United States: Breaking Down The Faraday Future Trade Secret Case

  • The artificial intelligence electric vehicle developer Faraday&Future has sued rival EVelozcity for misappropriation of trade secrets.
  • EVelozcity was formed by the former CFO of Faraday and allegedly recruited several Faraday employees to defect and bring substantial amounts of confidential Faraday data with them.

In January, the artificial intelligence electric vehicle developer Faraday&Future, Inc. filed a lawsuit against rival startup EVelozcity, Inc. for misappropriation of trade secrets. Faraday has reportedly invested more than $1 billion to develop a vehicle called FF 91, which is scheduled to begin production late this year.

Faraday's complaint against EVelozcity describes a tumultuous period at the company in the fall of 2017, when Faraday's Chief Financial Officer and Chief Technology Officer allegedly attempted to oust the company's CEO. After this effort fell short, the CFO and CTO allegedly formed EVelozcity and began recruiting defectors even while still employed at Faraday. Faraday alleges that the defecting employees improperly took thousands of confidential documents when they left for EVelozcity.

As previously noted on this blog, a trade secret is valuable business information that is not publically known and is subject to reasonable efforts to preserve confidentiality. [Note 1]. To prevail on a claim of misappropriation of a trade secret, a party must show that it has a trade secret, and that another party "misappropriated" the trade secret by one of: (1) non-consensual disclosure, (2) acquisition from a person with a duty to maintain the trade secret, or (3) acquisition by improper means (i.e. theft, bribery, misrepresentation, or breach of secrecy).

To win the lawsuit against EVelozcity, Faraday must first establish that it has a valid trade secret. Faraday has given the following as examples of the valuable business information that is or was not publically known:

  • Business information regarding Faraday's costs, materials, vendors, and business plans;
  • A proprietary variable platform architecture ("VPA");
  • Technical details regarding battery, power train, safety, and autonomous driving technologies;
  • Software and source code.

Faraday suggests that the theft of its VPA may be the most damaging to the company, as the VPA "serves as the base of [Faraday]'s AI electric vehicle." Theft of this technology could potentially provide a competitor with greatly reduced production costs and production time for developing a similar vehicle.

Faraday asserts that these materials were subject to reasonable efforts to maintain confidentiality. Specifically, Faraday alleges that the following measures were in place to protect the confidential data:

  • Confidentiality agreements for employees, visitors, and third party contractors;
  • Restrictions on physical access to Faraday's offices, to include physical barriers, security guards, keycards, pre-authorization of visitors, and limiting employee access to certain sensitive areas; and
  • Computer protections such as password and firewall protection, and storage of information such that only employees requiring access will have access to sensitive technological information.

If Faraday is able to present sufficient evidence to prove that the listed materials constitute trade secrets, the case will turn to the question of whether EVelozcity misappropriated those materials. Faraday's complaint against EVelozcity claims that several of the employees defecting from Faraday to EVelozcity took with them "substantial amounts of [Faraday] trade secret information," mostly by downloading files from Faraday's computer systems onto USB and/or personal Google drives. Some of those defecting employees even allegedly tried to cover their tracks by installing programs to "wipe" files from Faraday computers.

In response to Faraday's accusations, EVelozcity has requested that the court order Faraday to take its claims to arbitration rather than raise them in court. EVelozcity argues that the claims arise from the employee contracts signed by Faraday and the defecting employees, and those contracts require arbitration of disputes rather than litigation in federal court. The court has not yet ruled on this request from EVelozcity.

EVelozcity also filed a request to disqualify some of Faraday's attorneys from participating in the case. We will discuss that request in a later blog post.

This case will be worth watching as it proceeds; the case has the potential to significantly impact the business plans of both Faraday and EVelozcity. This lawsuit bears the hallmarks of a high-stakes, "bet the company" litigation for both parties.

Note 1: This definition of a trade secret comes from the Defend Trade Secrets Act of 2016, which for the first time created a federal cause of action to trade secret theft. Prior to 2016, trade secret lawsuits were brought under state law.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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