Woman monitoring her heart beat with a fitbit charge 3 activity tracker.

"This is a criminal court. What are we all doing here?"

That's what Orrick, Herrington & Sutcliffe partner Randy Luskey asked a federal jury in San Jose, California on Friday—and it was a darn good question.

Because for the feds to bring criminal charges against his client Katherine Mogal, who was accused of stealing trade secrets when she left her job at now-defunct consumer electronics startup Jawbone to join Fitbit, was an odd—and ill-conceived—move. 

The jury agreed. After less than two hours of deliberations, they acquitted Mogal on Monday of all counts.

"We have always believed that our client was innocent and that this case never should have been brought," Luskey's co-counsel Walter Brown Jr., who heads Orrick's white collar practice, told me.  Orrick partner Melinda Haag and Miranda Kane of Kane+Kimball were also on the trial team.

Of course, there's nothing inappropriate about federal prosecutors going after people for stealing trade secrets. For example, the U.S. Attorney's Office for the Northern District of California last year charged engineer Anthony Levandowski, a key figure in the Waymo/Uber battle over autonomous driving technology, with 33 counts of stealing or trying to steal Google's trade secrets.

Or take the office's cases against two Chinese-born engineers who'd worked for Apple's self-driving car unit and allegedly stole troves of schematic drawings and other materials. Both were separately arrested right before getting on planes back to China—where extradition would almost certainly have been difficult.

But what's so bizarre about the office's case against Mogal is that Jawbone had already attempted—and failed—to bring similar allegations of trade secret theft before the U.S. International Trade Commission. 

After a two-week trial, an ITC administrative law judge in 2016 sided squarely with Fitbit, finding that the company did not misappropriate any of Jawbone's trade secrets.

Jawbone also pursued trade secret claims against Fitbit in San Francisco Superior Court—litigation that fizzled out in early 2018 as Jawbone went out of business.

Why after such nothingburger civil results would prosecutors in Northern California jump in with a criminal case? 

In court papers, the Orrick team wrote that "Four months after this resounding defeat in the ITC Action, on February 7, 2017, Jawbone's outside counsel made a presentation to the United States Attorney's Office for the Northern District of California…advocating for a criminal prosecution. Approximately four months later, on June 29, 2017, the USAO began presenting witness testimony to a grand jury."

According to court records, Jawbone's prior counsel includes Skadden, Arps, Slate, Meagher & Flom; Susman Godfrey and Venable. Skadden partner Lance Etcheverry did not respond to a request for comment.

The feds wound up individually charging six former Jawbone employees who jumped to Fitbit at different times—an audio engineer, an accounting manager, a mechanical engineer, a user researcher, a product manager, and Mogal, who was "director of market and customer experience insights."

The six are not alleged to have conspired to steal trade secrets together, and all are represented by separate counsel. Prosecutors opted to try Mogal's case first—an indication that they thought it was their strongest.

The case against her revolved around her use of a cloud service called CrashPlan to back up her computer files automatically. It was something she'd set up on her own after her husband had a catastrophic computer crash and lost months of work, she said.

After Mogal left Jawbone on March 17, 2015, the feds said she hid the existence of her CrashPlan from her former employer, despite being given multiple opportunities to identify devices and accounts that might contain Jawbone documents. And the government told the grand jury that this proved Mogal had intentionally stolen the files. 

Not true, the Orrick team responded. "The testimony that Ms. Mogal repeatedly hid her CrashPlan backup from Jawbone was false," they wrote in a motion to dismiss. "The government should have known it was false. And there was no evidence to support a finding that she intentionally stole documents from Jawbone without the false testimony."

However, U.S. District Judge Beth Labson Freeman declined to dismiss the case, writing that "although the [grand jury] testimony was false, the court cannot find that the government should have known that."

Prosecutors focused on six documents in Mogal's possession that allegedly contained trade secrets—assorted surveys of Jawbone users' backgrounds, reasons for purchasing fitness trackers, desired features, interest in health and fitness and motivation. 

One problem: The government had no evidence that Mogal ever accessed a single document in her CrashPlan after leaving Jawbone or downloaded any of the alleged trade secrets from her CrashPlan to her computer at Fitbit. 

In closing arguments, Luskey hammered the flaws in the government's case. Mogal simply "forgot to delete her subscription to CrashPlan when she walked away from Jawbone," he said, according to a transcript of the proceedings. "She set up a CrashPlan after her husband Josh's computer crashed in November of 2014 and she never once thought about it. She never once logged into it."

"The elements of this crime require the government to not just prove that Katy possessed these documents when she left Jawbone. We all agree with that," he continued. But the government also had to show intent.

"The key takeaway on intent is that none of these six user studies were ever shared with Fitbit," Luskey said. "The best evidence of Katy having no intent to use the documents is that she didn't actually use them."

"What was stopping her?" he continued. "If she had this master plan, if she had this intent, what was stopping her? Right? She would have got right to Fitbit and said 'Guys, you're not going to believe what I got away with. I got the 'up segmentation' study from 2013. It's two years old now, and it talks about how Jawbone segments that market. 

"Yes, I realize that they're on the verge of bankruptcy and their products aren't selling and Fitbit is number one in the wearable industry and best in class and on the verge of going public, but you're not going to believe what I got away with. Everyone gather around. Let's injure Jawbone with this document."

Luskey added, "That's the government's theory."

See also: Former Jawbone Employee Wins Not Guilty Verdict in Federal Trade Secrets Trial

---

We hope you enjoyed this excerpt from Litigation Daily, the exclusive source for sharp commentary on mega court battles, winning strategies and the issues that obsess elite litigators. Click here to subscribe.