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WeRide Corp. v. Kun Huang
Citation: 379 F. Supp. 3d 834Docket: Case No. 5:18-cv-07233-EJD
Court: District Court, N.D. California; March 22, 2019; Federal District Court
WeRide Corp. and WeRide, Inc. have initiated legal action against Zhong Zhi Xing Technology Co. Ltd. (ZZX), AllRide.AI, Inc., former WeRide CEO Jing Wang, and former Director of Hardware Kun Huang. The claims include violations of the federal Defend Trade Secrets Act and California's Uniform Trade Secrets Act against all Defendants, breach of contract against Wang and Huang, breach of fiduciary duty against Huang, and defamation and intentional interference with prospective economic advantage against Wang. The court has jurisdiction under the Defend Trade Secrets Act and supplemental jurisdiction over state law claims. WeRide has filed a Motion for Preliminary Injunction and Expedited Discovery, which has garnered opposition from Wang, Huang, ZZX, and AllRide, along with replies and supplemental briefing motions. The background highlights the competitive landscape of the autonomous vehicle industry, which is poised for significant economic impact. WeRide claims a $45 million investment in its technology development. AllRide and ZZX have plans to expand their workforce substantially. The technology relies on complex processes, including deep learning, and requires substantial time and resources for development. Wang and Huang have prior experience in the industry, having worked at Baidu before joining WeRide, which was founded in 2017 by Wang and others. WeRide has developed code modules for three key areas: HD mapping, sensor fusion-based localization, and state machines, essential for autonomous vehicles. HD maps are created by vehicles driving repeatedly in an area to gather data from multiple sensors. Sensor fusion-based localization combines this sensor data to determine a vehicle's precise location within a mapped area. State machines serve as decision-making models that dictate vehicle responses in various scenarios. Although WeRide did not invent these concepts, it claims that its source code and algorithms implementing them are trade secrets, protected by measures such as requiring employees to sign a Proprietary Information and Inventions Agreement (PIIA) that mandates confidentiality and restricts the solicitation of employees for one year post-employment. WeRide also employs physical access controls and encrypts its source code, limiting access to authorized personnel via VPN and unique credentials. In 2017, WeRide rapidly expanded, completing its first driverless test on May 12 and its first public road test by June 24, becoming the fastest in the industry to do so. That December, Baidu sued Wang, then CEO of WeRide, for trade secret theft, leading to his removal as CEO on January 31, 2018, and a subsequent settlement between WeRide and Baidu. WeRide alleges that Wang founded a competing company, ZZX, based on media reports and statements from Huang regarding Wang's intentions. Conversely, Wang denies any affiliation with ZZX, asserting he has never been an employee, founder, officer, board member, or shareholder of ZZX, nor has he received consulting payments from it. Wang disputes the credibility of a reporter's assumptions in a media report, stating that despite his efforts to clarify, the report was published. Huang, an employee of ZZX, asserts that Wang holds no formal position at either ZZX or AllRide.ai, Inc. Wang acknowledges discussions with ZZX's founders, referral of investors to ZZX without financial compensation, and his founding of the Nanjing Intelligent Travel Industry Fund in 2018, which invests in AI innovations. The relationship between AllRide and ZZX is ambiguous, but WeRide claims they are closely linked, a notion not contested by either entity. AllRide.AI was incorporated in Delaware on July 19, 2018, just before ZZX registered the allride.ai website, which claims a research center in Silicon Valley. Huang, employed by ZZX, sought office space in Silicon Valley in late 2018. WeRide alleges that after leaving the company, Wang disparaged it to potential investors, resulting in a significant loss of expected funding. In August 2018, WeRide's CFO, Qing Lu, learned that Wang allegedly warned investors about a potential lawsuit from Waymo and made various negative claims about WeRide's technology and operations. Following Wang's communications, an investor reduced its planned investment from $20 million to $4.5 million, and five other investors withdrew a total of $64 million in investments. Wang denies these allegations and suggests that WeRide's investment challenges stemmed from other litigation disclosures. Concurrently, Huang expressed dissatisfaction with his role at WeRide due to instability from legal issues and management changes, leading him to consider employment opportunities elsewhere. Discussions about joining "Jing Wang's new company" were reported to WeRide's CEO, and Huang's employment was set to terminate on August 13, 2018. Huang was issued two laptops by WeRide: a personal MacBook and a shared Lenovo laptop. On August 7, 2018, he connected a USB device, referred to as the "566 Device," to the Lenovo laptop and copied 1,192 files to it. After Huang's employment ended on August 13, 2018, several hundred of these files were accessed. WeRide claims that at least five categories of files are confidential or proprietary, while Huang asserts that none of these files were accessed post-employment and that WeRide has not identified any trade secrets on the "566 Device." On the same day as the file transfer, Huang deleted multiple files from the Lenovo laptop, cleared its web-browsing history, and erased the MacBook's hard drive before returning both devices upon his resignation. On October 22, 2018, Huang attended a recruiting event for ZZX in Nanjing, where ZZX showcased a video of its vehicle demonstrating five "Advanced Capabilities," which WeRide's expert identified as innovative features akin to its own. On March 18, 2019, just prior to a scheduled hearing, ZZX and AllRide sought to file supplemental briefing based on a document Huang referenced, but failed to explain their five-week delay in doing so. The Court denied their request for judicial notice and supplemental briefing, along with a similar request from Wang. A preliminary injunction requires a clear demonstration that the plaintiff is entitled to such relief, including the likelihood of success on the merits, risk of irreparable harm, a favorable balance of equities, and public interest considerations. The Ninth Circuit allows for a balancing approach, permitting a stronger showing in one area to compensate for a weaker showing in another, and confirms that the "serious questions" standard remains applicable post-Winter, contrary to Wang's arguments. AllRide and ZZX object to the evidence presented by WeRide, asserting that district courts typically assign some weight to "inadmissible evidence" to prevent irreparable harm, particularly in preliminary injunction motions, although such evidentiary issues impact the weight of the evidence rather than its admissibility. The court is considering these objections in its evaluation of the Motion. WeRide alleges trade secret misappropriation against all defendants under the federal Defend Trade Secrets Act (DTSA) and California Uniform Trade Secrets Act (CUTSA). To initiate discovery and seek a preliminary injunction, plaintiffs must identify their trade secrets with "reasonable particularity." This identification requires showing that the trade secret is not generally known, derives economic value from its secrecy, and is subject to reasonable efforts to maintain its confidentiality. Misappropriation involves acquiring a trade secret through improper means. California Code of Civil Procedure § 2019.210 mandates that plaintiffs specify their trade secrets to narrow the scope of discovery, distinguishing them from general knowledge in the industry. While WeRide does not need to disclose every detail, it must provide enough information for the court and defendants to understand the general scope of the trade secrets. WeRide has submitted a list of 10 alleged trade secrets, including source code for HD mapping and sensor-based localization, detailing their functionalities and naming relevant files in its code base. ZZX, AllRide, and Huang contend that this identification is inadequate, claiming that specific source code must be identified. However, their argument is legally unsound, as previous case law, including decisions from the Ninth Circuit, supports that identifying file names and functionalities can satisfy the reasonable particularity requirement, thereby affirming that WeRide is not obligated to disclose specific lines of code. WeRide's identification of its trade secrets is deemed sufficiently specific by the Court, which highlights WeRide's description of its HD mapping algorithms as unique to its autonomous vehicles, rather than generic. The Court notes that WeRide has demonstrated reasonable particularity in identifying its trade secrets and does not evaluate the applicability of section 2019.210 under the DTSA. WeRide must prove that its source code derives economic value from not being generally known and that it has taken reasonable steps to maintain its secrecy. Evidence presented shows that the source code was developed by multiple engineers over 18 months with significant investment, making it proprietary to WeRide and providing a competitive advantage. Huang's claim that WeRide's earlier source code was derived from open source does not negate the confidentiality of the source code allegedly misappropriated later. Arguments from ZZX and AllRide suggesting that WeRide's trade secrets are publicly available or easily replicable are countered by expert testimony stating that WeRide's specific trade secrets are not common knowledge or reflected in publicly available code. The Court agrees that the uniqueness of the trade secrets enhances their value and that WeRide has implemented reasonable measures to protect their secrecy, including restricted access, encryption, and employee confidentiality agreements. Finally, ZZX and AllRide's assertion that the federal Copyright Act pre-empts claims under the CUTSA is dismissed by the Court due to a lack of proper argumentation, violating page limitations for opposition briefs. Thus, the Court finds that WeRide is likely to succeed in demonstrating that its alleged trade secrets meet the legal definition of "trade secrets." WeRide is likely to succeed in its trade secret misappropriation claims against Huang. Huang acknowledged his duty to maintain the confidentiality of WeRide's information by signing a PIIA and previously stating to a colleague that taking such information would be "unethical." Despite his claims of not misusing confidential information, his declarations do not refute the allegations of taking or using WeRide's trade secrets. Evidence shows that he increased data downloads around the time he sought new employment, downloading over 400 MB on multiple days during a critical period. Huang had access to WeRide's source code, which he confirmed he downloaded, and he does not dispute copying confidential files to a personal device after deciding to leave. His actions included deleting files and clearing browsing history on WeRide-issued devices, which courts have recognized as indicative of trade secret misappropriation. WeRide has met the preliminary injunction standard for these claims against Huang. Similarly, WeRide is likely to succeed against ZZX and AllRide, as they appear closely related, if not the same entity. The court considers the ownership of the website and incorporation timeline as sufficient to connect ZZX and AllRide for the purposes of this motion, despite Huang's assertion that he is employed by ZZX. Four pieces of evidence suggest that WeRide has sufficiently met the substantial questions requirement for its trade secret misappropriation claims against ZZX and AllRide. First, Huang's significant role in developing autonomous vehicle technology at both companies is noted; he is the Vice President of Technology at ZZX and was identified as a key technical lead at AllRide during a recruitment event. Second, a video presented at the event showcased advanced capabilities of an autonomous vehicle, which Walter asserts could not have been developed independently within the 10 weeks following Huang's departure from WeRide. ZZX and AllRide contest this, claiming development may have begun 19 weeks prior, but they provide no supporting evidence, and the Court remains unconvinced. They also cite WeRide's early driverless testing, but WeRide argues that this testing does not match the advanced capabilities shown. Huang claims he joined an existing team, yet fails to provide evidence regarding the team's prior work. Third, both ZZX and AllRide's vehicles have radar components positioned similarly to WeRide's, which Walter indicates is atypical and suggests the potential use of WeRide’s source code. Although ZZX and AllRide show a Waymo vehicle with a similar radar placement, it is not comparable to WeRide's design. Lastly, Huang's senior position and the pre-existing engineering team at ZZX and AllRide imply that these companies likely knew or should have known about the misappropriation of WeRide's trade secrets. Walter concludes that the rapid development of advanced capabilities suggests Huang brought proprietary technology from WeRide. Collectively, this evidence indicates a likelihood of success for WeRide's claims against ZZX and AllRide. Conversely, the Court finds that WeRide has not established a strong case against Wang regarding trade secret misappropriation. WeRide does not allege that Wang directly took any trade secrets upon leaving the company and must demonstrate his liability through connections to AllRide and ZZX. The evidence includes claims that Huang recruited a WeRide employee to Wang's company and media reports suggesting Wang controls AllRide and ZZX. Wang refutes these claims, denying payment for consulting, involvement in product development, and the accuracy of media reports regarding his control over ZZX, as well as any encouragement he provided Huang to leave WeRide. WeRide's claims against Wang for defamation and intentional interference with prospective economic advantage are unlikely to succeed. Defamation requires intentional publication of a false statement that injures the plaintiff. WeRide's reliance on second or third-hand reports about Wang's alleged statements, which Wang denies, is insufficient to meet the initial burden. For intentional interference, WeRide must demonstrate that Wang intentionally disrupted an economic relationship, but the claims are based on the same insufficient statements as the defamation claim. Regarding breach of contract, California law requires proof of a contract, the plaintiff's performance, the defendant's breach, and resulting damages. WeRide alleges Wang breached multiple provisions of the PIIA and his separation agreement. However, the Court finds WeRide has not sufficiently demonstrated Wang's breach, particularly concerning disparaging statements, as the argument raised during oral argument was not previously presented. Additionally, the non-solicitation provision of the PIIA expired on January 31, 2019, rendering that claim moot. In contrast, WeRide's claims against Huang for breach of contract are more promising. WeRide alleges Huang breached Paragraph 4 by misappropriating confidential information, Paragraph 5 by soliciting an employee to join him, and Paragraph 6 by encouraging an employee to leave while still employed. The Court finds WeRide is likely to succeed on its claim against Huang for breaching Paragraph 4, particularly in relation to trade secret misappropriation. WeRide's claim for breach of Paragraph 5 is unlikely to succeed as the clause is deemed void under California law (Cal. Bus. Prof. Code § 16600), which invalidates contracts that restrain individuals from engaging in lawful professions. Paragraph 5 prohibits soliciting employees for one year post-employment, but California courts, including the California Supreme Court in *Edwards v. Arthur Andersen LLP* and the California Court of Appeal in *AMN Healthcare, Inc. v. Aya Healthcare Services, Inc.*, have ruled that such non-solicitation provisions are unenforceable. The court finds these precedents persuasive, asserting that Paragraph 5 represents an unlawful restraint on employment. WeRide's arguments challenging this interpretation are unconvincing. They claim the *AMN* decision diverged from earlier rulings, specifically *Loral Corp. v. Moyes*, which upheld non-solicitation agreements. However, the *AMN* court clarified that differing factual circumstances justified its ruling, a nuance recognized by the *Barker* court, which upheld the invalidation of non-solicitation provisions. WeRide's reliance on an unpublished 1997 Ninth Circuit opinion to argue for the validity of Paragraph 5 is ineffective, as such opinions do not establish binding precedent. Consequently, the court concludes WeRide is unlikely to prevail on this claim. Furthermore, the court will not evaluate the likelihood of success on WeRide's claim regarding Paragraph 6, which relates to actions during Huang's employment, as Huang is no longer employed and no injunctive relief can maintain the status quo for this provision. Regarding the breach of fiduciary duty claim against Huang, the court notes that establishing such a claim requires proof of a fiduciary relationship, its breach, and resultant damages. Under California law, only employees with management participation and discretionary authority owe fiduciary duties; those without such authority do not qualify as fiduciaries. Huang held discretionary management authority over WeRide's hardware group, leading a team of 10-12 engineers and controlling the budget, establishing him as a fiduciary of WeRide. WeRide accused Huang of breaching this fiduciary duty by recruiting Xu to leave the company. However, the Court determined that WeRide's inability to propose an effective injunctive order precluded relief for actions taken while Huang was employed. Post-resignation, Huang was not bound by fiduciary duties regarding Xu's recruitment. Conversely, the Court found that Huang likely breached his fiduciary duty by misappropriating confidential information, which is a continuing obligation beyond employment. WeRide demonstrated that it would suffer irreparable harm from the misappropriation of trade secrets by Huang, ZZX, and AllRide, who would gain an unfair competitive advantage in the autonomous vehicle industry. The misappropriation could hamper WeRide's market position and risk broader disclosure of its trade secrets, which, once lost, cannot be recovered. The Court acknowledged that the potential loss of market position and trade secret disclosure constitutes irreparable harm. Ultimately, the balance of hardships favored WeRide, supporting the need for an injunction. WeRide has established that it is likely to suffer significant harm without an injunction against ZZX, AllRide, and Huang regarding the use of its trade secrets. The defendants have not demonstrated any substantial hardship that an injunction would impose, as compliance would align with existing legal requirements. The Court has previously addressed and dismissed Huang’s claims concerning the misappropriation of trade secrets and the specificity of WeRide's identification of those secrets. ZZX and AllRide argue that producing their source code would alter the status quo; however, the Court views the request as an early discovery measure under a Protective Order, which ensures that the source code will be protected from WeRide's direct access. They also claim that complying with the injunction would violate Chinese secrecy laws, but they have not justified how this burden exceeds their obligations in U.S. discovery. The Court indicates it can mitigate such concerns by carefully tailoring the injunction. It recognizes the public interest in protecting intellectual property and promoting lawful competition, asserting that an injunction aligns with these interests. Additionally, the Court finds WeRide has demonstrated good cause for expedited discovery, which is necessary to protect its competitive position and trade secrets, especially in light of Huang's deletion of relevant files. Ultimately, the Court concludes that WeRide is likely to succeed on its claims of trade secret misappropriation, breach of contract, and breach of fiduciary duty, and that it will incur harm without the requested injunction. The Court has determined that the balance of hardships favors WeRide and that public interest supports granting an injunction against Huang, AllRide, and ZZX (collectively referred to as "Enjoined Defendants"). The Court has approved WeRide's request for expedited discovery. The Court's orders include: A. Enjoined Defendants and associated individuals are prohibited from: 1. Using, disclosing, providing access to, transferring, copying, reproducing, publishing, distributing, broadcasting, or marketing any version of WeRide Confidential Information, which encompasses trade secrets and proprietary information such as source code, schematics, and other business, technical, and financial information acquired by WeRide employees. 2. Destroying, concealing, disposing of, deleting, altering, or removing any documentation related to WeRide Confidential Information, including: a. Materials obtained from WeRide or containing its Confidential Information. b. Documents relating to the use or disclosure of WeRide Confidential Information. c. Information regarding the creation or distribution of any versions or derivatives of WeRide Confidential Information. d. Instructions or agreements with third parties concerning WeRide Confidential Information. e. Source code associated with autonomous vehicle operations as described in a specific declaration. B. Any disputes regarding this Order will be referred to the assigned magistrate judge. C. Enjoined Defendants must, within four days, provide WeRide's counsel with the identity and contact information of individuals or entities to whom they disclosed or transferred any WeRide Confidential Information. D. Huang, AllRide, and their agents must also, within four days, allow WeRide's counsel access to items for forensic imaging and data preservation that are in their possession and have not been returned to WeRide. All computers, electronic media, and devices containing WeRide's trade secrets or related information must be disclosed, including specific USB devices with serial numbers provided. Discovery is authorized under Federal Rule of Civil Procedure 26(d)(1), allowing parties to take each other's source code, with considerations for any complications arising from Chinese laws. WeRide is permitted to conduct written discovery related to autonomous vehicle technology from Enjoined Defendants and can take seven-hour depositions of Huang and representatives from AllRide and ZZX within 14 days of notice, which do not count against deposition limits. WeRide may also issue discovery requests concerning Huang's personal devices and must maintain an Attorneys' Eyes Only log of withheld documents, with disputes to be resolved by the assigned magistrate. A Preliminary Injunction is issued, allowing WeRide to seek further relief, requiring a $25,000 bond within seven days, and effective immediately until judgment. The Order is filed under seal, requiring a stipulated redacted version within seven days for publicly available materials. Damages related to irreparable harm are addressed separately.