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Uber needed to settle Alphabet’s lawsuit

Putting this messy legal battle to rest was in the best interest of the company as it tries to go public.

Uber CEO Dara Khosrowshahi Michael Cohen/Getty Images for The New York Times

Alphabet’s lawsuit against Uber was bad for Uber. That’s an understatement. In the midst of an already scandal-ridden year, the messy, public lawsuit exposed the company’s internal messages, questionable competitive practices and resulted in the termination of at least one top executive.

More than that, it put Uber’s self-driving efforts at risk. If Alphabet could convince a jury that Uber worked with Anthony Levandowski, a former top engineer at both companies, to steal trade secrets, Uber could have been forced to stop using any and all technology that incorporated Alphabet’s alleged trade secrets and pay out millions, if not billions, in damages.

That’s not a great situation to be in if you’re a company attempting to refurbish your image and go public in 2019. In other words: Uber needed to settle.

And settle they did. The two companies announced that Uber agreed to give Alphabet 0.34 percent of its last valuation, which sources familiar say was $72 billion in shares. That comes out to $245 million in equity.

That amount places it among some of the top past trade secret jury verdicts in the U.S. in the last 10 years.

Still, the monetary payout pales in comparison to the damages Alphabet wanted Uber to pay out for its trade secrets, one of which the company valued at more than $1 billion.

What Alphabet did get, however, is a guarantee that Uber won’t use their self-driving tech —technology which the company firmly believes the ride-hail player had in its possession.

While both sides are pitching this as a win, this is certainly a best-case scenario for Uber given the circumstances. Through its requests for discovery, Alphabet dragged Uber’s reputation through the mud, forcing private messages and emails between former Uber CEO Travis Kalanick and others, as well as letters about the company’s questionable surveillance tactics, into the public eye.

This settlement stopped the bleeding.

There was little reason to think Alphabet would be open to a settlement that didn’t include an admission of guilt — something Uber was unwilling to give because the company vehemently contended the files Levandowski downloaded never made it to their servers.

Instead, Khosrowshahi said that the acquisition of Levandowski’s startup, Otto, could have been handled differently.

“But the prospect that a couple of Waymo employees may have inappropriately solicited others to join Otto, and that they may have potentially left with Google files in their possession, in retrospect, raised some hard questions,” Khosrowshahi said.

However, today’s settlement notably lacked any admission that trade secrets ever made it to the company. In fact, Uber CEO Dara Khosrowshahi doubled down on that contention.

“To be clear, while we do not believe that any trade secrets made their way from Waymo to Uber, nor do we believe that Uber has used any of Waymo’s proprietary information in its self-driving technology, we are taking steps with Waymo to ensure our Lidar and software represents just our good work,” he said in a statement.

Furthermore, if a jury were to decide that Uber did steal trade secrets, the ride-hail company could be forced to stop using any and all technology that incorporated Alphabet hardware or software. As part of the settlement, the companies agreed that Uber would not use any hardware or software developed by Alphabet’s self-driving arm, Waymo.

That’s significant because it covers a second potential lawsuit Waymo could have filed with regard to software trade secrets. While Waymo wanted to bring up software trade secrets the company believed Uber took as part of this lawsuit — which is about self-driving hardware called lidar — the judge said it would add too much to this trial but ruled the company could file a separate lawsuit related to software after this ended.

This settlement, as agreed upon, takes care of those software claims as well, which means it helped Uber avoid another potentially messy trial.

Alphabet also expected to present their more technical evidence of Uber’s theft and use of its trade secrets in trial today and call Levandowski to the stand. Levandowski has pleaded the Fifth, but a judge determined the jury could use that against him when deciding the verdict. That, too, could be potentially damaging to Uber’s case.

Settling this also takes one legal issue off the already overburdened shoulders of Uber’s legal team, now led by Chief Legal Officer Tony West. This week, the company faced a congressional hearing over the summer’s data breach, and Uber is also still facing government inquiries into its use of its “greyball” software and a myriad of other lawsuits.

Moreover, Alphabet in the last month has now both gained and lost Uber shares. Last month, Alphabet sold about $350 million worth in shares in the company as part of the tender offer alongside SoftBank’s investment. Now it is earning two-thirds of that back. That means the company is still invested in Uber’s success.

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