An arbitrator has awarded Intellectual Ventures more than $6.5 million in attorney’s fees and other costs in a case involving two of the company’s former researchers who were accused of improperly sharing trade secrets.
The ruling by the arbitrator, George Finkle, was issued last month and included in documents filed last week in King County Superior Court by Intellectual Ventures’ attorneys. They’re asking the court to affirm the award and direct entry of judgment. Meanwhile, attorneys for the researchers say they’ll contest Finkle’s award.
Finkle ruled that the two researchers, Fred Sharifi and Rachel Cannara, improperly used confidential information they had developed while working for Intellectual Ventures’ Advanced Physics Lab in Bellevue, Wash.
The information focused on a technology known as cold electron field emission. According to the National Institute of Standards and Technology, where the pair had worked before joining Intellectual Ventures, the technology could be used to create higher-efficiency electron sources for applications ranging from microwave communications and radar systems to X-ray imaging systems.
Intellectual Ventures hired Sharifi in 2014 to serve as the Advanced Physics Lab’s director, and Cannara became the lab’s lead scientist.
The Bellevue-based venture — which has fostered a string of spinouts including TerraPower, Kymeta and Echodyne — had considered commercializing the field emission technology through a spinout called Tetrel.
But in early 2019, the project was running out of funding, and prospects for the spinout were looking dim. Intellectual Ventures put one of its executives, Brian Holloway, in charge of the Advanced Physics Lab in March 2019 to re-evaluate the project.
Within a month, Sharifi and Cannara were dismissed, along with one of the APL staff scientists who reported to them. Three other staff scientists resigned.
Finkle said Sharifi and Cannara sought to commercialize the technology on their own, through a startup they called Quantum Electron Devices, or QeD. They went so far as to create a corporation, seek out investors, contact potential customers and try to find out how much Intellectual Ventures would charge for the use of its intellectual property.
“You need to start thinking about what it is that you want for what we’ve done, the trade secrets and all that,” Cannara told Holloway, according to a transcript cited in Finkle’s ruling.
The ruling found that Sharifi and Cannara deleted texts and erased computer files after their dismissal — behavior that was characterized as intentional destruction of evidence, or “spoliation.”
Finkle sided with Intellectual Ventures on its claims that the pair had breached their confidentiality agreements, made improper use of trade secrets and destroyed evidence. He said they should be required to reimburse the company for $5.7 million in attorneys’ fees, plus nearly $804,000 in expert fees and other costs.
“Although high, the requested hourly rates are reasonable, given the expertise and experience of counsel and the complexity of the factual and legal issues,” he wrote.
Intellectual Ventures had sought an additional $5.8 million in damages due to lost business opportunities, plus another $11.6 million in exemplary damages. But Finkle decided against awarding damages. He noted that Intellectual Ventures never followed through on Tetrel — and the defendants never followed through on Quantum Electron Devices.
“The entity they created, QeD, never attracted an investor, never hired an employee, never conducted research, and never manufactured a product,” Finkle wrote. “Further, the usurped opportunity that IV claims is speculative.”
Finkle called for a permanent court injunction to bar Sharifi and Cannara — plus the four APL staff scientists who worked under them — from using any of Intellectual Ventures’ confidential information relating to the technology at issue. But he declined to levy financial penalties against the four staff scientists.
Greg Hollon — an attorney at the Seattle law firm McNaul Ebel Nawrot & Helgren who’s representing Sharifi and Cannara — took issue with Finkle’s ruling in a statement emailed to GeekWire:
“Drs. Sharifi and Cannara, well-respected physicists and experts in their field, strongly dispute the arbitration award, which unlawfully punishes them for taking actions they believed were necessary to comply with their legal and ethical obligations.
“The award properly rejected IV’s baseless damage claims and dismissed entirely IV’s vindictive claims against the four junior scientists in the Advanced Physics Lab.
“With respect to Drs. Sharifi and Cannara, the arbitrator failed to properly take into account the fact that the manner in which they handled data at the time of their termination was done with the advice and guidance of their former counsel, thus negating any willful or malicious intent. The arbitrator also failed to properly follow Washington law in awarding IV a grossly inflated attorney fee award for the limited relief obtained, and in failing to award the junior scientists the fees and costs they incurred in defeating IV’s baseless claims against them.
“Drs. Sharifi and Cannara intend to challenge the award in the King County Superior Court and look forward to presenting these issues in a public forum.”
In response to GeekWire’s inquiry, Intellectual Ventures acknowledged the court filing — but declined to provide comments that go beyond what’s in the filing.
Update, March 17: Lawyers for Sharifi and Cannara filed a petition in King County Superior Court seeking to vacate the arbitrator’s award of attorney’s fees in the case.
