Walmart Inc. of Bentonville stands accused in a Little Rock courtroom of stealing another company’s technology, and it’s not the first such allegation the world’s largest retailer has faced in recent years.
Ecoark Holdings Inc., formerly of Rogers and now of San Antonio, and a subsidiary filed a civil suit in 2018 claiming Walmart stole trade secrets for technologies used to manage the supply chain for fresh produce and meats. The federal trial started last week before U.S. District Judge James M. Moody Jr. and is expected to last until the end of this week.
Walmart has denied the allegations and filed a counterclaim against Zest Labs Inc., Ecoark’s subsidiary based in San Jose, California. (Ecoark moved to Texas in 2019.) The case is one in a series of suits accusing Walmart of taking computer codes from vendor companies to help develop its own software.
Randy Hargrove, a Walmart spokesman, told Arkansas Business in a statement last week that it would be inappropriate to comment on the Zest case because the trial is underway.
Attorney Scott Richardson of the Little Rock firm McDaniel Wolff & Benca, who is representing the plaintiffs, said via email he couldn’t comment on the case. The plaintiffs are also represented by the law firms Williams Simons & Landis of Austin, Carmel Milazzo & DiChiara of New York and Robins Kaplan LLP of Minneapolis.
In 2011, Zest Labs set out to reduce the estimated $85 billion of fresh food wasted annually in the United States, CEO Peter Mehring said in an August 2018 blog post on the company’s website.
“Retailers experience roughly 15 percent shrink in produce, primarily due to premature spoilage,” Mehring wrote. “Aside from the profound impact on the environment and sustainability, this is a huge hit to retail grocers’ product margins.”
Zest began developing Zest Fresh, which it touted as the first product to manage the fresh food supply chain. Zest Fresh’s technology reduced food waste while improving a retailer’s product margin by an average of 6% or more, Mehring claimed.
In 2015, Zest began working with Walmart. “During this time, Zest Labs’ proprietary information and trade secrets were shared with Walmart, including members of Walmart’s executive leadership team,” Mehring said.
Three years later, Walmart would reveal its own similar technology.
On March 1, 2018, Walmart unveiled a technology designed to bring fresher groceries to customers. “Developed in just six months by our own associates, it is improving the quality and flow of fresh groceries from farm to shelf,” Parvez Musani, Walmart’s vice president of supply chain technology, wrote in a blog post on Walmart’s website.
The technology, called Eden, was developed as a result of a competition, or “hackathon,” among the engineers on its fresh merchandising teams. He said the goal was to find the best way to track food freshness from farms to the store.
“The winning team determined that building a digital library of food standards was the answer,” Musani said. The team combined information from the U.S. Department of Agriculture and Walmart’s product standards “to create a freshness algorithm that prioritizes the flow of perishable goods worldwide.”
With Eden, if a shipment of bananas ripen quicker than expected during a shipment, the software could recalculate the freshness factor and re-route the shipment immediately.
Walmart filed two patent applications in connection with the technology.
Eden’s apps were designed to help Walmart employees monitor produce that is waiting to be shipped from distribution centers to stores. “That could mean more efficiently ripening bananas, predicting the shelf life of tomatoes while they’re still on the vine, or prioritizing the flow of green grocery items from the back of the store to the shelf,” Musani wrote.
Walmart’s goal was to eliminate $2 billion in waste by 2023. As of March 2018, Eden was being used in 43 distribution centers and had prevented $86 million in waste from happening, Musani said.
“We’re proud to say that we’re the very first retailer who has digitized this entire process,” Musani said. “Thanks to the power of technology, we’re able to bring you and your loved ones the freshest food, even faster.”
But not everyone was happy.
When Zest learned of Eden, “we were surprised and concerned by how similar the description was to Zest Fresh,” Mehring wrote in the company’s blog.
In court filings, Zest said there was no scenario in which Walmart’s engineers could develop the Eden ecosystem on a budget of many tens of millions of dollars “and generate source code to implement the system without having technical specifications, requirements documents, programming plans, or other similar documentation typically used by developers.”
It decided to file a lawsuit against Walmart for allegations that included violating the Arkansas Trade Secrets Act, unfair competition, conversion and fraud. It was seeking more than $2 billion in damages.
Walmart denied those allegations and filed a counterclaim against Zest.
Walmart said that on Feb. 28, 2018, just a day before Walmart unveiled Eden, Walmart and Zest entered into a contract that ran through the end of July 2018. Zest was supposed to help with the development of software for Walmart’s existing supply chain.
Software Zest developed had to be compatible with Apple’s operating system, Walmart said. “In addition, Walmart would need the computer code associated with that software to allow for modifications, upgrades, and utilization by personnel associated with Walmart,” Walmart said.
Zest delivered to Walmart an Android device that included a prototype demonstration of the technology, which was incompatible with Walmart’s system, Walmart said in the filing.
Walmart asked Zest in July 2018, for the computer code for the software, but Zest refused to hand it over, Walmart said.
“That made it impossible for Walmart to use the tool to perform retention sampling at its distribution centers, because it could not be integrated into Walmart’s existing suite of applications,” Walmart said in the filing. “In addition, it could not be modified, updated, or upgraded, rendering it essentially useless.”
Walmart was seeking an unspecified amount of damages. Walmart is represented by John Tull III and Chad Pekron of the Quattlebaum Grooms & Tull law firm of Little Rock and the Skadden Arps Slate Meagher & Flom law firm in New York.
Zest isn’t the first company to accuse Walmart Inc. of stealing code. In 2014, a California digital design firm sued over allegations that Walmart took its computer code. Walmart hired Cuker Interactive LLC of San Diego to improve the website for its United Kingdom grocery subsidiary, Asda Stores Ltd. In the complaint, Cuker accused Wamart of taking code written for the Asda site and secretly shipping it off to teams in India and the United States to use in a website for Walmart2Go.
In 2017, a federal jury in Fayetteville ordered Walmart to pay $12.4 million for damages that included willful and malicious misappropriation of Cuker’s confidential information and trade secrets. The judgment was later reduced to $745,000 in damages and $2.7 million in sanctions, attorneys fees and costs against Walmart.
In February of this year, an Irish company accused Walmart of using its secret technology to create a competing product to reduce errors and thefts at checkout.
Everseen Ltd. of Cork developed a system using artificial intelligence to reduce scanning errors and thefts at staffed registers and self-checkout stations, according to a lawsuit filed last month in U.S. District Court in Texarkana.
Between 2015 and 2020, Everseen installed its system in Walmart stores and told the Bentonville retailer how the technology worked, the lawsuit said. Everseen said that Walmart then used Everseen’s trade secrets to develop a competing system.
As of Thursday morning, Walmart had not filed an answer in the case. In a statement to Arkansas Business last month, Hargrove, Walmart’s spokesman, declined to comment because the case is in litigation.