Meta and AI software startup settle trade secrets suit

Meta was previously accused of stealing source code via a former employee of tech startup | Facebook allegedly stole code for ‘groundbreaking’ AI algorithms | Parties settle with ‘confidential agreement’ ahead of jury trial.

Meta has settled a lawsuit brought by AI software startup Neural Magic, which had accused the tech giant of stealing its trade secrets via a former employee.

Neural Magic, founded in 2018 by Nir Shavit and Alexander Matveev, sued Meta (then known as Facebook) in 2020 for the alleged theft of its confidential information related to algorithms which streamline complex computer processes.

Computer scientist Aleksandar Zlateski, whom Neural Magic’s founders hired as its first employee in 2018, joined Meta the following year as an applied research scientist at the newly founded Facebook Artificial Intelligence Research (FAIR) group.

According to court documents, Zlateski had started looking for other positions in late 2018 and he contacted Meta in December of that year, which then offered him the role.

Terms of employment

On his last day at Neural Magic, Zlateski suggested that the startup “try to patent [a] bunch of [his] work that was fully done while there…[remainder redacted].”

Shavit told Zlateski that his work while at the company was the firm’s property, and that he was “not worried” because he trusted that the employee understood the ethics involved.

Under the terms of his employment contract with Neural Magic, Zlateski was bound by confidentiality and noncompete provisions during and after his time there.

However, he was allowed to keep his laptop without requiring it to be erased, and was given continued access to the company’s internal communications platform Slack, and its source code.

‘A very dirty prototype’

Zlateski is alleged to have written “a very dirty prototype” of code for use on a Facebook open-source code library, which optimises performance across machine learning and AI systems.

It was this code file, shared by Zlateski with Meta engineers, which implemented Neural Magic’s trade secrets, according to the startup.

Meta then shared a rewritten version on the open-source software site GitHub. Neural Magic became aware of this months later after seeing a post on LinkedIn by Meta congratulating Zlateski for his contribution to the Facebook code library.

‘Groundbreaking’ tech

Neural Magic said that it may have lost as much $766 million in royalties, and that some investors pulled funding, after the alleged breach.

According to the company, it has developed “groundbreaking” technology in the form of machine-learning based neural networks—systems that mirror the way a human brain learns by experience.

Ordinarily, these networks are run by large, expensive Graphic Processing Units (GPUs). But Neural Magic’s algorithms allow neural networks to run at GPU speeds on Central Processing Units (CPUs) which are standard in most computers.

Confidential settlement

Meta asked that the case be thrown out, arguing that “no reasonable jury could find [that] Meta knew or had reason to know that [the engineer’s] conduct was improper”.

The Facebook owner argued that “the optimisations in dispute were well known” and that it was unaware of Zlateski’s contract with Neural Magic until after the alleged theft.

But its appeal was rejected by the Massachusetts district court on February 6, and US district judge Denise Casper ordered Meta to face a jury trial over the allegations, countering that Meta “at least should have known that many of its new hires were subject to such agreements”.

The trial was set for September, but on Tuesday, August 10, the case was dismissed with prejudice. Neural Magic has “resolved its claims against Meta on confidential terms”, according to the dismissal filed at the US District Court for the District of Massachusetts.

Attorneys for Neural Magic were led by Patrick Curran at Quinn Emmanuel.

Attorneys for Meta were led by Christopher Henry at Latham & Watkins; while attorneys for co-defendant Zlateski were led by Stephen Riden at Beck Reed Riden.

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