Joby Aviation Scores a Win in Its Legal Battle Against Rival Archer Aviation. Will It Help the Slumping Stock?

You've probably heard of "friendly rivalries" in business, but there's nothing friendly about the rivalry between electric vertical takeoff and landing (eVTOL) aircraft makers Archer Aviation (NYSE: ACHR) and Joby Aviation (NYSE: JOBY).

The two aviation start-ups are fighting tooth and nail to be the first to gain commercial approval from the U.S. Federal Aviation Administration (FAA) to operate their eVTOLs as air taxis.

Recently, both companies filed lawsuits against one another alleging (among other things) corporate espionage, fraud, and secret ties to China.

A recent court ruling brought bad news for both companies, but Joby was still the clear winner (again). Here's what happened and how it might affect both companies' stocks.

Image source: Joby Aviation.

Claims and counterclaims

It all started in November, when Joby filed a lawsuit against Archer and George Kivork, a former Joby employee who went to work for Archer. Joby alleged that Kivork brought stolen trade secrets to Archer and that Archer accidentally gave the game away when it approached a real estate developer who was one of Joby's strategic partners and revealed confidential details about the partner's exclusive agreement with Joby.

Archer vigorously denied the claims, and in March it hit Joby with a countersuit, alleging in part that Joby fraudulently imported components sourced from China, which were deliberately misclassified as other goods like socks to avoid U.S. tariffs and other oversight. The reference to socks had caused the countersuit to become known in aviation industry circles as "Sockgate."

Joby, of course, denied all of the counterclaims, and on June 5 a judge finally weighed in.

One narrowed, one denied

U.S. Magistrate Judge Susan van Keulen of the Northern District of California, who is hearing the case, dealt setbacks to both sides in her June 5 order.

She threw out several portions of Joby's suit, dismissing claims that pertained to trade secrets involving commercial strategy, regulatory planning, infrastructure planning, and technical aircraft information. Her reasoning was that Joby had not sufficiently explained how these materials had been misappropriated. She similarly dismissed a claim that Archer had induced Kivork to breach his agreement with Joby. However, Joby can amend these claims and resubmit them by June 22, which Joby plans to do.

Image source: Archer Aviation.

In good news for Joby, Van Keulen ruled that it had plausibly alleged Archer's misappropriation of confidential information related to the real estate developer's partnership. This was the core of Joby's suit against Archer, and the fact that it can move forward is good news for the company.

Even better for Joby, the judge dismissed all of Archer's counterclaims for fraud and import misclassification but gave Archer until June 29 to potentially refile an amended complaint. Archer's management has said it intends to do so.

How it affects investors

The rulings represented a collective win for Joby, because it's always better to have your claims allowed than thrown out.

That said, Joby's remaining claims are comparatively minor. Even if proven, the penalty for having improper knowledge of a rival's contract with a real estate developer would be far less severe than the consequences of stealing a rival's technical aircraft information.

Similarly, fraud and tariff evasion are no small matters, so Joby is likely breathing a sigh of relief... at least for now. Because both sides can refile, there's always the possibility that some of their amended claims will be allowed to proceed. We'll probably have to wait months before the judge rules on those updated claims, which might affect either company's share price.

Ultimately, investors should be more concerned with the companies' progress (or lack thereof) toward final FAA commercial approval of their eVTOL aircraft. Until they receive that approval (and possibly even afterwards), they'll remain very risky and speculative stocks. While a loss in court would likely have a small impact on either stock, failing to receive FAA approval would almost certainly tank their shares. Even "Sockgate" would pale in comparison.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.