Apple Escapes Trade Secrets Claims Over Startup Employee Hires

Apple Inc. didn’t steal trade secrets when it hired away employees from an app-recommendation startup, a California state appeals court ruled.

Hooked Media Group developed an app that gives personalized suggestions for other apps based on users’ usage patterns. Apple discussed buying Hooked “solely so Hooked’s employees (and in particular certain engineers) would become Apple employees—an ‘acqui-hire,’ in Silicon Valley jargon,” according to the opinion from the California Court of Appeals for the Sixth Appellate District.

Apple ended up hiring two Hooked engineers and its Chief Technology Officer without making a deal with the company. Hooked sued Apple for fraud and misappropriating trade secrets, among other things.

The court ruled for Apple on Hooked’s trade secrets claim. The employees may have had confidential technical information, but “showing that the employees had the information is not sufficient to establish Apple improperly acquired or used it.” The court said it couldn’t allow a suit against a former employee for “using his or her own knowledge to benefit a new employer” because it would be equivalent to retroactively imposing a noncompetition agreement.

The court also rejected Hooked’s fraud claim. Although Apple told Hooked it would keep its information confidential and deal directly with Hooked’s CEO in hiring its engineers, there was no evidence Apple didn’t intend to honor these assurances when it gave them. “Breaking a promise is not itself actionable,” the court said.

Hooked had also sued Apple for abetting the CTO’s breach of a fiduciary duty to the company. But there was no evidence the CTO began competing with Hooked while he still worked there, the court said.

Hooked’s claims that Apple interfered with its employees’ contracts failed because it didn’t show Apple committed a wrongful act other than the interference itself. Otherwise, the court said a company “ordinarily commits no legal wrong by hiring its competitor’s employees.”

Justice Adrienne M. Grover wrote the majority opinion, joined by Justice Franklin D. Elia. Justice Nathan D. Mihara concurred.

Sideman & Bancroft LLP represented Hooked. O’Melveny & Myers LLP represented Apple.

The case is Hooked Media Grp. Inc. v. Apple Inc., Cal. Ct. App., 6th Dist., No. H044395, 5/28/20.