News and Analysis of Artificial Intelligence Technology Legal Issues

California Court Agrees With Autonomous Driving Company’s Source Code Misappropriation Claims, Issues Preliminary Injunction

California Court Agrees With Autonomous Driving Company’s Source Code Misappropriation Claims, Issues Preliminary Injunction

In WeRide Corp. v. Huang et al., the U.S. District Court for the Northern District of California issued an order granting a motion for a preliminary injunction and expedited source code discovery.  In doing so, the court concluded that plaintiff’s source code for Level 4 highly autonomous vehicles (HAVs) was a protected trade secret under the federal Defend Trade Secrets Act (DTSA) and California’s Uniform Trade Secrets Act (Cal-UTSA).  The court also concluded that plaintiff was likely to succeed on the merits of its trade secret misappropriation claim against one of its former employees and a China-based company that the employee went to work for.  WeRide Corp. v. Huang, slip. op. No. 5:18-cv-07233-EJD (N.D. Cal. April 1, 2019).  While some of the defendants’ alleged actions–including, copying files, wiping hard drives, placing radar sensors in the same location as plaintiff, among others–led to the court’s decision, WeRide nevertheless illustrates difficulties companies may face when trying to rely on trade secrets alone to protect their technologies in highly competitive and emerging markets like autonomous vehicles.

Trade secrets are information that (1) derives independent economic value, actual or potential, from not being generally known to, or readily ascertainable by other people who can obtain economic value from its disclosure or use, and (2) is subject to reasonable efforts to maintain its secrecy.  See 18 U.S.C. § 1839(3); Cal. Civ. Code § 3426.1(d).  Source code can be a trade secret.  See Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal. App. 4th 26, 60 (2014).

The source code at issue in WeRide included plaintiff’s code for high definition mapping, sensor fusion-based localization, and state machines.  High definition mapping, the court summarized, refers to electronic maps formed as test vehicles repeatedly traverse roads collecting sensor data; sensor fusion-based localization refers to combining (fusing) data from the vehicle’s many sensors to pinpoint the vehicle’s location in a mapped area; and state machines are machine learning and other algorithmic-based decision systems defining what actions a vehicle should take given its current state.  The court recognized that these and other functions of autonomous vehicles are based on complex artificial intelligence technologies such as deep learning algorithms that require significant time and resources to develop.  Some autonomous vehicle companies, the court noted, invest significant sums of money and take weeks to develop just the basic software needed to begin road tests.

Plaintiff claimed that its source code algorithms were trade secrets protectable under federal and state law, that it had invested heavily in developing its source code, maintained it as confidential and proprietary, and the code gave it an advantage over its competitors.  The court agreed, concluding that plaintiff had taken reasonable measures to maintain the secrecy of its source code, which had value in being secret and not generally known, and thus plaintiff was likely to succeed at showing the source code met the definition of “trade secrets” under the DTSA and Cal-UTSA.

In particular, the court found that plaintiff controlled access to its offices, encrypted its source code, restricted access to the code base to employees through the use of usernames and passwords authentication (whether accessed on-site or off-site via a virtual private network), and permitted decryption only with the use of a unique username, password, and possession of a token.  The court also found that plaintiff required employees to sign an agreement stating that they would “hold in confidence and not disclose or, except within the scope of [their] employment, use any Proprietary Information,” including “business, technical and financial information. . .[the employee] develop[s], learn[s], or obtain[s] during the term of [their] employment that relates to Company or the business or demonstrably anticipated business of Company or that are received by or for Company.”

Defendants argued that much of plaintiff’s source code was derived from available open sources, that published articles described the general functionality of plaintiff’s alleged trade secrets, and that third parties had developed code that performed essentially the same function as plaintiff’s code and thus plaintiff’s code was readily available in the public.  The court dismissed those arguments, pointing out that plaintiff’s trade secret was not in its source code’s functionality, but in the source code itself, which it had maintained as a secret giving the plaintiff a competitive advantage.

Both the DTSA and Cal-UTSA, the court wrote, require a plaintiff to demonstrate that a defendant misappropriated a trade secret and the defendant’s conduct damaged the plaintiff.  See 18 U.S.C. § 1839(5) and Cal. Civ. Code § 3426.1(b)).  “Misappropriation” means the acquisition of a trade secret through means that the party knew or should have known were improper, such as theft or breach of a duty to maintain secrecy. 18 U.S.C. § 1839(5); Cal. Civ. Code § 3426.1(b). A party may be liable for misappropriation if they knew or had reason to know that a trade secret it uses was derived from a person who acquired it through improper means. 18 U.S.C. § 1839(5); Cal. Civ. Code § 3426.1(b).

In WeRide, the court noted that one of the former employee-defendants did not refute taking plaintiff’s source code by copying it to a personal storage device after deciding to leave plaintiff’s employment, and in fact admitted to doing so while also acknowledging that the code was proprietary to the plaintiff.  While the court considered the defendant’s argument that plaintiff had not demonstrated actual use by the defendant of the source code, the court pointed out that “direct evidence of misappropriation is rare,” BladeRoom Grp. Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977, 984 (N.D. Cal. 2018), and that plaintiff was not required to prove its case at the preliminary injunction stage.  Here, plaintiff met the high standard of showing it was likely to succeed on the merits.

As to the corporate defendant, the court accepted plaintiff’s expert opinion that “it would have been impossible [for defendant] to independently develop the technology for [detecting a pedestrian about to cross the street at a crosswalk and passing a slower vehicle] in the 10 weeks between [defendant’s] last day at WeRide and the recruitment [of another of plaintiff’s employees] event.”  An implausibly fast development of technology can contribute to finding misappropriation, the court wrote (citing precedent).  Moreover, plaintiff’s expert opined that the placement of defendant’s radar component on test vehicles was the same as plaintiff’s location, which is not a typical placement in autonomous vehicles but would be a desirable location if one were using plaintiff’s source code.  According to the court, the plaintiff was likely to succeed on the merits against the corporate defendant.

(The court also considered the likelihood plaintiff would prevail on the merits of its defamation, intentional interference with prospective economic advantage, breach of contract, and breach of fiduciary duty claims, a discussion of which is not provided here).

With regard to the question of irreparable harm, the court, citing Waymo LLC v. Uber Technologies, Inc., 2017 WL 2123560, at *9 (N.D. Cal. May 15, 2017), found that plaintiff’s claimed harms were neither speculative nor conclusory.  As in Waymo, the plaintiff was likely to have its market position set back without an injunction, whereas defendants would receive an unfair boost in part because possessing plaintiff’s source code would improve its ability to attract investors and talented engineers from competitors, including from plaintiff.  Moreover, without an injunction, disclosure of the plaintiff’s trade secret among defendants increased the risk of broader disclosure to, for example, defendants’ colleagues and other employees.

Regarding the hardship balancing test, the court found that the test weighed heavily in the plaintiff’s favor due to the “serious harms” that plaintiff faced absent an injunction.  The court was not persuaded by defendants’ argument that revealing its source code to the plaintiff (as part of expedited discovery) would alter the status quo and would probably violate China secrecy law.  Those concerns, the court noted, could be addressed by a suitable protective order restricting production of defendant’s source code to plaintiff’s attorneys on an eyes-only basis.

On the question of public interests, the Court agreed with plaintiff that an injunction would be in the public interest because the public has a strong interest in protecting intellectual property rights and would also promote fair and lawful competition in an emerging market.

Despite plaintiff prevailing on its preliminary injunction motion, WeRide illustrates some of the difficulties companies face when relying on trade secrets alone to protect software in highly-competitive markets and why companies sometimes chose patents to also protect their technologies.  When a tight job market leads to frequent moves by employees, the movement increases the risk that trade secret information will spread among competitors.  While most former employees never intend to disclose their previous employer’s secrets, their experiences and trade craft learned from previous jobs may inevitably (and innocently) find its way into the work they perform for new employers, even in cases where they signed confidentiality and non-disclosure agreements with former employers.  After all, there are only so many ways to, for example, read and process sensor data, create data frames, or write def functions in Python to handle particular computations.  While each unintentional act of using a former employer’s trade secret source code may not fall within the “knew or should have known were improper” definition of misappropriation (and clearly do not involve the level of deception alleged in WeRide), the incremental use of trade secret information may be death of the secret by a thousand tiny cuts.  And once the secret is out in the market, the company that previously held those secrets may be irreparably harmed without a sufficient basis to bring a cause of action.  See FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984) (“A trade secret once lost is, of course, lost forever.”).

That is not to say that seeking patent protection is always a better alternative to trade secrets.  The quid pro quo of obtaining a patent is full disclosure of one’s technology, including, in the case of autonomous driving systems, how the system works.  Since patenting software today may be difficult in view of published open source code, published articles (in this case, articles about autonomous vehicle technology), and third-party software with similar functionality known to the public, a party seeking patent protection could reveal how its system works in a patent application but end up without suitable patent protection (or without any patent at all).  As noted by the court in WeRide, the disclosure could also prevent the assertion of trade secrets over aspects of the disclosing party’s technology.  See Comet Technologies USA, Inc. v. Beuerman, 2018 WL 1990226, at *3 (N.D. Cal. Mar. 15, 2018) (noting that a company’s competitive advantage “would evaporate if the public or its competitors could easily recreate” something protected by a trade secret)).  Accordingly, many companies rely on both trade secrets and patents: they protect their source code as trade secret information (where the code provides a competitive advantage), and they seek patent protection for the functionality that the source code provides.