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 Now that's probably an outdated example because nowadays you can't do chemical analysis and reverse engineers a formula for coke.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