Jawbone sued its fitness tracking rival Fitbit Inc. for alleged theft of trade secrets, just ahead of Fitbit’s expected initial public offering (IPO).

Both companies make wearable technology used for fitness tracking and other purposes.

The complaint alleges that the case “arises out of the clandestine efforts of Fitbit to steal talent, trade secrets and intellectual property from its chief competitor, Jawbone.”

Jawbone alleges that starting in early 2015 Fitbit recruiters contacted about 30% of Jawbone’s workforce, inducing at least five employees to join Fitbit. Jawbone claimed that these employees brought along “access to, and intimate knowledge of, key aspects of Jawbone’s business and the future direction of the market and its business.”

According to Jawbone, one employee, after deciding to join Fitbit as a User Experience Researcher, allegedly offered to discuss with Fitbit “all aspects of the future direction of [Jawbone], how it anticipated the market unfolding in the future, and its product designs and prototypes.”

She then allegedly downloaded onto her personal computer a highly confidential presentation detailing the positions of Jawbone’s current and future technologies and products.

Tip of the Iceberg

Jawbone said that this was just the “tip of the iceberg” and that a forensic investigation showed that other former Jawbone employees used USB thumb drives to download information from their company computers, or forwarded confidential information to their personal email addresses.

The stolen information allegedly included Jawbone’s:

  • Supply chain
  • Gross margins
  • Product lineup (current and future)
  • Product target costs
  • Vendor contacts
  • Product analysis
  • Market trends and predictions

The forensic review also allegedly showed the use of a product called “CCleaner” – “a tool designed to conceal the forensic footprints of activity on a computer device.”

Fitbit’s Chief People Officer allegedly called her counterpart at Jawbone to admit that her company had been “poaching” Jawbone employees, but said that there was nothing improper about this.

The complaint claims that a Fitbit recruiter admitted that Fitbit’s objective was to “decimate” Jawbone.

The case is AliphCom Inc. d/b/a Jawbone v. Fitbit Inc. et al. The complaint can be viewed here.

Takeaway

It is not unusual for a company to be hit with an intellectual property suit just before an IPO. For example, IBM sent a letter claiming that Twitter infringed at least three IBM patents on the eve of Twitter’s IPO, inviting Twitter to negotiate a business resolution.

A company facing an IPO will likely have neither the time to focus on an IP dispute, nor the inclination to muddy the waters (and possibly scare off investors) by fighting over infringement. The target of an IP claim may thus feel pressured to pay for an IP license – on whatever terms will resolve the matter most quickly.

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Photo Attribution: “Fitibit Flex” by MorePix – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons.

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