Jawbone sues Fitbit, claiming it poached key employees who then took secrets with them

Hosain Rahman Jawbone

(REUTERS/Rick Wilking ) Hosain Rahman, CEO and co-founder of Jawbone

Fitness tracking device maker Jawbone is suing rival company Fitbit, alleging that Fitbit has poached Jawbone employees who downloaded confidential information before leaving for Fitbit, the New York Times reports.

Jawbone sued Fitbit on Wednesday in California State Court. “This case arises out of the clandestine efforts of Fitbit to steal talent, trade secrets and intellectual property from its chief competitor,” Jawbone's lawyers say in the complaint.

Jawbone's lawsuit alleges that earlier this year, Fitbit's recruiters tried poaching Jawbone employees. Those who left for Fitbit downloaded copies of confidential Jawbone information on thumb drives and took them to Fitbit.

The lawsuit cites several examples of former Jawbone employees who put in their two weeks' notice without indicating that they were leaving for a rival company, and then allegedly took confidential documents from Jawbone with them upon leaving.

Fitbit filed to go public earlier this month, and it's quickly growing and profitable. In its S-1, the company says that in 2014 it had net profits of $132 million from operations, on revenue of $745 million. Including stock-based compensation and other adjustments, Fitbit's net income was $38.5 million. The company's revenue grew almost 10X in the past two years.

“As the pioneer and leader in the connected health and fitness market, Fitbit has no need to take information from Jawbone or any other company," Fitbit said in a statement. "Since Fitbit’s start in 2007, our employees have developed and delivered innovative product offerings to empower our customers to lead healthier, more active lives. We are unaware of any confidential or proprietary information of Jawbone in our possession and we intend to vigorously defend against these allegations."

In comparison, Jawbone has encountered a few bumps in the road. Recently, Jawbone delayed the launch of its latest product, the Up3. Bloomberg View suggests that the $300 million round Jawbone raised in February from BlackRock wasn't actually equity investment, but a loan that had some strict terms — if Jawbone gets bought up, BlackRock will be paid before other investors. The financial management firm will also be able to dictate how Jawbone spends its money as a company.

"Demand for Jawbone’s products are extremely strong, as is the company’s financial health. The company has plenty of cash and an exciting product pipeline. Jawbone and its investors are bullish on its future," a company spokesperson told Business Insider.

Earlier this year, numbers from financial data tracking startup Mattermark indicated that Jawbone was a "unicorn" — a private company with a valuation exceeding $1 billion — which was considered to be at risk of failing.

Jawbone is seeking financial damages in its lawsuit. Jawbone also wants to keep its ex-employees from using the information that Jawbone says they took from the company, the Times reports.

We reached out to both Jawbone and Fitbit for comment on this story, and will update this story accordingly.

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