Tesla v. Rivian: Electric Competition Over Trade Secrets

Tesla needs no introduction. Though the first electric cars were introduced more than a hundred years ago, Tesla was the first to prove their commercial viability. With $12 billion in revenues (as of June 30), they still lead the field by a wide margin. However, in recent years, Tesla has faced stiff competition from upstarts in China, the EU, and even Saudi Arabia. Domestically, the car giant Ford and much smaller Rivian are gaining market share.

In a lawsuit filed in July 2020, Tesla alleged that Rivian stole trade secrets from them by actively recruiting former Tesla employees and instructing them to provide specific sensitive and confidential information. In addition to suing Rivian Automotive, Inc. and Rivian Automative, LLC , Tesla named four former employees who had since left for Rivian in the suit, as well as 1-20 unidentified individuals who Tesla “anticipates will be added as named defendants at a later date,” according to the original claim.

Rivian denied wrongdoing, calling the lawsuit “speculation” and an attempt “to use the judicial system as a prop to deflect attention from Tesla’s own challenges, to foment fear, uncertainty, and doubt about Rivian, and to provide the pretext to disparage Rivian and its own former employees in the press.” However, in March 2021, the California Superior Court declined to dismiss. Last month, Tesla re-asserted its previous claims and filed an amended complaint, which alleged that Rivian stole its proprietary battery technology. Tesla has also added additional named defendants to the suit; the current claim names nine defendants in addition to the corporate entities.

These laws follow a trend of recent lawsuits over trade secrets in the clean energy industry. In April 2020, a North Carolina solar firm alleged that a former employee used trade secrets to start a nearby rival firm. More publicly, in 2014, members of the Chinese military hacked into the software systems of SolarWorld. SolarWorld constructs crystalline silicon photovoltaics for use in solar panels and, at the time of the hack, was one of the first manufacturers in the world to bring a novel type of solar cells (Passivated Emitter Rear Contact solar cells) to market. In that case, a grand jury indicted the Chinese military agents of economic espionage, stating that they used this information to provide state-owned enterprises with a competitive advantage in the field of solar manufacturing.

Based on the World Intellectual Property Organization’s definition, a trade secret must be commercially valuable, known only to a limited group of people, and guarded as a secret through “reasonable steps” (e.g., NDA agreements for employees). The California statute under which Tesla is bringing suit relies on a similar definition, which also depends on these three prongs: i.e., economic value (actual or potential, according to the statute), not generally known to the public, and “the subject of efforts that are reasonable under the circumstances to maintain secrecy.”

Many companies may choose to limit disclosure and employ such confidentiality agreements as a first line of defense against intellectual property theft. Compared to patents, trade secrets have no limit on the term over which they can be protected (versus 20 years for patents) and require no upfront cost to establish.

In the case of this suit, Tesla protects its information by requiring all employees to sign the Tesla, Inc. Employee Nondisclosure and Inventions Assignment Agreement as a condition of employment, in which proprietary information is defined broadly as “all information, in whatever form and format, to which I have access by virtue of in the course of my employment,” including “technical data, trade secrets, know-how, plans, designs…methods, processes, data, programs, lists of or information relating to, employees, suppliers, financial information and other business information.” (claim)

This NDA is even broader than the state statute, which does not explicitly prohibit the disclosure of employees by name; this is directly relevant to the suit, as the allegations against one of the defendants turn on that specific behavior. More problematically, this definition is sufficiently inclusive to encompass nearly all employees’ day-to-day activities– likely the same experience for which employees at any company are typically recruited. This breadth may create ambiguity, breeding confusion among employees about what types of knowledge-sharing are prohibited.

Furthermore, protection of this knowledge may be undesirable to the extent that knowledge-sharing may increase the pace of renewable development. Advocates of intellectual property protection often assert that it encourages investment in research and development by rewarding the fruits of those efforts with the right to exclude. However, in the Tesla suit, nearly every defendant was alleged to have stolen information associated with recruitment and business development. It seems unlikely that exclusive use of this information would encourage investment in Tesla’s core technology. On the other hand, this information would allow more companies to enter the field, thereby allowing consumers to purchase cutting-edge cleantech solutions at more competitive prices.

As renewables become a more significant part of the energy landscape and more players enter the field, such suits will likely become more common, along with the epistemic dilemmas therein.