

By Brian Craig, J.D.

The court prohibited the former employee from asserting a defamation counterclaim but also barred Tesla from arguing a market capitalization theory alleging damages to Tesla’s stock.

In Tesla’s misappropriation of trade secrets case against a former employee who allegedly shared confidential information with a news reporter, the federal district court in Las Vegas has ruled that Tesla can present evidence of punitive damages at trial but will not be able to assert a market capitalization theory alleging damages to Tesla’s stock. The court found that the former employee’s actions lack the requisite causal link to any diminution in the value of Tesla’s stock. The court also granted summary judgment in favor of Tesla on the former employee’s defamation and false light counterclaims because none of the challenged statements were false. Additionally, the court granted Tesla’s request to seal certain court records containing proprietary trade secrets (Tesla, Inc. v. Tripp, September 17, 2020, Du, M.).

Tesla sued a former employee alleging that the employee shared confidential information about the production of Tesla’s Model 3 car with a news reporter. The former employee, who worked as a lead process technician, claimed he was a whistleblower exposing production inefficiencies and delays in Tesla’s race to produce 5,000 Model 3 cars per week. Tesla alleged violations of the Defend Trade Secrets Act, the Nevada Uniform Trade Secrets Act, the Nevada Computer Crimes Law, breach of contract, and breach of the fiduciary duty of loyalty. The former employee asserted counterclaims for defamation and false light. The former employee filed a motion for summary judgment on Tesla’s damages theories and other claims. Tesla also motioned for summary judgment on the defamation and false light counterclaims.

Damages. The court granted summary judgment in favor of the former employee concluding that Tesla could not proceed with a market capitalization theory on damages. The court was unpersuaded on Tesla’s theory that the former employee’s disclosure of confidential information to the reporter resulted in $167 million in market capitalization damages to Tesla stock. Tesla did not dispute that the price of Tesla’s stock fluctuates and that the stock recovered quickly. Tesla’s expert admitted in his deposition that he could not say the news articles caused the drops in Tesla’s stock price.

Nevada Computer Crimes Law. The court sided with Tesla in denying the former’s employee’s summary judgment motion on Tesla’s claim for violation of the Nevada Computer Crimes Law (NCCL). The former employee argued that because he had authority to access the information forming the basis of the claim, the NCCL claim could not proceed. The court agreed with Tesla that the NCCL also prohibits unauthorized use of data, especially considering the former employee admitted he was not authorized to use the data in the way he did. The court further agreed that Tesla can claim $261,919 in investigative costs as "response costs" under the NCCL because the statute expressly permits recovery of investigative costs as "response costs." Accordingly, the court denied the former employee’s motion for summary judgment on those issues.

Punitive damages. The court also concluded that Tesla may proceed with presenting evidence on punitive damages during trial. Tesla argued that it suffered actual damages and there was evidence Tripp acted with malice. The court found that a rational trier of act could reasonably find the former employee acted in conscious disregard of Tesla’s rights. Therefore, the court denied the former employee’s motion on the punitive damages issue.

Defamation and false light counterclaims. The court also ruled that the former employee could not go forward with his defamation and false light counterclaims. The court found that the former employee became a limited-purpose public figure because he achieved a certain level of notoriety based on his role in this issue by contacting the reporter. Therefore, the former employee was required show that the challenged statements were made with actual malice to prevail on false light and defamation.

In analyzing each of the four challenged statements, the court found that none of the statements were false. It is not the literal truth of each word or detail used in a statement which determines whether or not it is defamatory. Rather, the determinative question is whether the gist or sting of the statement is true or false. Because the former employee could not show falsity, he could not show actual malice. As none of the statements were false, the court granted Tesla’s motion for summary judgment on the defamation and false light counterclaims.

Sealing of records. Finally, the court granted Tesla's motion to seal certain documents to protect Tesla’s proprietary information and trade secrets. In the Ninth Circuit there is a strong presumption in favor of access to court records. To overcome this presumption, a party must articulate compelling reasons justifying nondisclosure, such as use of the record to gratify spite, permit public scandal, circulate libelous statements, or release trade secrets. The former employee did not oppose Tesla’s motion to seal. Having reviewed the documents and portions of documents Tesla sought to seal, the court agreed that the documents contained trade secrets and personal information that should remain under seal.

This case is No. 3:18-cv-00296-MMD-CLB.

Attorneys: Alexander Benjamin Spiro (Quinn Emanuel Urquhart & Sullivan LLP) and Rory T. Kay (McDonald Carano Wilson LLP) for Tesla, Inc. Martin Tripp, pro se.

Companies: Tesla, Inc.

MainStory: TopStory PublicityRights TradeSecrets GCNNews NevadaNews

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