A trade secrets spat between rival self-driving car companies WeRide Corp. and AllRide.AI Inc. has ended in settlement, but not before the Northern District of California imposed terminating sanctions against the defendant AllRide for its “staggering” spoliation of evidence when it intentionally purged emails and email accounts, wiped laptops and servers, and corrupted key source code.

The suit began in late 2018, when WeRide brought claims against Jing Wang (its former CEO), Kun Huang (its former Head of Hardware Technology), and AllRide, the competing company started by Wang and Huang. The claims included trade secrets allegations under the Defend Trade Secrets Act and the California Uniform Trade Secrets Act, along with claims for defamation and intentional interference with prospective economic advantage. WeRide accused Wang, who left WeRide to launch AllRide, of soliciting Huang to join him at his new company, and accused both of stealing WeRide’s trade secrets and immediately using them at AllRide. In April 2019 the Court granted WeRide a preliminary injunction that specifically prohibited Wang, Huang, and AllRide from destroying relevant documents, and ordered Huang to make several electronic devices available for inspection by WeRide. But in October 2019, WeRide moved the Court for sanctions, claiming that AllRide had destroyed emails and key source code. Central to WeRide’s motion was the accusation that AllRide had allowed its email system to continue to implement a 90-day automatic deletion policy, resulting in the destruction of thousands of potentially relevant emails. WeRide also accused AllRide of deleting six email accounts and the source code it supposedly developed to compete with WeRide.

Citing cases from the Seventh Circuit, the Court adopted a “preponderance of the evidence” standard for terminating sanctions and found under that standard that AllRide had acted willfully and in bad faith, and that its spoliation of electronic evidence was intentional. As a result, under both Federal Rules of Civil Procedure 37(b) and (e), the Court found, terminating sanctions against AllRide, Wang, and Huang were warranted. The Court ordered default judgment against the defendants and directed WeRide to submit its declaration supporting costs and fees, and WeRide petitioned the Court for more than $2 million, in large part for the extra discovery necessary because of AllRide’s spoliation and failure to comply with court order. But before the issue of costs and fees could be fully resolved, the parties reached a deal in which WeRide agreed to dismiss all of its claims, with prejudice, without making public the terms of the settlement.

Businesses – and their trade secrets counsel – should look to this case as another reminder that evidence preservation is of paramount importance. Document destruction procedures and auto-delete policies can be an especially dangerous technological shortcut when litigation is threatened, potentially resulting in significant sanctions, costs, and even default judgment or dismissal of the lawsuit.