IP Law Daily Uber cannot force Waymo to arbitrate trade secret and patent case
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Friday, September 15, 2017

Uber cannot force Waymo to arbitrate trade secret and patent case

By Cheryl Beise, J.D.

In a high-stakes lawsuit over driverless vehicle technology, Alphabet subsidiary Waymo was not required to arbitrate its patent and trade secret claims against Uber Technologies based on Waymo’s employment agreements with its former engineer, Arthur Levandowski, the U.S. Court of Appeals for the Federal Circuit has held in a precedential opinion. Waymo’s claims did not rely on Levandowski’s employment agreements, and Waymo did not allege any collusion between Uber and Levandowski involving the agreements. Levandowski, who had intervened in the case, is accused of misappropriating Waymo’s driverless vehicle technology to co-found self-driving truck company Otto, which Uber later acquired for $680 million. In a separate opinion, the Federal Circuit denied Levandowski’s petitions for a writ of mandamus to prevent production of an investigative report that was prepared prior to Uber’s acquisition of Otto. Levandowski was not precluded from appealing a final adverse judgment in the case and he was not protected by attorney-client privilege based on a purported common interest with Uber, attorney work product, which had been waived by Uber, or the Fifth Amendment privilege against self-incrimination, which was inapplicable a civil case (Waymo, LLC v. Uber Technologies, Inc., September 13, 2017).

In February 2017, Waymo, LLC filed suit against Uber Technologies, Inc., Ottomotto LLC, and Otto Trucking LLC, asserting patent infringement, trade secret misappropriation under the Defend Trade Secrets Act and the California Uniform Trade Secrets Act, and unfair competition under the California Business and Professional Code. Levandowski was permitted to intervene in the case. In May, the district court granted Waymo’s request for a preliminary injunction and ordered expedited discovery in the case. The court found that Waymo was likely to succeed on its trade secret misappropriation claims, based on evidence that Levandowski improperly downloaded over 14,000 files before leaving Waymo and that Waymo’s LiDAR laser system technology had been used in Uber’s development efforts. Uber had acquired Ottomotto and Otto Trucking for $680 million and hired Levandowski to lead its self-driving technology development. Trial is scheduled to begin in October.

Uber, Ottomotto, and Otto Trucking appealed the district court’s denial of their motion to compel arbitration based on mandatory arbitration provisions contained in Waymo’s employment agreements with Levandowski. For his part, Levandowski filed two appeals to prevent discovery of a report ("the Stroz Report") prepared before the Uber/Otto acquisition. Both appeals were assigned to Circuit Judges Pauline Newman, Stoll, and Evan Wallach. Judge Newman authored the panel opinion on Uber’s appeal (No. 2017-2130) and Judge Wallach authored the opinion on Levandowski’s appeals (2017-2235 and 2017-2253). The panel found no error in any of the district court’s rulings.

Arbitration. Uber, Ottomotto, and Otto Trucking (collectively, "Appellants") argued that Waymo should be compelled to arbitrate the dispute based on a mandatory arbitration provision in Waymo’s 2009 and 2012 employment agreements with Levandowski. The agreements were controlled by California law. According to Uber, Waymo’s trade secret claims related to actions by Levandowski in violation of his employment agreements with Waymo.

Nonparties to a contract generally cannot enforce the terms of the contract. However, California courts occasionally have applied equitable estoppel to permit a nonparty to enforce an arbitration clause if the nonparty has relied on the contract, and (1) a signatory’s claims against the nonparty rely on are intertwined with the contract, or (2) a signatory alleges "interdependent and concerted misconduct" between the nonparty and another signatory in connection with contractual obligations.

The district court correctly found that arbitration should not be compelled in this case. None of Waymo’s claims relied or depended upon the terms of the written employment agreements with Levandowski. Although Waymo’s complaint made references to the employment agreements, Waymo explained that the purpose of the references was to show that Waymo had taken reasonable measures to safeguard its trade secrets. In addition, Waymo’s complaint did not allege that Uber had conspired with Levandowski to breach his employment agreements with Waymo. "[A]bsent a relationship between Waymo’s claims and any concerted misconduct between Uber Technologies and Levandowski involving the employment agreements, Waymo cannot be compelled to arbitrate the dispute," the Federal Circuit said. Uber’s appeal was dismissed.

Stroz report. Prior to the close of Uber’s acquisition of Otto and Ottomotto, counsel for Uber and Ottomotto (but not counsel for Levandowski) jointly retained Stroz Friedberg, LLC to investigate Ottomotto employees previously employed by Waymo, including Levandowski.

Waymo tried obtain the Stroz Report two ways. Waymo filed a motion to compel Uber and Ottomotto to produce the Stroz Report. The motion was granted by the magistrate judge assigned to the case. Waymo next sought a third-party subpoena to obtain the report from Stroz Friedberg, LLC. Levandowski, Ottomotto, and Uber moved to quash the subpoena, arguing that the Stroz Report was subject to attorney-client privilege or attorney work-product protection. The magistrate judge denied the motion to quash. The district court denied Levandowski, Ottomotto, and Uber’s motion for relief from the magistrate judge’s orders.

Levandowski appealed the district court’s denial of relief. Levandowski acknowledged that the district court’s orders were not appealable final judgments or appealable interlocutory orders. Instead, he asked the Federal Circuit to treat the appeals as petitions for writ of mandamus. To show entitlement to a writ of mandamus, a petitioner must show that there is no other adequate means to attain the requested relief and a clear and indisputable right to issuance of the writ.

Levandowski contended that disclosure of the Stroz Report would be "particularly injurious or novel." However, Levandowski could not bar discovery simply because it was against his interest. Moreover, Levandowski could remedy improper disclosure by appealing an adverse final judgment. The failure to show "no other adequate means" was sufficient ground for denying the writs.

For completion’s sake, the Federal Circuit considered whether Levandowski established a clear and indisputable right to a writ. The Federal Circuit agreed with the district court that Levandowski could not invoke attorney-client privilege or work-product protection. Levandowski’s interview with and disclosures to Stroz did not qualify for attorney-client privilege. Levandowski argued that he was protected under the common interest rule. But the district court found that Uber and Levandowski had adverse rather than common interests because Levandowski was a subject of the Stroz investigation. The district court also found that Uber had waived any work product protection in the Stroz Report by disclosing it to adversaries Otto and Levandowski.

Levandowski argued that he was entitled to assert his Fifth Amendment privilege against self-incrimination because Waymo’s complaint "conjures the threat of criminal sanction" and the district court had referred the case to the U.S. Attorney’s Office for investigation of possible trade secret theft. The court disagreed, noting that the First Amendment privilege is a "personal privilege" and "Levandowski has been compelled personally to produce the Stroz Report." Levandowski could not prevent discovery of relevant evidence in a civil case simply because it might incriminate him.

Levandowski’s appeal was dismissed and his petitions for a writ of mandamus denied. The Federal Circuit, however, noted that it might be appropriate for the district court to apply a continuing confidentiality order regarding the Stroz Report until its status in any criminal proceeding is resolved.

The cases are Nos. 2017-2130 and 2017-2235 and 2016-2253.

Attorneys: Charles Kramer Verhoeven (Quinn Emanuel Urquhart & Sullivan, LLP) for Waymo LLC. Hamish Hume (Boies Schiller & Flexner LLP) and Michael Allen Jacobs (Morrison & Foerster LLP) for Uber Technologies, Inc., Ottomotto LLC and Otto Trucking LLC.

Companies: Waymo LLC; Uber Technologies, Inc.; Ottomotto LLC; Otto Trucking LLC

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