ITC judge rules Fitbit didn't steal Jawbone's trade secrets

This is the second time this year that Jawbone has lost a ruling in a lawsuit against Fitbit

Financial trends and news by Steven Loeb
August 24, 2016
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Updated with additional statement from Jawbone.

For the second time in just a few months, the International Trade Commission has taken the air out of the tires of Jawbone's lawsuits against rival Fitbit.

On Tuesday, ITC judge Dee Lord ruled in favor of Fitbit, stating that the company did not steal any of Jawbone's trade secrets, as has been alledged in a lawsuit last year

Jawbone had been hoping that the ruling would allow it to stop Fitbit's imports from entering the U.S. That end result always seemed unlikely, however, even if Jawbone were to win, given the number of steps that it would take to enforce such an order. 

In the suit, Fitbit had been accused by Jawbone "clandestine efforts," which were done to "steal talent, trade secrets, and intellectual property" from Jawbone.

Around 30 percent of Jawbone employees were allegedly contacted by Fitbit, and the company got at least five to jump ship. Fitbit did this, the filing alleged, through "lofty promises and expectations" leading up to its IPO.

When those employees went over to Fitbit, Jawbone said, they brought "access to, and key knowledge of, key aspects of Jawbone's business and the future direction of the market and business."

Fitbit was also accused of downloading documents related to Jawbone's business plans, technology and products. All of this was done because, according to Jawbone, Fitbit "lacked the proprietary technology, capabilities and expertise to progress to the next generation" of wearables. So they needed to steal it from Jawbone.

James Park, CEO and Co-Founder of Fitbit. celebrated the judge's ruling.

“We are pleased with the ITC’s initial determination rejecting Jawbone’s trade secret claims,” he said in a statement.

“We greatly appreciate the ALJ’s time and diligent work on this case. From the outset of this litigation, we have maintained that Jawbone’s allegations were utterly without merit and nothing more than a desperate attempt by Jawbone to disrupt Fitbit’s momentum to compensate for their own lack of success in the market. Our customers can be assured that we remain fully committed to creating innovative products that consumers love, and that we are excited about the pipeline of new products coming out this year.”

This follows a ruling by the same judge in April, in which she similarly dismissed alleged patent infringement by Fitbit .

According to Jawbone, all of the devices sold by Fitbit use technology that infringes on Jawbone's patents.

"Fitbit competes directly with Jawbone in the market for wearable fitness and activity trackers through its product line, most notably the Zip, One, Flex, Charge, Charge HR, Surge," it said in the complaint. "These trackers – which make up virtually all of Fitbit’s wearable technology line – infringe one or more of the Jawbone patents."

Lord, however, took Fitbit's side, reasoning that, through its patents, Jawbone was attempting to “seek a monopoly on the abstract ideas of collecting and monitoring sleep and other health-related data.”

Jawbone, unsurprisingly, was unhappy with both of these rulings, and a spokesperson for the company told VatorNews that it will "seek review of today's ruling before the full Commission."

"The case in the ITC involved a very small subset of Jawbone's trade secrets asserted against Flextronics and Fitbit because of the limited jurisdiction of the ITC. Jawbone is continuing to pursue its much broader trade secret case against Fitbit, which is headed to a jury trial in California state court. The California court already has granted a preliminary injunction and rejected Fitbit's efforts to dismiss the case. Jawbone is confident it will prevail when the full scope of its claims is heard by the jury," the spokesperson said.

In addition, he told me that the ITC litigation is a "narrow piece of the global litigation strategy that includes the alleged theft of some 340,000 digital files already acknowledged by a court."

The wearables space

There's good reason for Jawbone to want to go after Fitbit, as the company accounted for 79 percent of sales of activity trackers in 2015. The wearables company has not only been the market leader in this space since 2014, but it managed to expand its dominance by 20 points last year even while new entrants try to compete.

Jawbone, meanwhile, was forced to lay off 60 employees, or 15 percent of its staff, late last year. It shuttered its office in New York, while also downsizing its offices in Sunnyvale and Pittsburgh.

Not that Fitbit has been having an easy go of it either. Fitbit went public last year, in an IPO that was considered to be the best of 2015, raising $731 million in IPO, to be valued at $3.4 billion, more than 10 times its $300 million valuation after raising $84 million in venture capital.

However the company has struggled this year, seeing its stock fall nearly 50 percent year-to-date, as demand for some of its devices has slowed. 

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