Fitbit Faces Criminal Probe Into Jawbone Trade Secret Theft

  • Grand jury investigation cited by Jawbone as lawsuit heats up
  • Conspiracy allegations are ‘without merit,’ Fitbit responds

Fitbit’s Rivalry With Jawbone Heats Up in Court

Jawbone Inc. isn’t backing down in its legal fight with Fitbit Inc., asserting in a court filing that its rival is under investigation by a criminal grand jury for theft of trade secrets.

The two pioneers in wearable activity trackers have been embroiled in legal battles since May 2015, when Jawbone accused Fitbit in a lawsuit of plundering employees and critical proprietary information.

Fitbit is trying to get the suit thrown out, arguing the trade secret claims were already analyzed and rejected by the U.S. International Trade Commission in Washington in October. Jawbone said the agency looked only at a limited number of allegations against Fitbit and had no authority to consider claims against the former employees who are also defendants in the suit.  

Jawbone cited the criminal investigation in a court filing to back up its argument that the issue of what was stolen and by whom remains unresolved.

Fitbit said it’s cooperating with the U.S. attorney’s office in the criminal probe “to demonstrate, once again, that these allegations are without merit,” according to a statement issued by the company Monday.

Fitbit’s shares fell as much as 2.2 percent on Tuesday, and were down 1.9 percent to $5.84 at 1:59 p.m. in New York. The stock has lost more than half of its value in the past year.

Five Months

The Justice Department and and Department of Homeland Security have been conducting a grand jury probe of Fitbit for more than five months, according to Jawbone’s Feb. 1 filing in San Francisco state court.

Jawbone alleged in its May 2015 complaint that Fitbit hired five Jawbone employees who brought with them more than 350,000 confidential Jawbone files. Jawbone claims the files included information about materials, sensors and detailed breakdowns of its costs and profit margins.

"The evidence developed to date in this litigation confirms a conspiracy by Fitbit and the individual defendants to steal Jawbone’s coveted trade secrets and to use them to enhance Fitbit’s position in the marketplace, in clear violation of California law," Jawbone said in last week’s filing.

Fitbit and the employees are seeking dismissal of the case, with a hearing set for Feb. 15. The company said there’s no allegation or evidence that the files Jawbone says were taken by its ex-employees were ever downloaded to or accessed on Fitbit’s systems. Instead, the files were turned over to Jawbone after it was discovered that a former employee had saved
them on a cloud-based computer backup service, according to a statement by Fitbit.

‘Fictional Allegations’

The criminal investigation “is based on the almost identical fictional allegations that were fully rejected by the International Trade Commission after a nine-day trial on the merits and that Jawbone falsely asserted on the eve of Fitbit’s IPO,” Fitbit said in Monday’s statement. “Jawbone is now attempting to exert leverage against Fitbit in civil litigation pending in the California state court.”

The U.S. attorney’s office in San Francisco declined to comment on the investigation and a representative of homeland security couldn’t immediately be reached for comment.

In December Fitbit dropped its own ITC case against Jawbone, saying that there was no need to pursue the case because Jawbone was no longer selling the products at issue in their dispute and was is in financial trouble. Jawbone said Fitbit’s reasoning was a “misdirection” after a judge had expressed concerns about the strength of its case.

Jawbone was an early maker of wearable devices, but has lost market share as competition from Fitbit and tech giants like Apple Inc. increased. The company started in 1999 as a maker of Bluetooth headsets and wireless speakers and later pivoted to make fitness trackers.

Jawbone has long-suffered from execution issues and financial instability, despite raising multiple new rounds of funds over a span of more than a decade. Last January, the company raised $165 million from lead investor Kuwait Investment Authority at a valuation that was less than half of its 2014 valuation of $3.2 billion, according to Pitchbook Data Inc.

The civil case is is Aliphcom Inc. v. Fitbit Inc., CGC15-546004, California Superior Court, San Francisco County (San Francisco).

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