SAN DIEGO (CN) — A San Diego federal judge on Thursday preliminarily approved an agreement requiring executives of a self-driving freight truck technology company to pay $42.5 million to settle claims that higher-ups took trade and national security secrets to start a parallel business in China.
According to two stockholders who filed a complaint in 2023, Mo Chen, the cofounder of TuSimple Holdings, a company that develops technology for the self-driving, long-haul trucking industry, started another company called Hydron, which designs and sells autonomous trucks with hydrogen-powered engines, in 2021 with misappropriated trade secrets from TuSimple and with the backing of a Chinese oligarch with ties to the Chinese Communist Party.
Some of those trade secrets were deemed national security secrets by the U.S. government, the stockholders add.
The settlement, preliminary approved by U.S. District Judge Roger Benitez, a George W. Bush appointee, is based on a stipulation the parties entered into late last year.
The stipulation requires the defendants to pay $42.5 million to the company, not the individual stockholders. It also requires the executives to acknowledge their actions “played a substantial role in the amendment of the Amended and Restated Cooperation Agreement, dated April 3, 2024,” and that they and Hydron are bound by a mutual confidentiality and nondisclosure agreement.
The cooperation agreement compels Chen, his family members and affiliates to stay away from any transactions between TuSimple, its subsidiaries and Hydron or its subsidiaries and prevents TuSimple from using any of its funds to advance Hydron’s own business until Jan. 16, 2026.
The stipulation states that the defendants continue to deny they did anything wrong, violated any law or statutory duty or enriched themselves with misappropriated trade secrets.
The court will hold a settlement fairness hearing on July 9 at 10:30 a.m. at the United States District Court for the Southern District of California in San Diego to determine if the settlement adequately represents the interests of TuSimple’s stockholders.
In January 2024, the plaintiffs filed and were granted a temporary restraining order to prevent the executives from selling off company assets and moving to China in what they argued was an attempt to escape charges of misappropriation of trade and national security secrets.
The executives were also barred from violating their national security agreement with the Committee on Foreign Investment in the U.S.
The committee is a federal interagency entity that reviews transactions involving foreign investment deemed as threats to national security.
In 2021, the committee started investigating transactions related to the cofounders of TuSimple, especially a transaction in 2017 in which Sun Dream, a subsidiary of the Chinese media conglomerate Sina, acquired a 20% stake in the company, according to the plaintiffs’ complaint.
Around the same time, Chen, also a majority shareholder of TuSimple, started Hydron in secret with intellectual property and technology taken from the company, the plaintiffs claimed.
In 2022, TuSimple reported in a filing with the U.S. Securities and Exchange Commission that in 2021, employees worked on “matters” for Hydron. The same filing indicated that in 2022, TuSimple also shared “confidential information” with Hydron while evaluating the company as a possible business partner to manufacture their equipment.
The federal investigation resulted in TuSimple having to enter into a National Security Agreement, which required the company to protect its technology and not allow it to be shared without approval by a U.S. government committee, the plaintiffs added in their complaint.
At a hearing on the plaintiff’s motion for a temporary restraining order last year, TuSimple’s attorney Robert Smith argued that some of the technology developed by TuSimple was created in tandem with the company’s subsidiary in China, but it stopped sharing information and trade secrets after the federal investigation found that the technology involves trade secrets of national security interest.
He added that TuSimple — a nominal defendant in the case — does not have any relationship with Hydron anymore and that the company is delisting itself from Nasdaq because of “the expense of being a listed company” and because it has decided to go private.
The company’s move to China, Smith added, isn’t a secret it’s trying to hide, and it will continue to be incorporated in Delaware.
Smith said the plaintiffs haven’t shown any evidence that the company plans to move sensitive technology overseas. If there was serious evidence, then the federal agencies that oversee the technology would be in court to stop them, he said.
The company’s trade secrets, according to the plaintiffs, are designs, blueprints, schematics, specifications, software, source code, summaries of technical analyses, status reports, and technical data revolving around their “L4” autonomous driving technology, “Autonomous Freight Network” technology, and other tech they developed to operate autonomous semitrucks.
Attorneys for both parties did not immediately respond to requests for comment.