You would think that evidence of the improper downloading of 5,000 files by a former employee who then invokes his Fifth Amendment privilege against self-incrimination, coupled with the remarkable similarity between inventions (see the picture alongside) would be enough to demonstrate circumstantial evidence of the misappropriation of trade secrets. If you thought so, you would be wrong. In one of the highest profile trade secret case since Waymo v. Uber, the plaintiff Wisk Aero thought it had its competitor dead to rights after expedited discovery revealed these and other facts. However, U.S. District Court for the Northern District of California Judge William H. Orrick disagreed, rejecting the circumstantial evidence presented by Wisk Aero because it did not tie the alleged trade secrets with the circumstantial evidence of misappropriation. As explained below, this case is the latest in a line of decisions declining to find that evidence of improperly downloaded information may be sufficiently compelling circumstantial evidence of misappropriation. (A copy of the opinion can be found here).
What happened? Wisk Aero and Archer are competitors in the budding electronic vertical takeoff and leading (“eVTOL”) aircraft industry, more commonly known as air taxis. Wisk Aero assembled what it believed to be substantial circumstantial evidence of misappropriation of its trade secrets by Archer after Archer hired nearly a dozen of Wisk Aero’s engineers. That circumstantial evidence included, among other things: (1) an accelerated timetable for the development of Archer’s competing air taxi, which Wisk Aero asserted could only have happened with the benefit of Wisk Aero’s trade secrets; (2) the visual similarity between Wisk Aero’s air taxi in Wisk Aero’s patent application and the illustration of Archer’s proposed air taxi disclosed in a slide deck to investors (see the picture above); (3) Archer’s hiring of multiple engineers from Wisk Aero; (4) forensic proof that one of those former engineers downloaded approximately 5,000 files and invoked his Fifth Amendment privilege against self-incrimination when asked whether he had retained those files after he left Wisk Aero; (5) the retention of other confidential files by the other engineers; (6) public statements by senior officers of Archer about the hiring of those engineers and the availability of the technology for these vehicles; and (7) the fact that Archer used the same name of a previous iteration of Wisk Aero’s air taxi in its internal documents.
The district court entertained multiple motions by the parties, including a motion for preliminary injunction filed by Wisk Aero and a motion to dismiss filed by Archer. In its opinion, the court found that the circumstantial evidence, and in particular the downloads by the engineer, “give rise to a plausible implication of Archer’s misappropriation” sufficient to defeat the motion to dismiss filed by Archer. However, as to Wisk Aero’s motion for preliminary injunction, the court was not persuaded that the downloaded files—the circumstantial evidence which the court described as the centerpiece of Wisk Aero’s theory—were sufficiently connected to the trade secrets identified in Wisk Aero’s original motion for preliminary injunction. In addition, the court found that the “totality” of the circumstantial evidence did not support Wisk Aero’s claims of misappropriation, characterizing the different circumstantial evidence and theory of misappropriation as “disjointed.” For example, the court noted that the circumstantial evidence of the visual similarity of the two aircraft was never tied to any of the trade secrets. It also noted that the public statements of Archer’s senior officers were ambiguous and not necessarily conclusive that confidential information of Wisk Aero’s was brought by and used by its engineers when they joined Archer and developed its air taxi.
In addition, some of Wisk Aero’s circumstantial evidence was refuted by direct evidence offered by Archer. For example, in response to Wisk Aero’s claim that a trade secret related to its “Battery Management System” was misappropriated, Archer presented the testimony of a vendor who testified that his company provided that technology to Archer and to other companies.
And of the dozens of trade secrets identified by Wisk Aero, the court noted that only one could be traced to documents within the 5,000 files that were improperly downloaded by Wisk Aero’s former engineer, and the court was unpersuaded by the evidence before it that this trade secret was misappropriated. At the end of the day, the court found that Wisk Aero’s circumstantial evidence “could not fill in what it lacked in direct evidence.”
What does it all mean? Jim Pooley recently wrote a post published in the IP Watchdog about the importance of circumstantial evidence in trade secret cases and he succinctly summarized why it is so important: “[i]n the realm of trade secret disputes, there are special challenges in sorting out the truth because one side knows the facts and the other doesn’t.” In recognition of these challenges, federal courts have long recognized that trade secrets should be entitled to an inference of use once evidence of access and similarity of the trade secrets is presented, because misappropriation can rarely be proved by direct evidence. As the U.S. Court of Appeals for the Sixth Circuit explained in Stratienko v. Cordis Corp., 429 F.3d 592, 600-601 (6th Cir. 2005), in the context of a motion for summary judgment:
“Presented with ‘defendants’ witnesses who directly deny everything,’ plaintiffs are often required to ‘construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what the plaintiffs allege happened did in fact take place.’ *** Thus, requiring direct evidence would foreclose most trade-secret claims from reaching the jury because corporations rarely keep direct evidence of their use ready for another party to discover.”
Courts have looked at many types of circumstantial evidence in evaluating whether misappropriation took place or could continue into the future, including whether the defendant downloaded or transferred information that included alleged trade secrets, whether the defendant accessed databases or files containing trade secrets at suspicious times, whether thumb drives or other devices were inserted into a computer prior to an employee’s departure, and whether information was deleted from work or personal devices and the scope of any of those deletions. In addition, evidence of downloading may not only be relevant to the issue of whether actual misappropriation has occurred, but it also may be highly relevant to the issue of whether there is a threat of future or ongoing misappropriation and any potential irreparable injury as a result. As a result, when faced with a motion to dismiss or motion for summary judgment, courts will infer those circumstantial facts in favor of the trade secret owner, as Judge Orrick did when he denied Archer’s motion to dismiss.
However, in the context of requests for injunctive relief, federal courts have increasingly shown a willingness to place the fact that a defendant downloaded information in context, and to critically evaluate whether there is a risk of threatened misappropriation as a result of that download. As I have written before, and as the Wisk Aero case further illustrates, those courts have looked at the totality of the circumstances to determine whether the downloading and other circumstantial evidence support a claim that there is a threat of misappropriation. In those cases, if a court concludes that there is not a real risk of use or disclosure in a trade secret dispute, the court may not grant the injunction. In other words, downloading alone may no longer be enough to support a claim of misappropriation, especially in cases where the defendant has taken steps to ensure that the trade secrets are no longer available (whether by forensic removal or return of the information by the defendant).
Paradoxically, the availability of forensics, the very tool so critical to constructing this web of circumstantial evidence, may be contributing to judicial reluctance to fully embrace circumstantial evidence in trade secret cases. The ability of forensics to demonstrate many patterns suggesting use or intent to use–i.e., suspicious access, deleting files, placement of thumb drives–all of these may have created unrealistic expectations by courts that a plaintiff should now be able to provide direct evidence of use by a defendant.
Whatever the reason, trade secret plaintiffs should take the lesson of Wisk Aero to heart if they are seeking an injunction. Given the availability of forensics, courts may expect direct evidence of use, and therefore, a trade secret plaintiff will be best served by tying specific trade secrets to inventions or technology that they believe incorporate those trade secrets.