Waymo and Uber have reached a settlement in their self-driving car case. The announcement came as a big shock, even though I wrote yesterday that Waymo’s case was looking oddly weak. Parties are free to settle in the middle of trial (heck, they can settle while the jury is considering a verdict, and they can settle even after the verdict is out) but it’s pretty rare.
For one thing, it’s hard to think about negotiating when you’re busy prepping for trial the next day. For another thing, if you were going to settle, you probably should have done it before. It’s pretty messy to call off the boxing match in the middle of the third round.
Taking any case to trial — let alone such a high-profile case — is messy and exorbitantly expensive, and on top of that, jury verdicts are unpredictable. Sure, by settling now, Uber and Waymo manage to avoid rolling the dice with the jury. But they still spent what was likely millions and millions of dollars on their top-billing lawyers and expensive expert witnesses, and what not. This settlement avoided a jury verdict, but it didn’t save either party much money.
Why the settlement makes sense for Uber
My suspicion has always been that Uber CEO Dara Khosrowshahi has been eager to settle this lawsuit: it’s a lawsuit he’s saddled with because of the foibles of his predecessor, Travis Kalanick. It’s been a constant PR nightmare ever since it was filed in January 2017. It seemed like every few weeks there’d be a new public filing in the case that would blare out more juicy tidbits about Uber’s horrible corporate culture. The guy at the very center of this — Anthony Levandowski — was expected to take the 5th Amendment when called to the witness stand. Uber wanted no part in this shitshow.
Khosrowshahi’s official statement in the wake of the settlement reads as genuinely contrite and shows a company ready to move on. Travis Kalanick was the type to find “cheat codes” and “use them,” Khosrowshahi is a grown-up who wants to run a company of grown-ups. Settling this case makes sense for a more mature, stable Uber.
There was a report last October that Alphabet (Waymo’s parent company) demanded $1 billion from Uber in settlement negotiations — a cash sum that just wasn’t workable. The settlement announced today is for equity: Alphabet gets approximately 0.3 percent of Uber. Uber is valuated at $72 billion, so that’s about $245 million in stock. No cash is changing hands, Uber isn’t going to have to dip into their coffers for this one.
The two parties have also agreed that Uber will work with Alphabet to make sure no Google confidential information is incorporated into their technology (both hardware and software).
That was the sticking point all along, apparently. Uber has always strenuously argued that there’s no Google confidential information incorporated in their tech, but when Waymo tried to reach a settlement for $500 million in equity and promises of non-use, Uber rejected the offer on Tuesday.
Keep in mind that $500 million is nothing for Uber or Alphabet — the Ottomotto acquisition was $680 million. It sounds like there is something about Uber’s self-driving tech that maybe Uber’s board wasn’t so sure of. Even if they were sure that Levandowski’s documents had never made it to Uber proper and that Uber technology wasn’t tainted by actual misappropriation, they might have thought there was still a certain resemblance to Alphabet’s intellectual property that they didn’t want to give up under a settlement.
So why agree to non-use now? It’s thought that Anthony Levandowski was going to invoke the Fifth Amendment when called to the witness stand. Levandowski’s name finally appeared on Waymo’s witness list on Wednesday night. And as that day drew nearer, maybe the Uber board finally lost its nerve, leading to its capitulation on Thursday night.
But how about on the Waymo side? If Waymo thought they were going to win, and get themselves an injunction against Uber, why not just take it all the way to the end and utterly humiliate their rival once and for all? And why keep dropping the amount of equity they were asking for?
Why would Waymo settle?
Once again, it’s really weird to settle in the middle of a trial. Before the revelation that Waymo had proffered that earlier $500 million settlement, I thought it was possible that it was Waymo’s plan all along to put Travis Kalanick on the stand, question him for two days about his terrible text messages, play the Michael Douglas “Greed is Good” speech in open court for the jury, and then blow this popsicle stand before a jury verdict could come in. Another possibility was that as the week progressed, Waymo realized its case was too weak to go to the jury.
And well, both possibilities only made sense if Waymo’s lawsuit — despite all of the hilariously suspicious circumstances around the alleged document theft — was actually a nothing burger all along.
After the report of Waymo’s settlement offer earlier this week, I think this all points to Waymo knowing it had a dud on its hands. Once Uber, for whatever reason, decided to capitulate to non-use terms, the settlement was in.
Look, it’s not that Waymo had no case. In trial, Uber did not try to dispute that Anthony Levandowski downloaded 14,000 documents onto his work laptop, moved them onto his personal laptop, and then moved them onto other disks. Uber also did not try to dispute that Levandowski was getting cozy with Travis Kalanick before he left Google and that the two of them were unbearable bros who sent each other the most idiotic text messages you could possibly imagine.
But Uber fought back hard on the idea that Kalanick and Levandowski formed some kind of conspiracy in December 2015 where Levandowski would take 14,000 documents and bring them over to Uber. And even the most damning of documents — the Stroz Friedberg due diligence report, which records second- and third-hand information about a suspicious meeting at Uber — suggests that Travis Kalanick didn’t know about the documents until late in the game, that he never saw them, and that he told Levandowski to get rid of them as soon as he found out that they existed.
Of course, there’s plenty of stuff that Waymo was never able to get its hands on, simply because it was destroyed. Kalanick had 30-day auto-delete set on iMessage. His texts were still forensically recovered, but he also used Telegram and if he sent any ephemeral messages through that, Waymo never got ahold of them. Then there’s the missing “NEWCO” hard drive that was connected to Levandowski’s laptop back in January — NEWCO was Uber’s code name for the startup that would become Ottomotto. And of course, Levandowski was expected to invoke the Fifth Amendment on the stand, which, you know, makes you kind of think something’s up!
But just because things smell bad doesn’t mean that Waymo was going to win their case. It was Waymo’s case to prove, and they had over a year to comb through a mountain of phones, laptops, and servers. They tore Uber apart looking for the smoking gun and came up so short on evidence of a conspiracy that one of the exhibits they showed in court was a picture of a whiteboard at Uber where Levandowski had written “1) Pittsburgh -- I know some shit.” (Further down this truly genius list, he had also written, “3) West coast rap (Tupac).”)
Based on testimony, it does sound like something was weird about the circuit boards at Uber, but Anthony Levandowski’s general experience with LIDAR doesn’t count as a trade secret that Google gets to keep forever. Of course, if the circuit board infringed something Google had patented, they could sue Uber, even if Uber had come up with the idea independently and even if Levandowski was listed as an inventor on the patent.
The original lawsuit asserted patent claims as well as trade secrets. Eventually the lawsuit narrowed all the way down to eight specific trade secrets. A lot of this case has been under seal and the public hasn’t gotten a real look at the technology involved — because trade secrets lose their legal protection the moment they’re no longer secrets.
Yesterday I noted that I found it suspicious that Waymo had spent so little time under seal in the courtroom. Here’s the other thing: if the circuit boards were so similar, why did the patent claims drop out of this case? Isn’t that…. Weird?
So it’s starting to look like the better question is, “Why didn’t Waymo settle sooner?” There’s a bunch of possible answers to that. For one thing, with a nothing burger case, maybe a non-use clause in a settlement agreement was the best they could hope for. And you can’t discount the possibility that it was mostly a grudge match between bros all along. Larry Page is reportedly extremely, extremely angry — or, in Kalanick’s words, very “unpumped.” Sometimes lawsuits aren’t driven by rational actors, they’re driven by people who are very mad at each other.
But the most important part is that even if Waymo wasn’t going to win the lawsuit, they’ve won a different war.
Alphabet still wins
Even with this abortive trial, the megacorporation-formerly-known-as-Google bought itself a year of negative PR for Uber. The parties wound up in front of Judge William Alsup in the northern district of California, who resisted lawyers’ attempts to keep things under seal. Because so much confidential information was at issue, a fair amount of the case is under seal and will probably remain so forever. But where no confidential information was at issue, Alsup would scornfully unveil transcripts and documents left and right that made both sides look bad.
Uber came out looking way worse, but that was entirely its own fault. The unsealed Stroz Friedberg report revealed an irresponsible corporate culture that played fast-and-loose; the unsealed Jacobs letter alleged that Uber spied on its competitors and used ephemeral communications within the corporation. The very submission of this latter document into the case — by a federal prosecutor! — suggested that Uber was under investigation by the Department of Justice.
Sure, Waymo v. Uber wasn’t the only thing making Uber look bad in 2017. The lawsuit dropped during an onslaught of bad press for the ridesharing company: from Susan Fowler’s blogpost to the New York Times greyballing story to the revelation that Uber executives acquired the medical records of a rape victim in India. And then there was #DeleteUber, which actually got a significant number (200,000!) of people to delete their account.
Waymo v. Uber wasn’t the one thing that ousted Travis Kalanick from the helm of the company he founded, but it probably helped. And at the very least, it led to Anthony Levandowski getting fired. This lawsuit ensured that Uber lost its genius LIDAR expert. (Although given the revelation that Ottomotto failed to meet most of its benchmarks post-acquisition suggests that Levandowski was not all he was cracked up to be).
Alphabet was likely looking to get a competitive advantage over Uber by dragging its name through the mud (which, to be fair, was mud of Uber’s own making). Beyond that, it’s also possible that Alphabet executives — specifically, Larry Page, who often communicated with Levandowski directly and was, according to Kalanick, absolutely enraged about losing him to Uber — were looking to send a message to Google engineers thinking about spinning off startups to sell to competitors. Once in the Google family, always in the Google family.
If that was one of Alphabet’s aims, they’ve likely failed, simply because Levandowski was such an extreme case. Very few technologists see themselves accidentally downloading 14,000 Google documents and moving them onto their personal laptops, right before quitting their jobs. And very few technologists see themselves personally sending Travis Kalanick ominous text messages that include links to a YouTube clip of the Michael Douglas “Greed is Good” speech. Nobody can imagine themselves as Anthony Levandowski, therefore nobody fears becoming Anthony Levandowski.
Still, with Kalanick’s departure, Uber is a very different company. While Dara Khosrowshahi cannot magically change the rank-and-file culture of his company overnight, the departure of scandal-ridden high-profile executives like Emil Michael is significant. In the wake of Waymo v. Uber, Alphabet is now looking at a very different self-driving car market, simply because one of its competitors is now very different.
And on top of that, Uber is not entirely a competitor anymore — with the additional 0.3 percent equity to Alphabet’s already existing stake in Uber, it’s adding a bet on Uber’s success as well.
Alphabet is a clear winner, but in a way, Uber is a winner too. There was a possibility that Waymo v. Uber was going to destroy Uber as a competitor in the self-driving car market. Sure, under the terms of the settlement, Uber is giving Alphabet equity and Alphabet is giving Uber nothing. But that’s not the full picture — Uber wins because it’s walking away from this lawsuit with a chance for a future.