Two Wrongs Don’t Make a Right – Trade Secrets Saga Concludes With No Damages Awarded

Orrick - Trade Secrets Group

Orrick - Trade Secrets Group

On Wednesday, a federal jury in the Eastern District of Texas declined to award any damages to Huawei Technologies Co., the world’s largest telecommunications company, stemming from its allegations of trade secret theft, employee poaching, and restrictive covenant violations against former employee Yiren Ronnie Huang (“Huang”) and startup CNEX Labs, Inc. (“CNEX”). Huang and CNEX, in turn, asserted counterclaims of trade secret theft against Huawei. Although the jury found Huang violated his post-employment obligations to Huawei and that Huawei misappropriated CNEX’s trade secrets, the jury did not award damages to either party. The verdict came after a contentious three-week trial before Judge Amos Mazzant on the parties’ dueling trade secret claims.

Wednesday’s verdict caps off a six-year saga, which started in 2013, when Huang resigned from his position as a system architect with Futurewei Technologies, a subsidiary of Huawei based in Plano, Texas. On December 28, 2017, Huawei and Futurewei (collectively, “Plaintiffs”) filed a 22-count complaint alleging that Huang, with the assistance of CNEX, misappropriated Plaintiffs’ confidential, proprietary and trade secret information and poached fourteen Huawei and Futurewei employees to join him at CNEX.

According to the complaint, Plaintiffs hired Huang to develop an alternative Solid State Disk (“SSD”) data storage device. Huang then used Plaintiffs’ trade secret information related to SSD technology to develop competing products, usurp prospective business opportunities, and file patents on behalf of CNEX. Plaintiffs pointed out that just three days after Huang’s resignation from Futurewei, he established CNEX to compete with Huawei and provide data storage solutions. Twenty-three days later, on June 26, 2013, Huang filed the first of at least eighteen patent applications that Plaintiffs’ allege incorporate research Huang obtained during his employment with Futurewei.

In response to Plaintiffs’ robust allegations, CNEX and Huang filed counterclaims in December 2018, alleging that Plaintiffs engaged in a years-long conspiracy to steal CNEX’s trade secrets. Plaintiffs’ alleged scheme included directing a Huawei employee to meet with CNEX officials while posing as a potential customer. CNEX also accused Plaintiffs of using its ties to a Chinese university to acquire proprietary information CNEX submitted as part of an academic research project.

After deliberating for less than a day, the jury rejected Plaintiffs’ claims that Huang misappropriated trade secrets or solicited his former colleagues to join CNEX. Although the jury agreed that Huang violated his Patent Agreement by not disclosing the patents he filed on behalf of CNEX, such a violation did not harm Plaintiffs or warrant awarding Huawei any damages. With respect to Huang and CNEX’s counterclaims, the jury found that Huawei misappropriated CNEX’s trade secrets. However, Huawei’s actions did not cause CNEX any material harm and thus, did not warrant an award of damages.

The mixed results for Huawei come just months after the U.S. Commerce Department added Huawei to a trade secret blacklist. Notably, Judge Mazzant is also separately overseeing Huawei’s lawsuit challenging that classification, in which Huawei is arguing the U.S. government’s actions are an infringement of the company’s due process rights.

Trade Secrets Watch previously analyzed the recent controversy surrounding Huawei’s business dealings and the broader economic tensions between the U.S. and China. You can read more here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Orrick - Trade Secrets Group

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