On September 13, 2017, the U.S. Court of Appeals for the Federal Circuit rejected Uber’s bid to send to arbitration the ongoing trade secrets misappropriation dispute brought by Waymo over the alleged theft of driverless vehicle technology. Waymo LLC v. Uber Techs., Inc., No. 2017-2130 (Fed. Cir. Sept. 13, 2017). Waymo alleges that Anthony Levandowski, a former Waymo employee, downloaded thousands of proprietary Waymo technical documents prior to leaving the company and founding Ottomotto, which Uber subsequently acquired. A separate arbitration between Waymo and Levandowski is pending, but this suit names only Uber and Ottomotto. While there was no arbitration agreement between either Uber or Ottomotto and Waymo, Uber argued that the case should be sent to arbitration based on an arbitration agreement between Waymo and Levandowski.

Generally under California law, a contract applies only to the parties to the contract, and accordingly, an arbitration provision in a contract will not bind a person who is not a party to that contract. Exceptions to the rule may arise when (1) a signatory to the contract containing the arbitration clause relies on the contract in asserting its claims against the non-signatory, or the claims are intertwined with the contract; or (2) the claims involve allegations of collusive behavior that are “inextricably bound up” with the obligations imposed by the contract that contains the arbitration clause.

Waymo clearly had foreseen the possibility that Uber would want to move Waymo’s trade secrets misappropriation case into arbitration rather than face a district court jury trial. It thus crafted its complaint in an effort to avoid an argument by Uber that the Waymo/Levandowski employment-related agreements and their arbitration clauses could result in just that. As the Court noted, “the complaint neither alleges breach of nor cites to any provision of the Waymo-Levandowski employment agreements.” Slip. op. at 10. Waymo then reinforced that strategy by foreswearing reliance upon those agreements to establish its case of trade secrets misappropriation, with the caveat that they could raise the agreements responsively if raised by Uber.

As a result, the district court denied Uber’s motion to compel arbitration, and the Federal Circuit affirmed. Slip op. at 15.

The risk to Waymo’s strategy is that down the road, Waymo could run into problems establishing the “improper means” element of its misappropriation claim if they are unable to find a duty, independent of the employment-related agreements with Levandowski (such as an NDA), to have maintained the secrecy of the misappropriated documents. However, because Levandowski was a high level executive at the company, Waymo will likely argue he owed such a duty independently of his written agreements.

What This Means for You

Employers pursuing trade secrets misappropriation cases solely against an ex-employee’s new employer may not be required to arbitrate those claims if the claims do not rely on any employment agreement that contains an arbitration clause between the employer and the ex-employee and can, instead, be based on duties to maintain company secrets owed independently of any such employment agreement. This is, however, a strategy not without risk.

Waymo also provides a reminder to employees who may look to confidential arbitration as a means to protect their reputations. As illustrated here, a dispute arising from their acts can still become public if, as in Waymo, a former employer chooses to pursue a claim against a non-signatory to the employee’s arbitration agreement.