Boeing’s new legal nightmare: Potential damages of $235 million in trade secrets suit

Innovation

Zunum Aero

An artist’s rendering of three hybrid electric aircraft envisioned by Zunum Aero that would have spanned 12 seats to 100.

Zunum Aero

It could cost the embattled planemaker $235 million, depending on a federal judge’s decisions on damages.

A jury in federal court in Washington state found Boeing guilty of stealing trade secrets from Zunum Aero, a Seattle-area company that won media buzz for its plans to develop a 12-seat hybrid-electric airplane that it claimed would enable affordable air travel between small cities that lacked airline service. The jury awarded Zunum a total of $81 million on those charges. But because the jury deemed Boeing’s actions malicious, the judge could triple the award.

The jury also found Boeing guilty of tortious interference through actions that allegedly dissuaded at least one potential investor, the French aerospace parts maker Safran, from funding the startup in 2018 when it was running desperately low on cash. The jury awarded Zunum $11.6 million on those grounds.

Subtracting $20.8 million in damages that the jury determined Zunum could have prevented, Judge James Robart could award Zunum a maximum of $235 million. Boeing said it plans to appeal the judgment.

Zunum alleged that after Boeing provided a $5 million convertible loan to the startup in 2017, the aerospace giant launched an effort to build a similarly sized hybrid-electric plane of its own. To do this, Zunum claims, Boeing used design details its staffers gathered while performing due diligence for that investment.

Zunum also alleged that Boeing approached Safran to develop a hybrid-electric propulsion system based on the startup’s IP.

In a court filing, Boeing claimed that it only developed a conceptual mock-up of Zunum’s design to assess its feasibility, and had no plans to build a competing aircraft. Ultimately, itcame to believe that Zunum didn’t have the technical ability to deliver on its plans and abandoned the deal.

“Zunum’s story is a simple one: an ambitious startup’s reach exceeded its grasp, and investors fled.”

In November 2018, a cash-starved Zunum laid off nearly all of its 70-person staff, Forbes was first to report. Zunum’s co-founders, CEO Ashish Kumar and CTO Matt Knapp, had hoped Boeing would participate in a B Series fundraising round, but it only provided a $4 million bridge loan.

Not all of Zunum’s problems could be attributed to Boeing, sources told Forbes. The company had ramped up spending on the assumption it would clinch further funding, but the terms Kumar was seeking were overly aggressive, Forbes was told by two employees and the head of an investment fund. “Ashish wanted valuations for the company that were way beyond what most investors were willing to invest in,” said the investment manager, who asked to remain anonymous.

Knapp and Kumar told Forbes in a statement that the judgment will go to repay creditors and employees who continued to work for minimum wage in the company’s final days. The duo had also hit up senior employees for loans, one had told Forbes. “This litigation was first and foremost for [former employees’] benefit and we expect all of them to be repaid in full once the final damages are awarded by the Court and paid by Boeing.”

Ironically, one of the creditors is Boeing. Judge Robart ordered that the award to Boeing would be discounted for the $9 million in loans that Zunum has failed to repay plus interest.

The loss in the Zunum case is just the latest of Boeing’s legal woes. Earlier this month, the Justice Department said that Boeing had violated the terms of a 2021 agreement under which the company had avoided prosecution after two fatal crashes of 737 Max planes in 2018 and 2019 that killed 346 people.

Boeing paid $2.5 billion to close the federal probe, some of which went to compensate victims’ families. Under the agreement, which deferred prosecution for three years, Boeing committed to improve its compliance and safety oversight. Two days before the agreement was set to conclude, a panel fell off a Max plane in flight operated by Alaska Airlines. Investigations into the incident raised fresh questions over quality control at Boeing, and whether Boeing was in compliance with the DoJ agreement.

Federal prosecutors are expected to determine by July 7 whether they’ll seek to extend the agreement, levy additional penalties or bring criminal charges.

More from Forbes Australia