United States: Trade Secrets And Lies (Silicon Valley – Episode 21)

Episode 21 is a delightful maze of plots, plot twists and omens.  At Pied Piper, Richard fails in his attempt to go over CEO Action Jack's head and have Laurie, the investor, force Jack to scrap his Box and build the consumer platform.  As a result of this failed coup, Jack warns Richard darkly, "if you're going to shoot the king, you've got to be goddamn sure you kill him."  Undeterred, the team opts for covert action:  they will build their consumer platform while pretending to build Jack's box. They form a secret 'startup within a startup,' aptly/obviously codenamed "Skunkworks." But before they can even get to work, Richard lets the Skunkworks plans fall into the enemy, sales team hands... and it seems like the entire scheme is blown!

Jared is devastated and anxious about what Jack will do to them.  While their escapade might get them fired, it doesn't appear likely to have other serious legal consequences for Dinesh, Gilfoyle and Jared.  Depending on the terms of their employment agreements, Action Jack might also be able to claw back some of their salary or equity, but probably nothing worse.  However, Richard is an officer of Pied Piper, and owes a "fiduciary" duty to the company.  This includes a duty not to hinder it from pursuing its business objectives, and also a duty to disclose information within the scope of his relationship with the company.  If Richard is still a board member, he has additional fiduciary duties in that role.  If Skunkworks derails the Box but fails to build a working consumer platform—leaving Pied Piper with nothing—then Richard should watch out because Laurie and Jack might be able to sue him for breach of his duties to the company.

Meanwhile, over at the competition...
While Richard was plotting, Gilfoyle took action and quit Pied Piper.  Soon, recruiting firm Twen-X is lavishing gifts on him, and eventually lures him to a meeting at which he is shocked to discover that old nemesis Endframe has teamed up with the ex-Hooli 'brogrammers.'  Even worse, the new Endframe has cracked Pied Piper's middle-out compression technology by combining the information Endframe gained when it "brain raped" Pied Piper back in Episode 10, with what the ex-Hooli brogrammers figured out in their last days working at Hooli (Episode 20).  The new Endframe looks unstoppable.

But didn't Endframe "steal" everything they have from either Hooli or Pied Piper?  And won't that somehow trip them up?

Let's start with the ex-Hooli brogrammers.  In their last days at Hooli—after Hooli shut down the Nucleus compression project and told them they were being fired—the brogrammers were working on scrubbing the internet of references to their boss Gavin Belson, when they had a brainwave and figured out how Pied Piper's middle-out technology works.  They white-boarded the solution, snapped some pictures of it, and then decided to leave Hooli without disclosing their 'invention.' It's easy to sympathize with their actions, but can they get away with it?

I've previously discussed that under California law, an employer can require employees to assign certain inventions to the company by using an invention assignment agreement (known as "PIIA").  However, California law limits how far an employer can go in claiming ownership of employee inventions—an employer is not allowed to claim ownership of inventions that the employee develops entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information (and provided also that the invention doesn't relate to the employer's actual or anticipated business).  In the final episode of last season, the arbitrator invalidated Hooli's employment agreements (including Hooli's PIIA), meaning that Hooli can't use its PIIA to claim ownership of the brogrammer's new invention.

This doesn't necessarily mean the brogrammers are free to walk away with their idea!  Even without a valid PIIA, employers can sometimes assert ownership over employee inventions.  In general, if one of an employee's primary job responsibilities is to invent things for the company, and the employee invents something 'within the scope' of his or her employment, then the invention likely belongs to the company.  Put another way, if the employer has paid the employee to develop something, the employee can't take the money but then refuse to hand over the invention.  The wrinkle for Hooli is that it had already killed the Nucleus project, and reassigned the brogrammers to other things.  The brogrammers can argue that their brainwave was not 'within the scope of their employment' because they were no longer tasked with developing compression technology, and in fact Hooli wasn't even in that line of business any more.

Hooli could have one other card up its sleeve though: the severance agreements.  In exchange for severance payments, Hooli might have asked departing employees to assign to Hooli all the inventions the employees developed during their time at Hooli, and agree to confidentiality provisions.  This would be valid as long as Hooli offered severance payments that were greater than what Hooli already owed the employees.  In other words, by paying a little extra in severance payments, Hooli might have 'purchased' the brogrammers' inventions—as well as their silence about their inventions.

Even if Hooli has a basis for claiming ownership of the idea, Hooli could have a hard time proving that the brogrammers "took" anything from Hooli.  If the brogrammers 'invention' didn't include any (other) Hooli trade secrets, then they can likely simply claim they figured out the idea again, "from scratch" after they left Hooli, and how is Hooli to prove otherwise?.

What about Endframe?  Endframe got their half of Pied Piper's technology because Pied Piper disclosed the details of Pied Piper's middle-out technology during a pitch to a VC firm.  Unbeknownst to Pied Piper, Endframe was at the pitch.  Last season I discussed the fact that VC's typically don't sign NDAs, and so an NDA would not have been a viable way to protect the tech in this situation.  However, Pied Piper should have had an IP protection plan; it shouldn't have explained all the details of its technology in an initial pitch meeting; and it should have submitted a patent application on its tech before the pitch.  There's  a chance Endframe's trickery could give Pied Piper a claim for 'misappropriation of trade secrets.'  But because Richard and Pied Piper haven't been taking appropriate measures to protect their IP, they would have a more difficult time making any claims now.  Endframe, too, appears likely to get away with its skullduggery.

We'll see next episode if Richard and the team have any tricks left in their haversack...

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