Uber's Driverless Cars Are Clouded by Possible Federal Probe -- 2nd Update

A judge's unusual recommendation for federal prosecutors to investigate allegations that Uber Technologies Inc. and a top executive stole Google's driverless-car trade secrets casts a new shadow over one of Uber's most critical initiatives.

U.S. District Judge William Alsup late Thursday referred Google parent Alphabet Inc.'s lawsuit against Uber to the U.S. Attorney's Office, asking federal prosecutors to probe Alphabet's claims that one of its former executives colluded with Uber to steal 14,000 files related to driverless-car design.

Lawyers and law professors said Judge Alsup's referral has little, if any, precedent in a civil trade-secrets case. They said the judge's move suggests he believes there is strong evidence of trade-secret theft and potentially that federal investigators will be able to uncover more evidence than Alphabet's attorneys. Attorneys for Uber and Anthony Levandowski, the Google-turned-Uber executive at the center of the case, have repeatedly fought efforts to turn over some documents.

"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."

Judge Alsup said 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 in his order.

Uber declined to comment. Alphabet's driverless-car unit, Waymo, and attorneys for Mr. Levandowski didn't respond to requests for comment. The Justice Department, which oversees U.S. attorneys, also didn't respond.

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 and, for companies, fines of up to three times the value of a stolen trade secret.

Uber, valued by investors at $68 billion, has plenty of cash in the bank -- roughly $7 billion left from fundraising, the company said recently. But while Uber made $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.

Waymo's lawsuit and a potential federal probe could debilitate an autonomous-vehicle program that is critical to Uber's future. Autonomous vehicle technology holds the potential to greatly reduce Uber's biggest expense: paying drivers. Uber risks losing key engineering talent, not to mention the patina of being cutting edge, if its self-driving auto development is curtailed.

Judge Alsup also ruled Thursday that Alphabet's suit against Uber would 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.

Judge Alsup's referral could also lead to the second federal criminal investigation into Uber this year. The Justice Department is looking into the company's use of a software tool that Uber used to thwart sting operations on its drivers. That software, part of a program Uber called "Greyball," 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 this week said it would subpoena Uber's records, including its playbook for deploying Greyball. It isn't clear yet whether the U.S. will bring charges. Uber has declined to comment on the investigation.

Regarding the Waymo case, 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.

Other analysts said Judge Alsup was simply following his civic duty to flag suspected criminal activity to prosecutors. Still, five 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 12, 2017 16:13 ET (20:13 GMT)