Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: All right, everyone, big news today, we are launching Threads,
Speaker 1: an open and friendly public space for conversations. But friendly
Speaker 1: conversation wasn't exactly what Twitter had in mind. It took
Speaker 1: just hours after the launch of Threads for Twitter to
Speaker 1: threaten to sue Meta over its quote copycat, app raising
Speaker 1: the specter of costly trade secrets litigation in a sometimes
Speaker 1: nebulous area of the law. Twitter sent a letter to
Speaker 1: Meta CEO Mark Zuckerberg accusing the company of hiring former
Speaker 1: Twitter employees to use trade secrets to speed up the
Speaker 1: development of Threads. Joining me is IP litigator Fabio Marino,
Speaker 1: a partner at Womble Bond Dickinson who has litigated Silicon
Speaker 1: Valley software trade secrets disputes. Tell us how common is
Speaker 1: trade secret litigation?
Speaker 2: It's actually pretty common, particularly in Silicon Valley, particularly between
Speaker 2: I tech companies, and specifically when there is a group
Speaker 2: of engineers that move from one company to the other.
Speaker 1: How would you define what exactly constitutes a trade secret?
Speaker 2: Trade secret at least under California law, and it's similarly
Speaker 2: defined under federal law. Is any information that has value
Speaker 2: because it's kept secret, kept confidential.
Speaker 1: That's pretty broad, it is.
Speaker 2: And you know, usually when we teach this in law school,
Speaker 2: we give an example such as the formula for coke.
Speaker 2: Now that's probably an outdated example because nowadays you can't
Speaker 2: do chemical analysis and reverse engineers a formula for coke.
Speaker 2: But it's basically what most people would describe as the
Speaker 2: secret sauce behind the product, and it's not really apparent
Speaker 2: from the out outside, but it actually makes it work.
Speaker 1: Well, tell me about this letter from Twitter to Meta.
Speaker 1: Is this a typical demand letter or something else?
Speaker 2: So I wouldn't call it a demand letter. This is
Speaker 2: probably more what we would call it notice letter, and
Speaker 2: it's very common. So when a company begins to investigate
Speaker 2: or suspect that some trade secret misappropriation might have taken place,
Speaker 2: they will typically send a letter such as this to
Speaker 2: the new employer to put them on notice that there
Speaker 2: is a potential trade secret misappropriation and they should investigate.
Speaker 1: And what can you tell about the information that Twitter
Speaker 1: already has from this letter? I mean, what can you
Speaker 1: read into this letter?
Speaker 2: The letter is fairly dad. It's obviously triggered by the
Speaker 2: launch of Threads from the Meta platform, which is somewhat
Speaker 2: similar to Twitter. It doesn't specify any number of employees
Speaker 2: that have transitioned from Twitter to Meta, and if they
Speaker 2: had specific information about specific employees, I would have expected
Speaker 2: them to be named in the letter, and you would
Speaker 2: actually typically send a letter to that employee specifically reminding
Speaker 2: them of their confidentiality obligation that extends beyond their termination
Speaker 2: from the prior employer.
Speaker 1: So this could just be Twitter trying to flex its
Speaker 1: muscles and saying your product is so similar there must
Speaker 1: be some kind of a trade secret violation.
Speaker 2: That's not an unreasonable interpretation. Fact, it was my gap
Speaker 2: reaction when I read it.
Speaker 1: In response to this, a metaspokesperson, Andy Stone posted quote
Speaker 1: to be clear, no one on the Threads engineering team
Speaker 1: is a former Twitter employee. That's just not a thing.
Speaker 1: If that is true, would that be enough to stop
Speaker 1: the litigation or at least make any litigation more difficult.
Speaker 2: Certainly it would make a claim of trade secret misappropriation
Speaker 2: based on hiring former employees difficult. As you said, if
Speaker 2: it's in fact true, I suspect it's true in the
Speaker 2: sense that no Matter is a sophisticated company and so
Speaker 2: they have probably already taken steps to verify if in
Speaker 2: fact they have anybody on the team that is a
Speaker 2: former Twitter employee, and the fact that they put out
Speaker 2: a statement quickly to that effect suggests that they've done
Speaker 2: something in that sense.
Speaker 1: Well, let's say Twitter does bring a trade secrets case
Speaker 1: against Meta. What would it have to show.
Speaker 2: I would have to show that Meta actually acquired trade
Speaker 2: secrets from Twitter, either through hiring former employees or some
Speaker 2: other kind of appropriation of the trade secret. The one
Speaker 2: important safeguard, at least in California, is that if they
Speaker 2: file laws, Twitter is going to have to identify the
Speaker 2: trade secrets before it can obtain discovery from Meta. So
Speaker 2: that's important because you cannot just sue somebody ask them
Speaker 2: to turn over their confidential information say oh, that's my
Speaker 2: So the policy, there's a statute that regulates in California,
Speaker 2: requires the sewing party to actually identify the trade secrets
Speaker 2: before obtaining information from the defendant.
Speaker 1: So suppose the two products are just very similar.
Speaker 2: Yeah, that's not a trade secret misappropriation in and of itself.
Speaker 2: Now I saw some reference to data scraping, so it
Speaker 2: sounds like at least Twitter believes there might be something
Speaker 2: related to data scraping.
Speaker 1: And it's a letter said that Meta isn't allowed to
Speaker 1: crawl or scrape Twitter's data.
Speaker 2: So data scraping means collecting information of somebody else's website.
Speaker 2: So there's some data that is obvious to everybody. Right,
Speaker 2: if you're reading Twitter a set of tweets, you know
Speaker 2: there's data in the twitts themselves, but there is additional data,
Speaker 2: often referred to as metadata. Metadata simply means data about
Speaker 2: other data that somebody familiar with the Twitter algorithms, for example,
Speaker 2: would be able to collect, taking advantage of inside knowledge
Speaker 2: about that metadata is organized on a Twitter service. So
Speaker 2: the implication here is that if there are former employees
Speaker 2: of Twitter and Meta, they might have viewed some of
Speaker 2: that knowledge to enable Meta to scrape data from Twitter
Speaker 2: that others that lacks that knowledge would be able to extract.
Speaker 1: In a case like this, do you almost need a
Speaker 1: smoking gone like evidence that code was copied or documents
Speaker 1: were stolen?
Speaker 2: Certainly helps a lot, but we typically first as smoking gun.
Speaker 2: You know, I do these types of investigations all the time.
Speaker 2: When I find evidence like that, now I know whatever real, Okay, Obviously,
Speaker 2: You don't have to have a smoking gun before you
Speaker 2: file stood. You need to conduct a diligent investigation. You
Speaker 2: have to obtain information that leads you to form a
Speaker 2: reasonable belief that a trade secret misappropriation has occurred. The
Speaker 2: fact that there is an allegation some employees might have
Speaker 2: transferred over it by itself is probably in opposition. So
Speaker 2: they need to find something, but it doesn't have to
Speaker 2: rise to the level of smoking gun.
Speaker 1: As you said, Let's say it does go to trial.
Speaker 1: Could it end up that it comes down to experts
Speaker 1: testifying about what they see in the code or the algorithm.
Speaker 2: If she went to trial, obviously a lot of the
Speaker 2: technical evidence would come in in the form of expert testimony.
Speaker 2: I will say, though, that one unique feature of trade
Speaker 2: secret cases, particularly between you know, close competitors in the marketplace,
Speaker 2: is that a lot of bad evidence gets presented a
Speaker 2: very early in the case in the form of a
Speaker 2: tro or a primer injunction motion.
Speaker 1: It sounds like these cases are tough. What would Twitter
Speaker 1: have to show to get by a motion to dismiss.
Speaker 2: So they show some evidence that some level of misappropriations
Speaker 2: taken play. But typically what happens in these cases very
Speaker 2: early on, and I would suspect that's happening right now
Speaker 2: as we speak. You know, Twitter is going through all
Speaker 2: of the electronic evidence they have or the departed employees
Speaker 2: that they believe went to Mata to find any indication
Speaker 2: that they were in communications with Meta before they left.
Speaker 2: For example, they might be looking at social media postings
Speaker 2: by former Twitter employees to see if they find any
Speaker 2: evidence that anybody was communicating with Matter. They need to
Speaker 2: find something, even if it's not direct evidence, but indirect evidence,
Speaker 2: circumstantial evidence as we often say, to suggest that there's
Speaker 2: been some misappropriation. Without that, it's going to be hard
Speaker 2: for them to push forward on a case.
Speaker 1: Does Twitter have to move fast here?
Speaker 2: Yes? So there's two major reasons. One is obviously every
Speaker 2: day that goes by, so that becomes more successful in
Speaker 2: the marketplace. And two, one of the important characteristics and
Speaker 2: secrets is the strade secret loses value the moment it's
Speaker 2: just closed, right, so you have to act quickly to
Speaker 2: protect the secrets of the trade secret to the extent
Speaker 2: you can demonstrate that one exists.
Speaker 1: As far as an incentive to settle, is there more
Speaker 1: incentive to settle cases like these? Where trade secrets.
Speaker 2: Are involved, there is an incentive, you know, to litigate
Speaker 2: the case just quickly. As I said, you're the one.
Speaker 2: Majority of trade secret cases are in cases that are
Speaker 2: going to go to trials or monetary damagers. They usually
Speaker 2: get resolved at a preliminary injunctive relief stage. So the
Speaker 2: incentive here is for Twitter to find out what it
Speaker 2: can if it hasn't us, and they will move for
Speaker 2: a premiery in junction and through that they'll be able
Speaker 2: to get some level of expedita discovery from Meta from
Speaker 2: which they can sustain whether there is enough evidence to
Speaker 2: go forward or not. Settlement, of course, is always possible.
Speaker 2: One of the reasons to send an notice letter is
Speaker 2: to force the other side to do an investigation and
Speaker 2: if they find something, they may come back to you
Speaker 2: and make it an offward to make it go away.
Speaker 2: That actually happens more often than you would think. Here.
Speaker 2: I'm not sure because obviously there is a public rivalry
Speaker 2: between the two CEOs. They might be playing into this,
Speaker 2: and so maybe in a settlement is not the direction
Speaker 2: at least the top level of both companies want to
Speaker 2: go into. Certainly for Matta, you know, get making it
Speaker 2: go away is a good thing.
Speaker 1: Thanks for being on the show. Fabio. That's Fabio Marino,
Speaker 1: a partner at Womble Bond Dickinson, Candy Crush, Call of Duty,
Speaker 1: and World of Warcraft are now one step closer to
Speaker 1: becoming Microsoft properties. A federal judge has denied the Federal
Speaker 1: Trade Commission's requests for a preliminary injunction to stop Microsoft's
Speaker 1: sixty nine billion dollar acquisition of video game company Activision.
Speaker 1: Blizzard regulators sought to ax the deal, saying it will
Speaker 1: hurt competition. The merger could be the largest in the
Speaker 1: history of the tech industry, but Federal Judge Jacqueline Scott
Speaker 1: Corley said the FDC hasn't raised serious questions regarding whether
Speaker 1: the proposed merger is likely to substantially lessen competition between
Speaker 1: video game consoles or in the growing markets for monthly
Speaker 1: game subscriptions or cloud based gaming. Joining me is Bloomberg
Speaker 1: Intelligence Senior litigation analyst Jenniferree. How big a defeat is
Speaker 1: this for the FTC, Not only as far as this
Speaker 1: deal is concerned, but as far as the FTC's aggressive
Speaker 1: moves to police mergers.
Speaker 3: You know, I think it's fairly big now. I'll start
Speaker 3: by saying, these things move slowly, right, Challenging mergers is
Speaker 3: its low process, and I think it's still sort of
Speaker 3: too early to say whether the FTC really is in
Speaker 3: kind of a failing streak. But this was pretty big
Speaker 3: because they really really wanted to challenge a vertical deal,
Speaker 3: a deal in which there was vertical integration by virtue
Speaker 3: of the merger, and they thought this would be a
Speaker 3: good one to do so, especially because it involves Microsoft,
Speaker 3: their large, large, powerful company, and so I think that
Speaker 3: it was a real disappointment for them, and obviously it
Speaker 3: paved the way for the deal to close, and they
Speaker 3: don't think the deal should close. So this was a
Speaker 3: big deal.
Speaker 1: Tell us about why the judge found that this deal
Speaker 1: you didn't have antitrust problems and could go forward.
Speaker 3: Well's technically what she found is that if there was
Speaker 3: a full blown trial on the merits. This was sort
Speaker 3: of a short abbreviated trial right just to determine whether
Speaker 3: there should be a short term block. But what she
Speaker 3: found is that if there were a full blown trial
Speaker 3: on the merits, fleshing out all the evidence, that it
Speaker 3: was unlikely that the FDC would succeed. This is what
Speaker 3: the FTC had to show a likelihood of success on
Speaker 3: the merits. The merits would have been fleshed out in
Speaker 3: an internal FTC trial before an administrative law judge. And
Speaker 3: so what this judge looked at is whether there was
Speaker 3: evidence that supported Microsoft having the ability and the incentive
Speaker 3: to foreclose activision games from its rivals in a way
Speaker 3: that would lessen competition and harm consumers. And at least
Speaker 3: on the very first piece, do they have the ability
Speaker 3: to foreclose? The judge said, well, yes they do, they
Speaker 3: have it. But what she found is that the FTC's
Speaker 3: evidence didn't support the idea that they had an incentive
Speaker 3: to keep these activision games, particularly Call of Duty, exclusive
Speaker 3: and not allow access to the games to their rivals.
Speaker 3: The evidence just simply didn't support that.
Speaker 1: Tell me if you agree with this. Robert Land, who
Speaker 1: was a professor of the University of Baltimore Law School,
Speaker 1: said the judge relied on an erroneous legal standard. She
Speaker 1: was too strict, and that the law only requires the
Speaker 1: agency show a deal may substantially lessen competition, not that
Speaker 1: it will or as likely to. I mean, do you
Speaker 1: agree with him?
Speaker 3: You know, I actually do agree with that. But given
Speaker 3: this judge's opinion, I don't really think that slight lessening
Speaker 3: of the standard would make much of a difference. She
Speaker 3: said there was not one single document out of the
Speaker 3: millions of documents that the FTC had obtained through their
Speaker 3: long investigation and discovery that showed that Microsoft had this
Speaker 3: plan or this incentive. And also she didn't buy the
Speaker 3: economics experts evaluation of Microsoft's incentive. She just basically said
Speaker 3: that the model was faulty. And these are the two
Speaker 3: things they have. They have documents, they have testimony, and
Speaker 3: they have the economists, and she said none of these
Speaker 3: supported it. So even if you sort of corrected that
Speaker 3: little error in the law and the standard were lessened,
Speaker 3: I think the judge would have still come out the
Speaker 3: same way.
Speaker 1: According to Bloomberg's sources, the FTC is leaning toward appealing
Speaker 1: the judges ruling. What do you think their chances are
Speaker 1: and appeal and you know what about the timing.
Speaker 3: So on timing. If they appeal, the only way they
Speaker 3: can stop this deal from closing. Now, putting aside that
Speaker 3: there's still issues in the UK the companies have to
Speaker 3: deal with. But let's say they resolve those and they close.
Speaker 3: The only way the FTC can keep them from closing
Speaker 3: during the pendency of an appeal would be right now
Speaker 3: to get an emergency order. They'd seek it first from
Speaker 3: the District Court, which would probably deny it given her opinion,
Speaker 3: and then they go to the Ninth Circuit. As of late,
Speaker 3: those emergency order requests haven't worked, so I don't think
Speaker 3: that would work. Now. They can still appeal, they can
Speaker 3: still go after a closed deal. It would probably about
Speaker 3: another six months, and I'll be perfectly honest, I just
Speaker 3: don't see a likelihood of success there because even if
Speaker 3: an appellate court agreed with what Robert Land said and said, well,
Speaker 3: the interpretation of the law was incorrect, what they would
Speaker 3: do is send it back to the district Court. And
Speaker 3: I think what would happen is exactly what I said,
Speaker 3: that the district court would say, okay, even if it's
Speaker 3: a lesser standard, based on the evidence that was presented
Speaker 3: to me, I still don't think they meet that standard.
Speaker 3: So I see it as being a real uphill climb
Speaker 3: to try to win that, and I really doubt that
Speaker 3: they'd be able to get the emergency order to keep
Speaker 3: them from closing. It doesn't mean they can't go after
Speaker 3: the deal after it's closed. They can do that.
Speaker 1: If they did that, would they do it in house
Speaker 1: or would they have to go back to federal court.
Speaker 3: They can do both, or they can do either. So
Speaker 3: they can bring this appeal to the Ninth Circuit and
Speaker 3: they can go through the appeal. They can continue the
Speaker 3: internal litigation it's called a Part three before their owned
Speaker 3: administrative law judge. It was up until now, scheduled to
Speaker 3: start Trialogust two. I don't know if that'll get push
Speaker 3: back or if that'll get stayed. At this point, they
Speaker 3: can continue that, and like I said, they can continue
Speaker 3: that even if the deal's closed. It's just that what
Speaker 3: they have to seek then is an unwinding of the deal.
Speaker 1: So now you refer to this, this deal still has
Speaker 1: to get approval from European Markets Authority and they're tougher, right.
Speaker 3: Well, they're definitely tougher at this point because of the
Speaker 3: forty plus global antitrust authorities that needed to approve this deal.
Speaker 3: Everyone at this point has except the UK. Now, FTC
Speaker 3: and the US didn't approve it, but at least the
Speaker 3: court did, right, So there is clearance everywhere except the
Speaker 3: UK so they're a lonely standout right now, and so
Speaker 3: Microsoft has to sort of figure that out. I think
Speaker 3: there are some options. I mean news is reporting that
Speaker 3: they're negotiating a new settlement. They had offered up a
Speaker 3: settlement that was originally rejected by the CMA, the Competition
Speaker 3: Markets Authority, and that they're negotiating something new. So that's
Speaker 3: one possibility. They have appealed and they are set to
Speaker 3: have an appellate hearing on July twenty eighth, So another
Speaker 3: thing they could try is to negotiate with the CMA
Speaker 3: to allow them to close the deal pending that appeal,
Speaker 3: but hold separate, so in other words, hold activision completely separate,
Speaker 3: no integration, no changes, just let them continue to operate
Speaker 3: the way they are, but let us close the deal.
Speaker 3: So that's one other option, and then they could pursue
Speaker 3: their appeal. And then the third option would be to
Speaker 3: close over UK objections, and that's really really risky. You know,
Speaker 3: they have to win or they could face a lot
Speaker 3: of fines and a lot of consequences down the road.
Speaker 3: But it's another option a.
Speaker 1: Lot of legal analysts are calling is yet another legal
Speaker 1: defeat for the FTC and is Lenikon's strategy of aggressively
Speaker 1: fighting mergers backfiring and actually encouraging more deal making from
Speaker 1: companies that are willing to sort of roll the dice
Speaker 1: and go to court.
Speaker 3: You know, I tend to think yes. And the reason
Speaker 3: is because between both the DOJ and the FTC, we're
Speaker 3: seeing a little bit of a pattern in court. And
Speaker 3: what we're seeing is that companies that have a deal
Speaker 3: that has some problems are offering up a remedy and
Speaker 3: the remedies getting rejected by either the DOJ or the FTC.
Speaker 3: That's what happened with Microsoft Activision. But when they go
Speaker 3: to court and they present that remedy to the judge,
Speaker 3: the judges are open to it, and so they end
Speaker 3: up winning and companies have learned that they figured it out.
Speaker 3: That's the route. It might take us a little longer.
Speaker 3: It might be more expensive for us because it takes
Speaker 3: longer and costs more money to actually have to litigate
Speaker 3: a deal. But if we have a very reasonable fix,
Speaker 3: and we go to the judge and say, look, we
Speaker 3: have this reasonable fix and it resolves all the issues
Speaker 3: that the FTC or dojsay they have, you should let
Speaker 3: us close, and the judges are doing that, and so
Speaker 3: they have a strategy, a new strategy, and I think
Speaker 3: are more confident about going forward with that.
Speaker 1: Are these losses also, are they strengthening the boundaries of
Speaker 1: existing antitrust law rather than perhaps expanding as Lena Khan
Speaker 1: might want.
Speaker 3: I wouldn't say they're strengthening. I think in my mind
Speaker 3: it's just kind of status quo. They're certainly not expanding
Speaker 3: out the bounds of antitrust law the way Lena Khan
Speaker 3: would like. There arguably the decision by the judge and
Speaker 3: the challenge to metas acquisition within a small virtual reality
Speaker 3: app that the FDC lost, there was some language in
Speaker 3: that decision that was somewhat helpful to the Federal Trade
Speaker 3: Commission in terms of going after what we call a
Speaker 3: nascent competitor, a company that buys another company that doesn't
Speaker 3: compete with today but could compete within the future. So
Speaker 3: maybe just a little incremental inch and a little move
Speaker 3: toward toward the direction Lenacon would like to go. But
Speaker 3: for the most part, what I see so far with
Speaker 3: the judge's decisions is status quo.
Speaker 1: Thanks so much, Jen for being on the show. That's
Speaker 1: Bloomberg Intelligence see your litigation analyst, Jenniferree. For more of
Speaker 1: Jen's analysis, you can go to Bigo on the Bloomberg terminal.
Speaker 1: And that's it for this edition of The Bloomberg Law Show.
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