In August 2016, Uber purchased autonomous truck startup Otto in a deal that reportedly called for Otto employees to receive 20 percent of future profits Uber earns from self-driving trucks. It seemed like a nice deal for any startup. But now that lucrative arrangement may be torpedoed, leaving Otto employees who joined Uber to work on trucks in the lurch, according to records filed in Uber’s ongoing legal battle with Google.
That’s the upshot of records and testimony from Otto representatives about Uber’s decision in May to fire Anthony Levandowski, Otto’s co-founder and Uber’s ex-autonomous tech chief, after Levandowski refused to cooperate in an internal investigation of accusations that he stole self-driving tech from Google’s self-driving car project, Waymo.
Ever since Google’s Waymo filed suit earlier this year against Uber over Levandowski’s alleged theft of self-driving tech, questions have mounted over Uber’s work on self-driving trucks. (The company retired the Otto name in May to quietly settle a trademark dispute with a Canadian firm.)
That same month, it unveiled a new project called Uber Freight—essentially a broker to connect truck drivers looking for work that, in theory, would complement Otto’s self-driving trucks. The company’s autonomous truck tests slowed for a period of time, with employees being transferred to Uber’s cargo division and elsewhere within the company.
But a review by Jalopnik of records filed in the ongoing case with Waymo also suggests that employees who joined Levandowski at Otto stand to lose a lot now. The decision by Uber to fire Levandowski could jeopardize the split of future profits that Otto employees who work on autonomous trucks may have reaped, and that sucks for them.
‘The Future Profit Of Otto Trucking’
The months-long legal battle has revealed that Uber drafted a plan to buy Levandowski’s future company as far back as December 2015. Levandowski officially departed Google the following month, and days later launched Ottomotto, the legal name for Otto. Levandowski’s work at Uber began almost immediately and, by late February 2016, attorneys had drafted a contract for Uber to acquire Otto.
The deal wasn’t finalized for several months, until August 2016, when former Uber CEO Travis Kalanick announced that the ride-hailing company had purchased Otto. Levandowski, he said, would lead both Uber and Otto’s self-driving tech endeavors.
“If that sounds like a big deal—well, it is,” Kalanick wrote at the time.
Less than a year old, with only 90 employees, the purchase was set to be a windfall for Otto employees. Reuters reported that Uber agreed to pay 1 percent of its $68 billion valuation for the company—reports suggested the deal was in stock and involved no cash transferring hands—meaning the deal was worth about $680 million.
Otto employees would collectively receive 20 percent of future profits Uber earns from self-driving trucks, according to Reuters, contingent on certain targets being met. (Uber couldn’t confirm the veracity of the reported one-fifth split, when asked Thursday.)
But Levandowski’s Uber stint was brief. In May, the company fired him for refusing to cooperate with an internal investigation into Google’s theft claims. Shortly after, Uber told Otto co-founder Lior Ron that Levandowski’s termination could have a significant impact on the profit-sharing agreement laid out for employees.
Exactly why is unclear from court testimony and documents.
But in turn, Ron communicated the news to a morose Levandowski, according to testimony from the Waymo case.
“Well, I shared with him that Uber communicated to me that potentially because of his termination there will be some affect to the future profit of Otto Trucking,” Ron said in a June deposition.
“He just felt, I think, bad for some of the… employees, and sort of a bit maybe apologetic for… that to even, you know, be an issue for the employees,” Ron added.
The Structure Of The Otto Deal
Uber’s agreement to purchase Otto is complicated. As part of the deal, Uber acquired Ottomotto—essentially the startup’s brand, employees and patents. That was folded into Uber’s autonomous tech division, called the Advanced Technologies Group.
But Uber has yet to acquire a separate company called Otto Trucking, a LLC that exists solely to own the trucks.
It makes for a peculiar arrangement; Levandowski is no longer with Uber, but he remains an equity holder in Otto Trucking, records show.
An Uber spokesperson told Jalopnik that Ottomotto was the corporate entity that held Otto’s intellectual property and technology and employed individuals who’re now working for Uber’s Advanced Technologies Group.
“At the time of the acquisition we said there were two parts to the deal: (1) self-driving technology and (2) a trucking business, in which Otto Trucking stockholders would get a portion of any future trucking profits in exchange for their sale of Otto Trucking equity,” the spokesperson said. “The acquisition of Ottomotto closed back in August 2016. The acquisition of Otto Trucking hasn’t closed so it remains a separate entity.”
(Ron’s implication in testimony is that the majority of Ottomotto employees are the Otto Trucking stockholders, which Uber didn’t dispute. The profit-sharing deal pertains solely to employees working on Uber’s trucking efforts, not the entire ATG staff.)
It might seem like a minor issue, but Otto Trucking’s standing has a relevant part in the ongoing case between Uber and Waymo. For months, both sides have fired off missives over whether Otto Trucking is indirectly liable in the case because of Levandowski’s continued role as a Managing Member of Otto Trucking.
Waymo says it’s unquestionably relevant. The company has pointed to another subsidiary wholly-owned by Otto Trucking. The subsidiary, Otto Transport LLC, “owns (and apparently operates) trucks employing self-driving technology” and is based out of Uber’s headquarters in San Francisco, Waymo previously said.
“Moreover, Levandowski continues to have a vested interest in Uber’s success by virtue of his role as equity holder and managing member of Otto Trucking,” Waymo attorneys wrote in a court brief.
Uber has said in court that the argument is baseless.
An Uber spokesperson confirmed that Otto Transport was formed to “hold trucks, and this summer there have been trucks that have been acquired there.”
“Neither Otto Trucking nor Otto Transport have any employees or operations, so all Otto Trucking and Otto Transport activities are conducted by Uber employees,” the spokesperson said.
Uber attorneys said in a court filing this week that Waymo has “incorrectly” claimed that Otto Trucking retained “some benefit” from Levandowski’s alleged misappropriation of Google self-driving tech.
“The undisputed facts show that Otto Trucking never used any of the alleged trade secrets, and no evidence suggests that Otto Trucking has otherwise accepted, or retained any benefit from, Waymo’s allegedly stolen trade secrets,” the attorneys wrote.
The Merger ‘Could Be Terminated’
Uber remains intent on completing a deal to purchase Otto Trucking, and the company says it remains committed to entering the trucking industry. In June, Uber rolled out revamped self-driving trucks, with new software and hardware for the vehicles, which no longer carried the Otto name.
That might be partially explained by an agreement reached by Uber and Otto Trucking in May for the latter’s trucks. As part of the May 18 deal, four Otto Trucking vehicles were leased to Uber, and, pursuant to the agreement, “they’re under the complete control of Uber,” according to a August 22 deposition from Otto Trucking attorney Adam Bentley. (Uber says it owns trucks and also rents certain trucks from Otto Transport.)
In the deposition, Bentley confirmed that Uber has an “exclusive option” to purchase Otto Trucking for an undisclosed sum that it has yet to take. The deadline for the option is redacted in a public transcript of the deposition.
Asked what happens if Uber declines to exercise the purchase option, Bentley said the agreement could be destroyed.
“I would need to refresh myself… by taking a look at the Otto Trucking Merger Agreement,” he said. “But my recollection is that the Merger Agreement could be terminated.”
Have anything you’d like to share on Uber or the Otto acquisition? Drop a line to email@example.com or find my contact info for Signal here.