Dara Khosrowshahi is less than a month into his job as the new CEO of Uber and he already has a number of difficult decisions to make. First among them is whether to settle the lawsuit Alphabet filed against the ride-hailing company earlier this year.
Alphabet is suing Uber for trade secret misappropriation, alleging that one of its former executives, Anthony Levandowski, downloaded 14,000 files and took them to Uber after it acquired his self-driving startup, Otto. Uber denies this serious allegation of theft, noting that none of the files have made it to the company’s servers and that it is not using Alphabet technology.
Outwardly, Uber appears confident it can beat Alphabet’s claims in court. But there are many reasons why the embattled company would want to settle the case. That’s especially true now after it was revealed Alphabet is seeking $2.6 billion in damages for a single trade secret it claims was stolen.
In other words, Alphabet isn’t just taking Uber for a legal ride. It wants to cause some serious damage, which some inside the ride-hail company think is part of an effort to slow down Uber’s self-driving efforts.
But Alphabet’s endless legal and financial resources — and determination from top execs at the company to make an example of Uber — are powerful reasons that Khosrowshahi might seek a settlement.
Here are even more:
1. Uber would avoid a potentially messy public trial.
Travis Kalanick, Uber’s founder, who was pushed out as CEO in June, could be compelled to testify in front of a jury, which could get messy. Uber has already seen what it means to lose in the court of public opinion after the #deleteUber campaign severely cut into its business — even though Uber did nothing wrong in that case.
Since then, though, it’s clear Uber did a lot of other things wrong — from mismanaging sexual harassment issues to making some dubious choices to thwart regulators. And, in a trial, Alphabet could use the opportunity to embarrass Uber further by calling Kalanick to the stand and grilling him on the freewheeling company culture he created and managed. Critics have argued it was Kalanick’s pugilistic style that emboldened Uber’s leadership to engage in improper business practices.
That could all be re-litigated by Alphabet if it calls any number of current and former Uber executives to the stand to paint a picture of a rapacious corporate culture — which might explain how Uber found itself in possession of Alphabet’s files.
The prospect of such a public airing of Uber’s past misdeeds might not sit well with Khosrowshahi’s understated style.If his quiet campaign to become Uber’s CEO is any indication, it’s clear he likes to operate under the radar — and out of trouble. Any mud thrown off from a trial might sully that effort.
2. Alphabet successfully argued to present new evidence at a trial.
Alphabet has gotten hold of a due diligence document Uber commissioned when it bought Levandowski’s company, the self-driving startup Otto. Levandowski started Otto shortly after leaving Alphabet, where he helped develop some of its self-driving technology. The reason this matters is that the document could reveal what Uber knew about what Alphabet files Levandowski had in his possession before it acquired Otto.
Alphabet claims there is a “mountain of new evidence” in this document, and now a judge said that the contents of it can be discussed in front of the jury.
The document is a standard due diligence report conducted ahead of an acquisition, except that this one also looked into whether there were any “pre-signing bad acts”. While Uber still contends that none of those files that Levandowski allegedly downloaded made it to Uber, Alphabet argues that this document shows, at the very least, what Uber knew before the company decided to pay $680 million to buy Otto.
Uber is fighting Alphabet’s request to delay the trial in order to seek more evidence based on this document. As Uber would have it, this delay is Alphabet’s attempt to buy more time to re-do its case now that it has become weaker. But Alphabet is arguing that the company is simply trying to avoid uncovering what is in this document in public.
3. Settling would alleviate legal costs at a time when Uber is cutting its losses.
Even before Khosrowshahi took the reins, the company was buttoning up some of its international businesses in an effort to cut losses. After bleeding in China, it sold that part of the business to Didi. More recently, it merged its Russia business with local player Yandex Taxi after fighting an uphill battle for market share. A big priority for Khosrowshahi is to figure out how to make all of Uber’s business operations viable.
While a trial could get costly, it still pales in comparison to the overall losses the company has booked. The company lost $645 million in the second quarter of 2017, on $8.7 billion in bookings. While Uber has argued that the damages its investor-turned-foe are asking for are inflated, if Alphabet wins on at least one trade secret claim, it could be awarded $2.6 billion. At last count, the ride-hail company only has $6.6 billion cash on hand.
Settling this trial out of court would take the pressure off at least one of the many strains on its finances.
4. It would help Uber’s self-driving arm return to business as usual.
Depending on the terms of settlement, Uber’s self-driving department could go back to focusing on developing autonomous technology, which could be key to future profits. Talent attraction and retention is a key competitive advantage in the nascent self-driving industry. In the last few months, Uber has lost a number of its top self-driving executives — including Levandowski.
To be fair, the ride-hail player has also attracted renowned AI researchers like Raquel Urtason, and recently hit the one-million-miles-driven-autonomously milestone. But the company’s test drivers were struggling to allow its cars to drive itself more than one mile before having to take over.
Focusing on developing this technology is crucial. Lyft, which had a later start to begin its own autonomous vehicle development, has already struck partnerships with major automakers like General Motors and Jaguar, as well as other self-driving partners like Alphabet’s Waymo. Uber, so far, has only partnered with Volvo and Daimler.
5. Here’s our to-be-sure: Alphabet may not want to settle.
It’s unclear if Alphabet would be willing to settle. In fact, the company has little reason to settle, given that any amount of money Uber negotiated settling for would be immaterial to Alphabet. Uber and Alphabet are competing for automaker partnerships more so than many of their other competitors. When striking these relationships, credibility becomes increasingly important.
While Alphabet’s technology is far more advanced than Uber’s, the two companies present a similar value proposition for automakers. Neither Uber nor Alphabet will be building its own car, but automakers aren’t willing to simply become metal benders and relinquish control over the branding and design of their cars for either company.
In other words, Alphabet, which has a lot more money and a thriving ads business, could still afford to benefit from discrediting Uber by dragging the company through a messy public trial.