Rippling’s accusations of corporate espionage against rival Deel set the business software world on fire this week.
Rippling alleged in a legal complaint on Monday that a mole for Deel stole information on its sales pipeline, pricing proposals and key personnel. The alleged spy was subsequently identified in an Irish legal filing as Keith O’Brien, a payroll compliance manager for Rippling.
Rippling set up a decoy to identify the spy and tie him to Deel’s leadership: They sent a letter to three Deel executives that referred to a nonexistent Slack channel where Rippling employees were criticizing Deel.
O’Brien then searched for the fabricated Slack channel, according to the complaint, entangling both himself and the executives who received the letter in a “honeypot” trap.
Once identified, O’Brien locked himself in a bathroom in an attempt to delete evidence, per the complaint.
The case is a rare high-profile, public battle between two fast-growing startups, which have raised over $2 billion in combined venture funding.
The suit may be settled out of court, or it could escalate into a messy court battle—or even a federal criminal investigation:
1. Deel settles, but its brand never recovers
So far, Deel has said little publicly about the case, only that it denies wrongdoing and will assert counterclaims.
But debate is already raging in the court of public opinion — that is, on X, LinkedIn, and indefatigable VC podcasts.
“At Bedrock, we stand with [CEO Parker Conrad] and the entire Rippling team on this matter,” VC Geoff Lewis, whose firm co-led Rippling’s Series D round with Kleiner Perkins, posted on X.
Deel will soon have to consider trying to settle. Around 90% to 95% of civil cases settle before trial in order to avoid many more months of media coverage and leaving the ultimate outcome to a jury.
But settling with Rippling won’t come cheap, both in cash and revenue. “You have customers who may say, ‘Do I want to conduct business with a company that would do these things?’” said attorney Michael Wexler, who heads Seyfarth Shaw‘s trade secrets practice.
2. Rippling can’t tie the mole to Deel
Much of the case, legal experts say, will hinge on discovery.
“Based on Rippling’s allegations, this is the tip of the iceberg,” said Wexler. “I think once Rippling gets into discovery with Deel, they’re going to find more far-reaching information.”
The honeypot strategy that Rippling used to identify the alleged spy in their tracks isn’t unheard of. But it could present a risk for Rippling since it was an artificial test designed to prove a foregone conclusion, according to Adam Goldberg, a partner at Pillsbury focused on white collar and corporate investigations.
“Deel could argue unclean hands or fraudulent inducement,” said Goldberg—or a court may find the evidence “unduly prejudicial.”
In order to prove organized crime was committed, Rippling’s biggest challenge will be tying the information the alleged spy found to Deel’s subsequent conduct.
Rippling claims that senior Deel leaders knew about O’Brien’s actions, citing their “honeypot” trap.
The alleged mole frequently searched for references to Deel on Slack—an average of 23 times per day, according to Rippling’s complaint. But so far, it doesn’t appear that Rippling has “a complete paper trail of what information has been passed on to Deel,” according to Celeste Koeleveld, a partner at Clifford Chance. That’s what Rippling will hope to find out through discovery.
In response, Deel’s defense may be able to “argue that he didn’t steal anything worthwhile, or they didn’t use it somehow,” said Wexler. This would damage Rippling’s ability to show the theft of trade secrets harmed its business.
3. Deel has its day in court—criminal court, that is
Could the dispute escalate to a criminal prosecution? The short answer is yes.
If Rippling can prove that Deel stole trade secrets, and that Rippling took steps to keep this information confidential, then “it’s potentially a criminal case,” according to Koeleveld, who previously served as chief of the criminal division at the US Attorney’s Office for the Southern District of New York.
An investigating agency, like the FBI or Postal Inspection Service, could build on Rippling’s findings, using subpoenas to obtain additional information.
“You won’t know what the government is up to for a long time because they typically don’t publicize their investigations,” said Koeleveld. Prosecutors would first collect evidence, then request a grand jury.
According to its complaint, Rippling equips its sales reps with “competitive battlecards” to navigate rival products. Now, its lawyers may be preparing a similar strategy of their own.
Photo illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images
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