Lawsuit Accuses Lordstown Motors of ‘Corporate Espionage’
YOUNGSTOWN, Ohio – A small electric vehicle technology and manufacturing company claims that Lordstown Motors Corp. “brazenly stole” its trade secrets in what court papers describe as a “classic corporate espionage case.”
Karma Automotive LLC, based in Irvine, Calif., filed a civil complaint in the U.S. District Court Central District of California Oct. 30 that alleges Lordstown Motors deployed a “Trojan horse” scheme where it pretended to work with Karma on a proposed partnership while secretly planning to poach its employees and steal intellectual property.
Lordstown Motors, however, refutes Karma’s claims as “fantasy.” According to court documents filed in response to the lawsuit, the company couldn’t implement any of Karma’s alleged private information because of hardware differences, while employees left Karma because the ultra luxury carmaker was downsizing its engineering department, not because they were “poached.” And, Lordstown Motors said it declined to purchase Karma’s systems because the price “was far too high, not because the fictitious ‘scheme’ Karma has concocted,” court papers say.
On Nov. 6, U.S. Judge James V. Selna denied Karma’s request for a temporary restraining order. Instead, the court ordered the parties to conduct immediate discovery and prohibited Lordstown Motors from destroying, deleting or altering any trade secrets or confidential information within its possession.
“We are pleased that the court denied Karma’s request for a temporary restraining order,” Lordstown Motors said in a statement to The Business Journal. “As our response to Karma’s request made clear, Karma’s story is a fantasy. Lordstown Motors is focused on building the safest, most cost-effective, zero-emission work trucks ever made, and we are proud to attract top engineering talent to join in our mission. We have no need or use for Karma’s purported trade secrets, and we are confident that our dealings with Karma complied with all relevant laws.”
The lawsuit centers on a vehicle electronic entertainment — or infotainment — system that Karma was developing in tandem with Lordstown Motors for that company’s Endurance pickup truck. The venture was projected to bring in more than $3 billion in revenue by 2024 to Karma, based on Lordstown Motors’ production forecasts, court documents say.
The parties signed a non-disclosure agreement in February 2020, according to exhibits filed with the court, allowing Lordstown Motors access to Karma’s trade secrets for five months.
The complaint states that Lordstown Motors and Karma signed a letter of intent June 11 that detailed the services Karma would provide for the Endurance project. On July 9, Lordstown Motors informed Karma that it would move forward with the project and make an initial payment to Karma.
“The courtship was a ruse; the check never arrived. Instead, LMC secretly poached and onboarded key Karma employees and started stealing Karma’s secrets,” the lawsuit claims.
Karma alleges that Lordstown Motors merely “pretended” to be engaged in the project and instead quietly lured engineers away to begin its own “infotainment group” in California. Doing so would save Lordstown Motors $4.6 million by moving the work in-house versus making payments to Karma over a contract term, according to court papers.
“In short, LMC cut out the middle man [Karma] and stole its ideas and employees in order to save money,” the complaint states. Lordstown Motors cancelled the deal on Aug. 6, according to court exhibits.
The lawsuit names as defendants Lordstown Motors; its president and CEO Steve Burns; John LeFleur, chief operations officer; Darren Post, chief technology officer; and Rich Schmidt, chief production officer, as defendants. It also names Roger “Joe” Durre, former director of Karma’s infotainment systems, and Hong Xin “George” Huan, a former software architect at Karma, as defendants. Both are currently employed by Lordstown Motors.
The complaint alleges that Durre, who was appointed to lead the project for Karma, began to coordinate with Lordstown Motors as early as April 2020 to plan the transition of the Karma team to Lordstown, “along with all their know-how and Karma’s confidential trade secret information.”
Emails filed as exhibits with the complaint show that less than two months after the non-disclosure agreement was signed, Durre began to communicate — using his personal email account but on Karma’s computer — with real estate agents to look for commercial office space.
On April 2, Durre made contact with Lordstown Motors’ chief technology officer, Post, through his personal email to discuss an internal organization chart and advise Lordstown Motors as to how the structure would “sell with investors,” according to documents.
Then, on July 30, seven days before Lordstown Motors canceled the deal, Post sent an email to Durre outlining the cost savings for creating “LMC Infotainment – West,” documents show. Post estimated that Lordstown Motors could save $4.6 million by creating its own infotainment division.
“This email reflects clear evidence of the intent to sabotage the deal with Karma,” the complaint states.
“It turns out that LMC was conspiring and colluding with defendant Durre, Karma’s key manager who was supposed to be working to secure this deal for Karma but instead was playing double agent,” court documents allege.
According to the lawsuit, the former Karma employees had access to the company’s intellectual property and trade secrets. The infotainment system Karma developed has certain proprietary functions including a cloud-based platform that can send new software and software updates to consumers over the air and communicate vehicle actions automatically to drivers, court papers say.
Durre left Karma Automotive Sept. 1, exhibits show. Between July 28 and Sept. 1, the complaint states that Durre downloaded at least seven Karma folders that contained trade secrets and confidential information.
Durre, however, states in a declaration filed with the court that he at no time “used any of Karma’s trade secret or confidential information in my work for LMC and I have not shared any such information with anyone at LMC.”
He also stated that Lordstown Motors’ infotainment system’s hardware and software is incompatible with Karma’s, and that an entirely new platform was built for the Endurance.
Durre said he left Karma as the company “was cutting back its engineering headcount and reorganizing internally. At the end of my career with Karma, I was no longer involved with hardware and software for infotainment or connected systems,” he states.
Karma Automotive, which announced this year it plans to introduce the all-electric Revero sedan in 2021 at a price point of $80,000, said that it was “surprised” and “disappointed” at the alleged actions of its former employees.
“We were extremely disappointed to learn about the circumstances surrounding this case involving our former employees and their secretive dealings with Lordstown Motors and their management,” said Stefan Gudmundsson, Karma’s chief innovation officer, in a statement emailed to The Business Journal. “Throughout the development process we worked in good faith and believed we had a strong deal put together to provide our next generation connected car and infotainment system but we were surprised and dismayed to find out about the events and how they unfolded without our knowledge.”
Karma Automotive LLC was founded in 2014. The company’s Karma Technology division sells what its website describes as “fully certified products [that] are road-validated and ideal technology test beds for electric vehicle OEMs, tier-ones and startups looking to bring products and concepts to market faster and at lower investment levels. … Engineering and design resources and key components are also available to further reduce the time and cost of the concept-to-shipping journey.”
Lordstown Motors purchased the General Motors’ Lordstown complex in November 2019. The company plans to begin manufacturing The Endurance, promoted as the world’s first all-electric commercial pickup truck, this summer. About 800 employees will be hired to launch the new vehicle, the company has said.
In early August, Lordstown Motors announced it would merge with DiamondPeak Holdings Corp., a special purpose acquisitions company, or SPAC, with the intent on taking Lordstown Motors public. Shares of Lordstown Motors began to officially trade Oct. 26 on Nasdaq.
Karma has requested that the court order the defendants to return any and all confidential trade information and documents removed from Karma or its computers, and award the plaintiff costs associated with the lawsuit, according to the complaint.
It also asks the court for punitive damages to be determined at trial.
Copyright 2020 The Business Journal, Youngstown, Ohio.