WeRide Corp. v. Huang

Background

In March 2019, the court entered a preliminary injunction—a temporary order intended to prevent ongoing harm before final judgment—against Kun Huang, Zhong Zhi Xing Technology Co. Ltd. (ZZX), and AllRide.AI, Inc. The court had denied the earlier request to enjoin Jing Wang because WeRide had not then shown a likely chance of succeeding on its trade-secret-misappropriation claim against him.

After discovery began, WeRide amended its complaint to add Kaizr, Inc. and ZKA, Inc. WeRide also reported that the AllRide Defendants had destroyed potentially discoverable documents, leading to the appointment of a neutral forensic inspector and a special master. WeRide then moved to modify the preliminary injunction based on new evidence.

Authority to Add New Parties

The court held that it had equitable authority to modify the preliminary injunction based on new facts. It rejected Wang’s argument that the court could not add him because the court had denied the original injunction request against him. The court found that Wang remained subject to its jurisdiction and that new evidence contradicted important statements in his earlier declaration.

The court also held that it could bind Kaizr and ZKA because WeRide had sufficiently shown, for purposes of this motion, that Kaizr was an alter ego of the AllRide Defendants and that ZKA was Huang’s shell company and alter ego. An alter ego is a separate legal entity that, under the circumstances, may be treated as controlled by or legally connected to another party.

Jing Wang

The court found that WeRide was likely to succeed on its claim that Wang could be held liable under the factors described in PMC, Inc. v. Kadisha. Those factors concern whether an officer or director invested in a company whose principal assets resulted from unlawful conduct, controlled the company and appointed its personnel, and knew or had reason to know about the unlawful conduct.

The court found evidence supporting all three factors. It cited evidence that Wang loaned ZZX $200,000, that his wife owned the parent company of ZZX, and that Wang accepted an offer to become ZZX’s chief executive officer. It also cited evidence indicating that Wang led or controlled the AllRide Defendants, participated in business and investor meetings, and was involved in hiring. Finally, the court found evidence that Wang received reports about the AllRide Defendants’ technology and engineering work and maintained repeated contact with Huang.

The court concluded that the other preliminary-injunction factors also favored WeRide: the alleged trade secrets could be disclosed and lose their value, the balance of hardships favored WeRide, and protecting intellectual-property rights served the public interest. The court therefore ordered that Wang be bound by the injunction in his personal capacity, apart from his formal role at the AllRide Defendants.

Kaizr and ZKA

The court rejected Kaizr’s argument that it had not been served with the motion. It found that Kaizr had constructive notice through its counsel and its participation in the case, and that Kaizr’s failure to oppose the motion did not justify denying it.

The court found that Kaizr should be bound by the injunction because evidence showed substantial overlap with the AllRide Defendants in their business, personnel, operations, contracts, email communications, and contacts. The court determined that WeRide needed to show only a likely chance of success at this stage, not prove its claims outright.

As to ZKA, Huang conceded that it was a shell company he created to receive his salary from ZZX and described it as his alter ego. Although Huang and ZKA argued that adding ZKA was redundant because Huang was already enjoined, the court ordered that ZKA also be bound.

Requested Changes to the Injunction

The court denied WeRide’s request to prohibit the defendants from using any source code possessed by the AllRide Defendants in October 2018. The court found that request overly broad because the code included publicly available open-source code and possibly code created in-house. The court also found that the existing injunction already barred use of WeRide’s confidential information.

The court granted WeRide’s request for inspection of the defendants’ complete source-code repositories, subject to the protective order. It found convincing evidence that the AllRide Defendants had not produced the relevant source code and that their failure went beyond an ordinary discovery dispute because it implicitly challenged compliance with the preliminary injunction.

The court denied WeRide’s request to inspect the defendants’ entire email servers because WeRide had not sufficiently shown that it was entitled to that relief on this motion.

The court granted WeRide’s request to require the Corporate Defendants to disclose their corporate structures and the people and entities controlling them. The court found this relief necessary because the evidence indicated that Wang controlled the AllRide Defendants and that the defendants had used shell companies to avoid the consequences of the litigation.

The court granted WeRide’s request to restrict creation of new corporate entities. The modified injunction barred the enjoined defendants from forming additional entities for developing, commercializing, or researching autonomous-vehicle technology and required notice within 48 hours of certain asset, business, operational, or intellectual-property transfers.

Order

The court granted in part and denied in part WeRide’s motion. The modified injunction applies to Huang, Wang, ZZX, AllRide.AI, Kaizr, and ZKA, as well as persons acting under, with, or for them. It bars use or disclosure of WeRide’s confidential information, destruction or alteration of related materials, and certain creation or use of new entities.

The order also required forensic imaging and preservation of specified computers, servers, cloud accounts, devices, and materials; required sworn disclosures about recipients of WeRide information and relationships among entities involved in autonomous-vehicle work; and authorized additional source-code discovery, written discovery, and depositions. The injunction became effective when entered, remained in force through judgment against each enjoined defendant, and was issued without prejudice to requests for additional discovery or other relief.