HTS LPR Sues Ex-Employees for Allegedly Stealing Trade Secrets, Including "Flux Capacitor"

Two LPR companies are in the midst of multi-year litigation, with HTS alleging RedLPR stole its trade secrets while RedLPR calling the lawsuit an "anti-competitive weapon."

The term "flux capacitor" is a reference to the fictional component that makes time travel possible in the 1980s movie series Back to the Future. Both HTS and RedLPR unofficially use "flux capacitor" to mean the "secret sauce" of their products.

In this report, IPVM examines the allegations HTS brings against RedLPR as well as the alleged trade secrets and HTS intellectual property involved, including feedback from the co-founders of RedLPR and HTS' counsel.

HTS Filed Trade Secrets Lawsuit Against RedLPR

On June 24, 2019, HTS, an Israel-based LPR company, filed a 31 page-complaint against RedLPR, a competitor US-based LPR company, in Utah District Court:

The litigation continues in 2021 as the parties are within discovery.

HTS Background

HTS was acquired by Quest Solution (now omniQ) in October 2018. Quest Solution called itself "a specialty systems integrator focused on field and supply chain mobility" in its press release announcing its HTS acquisition. In November 2019, Quest Solution changed its name to omniQ "to better reflect its evolved business which now includes Artificial Intelligence (AI)-based computer vision solutions."

omniQ is a $74 million USD publically traded company on NASDAQ and reported ~$55 million in 2020 revenue.

HTS cameras are now sold as omniQ imaging units on the omniQ website but still bear the HTS logo:

RedLPR Created by Ex-HTS Employees in 2019

RedLPR was created by ex-HTS employees Sagy Amit and Jeremey Barker in January 2019 and was registered as an LLC in Mississippi:

According to HTS' complaint, Barker began working for HTS in 2013 and became the VP of Sales & Marketing in 2017. Amit was hired in 2016 as the Director of Sales-West.

Amit left HTS on August 10, 2018. RedLPR's response to HTS' complaint alleges that "Amit was constructively discharged in or about August 2018." Constructive discharge describes the involuntary resignation of an employee, typically as the result of a "hostile or intolerable work environment," according to the US Department of Labor.

Barker left months later, on October 16, 2018, then established RedLPR with Amit in January 2019.

HTS: Trade Secrets Involved in "Nearly Every Aspect" of RedLPR

Just 5 months after Amit and Barker started RedLPR, HTS sued RedLPR "to remedy the unlawful conduct of Defendants [RedLPR] in the misappropriation and retention of HTS’ confidential, proprietary and trade secret information."

HTS' complaint says that RedLPR's uses of HTS trade secrets is "apparent in nearly every aspect of RedLPR's operations" including "virtually indistinguishable" products and using HTS business plans to target HTS customers:

Amit and Barker’s use of HTS’ trade secrets is apparent in nearly every aspect of RedLPR’s operations.

For example, RedLPR has used specifications of HTS’ proprietary imaging units, software applications, and LPR servers to recreate products virtually indistinguishable from those offered by HTS.

RedLPR has also utilized HTS’ confidential business plans and other internal documents to systematically target HTS’ customers and submit project bids that undercut those submitted by HTS. [emphasis added]

HTS' Alleged Trade Secrets Examined

HTS alleges a number of trade secrets that the company possesses and are at issue in this case. From the original complaint and later, HTS' Memorandum in Opposition to Motion Summary Judgment, HTS claims these are some of the trade secrets involved:

• HTS’ internal “sales pipeline document”, which includes:

Details hundreds of current and future business opportunities HTS is positioning itself to obtain.

HTS’ pipeline also includes detailed technical specifications, pricing information, cost of goods sold (COGS) information, and other related parameters.

The pipeline also includes internal HTS insight – gained from decades of experience and hundreds of industry relationships – regarding HTS’ expected likelihood of being selected for a given project, and other related notes.

• Technical trade secrets, including "specifications of HTS’ propriety imaging units, software applications, and LPR server devices"
• 2018 Roadmap containing "information regarding HTS' high speed and mobile cameras" and analysis of HTS' "slow speed" cameras and their development
• Design and development of its technology through 100 emails between HTS and Hitron, a South Korean manufacturer

HTS claims that Amit and Barker had access to these trade secrets through their work and that the documents were clearly labeled with phrases such as "for internal use only," "company sensitive," and "confidential."

RedLPR: Alleged Trade Secrets are Not Actually Secrets

RedLPR's, its response to HTS' complaint, states that some of the alleged trade secrets are not actually secrets:

One or more of Plaintiffs’ alleged trade secrets are not secrets, were not the subject of reasonable efforts to maintain their secrecy, and/or have been publicly disclosed.

For example, RedLPR says "customer relationships are not trade secrets," in its Motion for Summary Judgment (MSJ).

Further, RedLPR "did not have access to the purported trade secrets allegedly misappropriated":

Defendants never had access to non-public aspects of HTS’ LPR software. HTS gave Amit and Barker the same level of access to its software as it gave to customers and end-users.

Amit and Barker were given the same access to software as customers and end-users were given, the MSJ states:

Defendants never learned or used any software-related trade secrets. HTS gave Defendants the same level of access to its software as it gave on a non-confidential basis to customers and end-users.

RedLPR Comments to IPVM

Amit told IPVM that he doesn't believe the "sales pipeline document" is a true trade secret, explaining that the document is a pipeline of opportunities that he himself researched from LinkedIn when he joined HTS in 2016:

It's nothing. It's like the rest of their trade secrets, it doesn't have anything. It's a pipeline like every company has and was basically created by me when I started in 2016. There's no contact information there. It's basically what I did to find any opportunities: go on LinkedIn and find the CEO of the company and reach out to them, which is what most salespeople do. That pipeline was shared on Google Docs by our CEO at the time so it's still on Google Docs. There's nothing there that's beyond the simple pipeline identification to try and build a quota out of, that most salespeople do. [emphasis added]

RedLPR told IPVM that the cameras it sells are "off-the-shelf" products that "we didn't do anything specific to, other than make the sunshield red." RedLPR says it uses software "built for us from scratch" by Riverland, a US-based LPR software company.

Further, Amit and Barker emphasized to IPVM that their roles at HTS were with the front-end of the business (sales and support) so had no access to HTS' secure server:

HTS has an office in Israel that had a secure server on which they stored their trade secret information. We never had access to that server. In the United States, we were not developers. We were not financial people. We were a sales, support, install, front end of the business.

Court: HTS Alleged Trade Secrets "Both Too Vague and Over-Inclusive"

In April 2021, the court ordered HTS to be more specific about the alleged trade secrets, stating:

The fact that HTS disclosed its contents in a non-redacted document shows how little detail it actually has provided about what its trade secrets are. To the extent HTS is claiming a compilation as a trade secret, it must identify with reasonable particularity how the combination “is outside the general knowledge and not readily ascertainable by proper means,” such that it warrants protection. [emphasis added]

The court called HTS' trade secret identification at the time "both too vague and over-inclusive," stating:

“Simply identifying documents” or the general technology and then leaving a defendant or fact-finder to figure out which parts “contain trade secret information is not enough.”

HTS Submits Updated Trade Secrets Document in May 2021

HTS submitted an updated trade secret document in May 2021 after the court directed HTS to identify its trade secrets with more specificity. That document is sealed.

However, HTS' counsel, Ariel Reinitz, provided IPVM with a summary of what the May 2021 submission included:

HTS’ May 21 submission includes:

1. A 42 page document identifying the trade secrets at issue in this case. This document lists eight categories of technical and business trade secrets that Amit, Barker, and RedLPR are accused of misappropriating. These trade secrets include those relating to the design and development of HTS’ proprietary LPR cameras and software, HTS’ internal sales pipeline documents, strategic plans, and other confidential information.

2. A 20 page sworn declaration by Yoram Hofman, HTS’ founder and CTO. Mr. Hofman’s declaration describes the 20+ years of R&D invested by HTS in developing the imaging technologies at issue.

3. Several other confidential technical and business documents containing the trade secrets at issue.

HTS: RedLPR's Use of Same "Flux Capacitor" Claim Shows Trade Secret Misappropriation

RedLPR "misappropriated HTS' trade secrets," HTS says in a legal filing. Specifically, HTS points out RedLPR's use of the term "flux capacitor" to describe what is special about RedLPR cameras is "textbook evidence of misappropriation."

The term "flux capacitor" is a reference to the fictional component that makes time travel possible in the movie Back to the Future.

Both HTS and RedLPR use "flux capacitor" to mean the "secret sauce" of their products.

The "flux capacitor" feature uses multiple cameras per lane (color and infrared) and RedLPR's "algorithm [basically] pick[s] the best picture out of the best image between the cameras," RedLPR said at an IPVM November 2020 presentation, which was cited by HTS' filing.

HTS says that Amit used "flux capacitor" to describe the same feature when he worked at HTS:

Notably, while working for HTS, Amit described the same feature as being HTS’ “Flux-Capacitor” and the “secret sauce” that differentiated HTS from its competitors.

As Amit described during the RedLPR Presentation, RedLPR differentiates itself by using “multiple cameras per lane” (color and infrared) and processing the license plate images from each camera through its algorithm which “picks the best picture” among the captured. The slide Defendants presented when discussing this feature also prominently designates this feature as RedLPR’s “flux capacitor.”

The slide referenced is shown below:

Court Pushes Back

However, the court pushed back on HTS' assertion that by using the term "flux capacitor," RedLPR "all but admit to misappropriating HTS’ trade secrets.”

Although RedLPR described what the feature does, that does not necessarily mean they know how the feature does it:

Knowledge about a product feature does not equate to knowing the algorithm behind the feature. Marketing brochures commonly describe features based on what they do versus how they do it. It is the “how” that constitutes HTS’ trade secret. The defendants contend, through affidavits, that they developed their own technology on a different platform and with different functionality. They also claim there is no evidence they used any alleged trade secrets. [emphasis added]

RedLPR Comments to IPVM on Flux Capacitor

Amit, RedLPR's co-founder, told IPVM that he actually was the one to start using the term "flux capacitor" for the feature because he was the only marketing person at HTS at the time:

I was the marketing person, the only marketing person in the US. Flux Capacitor was a term that I made up. Marketing terms are not trade secrets.

Defend Trade Secrets Act Examined

A primary cause of action in this lawsuit is "trade secret misappropriation under the Defend Trade Secrets Act."

18 U.S. Code § 1839(3) defines trade secrets as various financial, business, technical, etc. information that (1) the owner takes "reasonable measures" to keep secret and (2) derives "independent economical value" from "not being generally known to" or "readily ascertainable through proper means" by another person.

However, not all confidential information rises to the level of a trade secret, Finnegan, one of the largest IP law firms writes. Further, business people tend to interchangeably use "trade secret," confidential," and "proprietary" interchangeably but courts understand them as different terms:

In short, trade secrets and confidential information are a subset of the potentially much larger class of proprietary information. Moreover, if these terms are all used in an agreement, courts may infer that each term has a separate meaning even if the parties’ intent was that they have interchangeable meanings, or worse, that the parties did not know what they meant by their loose use of these terms.

HTS Sent Letter to Industry Participants "Containing Damaging Remarks"

In October 2019, 4 months after the lawsuit was first filed, HTS drafted and allegedly sent out a letter to "RED’s customers, potential customers and many industry participants."

This letter outlines the alleged trade secrets theft and said third parties may be "exposed to liability" for RedLPR's activities:

The letter referenced an HTS "internal investigation" and "discovered that these employees engaged in a wide-ranging campaign of unlawful conduct."

Court Cautions on HTS' Letter to Industry

However, the court, when ruling on RedLPR's motion for summary judgment, cautioned HTS from using litigation to "harm a competitor based on mere supposition" while failing to appropriately identify its trade secret:

When one makes that type of accusation against another, and publishes it broadly, there needs be strong evidence to support such accusations. The letter represents the existence of trade secrets and that actual evidence was found during the investigation showing the secrets are incorporated into RedLPR’s technology. Consequently, it is troubling that HTS has failed to identify its trade secrets appropriately and is now asserting it needs discovery to prove misappropriation and use of HTS’ technology. The court cautions HTS against using these proceedings to harm a competitor based on mere supposition. Improper use of litigation is not taken lightly by this court. [emphasis added]

HTS Comments on Court's Cautioning

IPVM asked HTS' counsel about the court's statement that the situation was "troubling" and HTS counsel responded:

HTS sent this letter to specific industry contacts to advise them of this lawsuit and the potential risk of using RedLPR’s products.

The referenced language from the Court’s opinion refers to HTS’ identification of its trade secrets. Any such concerns were resolved by HTS’ May 21 submission.

As this juncture, the only thing “troubling” is RedLPR’s refusal to produce its own internal documents (as it is required to) reflecting the extent to which its business and technology are built upon HTS’ proprietary information. HTS has been forced to seek Court intervention multiple times to obtain these documents from RedLPR.

RedLPR: HTS Using the Court as "Anti-Competitive Weapon"

However, RedLPR maintains that HTS is using this lawsuit as an "anti-competitive weapon." For example, one of its affirmative defenses is for "bad faith enforcement":

Plaintiffs’ causes of action have been brought in bad faith. Plaintiffs filed this lawsuit against Defendants for anticompetitive reasons.

In RedLPR's Motion for Summary Judgement, it claims that the "defamatory letter" and this lawsuit is affecting its business:

HTS’ motives are transparent. Eschewing preliminary injunctive relief (which would require an early merits evaluation), and hiding behind the “litigation privilege,” HTS sent a defamatory letter to RED’s customers threatening to sue them for working with RED. That letter, supported by this lawsuit, is having its intended anticompetitive effect; customers have declined to do business with RED while this litigation remains pending.

HTS' Counsel Denies "Anti-Competitive Weapon" Claims

HTS' counsel denied that HTS is using this lawsuit as an "anti-competitive weapon" when IPVM asked for a comment:

HTS is a technology pioneer and leading LPR provider. Weeks after leaving HTS, Amit and Barker were selling virtually identical LPR solutions via RedLPR. This was only possible because, as described in the lawsuit, Amit and Barker built RedLPR using proprietary information obtained from HTS.

Evidence of this conduct can be found, for example, on IPVM’s own website. Large sections of RedLPR’s November 2020 video presentation were lifted directly from HTS’ materials. A side-by-side comparison of these materials shows that in many places Amit and Barker did little more than substitute HTS’s logo for RedLPR’s.

During this presentation, Amit also highlighted RedLPR’s use of image processing algorithms that improve LPR accuracy under changing conditions. RedLPR’s presentation touts this technology at its “flux capacitor” (a Back to the Future reference). Yet while working for HTS, Amit used the same materials to promote HTS’ proprietary SeeFusion algorithm as the “secret sauce” and “flux capacitor” that HTS used to achieve industry leading LPR accuracy.

This lawsuit is not a “weapon” or a form of “punishment.” But HTS does have an obligation to protect its investment in R&D and defend its business when outside parties (here, Amit, Barker, and RedLPR) unlawfully exploit HTS’ valuable intellectual property for their own benefit.

Non-Trade Secret Allegations - Alleged Use of HTS Marketing Materials

HTS has also brought non-trade secret related allegations against RedLPR, stating "several of the slides used by Defendants" in a product presentation "appear to be copied almost word-for-word from the HTS Presentation."

These are examples presented by HTS to show the similarities:

The court acknowledged that marketing materials developed by HTS may be the "exclusive property of HTS" but has not given further clarity on what it thinks about the similarities.

However, IPVM's review of the HTS and RedLPR slides show that the slides include basic information about LPR and regulations that are easily discoverable on the internet.

Amit from RedLPR told IPVM that he was also the one who had created HTS' marketing deck, based on information he found on the internet:

The whole PowerPoint that was created was created by me on my personal computer. I created it without any help from HTS. It was a marketing campaign that I started on my own. I didn't take any specific material from HTS. It was all from the World Wide Web.

Next Post - Employment Agreements Involved

In an upcoming post, IPVM will examine the employment agreements involved in this lawsuit and whether or not they contain confidentiality clauses.

[Update 4/26/2022]

4 Tort Counts Against RedLPR Dismissed

Count III through VI in the plaintiff's complaint were dismissed by the court on April 25, 2022 in a 7-page memorandum decision and order.

Specifically, the four counts are:

• Count III - Breach of Fiduciary Duties
• Count IV - Tortious Interference with Economic Relations Under Utah Law
• Count V - Unjust Enrichment
• Count VI - Unfair Competition

One year ago, on April 28, 2021, the court originally declined to dismiss these 4 counts but "correct[ed] a deficiency in its ruling" through this new decision.

Count III-VI were dismissed because those claims were premised on allegations supporting trade secret misappropriation. The Uniform Trade Secrets Act (UTSA) "preempts conflicting tort and other common law or statutory civil causes of action 'for misappropriation of a trade secret,'" according to law firm Epstein, Becker, and Green. Trade secret claims often overlap significantly with other business torts, law firm Holland & Knight explains. Further, "such overlapping claims should survive preemption only if, and to the extent that, they have a distinct factual basis from a claim for trade secret misappropriation," Holland & Knight says.

The court wrote that plaintiff HTS "failed to show a material issue of fact exists on the issue of trade secret preemption," i.e. that the breach of fiduciary duties, tortious inference, etc. claims were premised on that RedLPR allegedly stole and misused trade secrets. These claims are preempted by the UTSA.