Uber Faces Probe Over Driverless Car Effort -- WSJ

By Jack Nicas and Greg Bensinger Features Dow Jones Newswires

Uber Technologies Inc., already plagued by a string of scandals, now faces the threat of a federal criminal probe into its development of driverless cars, a crucial initiative for the highflying ride-hailing business.

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A new shadow of uncertainty was cast over the autonomous-vehicle program when a federal judge this week recommended the U.S. investigate the possibility that Uber and a top executive stole from Google parent Alphabet Inc. 14,000 files, many related to a laser sensor technology used in driverless cars.

The order, which legal analysts said is rare if not unprecedented in a civil trade-secrets case, could result in executives facing criminal prosecution, a startling turn of events for a project Uber has called "existential" to its future.

Uber, which has called Alphabet's claims unfounded, declined to comment on the referral to federal prosecutors. Alphabet and attorneys for the Uber executive at the center of the case, Anthony Levandowski, didn't respond to requests for comment. The U.S. attorney's office in San Francisco declined to comment.

The high-stakes legal battle has pitted two Silicon Valley heavyweights against each other in a fight that has drawn lots of public attention. A potential federal probe combined with Alphabet's lawsuit from earlier this year could debilitate an autonomous-vehicle program that is critical to Uber's future.

Uber is racing to roll out driverless cars in part because it holds potential to bolster a business that is valued by investors at nearly $70 billion but lost at least $2.8 billion last year. The company and other technologists believe autonomous vehicles can cut travel time and save lives by eliminating human error. And for Uber, the technology could greatly reduce its biggest expense: paying drivers.

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But Uber risks losing key engineering talent at the firm, not to mention the patina of being cutting edge, if its self-driving auto development is curtailed.

"This is a big deal," said Rutgers University law professor Michael Carrier, who specializes in intellectual property. "There are lots of trade-secret cases filed and litigated everyday; it's the most common type of IP case. But very few make it to the stage that they could constitute a criminal investigation."

A potential federal probe adds to the trouble for Uber, which is already facing another federal criminal investigation into the use of software tools allegedly used to trick regulators in sting operations, as well as claims from a former employee that its workplace ignores sexism and sexual harassment. Uber has said it is investigating the harassment claims and has declined to comment on the criminal probe into the software program known as "Greyball."

Lawyers and law professors said the order late Thursday by U.S. District Judge William Alsup in San Francisco suggests he believes there is strong evidence of trade-secret theft and that federal investigators may be able to uncover more evidence than Alphabet's attorneys. Attorneys for Uber and Mr. Levandowski, the former head of Google's driverless-car program, have repeatedly fought efforts to turn over some documents.

Judge Alsup wrote in his order Thursday that the evidence thus far led him to refer the case to federal prosecutors. "The court takes no position on whether a prosecution is or is not warranted," he wrote.

The legal analysts said Mr. Levandowski is most at risk of criminal charges because he allegedly downloaded the 14,000 files from Alphabet's servers before he quit the company in January 2016, and then allegedly took them to Uber after the ride-hailing firm bought his startup for $680 million in stock seven months later.

Uber -- and potentially its executives -- could also face criminal charges if there is evidence they knew of Mr. Levandowski's alleged theft, the analysts said, but it is unlikely Uber would be charged if Mr. Levandowski isn't.

"The person most likely to be charged is the person who actually took the information," said Villanova University law professor Michael Risch.

Mr. Carrier said criminal charges would be tried under the Economic Espionage Act, which carries penalties for such cases of up to 10 years in prison for individuals. For companies, fines could be imposed up to three times the value of a stolen trade secret.

Uber has plenty of cash in the bank -- about $7 billion left from fundraising, the company said recently. But while Uber had $6.5 billion in revenue last year, its losses totaled in the billions of dollars as it spends heavily to recruit drivers and keep riders' fares low.

Judge Alsup also ruled Thursday that Alphabet's suit against Uber must head to a jury trial instead of private arbitration, keeping it in the public eye. And he also temporarily blocked a limited part of Uber's driverless-car program, though the scope of the injunction is unclear because the order is sealed.

The Justice Department is already looking into Uber's use of a software tool that Uber allegedly used to thwart sting operations on its drivers. That software, part of the Greyball program, identified government officials and showed them a phony app with fake cars trawling the streets so they couldn't hail drivers.

As part of the Greyball investigation, the Justice Department has subpoenaed local governments in Portland, Ore., Austin, Texas, and Philadelphia, according to officials in those cities. Portland said this week it would subpoena Uber's records, including its playbook for deploying Greyball. It isn't clear yet whether the U.S. will bring charges.

The Alphabet case was referred to the U.S. attorney in San Francisco, Brian Stretch, who is likely to turn case documents over to the Federal Bureau of Investigation to evaluate and investigate further, said Christopher Broderick, an IP attorney at Manatt, Phelps & Phillips.

Some analysts speculated that Judge Alsup tapped federal prosecutors to ensure an appropriate investigation into Mr. Levandowski's actions. Alphabet's employment agreement with Mr. Levandowski requires it to resolve disputes with him in private arbitration, where it has less power to force the disclosure of evidence.

Mr. Levandowski and his attorneys have repeatedly invoked his Fifth Amendment rights in the case, citing the possibility of criminal charges. In a five-hour deposition by Alphabet attorneys last month, Mr. Levandowski repeated the same sentence 393 times: "On the advice and direction of my counsel, I respectfully decline to answer."

Other analysts said Judge Alsup was simply following his civic duty to flag suspected criminal activity to prosecutors. Still, six lawyers and law professors with decades of experience litigating or studying intellectual-property cases said they couldn't think of another example of a judge formally recommending a criminal investigation into a civil trade-secret case.

U.S. prosecutors have brought 165 criminal trade-secret cases since the economic-espionage law was enacted in 1996, according to a January analysis by legal publication Law360. The law is most often used to prosecute foreign nationals suspected of stealing U.S. trade secrets for governments abroad.

Trade-secret cases are usually settled, the analysts said, but criminal charges will dramatically reduce the chances of that happening. "Both parties will have lost control," said James Pooley, an IP attorney in Orrick, Herrington & Sutcliffe's Silicon Valley office. The case "will go on and have a life of its own."

Write to Jack Nicas at jack.nicas@wsj.com and Greg Bensinger at greg.bensinger@wsj.com

(END) Dow Jones Newswires

May 13, 2017 02:47 ET (06:47 GMT)