Articles

Tech Industry Now the Poster Child for Intellectual-Property Squabbles

The factor that drives many intellectual-property lawsuits is competition — the very thing that many argue makes Silicon Valley so successful.

by Greta Kaul, San Francisco Chronicle / June 1, 2015

(TNS) -- With predictable efficiency, the tech industry turns out new smartphones, apps and ideas. Just as common are lawsuits that accuse competing companies of stealing intellectual property.

In recent years, Motorola has sued Apple, Yahoo has sued Facebook and Hewlett-Packard has accused former CEO Mark Hurd of absconding to Oracle with trade secrets, to name a few. The latest high-profile Bay Area tech suit came last week, when fitness-tracking company Jawbone sued competitor Fitbit and former employees who allegedly decamped with inside information.

Intellectual-property lawsuits are so common in tech that they’re a running part of the story in HBO’s “Silicon Valley,” in which a fictional Google hires a former worker from a startup, duplicates its technology, then sues the smaller company for stealing code.

The factor that drives those lawsuits is competition — the very thing that many argue makes Silicon Valley so successful.

“That’s the history of the success of Silicon Valley. Entire teams — not just one person — left more-established companies and started competitive ventures,” said Orly Lobel, a professor of labor and employment law at UC San Diego’s School of Law. “Businesses move more rapidly when we have that kind of flow in the industry.”

Her research finds that over time, companies have become more protective of information.

“They get really mad and adversarial when anybody wants to leave them, and they strategically go after their former employees to deter this kind of mobility,” she said.

Tech is now the poster child for intellectual-property squabbles, but the industry hardly invented such suits.

Sports-drink spat

In 1994, Pepsi sued a former employee who jumped ship to Quaker Oats to prevent him from divulging trade secrets when the companies were producing rival sports drinks. Courts ruled in favor of Pepsi.

In the early 2000s, MGA Entertainment, the company that made Bratz — an edgy line of dolls — accused Barbie’s manufacturer, Mattel, of mimicking its products. Mattel then accused Bratz’s designer, a former Mattel employee, of devising the dolls when he should have been working on Barbie. In 2013, a federal appeals court threw out a trade-secret award in favor of MGA and told the companies to “play nice.”

But the way startups are funded fosters an especially competitive atmosphere, said Rett Wallace, co-founder and chief executive officer of Triton Research. Look no further than Uber and Lyft, Airbnb and HomeAway, or YouTube and Vimeo to see that many of them deliver darn near the same thing to consumers.

“Variations on a theme is how you get funded. You have to be more like the competitors rather than less like the competitors to get funded, because the more different you are, the more risk you represent,” he said.

And when the technology is similar, as with Jawbone and Fitbit — both are fitness trackers worn on the wrist — the business strategy and marketing become very important differentiators.

“If you’re selling something that goes on your wrist, some people are Rolex people and some people are Timex people. It sells into a sensibility that may or may not have something to do with technology,” he said. “You could argue, putting the law aside, that the marketing differentiation and the strategy differentiation is way more important for a company’s success in many cases than the technology differentiation.”

Talent in demand

The business cycle of startups, which grow faster than companies in other industries in hope of paying off investors quickly, means near-insatiable demand for skilled workers, who are often poached by competitors, said James Pooley, a Silicon Valley attorney and the author of “Secrets: Managing Information Assets in the Age of Cyberespionage.” Pooley has worked with Jawbone in the past, but is not involved in its suit against Fitbit.

“We have had these lawsuits with us since the early ’70s; it’s just been part of the landscape,” he said. But unlike other states, California’s labor policies prohibit almost all restrictions on the free movement of employees, Pooley said.

Poaching is such an issue that tech companies have colluded to prevent it. In January, a judge ordered Apple, Google, Intel and Adobe to pay workers in a class-action settlement for illegally agreeing not to recruit each others’ employees.

In fact, some argue that California’s laws, which let workers move to competing companies without being sued for breaking non-compete agreements, are part of what helped the Bay Area edge out Boston as the nation’s tech capital, he said.

While California employees cannot be prohibited from taking a job with a competitor, it is illegal for them to take intellectual property.

“When you leave, you get to take your family photos and personal property that you’ve brought into the company, but the work that you have done for the company is supposed to stay at the company unless you had permission to take it,” he said.

One ironic contribution of the tech industry: It has created innovations that make it easier for employees in all fields to squirrel away intellectual property.

Years ago, companies concerned themselves with things like papers left on the photocopier. “And the only way into the company was through the front door,” Poole said. “Now, of course, there’s an enormous number of in points, (and) information flows through many different gadgets.”

Downloading files before leaving a company or not disclosing a position at a direct competitor — as Jawbone alleged — falls squarely under the categories of trade secrets and duties of loyalty, said Lobel, the San Diego law school professor.

Of course, highly skilled tech employees could reproduce their work from one company at another without breaking the law.

Overly broad?

Lobel fears that the definition of intellectual property has come to encompass more than it should.

Failing to protect real research and development can hamper the production of new technologies, but the threat of losing marketing plans to competitors isn’t a real barrier to innovation, Lobel said. She finds characterizing marketing plans, pricing and customer relations as trade secrets problematic.

“There’s no real secret there,” she said. With tools available now, “You can do searches and figure (out) who are the potential clients and customers and what they want.”

©2015 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.