Tesla Sues Competitor for Trade Secret Violations

Tesla recently sued a competitor and several former employees in California state court for violations of state trade secret laws, breach of contract and intentional interference with contract. Noticeably, Tesla did not sue for violation of the Federal Defend Trade Secret Act. As typical in these types of cases, Tesla asked for a preliminary and permanent injunction, as well as monetary damages.

This case is a little bit different because in addition to claiming that the departing employees took technical data related to the production of Tesla's electric vehicles, the lawsuit also alleges that the employees took recruiting and employment data. It is not often that a business claims in-house human resource information as a trade secret, but that information can certainly be helpful to a competitor attempting to poach Tesla's (or other competitors’) employees. As one would expect, the departing employees signed non-disclosure agreements and a code of ethics, both of which required the employees to protect and maintain the confidentiality of certain proprietary information.

Importantly for the competitor, Tesla also alleged that the competitor asked the departing employees to take the subject information, and did very little when informed about the misappropriation. These actions, if proven, can significantly increase the chance of liability for the competitor.

In these cases, the liability of the competitor is often looked at separately from that of the departing employees.  For example, if the competitor did not know that the employees breached agreements with the old employer, or takes appropriate remedial action, liability can often be avoided or mitigated. That is why Tesla’s attorneys and most attorneys practicing in this area will send a detailed letter to the new employer advising it of the improper conduct – it is hard to claim ignorance after clear notice. Often, a thorough review of its computer system to ensure that no questionable documents reside on its servers and an order not to utilize confidential information in the employees’ new positions will be enough to mitigate any damage. Obviously, terminating the new employees is an option, as well.