San Francisco Chronicle - (Sunday)
Trade secrets law cuts jobhopping
It wasn’t always easy for companies to get the courts to intervene when competitors were suspected of stealing trade secrets. That changed in 2016, when Congress passed a tough law, the Defend Trade Secrets Act, to allow businesses to more easily go after competitors in federal court if they felt they had stolen a product or idea.
Since then, cases have proliferated at the federal level. That pleases some prosecutors, as well as companies seeking to protect their intellectual property. But some legal experts and other observers worry it could have a chilling effect on the jobhopping that has made Silicon Valley a hotbed of new businesses and innovation for decades.
The crackdown has swept up even employees like Ana Rosario, who was on maternity leave when she found out she was facing federal charges.
A user experience researcher, Rosario had worked at fitness tracker maker Jawbone before making the jump to its archrival, Fitbit.
Fitbit was acquired by Google in November, and Jawbone is defunct, but just a few years ago, wearable devices were the darling of tech investors, and both San Francisco companies were worth billions of dollars. Fashionable fitness trackers adorned the wrists of celebrities, athletes and tech workers alike.
In the summer of 2018, Rosario and five others, including her former manager, Katherine Mogal, found themselves accused of spiriting sensitive data from Jawbone’s servers and handing it over to Fitbit. They faced felony charges under the new law. Acting U.S. Attorney Alex Tse said the case went to “the heart of innovation and economic development in Silicon Valley.”
In February, a jury found Mogal not guilty. Her law
yers argued that she had merely sought to back up her work computer because she found Jawbone didn’t have an automated system to preserve files in the event of a crash.
The charges against Rosario and the other defendants were dropped after the verdict in Mogal’s case.
“It is the solemn duty of the United States to seek justice in all its cases, and to evaluate the appropriateness of charges at all times, not just at the point of indictment or trial,” Tse said in a statement when the charges were dismissed. “Our assessment of these cases led us to the firm conclusion that only an immediate dismissal of the criminal charges against all defendants would be in the interests of justice.”
The office of U.S. Attorney David Anderson in San Francisco did not make the top federal lawyer in the region available for questions.
Rosario said she had followed the advice of Fitbit attorneys and looked to delete from her external hard drive any sensitive information or studies Jawbone saw as proprietary while sitting with the head of IT at the company. She said she even bought a second hard drive for personal files not related to her work, intending to give the one with any company files back to Jawbone.
The charges against Rosario, Mogal and the others came as Jawbone and Fitbit were doing their own legal jousting, and the tougher federal law governing trade secrets led to other prosecutions in the Bay Area, long the center of the world’s tech industry, where such secrets are especially precious.
They also signify a change in attitudes among companies and employees toward jumping from employer to employer — a phenomenon that has marked Silicon Valley’s business culture as distinct from others for decades, as author and scholar AnnaLee Saxenian noted in her 1994 book, “Regional Advantage.”
Tech workers moving freely from one company to another created some of the most valuable companies on the planet; the practice, once thought unseemly by some businesspeople, dates back at least to the 1957 departure of the “Traitorous Eight” from Shockley Semiconductor Laboratory to form Fairchild Semiconductor.
But the once common practice is now increasingly risky, as companies consolidate and seek to protect their invaluable code, hardware designs and business practices, according to Margaret O’Mara, a professor at the University of Washington who has written extensively about Silicon Valley.
“The way the valley evolved for a very long time was employees moving back and forth between small and midsized companies, particularly at the early enterprise stage,” O’Mara said. Silicon Valley was “a hardware joint” until about three decades ago when software took over, ushering in a new era in intellectual property, she added.
“Trade secrets and intellectual property are different when it’s a physical object,” she added, noting that it becomes more complex when something valuable is made by crossing a person’s brain and a company’s immense resources.
“Now there’s de facto enforcement limiting people’s abilities to go to a competitor and create a competing enterprise, and so much of the secrets are wrapped up in a person,” O’Mara added.
Perhaps the most wellknown recent case of a person embodying that valuable knowledge is that of Anthony Levandowski, a former Google engineer who joined Uber to work on technology for selfdriving cars.
Once worth millions, Levandowski has filed for bankruptcy, and he pleaded guilty last week to the theft of Google’s trade secrets. He was also at the center of highstakes federal litigation between Google selfdriving spinoff Waymo, which alleged trade secrets theft, and Uber. The case resolved with Uber handing over almost a quarter of a billion dollars in stock.
At play in these cases is also the changing approach to this kind of litigation by the federal Justice Department, which sees trade secrets cases as intertwined with national security.
“Prosecutions during the Cold War were ... designed to keep critical dualuse technology out of the hands of the Soviets and their surrogates,” said Joe Russoniello, who served twice as the U.S. attorney in charge of the San Francisco office, from 1982 to 1990 and from 2008 to 2010, in an email.
Russoniello said those cases “were different in scope and consequence from the industrial espionage cases brought to protect the ‘crown jewels’ of U.S. technology from theft by friendly competitors,” including U.S. allies like Japan and Taiwan.
“The third category were cases brought against employees who walked out the door to a competitor with critical technology often part of the bargain offered to a potential employer,” Russoniello added. “We had a lot of cases in each category.”
In a report from legal analytics firm Lex Machina, trade secrets litigation in federal courts held relatively steady from 2009 into 2016, but rose after the passage of the federal law. The report found that the number of cases jumped from 860 nationwide in 2016 to 1,134 in 2017.
Rosario said facing the specter of federal prosecution for two years deeply affected her.
“I feel like I put my personal life on hold because of this,” she said.
“I’m now a mom, and I want to be strong for my child,” Rosario said, her voice wavering. “All I could think about was I want to be a strong mom.”
Mogal also said the case had personal and professional ramifications for her. When the charges were filed, she was working for Facebook, which put her on leave for weeks so the company could ensure that no sensitive information from Jawbone had made it onto its systems.
How the Justice Department decided to bring the charges in the first place is still not clear.
Fitbit declined to comment for this story. The successor company to Jawbone, Jawbone Health, did not respond to an email seeking comment.
One of Mogal’s lawyers, Randy Luskey, has a theory.
“We’re seeing that in a number of civil trade secrets disputes between two companies, plaintiffs have begun attempting to refer the case and the allegations to federal prosecutors,” he said. “One of the main reasons they do that is to seek external validation for their claims and theories, and to gain leverage in the civil litigation.”
But Rosario said she still has questions for the government.
“They said ‘I’m going to take this precious time from you and your family. Your mental wellbeing, your professional growth,’ ” said Rosario, who still works in tech. “Are they going to apologize?”