Struggling Fitbit now has 5 ex-employees who face criminal charges

A federal grand jury has returned a criminal indictment against one current and five former Fitbit employees, accusing them of taking stolen trade secrets from their former employer, Jawbone, to their new jobs at Fitbit.

Jawbone went out of business as of July 2017 and is currently undergoing liquidation proceedings.

The two fitness gadget companies were previously staunch competitors and had sued one another multiple times.

On its own: Fitbit has its own problems too. The company's stock price has collapsed since its $32.50 per share debut on the New York Stock Exchange roughly three years ago. Today, Fitbit stock now trades around $7.42 per share.

Fitbit has lost over $380 million from 2016 through 2017, wiping out its two earlier profitable years. Its number of devices sold has plummeted from 22.2 million in 2016 to 15.3 million in 2017.

This is not the company's first brush with federal authorities. In February 2017, Jawbone said in a California state court filing that Fitbit was facing a criminal probe into its behavior.

At the time, Fitbit denied any wrongdoing.

"After a full examination of the issues and Fitbit’s resounding victories at the [United States International Trade Commission], coupled with Jawbone’s complete failure in the marketplace and reported insolvency, Jawbone is now attempting to exert leverage against Fitbit in civil litigation pending in the California state court," Fitbit said in a February 2017 statement sent to Fortune. "Fitbit is cooperating with the US Attorney’s Office to demonstrate, once again, that these allegations are without merit."

However, that statement appears to only be addressing potential wrongdoing by the company itself, and not its current or former employees.

In Fitbit’s most recent annual report, filed with the Securities and Exchange Commission on March 1, 2018, the company wrote:

On August 12, 2016, the Company was notified by Jawbone that Jawbone had received a confidential subpoena from the US Attorney’s Office for the Northern District of California requesting certain of the Company’s confidential business information that appeared to be related to Jawbone’s allegations of trade secret misappropriation. On February 17, 2017, the Company received a subpoena for documents from the same office. On February 1, 2018, the Company received a second subpoena for documents. The Company is cooperating with the US Attorney’s Office.

Back in 2015, Jawbone filed a lawsuit against Fitbit over poaching its employees, and a patent lawsuit for good measure. Jawbone faced other business challenges, too.

"Stifles innovation"

The named defendants include six former and current Fitbit employees: Katherine Mogal, 52, of San Francisco; Ana Rosario, 33, of Pacifica; Patrick Narron, 41, of Boulder Creek; Patricio Romano, 37, of Calabasas; Rong Zhang, 45, of El Cerrito; and Jing Qi Weiden, 39, of San Jose. Mogal faces six counts, while Weiden only faces one—the others range between two and five counts.

It was not immediately clear which of these six is the current Fitbit employee. According to their LinkedIn profiles, Rosario and Narron left the company years ago.

Authorities say each had worked for Jawbone for at least a year between May 2011 and April 2015 and allegedly violated their confidentiality agreement. While working for Jawbone, they were seemingly recruited to work for Fitbit, and, prosecutors claim, took trade secrets along.

"Intellectual property is the heart of innovation and economic development in Silicon Valley," said Acting US Attorney Alex Tse, in a statement. "The theft of trade secrets violates federal law, stifles innovation, and injures the rightful owners of that intellectual property. This office, together with our law enforcement partners, is committed to protecting the intellectual property rights and economic security of this district."

The defendants are scheduled to make their first appearance in court on July 9, 2018, at 1:30 pm before US Magistrate Judge Virginia K. DeMarchi in San Jose.

Abraham Simmons, a spokesman for the US Attorney's Office in San Francisco told Ars that due to a "clerk's office issue," the indictments would not be available until Friday.

“In a trade secret misappropriation case brought by Jawbone in the International Trade Commission in 2016 that involved these same individuals, a federal administrative law judge during a nine-day trial on the merits found that no Jawbone trade secrets were misappropriated or used in any Fitbit product, feature or technology," the company said in a statement sent to Ars by Scott Lindlaw, a spokesman.

Fitbit declined to respond to Ars’ questions on the record late Thursday evening.