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Jawbone and Fitbit's Lawsuit: Everything You Need to Know


Image source: Jawbone. 

Jawbone and Fitbit (NYSE: FIT) are both making inroads in the wearable technology market. Jawbone has shifted some of its priorities over the past few years but has recently devoted much of its attention to its UP wearables fitness trackers.

Meanwhile, Fitbit has risen to the top of the wearable tech world. The company sold 21 million devices in 2015 and is the top wearable tech vendor ahead of Xiaomi, Apple, Garmin, and others.

But the two companies are far more than just tech rivals. Jawbone filed a lawsuit last year against Fitbit for patent infringements and alleges that Fitbit stole trade secrets from Jawbone when it poached former employees. 

Let's take a look at what Jawbone claims, what Fitbit has disputed, and what the courts have ruled so far in this wearable tech saga. 

What Jawbone claims 

The company has said in its lawsuits that Fitbit gained access to some of the company's trade secrets after Jawbone employees were hired away to work for Fitbit. 

Jawbone says the employees sent data to Fitbit (or downloaded it from old backups) that included Jawbone's product roadmap, prices it negotiated with manufacturers, circuit board designs, and product schedules. 

The number of files that were initially part of the lawsuit numbered about 18,000. But Jawbone recently updated the suit and has claimed Fitbit has 335,191 files that Jawbone owns.

The company says that technology that was listed in some of those files has been used by Fitbit in its new Alta wearable device.

Jawbone has sued Fitbit for both stealing trade secrets through these employees and for infringing on the company's patents.

What Fitbit says

Fitbit says it never accessed any of the files in dispute, or used them for any of its products. The Fitbit employees in question did turn over 18,000 files to the California Superior Court that belonged to Jawbone. Fitbit has also counter-sued Jawbone for infringing on its patents.

"Jawbone's latest attempt to bring additional baseless trade secret claims comes on the heels of it suffering another defeat in its similarly meritless patent litigation against Fitbit at the [International Trade Commission]." Fitbit said earlier this year.

"Just like the other claims asserted in this litigation, the additional claims Jawbone seeks to assert are unsubstantiated and based on gross mischaracterizations of the events that occurred months ago"  the company went on to say. 

What the courts have ruled

Not all of the rulings have been decided yet, but a court did strike down Jawbone's attempt to prevent Fitbit from importing its devices to the U.S. (they're made overseas) based on patent infringement claims. Jawbone is appealing the decision. 

The courts have yet to rule on whether or not Fitbit stole trade secrets from Jawbone. That, of course, would be a major blow for Fitbit and a huge win for Jawbone if proven true. 

Investor takeaway 

It's not unusual for companies to be involved in ongoing litigation, so it's hard to say exactly how much investors should worry about Jawbone's lawsuits. 

Fitbit investors have instead been much more focused on the company's products and whether or not it can continue to introduce new devices consumers want.

The company's share price has dropped more than 53% since its IPO. The fall began in November of last year, when the company reported strong earnings and sales, but issued a second stock offering. Typically, that's not a bad move, but it came just a few months after Fitbit's initial IPO, which means the company didn't correctly calculate how much capital it needed the first time around. 

The company's stock price fell even further in January after Fitbit debuted its latest smartwatch, the Blaze, which failed to impress investors. The company also faced more bad news with a different lawsuit that alleged Fitbit mislead users about the accuracy of its heart-rate sensors.

A negative judgment against Fitbit could push its price down further, of course. But what's more pressing right now is Fitbit's increasing pressure from competitors and a need to prove that it can create new wearable products with must-have features. The Jawbone lawsuit may be be looming over the wearable tech leader for some time, but it's Fitbit's innovation and sales growth investors should really be concerned about.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Fitbit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.