Indictment of Ex-Fitbit Employees Marks a Bigger Legal Shift

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Last week, a federal grand jury returned a criminal indictment against six current and former Fitbit employees who allegedly stole trade secrets from Jawbone, where they had all previously worked. Jawbone and Fitbit, both makers of consumer-grade activity trackers, have a long and bitter legal history. But after the International Trade Commission cleared Fitbit of Jawbone’s trade secret claims in 2016, and after Jawbone went out of business in 2017, many thought the legal battles were over.

Not so much. These charges—which are against the individuals, and not Fitbit as a company—bring fresh scrutiny to the trade secret claims. The indictment suggests that “there’s some serious nature of this case that rises above your garden variety case,” says Peter Toren, a Washington, D.C.-based intellectual property attorney who is not involved in the case. “It’s likely somebody referred this case to the US Attorney’s office for investigation, and they considered it serious enough to make a criminal matter out of it.”

Toren also says it’s “atypical” for the Department of Justice to investigate a situation in which both the victim company and the company the defendants worked for are based in San Francisco. Other legal experts concur, noting that the Department of Justice is often interested in trade secret cases that involve the exfiltration of proprietary information to a foreign country.

In the indictment filed last week by the US Attorney’s office in the Northern District of California, defendants Katherine Mogal, Ana Rosario, Patrick Narron, Patricio Romano, Rong (Audrey) Zhang, and Jing Qi (Gee) Weiden were charged with misappropriating Jawbone trade secrets, “with the intent to convert the trade secrets, which were related to and intended to be included in products to be produced for and placed in interstate and foreign commerce, to the economic benefit of someone other than Jawbone, and intending and knowing that the offense would injure Jawbone.”

According to the indictment, these secrets include confidential surveys that Jawbone conducted to take the temperature of the speaker market; a 53-page, “multi-faceted study” of Chinese consumers; vendor and pricing information for international suppliers; details around a pair of unreleased fitness-tracking headphones; details around a waterproof Jawbone, codenamed “Spitz,” that seemingly never shipped; and a handful of additional qualitative studies.

Alex Tse, Acting US Attorney, said last week in a prepared statement that “intellectual property is the heart of innovation and economic development in Silicon Valley. The theft of trade secrets violates federal law, stifles innovation, and injures the rightful owners of that intellectual property.”

Lawyers from Orrick, Herrington & Sutcliffe, who have represented the defendants in the past, had not yet responded to a voicemail and emails at the time of publication. Five of the defendants also had not responded to email messages. WIRED attempted to call two phone numbers that were listed for the sixth defendant, but were unable to reach him.

In a statement emailed to WIRED, a representative from a strategic communications firm for Fitbit noted that “in a trade secret misappropriation case brought by Jawbone in the International Trade Commission in 2016 that involved these same individuals, a federal administrative law judge during a nine-day trial on the merits found that no Jawbone trade secrets were misappropriated or used in any Fitbit product, feature or technology.”

This is true; less than two years ago, the ITC determined that Fitbit did not misappropriate Jawbone trade secrets. At the time, Fitbit co-founder and CEO James Park called Jawbone’s allegations “nothing more than a desperate attempt by Jawbone to disrupt Fitbit’s momentum to compensate for their own lack of success in the market.” Park had a point: Jawbone, once a leader in Bluetooth audio products, had suffered myriad issues since it had entered the fitness-tracking market back in 2011. It shipped defective products, suffered financial pressures, and reportedly stopped paying key contractors. By late 2016, Jawbone was indeed the underdog, punching up.

But that ITC determination in favor of Fitbit has no bearing on the federal prosecutor’s decision in this case, experts say. Neither do the outcomes of the other suits or motions Fitbit and Jawbone filed against each other, including a suit filed in California State Court in 2015 that ended in a settlement. “Generally, criminal proceedings run on a different track from civil proceedings,” says Toren. “The standard of proof is different, the interests are different, and in this case, for want of a better description, the US Attorney’s office represents the interest of the people of the US.”

Rochelle Dreyfuss, a New York University law professor and co-director of the Engelberg Center on Innovation Law and Policy, suggested that the indictment is part of a larger measure by the Department of Justice to take an aggressive approach to trade secret cases in recent years. Back in 1996, Congress passed The Economic Espionage Act to make theft of trade secrets a federal crime. But when the statute was first enacted, “they prosecuted hardly anybody,” Dreyfuss says. “And in the last five years, prosecutions shot up. The Justice Department is clearly interested in this issue; they think trade secrets are very important.”

Mark Flanagan, a partner at the Palo Alto office of the law firm WilmerHale, agrees with the assessment that there’s been more trade secret prosecutions in recent years. “There’s just a lot more attention to the fact that the value of tech companies and life sciences companies in the US resides in intellectual property,” Flanagan says, “and there are real concerns about the misappropriation of that intellectual property, it being stolen and taken to other countries.”

Dreyfuss, Toren, and Flanagan all pointed out, independently of one another, that the Department of Justice seems to be most interested in trade secret cases that involve the exfiltration of proprietary information to a foreign country. “This case is unusual because it appears to be that the party is mostly Americans and domestic companies, and they’re still here in the US,” Dreyfuss says.

Flanagan echoed that assessment. “There are usually a lot of concerns about the exfiltration of trade secrets to other countries, China in particular,” he says. He cited as an example the 2016 case in which a US resident who was a native of China was sentenced to prison for stealing trade secrets, in the form of corn seeds, from Monsanto.

It’s difficult to know if the department’s investigation into the current and former Fitbit employees was spurred by any concerns specifically around trade secrets being shared outside of the US. The indictment includes references to confidential, international supply chain relationships and Chinese market analyses; but no mention of the dissemination of that information overseas, or whether any of the defendants are foreign nationals. Abraham Simmons, a spokesperson for the US Attorney’s office in San Francisco, said via email, “There is no public information about the immigration/citizenship status of the defendants.”

However, Simmons added, “It is somewhat typical for that sort of information to be discussed at arraignment if relevant to questions about detention.”

More details could be shared on July 9, when the defendants will appear for an arraignment in San Jose, California. “It’s a little interesting that, notwithstanding the fact that Jawbone sort of exists in some fashion, there’s no remaining victim in this case,” Flanagan says, referring to the fact that Jawbone went out of business in 2017, but has been trying to extend its brand as Jawbone Health. “But if someone was stealing from someone regardless of whether the victim was alive or not, [prosecutors] will indict.”