Zetwerk faces $1B trade secret claim days after IPO clearance

Key Takeaways

• Ayr Energy filed counterclaims seeking $1 billion in damages, alleging Zetwerk used a planted employee to steal transformer-related trade secrets
• A separate ITC complaint could restrict Zetwerk's US imports of transformers and power components if the commission opens an investigation
• The legal battle escalates just days after SEBI cleared Zetwerk's Rs 5,000 crore IPO in India

Zetwerk, the Bangalore-based contract manufacturing platform, is fighting a $1 billion trade secret lawsuit in the US just days after India's market regulator cleared its initial public offering. Ayr Energy filed counterclaims in Texas Business Court and a separate complaint with the US International Trade Commission, both alleging that Zetwerk systematically stole proprietary transformer technology.

The timing couldn't be worse for Zetwerk's IPO ambitions. SEBI approved a proposed offering of around Rs 5,000 crore ($600 million), split between Rs 2,700-2,800 crore in fresh capital and the rest as secondary sales by existing shareholders. A protracted US legal battle, or worse, an ITC exclusion order blocking imports, could complicate the company's growth story for investors.

What exactly is Ayr Energy alleging?

Ayr's counterclaims paint a picture of corporate espionage. According to filings in Texas Business Court, an individual joined Ayr under false pretenses, accessed confidential transformer-related information for six weeks, then left to lead a transformer delivery business at Zetwerk. Ayr claims this wasn't opportunistic hiring. It was a coordinated effort to steal proprietary technology.

The ITC complaint, filed July 16, names Zetwerk Manufacturing Businesses, Zetwerk Manufacturing USA, and two subsidiaries: Unimacts Global and KRYFS Power Components. It seeks exclusion orders that would bar these entities from importing, marketing, or selling transformers and related components in the United States.

The ITC has acknowledged receipt but hasn't opened a formal investigation. That distinction matters. An ITC investigation can move faster than federal court litigation and carries a particularly painful remedy: border enforcement. If the commission finds a violation, US Customs physically blocks the imports.

Zetwerk fired first

This isn't a case of Ayr attacking unprovoked. Zetwerk and its subsidiary Unimacts sued Ayr in October 2024, accusing founder Anirudh Reddy Edla, a former Zetwerk executive, of misusing customer lists, pricing data, business strategies, and technical documents to build a competing power equipment company. Zetwerk sought $100 million in damages.

In May, the Texas Business Court rejected Ayr's motion to dismiss parts of Zetwerk's case at the pleadings stage. The court held that Zetwerk had adequately pleaded breach-of-fiduciary-duty and knowing-participation claims. It made no finding on whether the allegations were true, only that they were specific enough to proceed.

Ayr had also filed a separate lawsuit against Zetwerk in California federal court last December, alleging false advertising and trademark violations. That case was voluntarily withdrawn without prejudice on July 13, three days before the ITC complaint. The withdrawal suggests Ayr is consolidating its legal firepower into the Texas and ITC venues.

Why the ITC route is aggressive

Filing with the International Trade Commission signals Ayr isn't just looking for monetary damages. ITC investigations can result in exclusion orders that bar infringing products from entering the US entirely. For a company like Zetwerk, which operates a manufacturing platform connecting global suppliers to US buyers, that's an existential threat to its American business.

The ITC also moves faster than federal courts. Investigations typically conclude within 12-18 months, compared to years for complex trade secret litigation. If the commission decides to investigate, Zetwerk would face simultaneous legal battles on multiple fronts while trying to close an IPO.

What this means for the IPO

Zetwerk has raised over $500 million in venture funding and reached a valuation north of $5 billion. The company reported a run rate exceeding $2 billion in annual revenue, built over just six years since its 2018 founding. That growth trajectory made it an attractive IPO candidate.

Pending litigation doesn't automatically derail an offering, but billion-dollar trade secret claims require prominent disclosure. Institutional investors will scrutinize whether Zetwerk's US transformer business, whatever its current size, faces material risk. If the ITC opens an investigation, that risk becomes harder to dismiss as routine legal noise.

Zetwerk hasn't commented on the filings. The company's response in Texas Business Court is still pending.

Frequently Asked Questions

What is Ayr Energy accusing Zetwerk of?

Ayr alleges Zetwerk planted an employee who infiltrated the company for six weeks, stole confidential transformer technology, then joined Zetwerk to lead its transformer delivery business. The company is seeking $1 billion in damages.

Could Zetwerk be banned from importing to the US?

If the ITC opens an investigation and finds a violation, it could issue an exclusion order blocking Zetwerk's transformer and component imports at the US border. The ITC has not yet decided whether to investigate.

How does this affect Zetwerk's IPO?

SEBI cleared the IPO, but the company will need to disclose this litigation. A $1 billion claim and potential ITC investigation could affect investor appetite and possibly delay the offering.

Who sued first, Zetwerk or Ayr?

Zetwerk and subsidiary Unimacts filed first in October 2024, accusing Ayr's founder of misusing proprietary information. Ayr's counterclaims and ITC complaint came in response.

What is the US International Trade Commission?

The ITC is an independent federal agency that investigates unfair trade practices, including intellectual property theft. Unlike courts, it can issue exclusion orders that block imports from entering the country.

Source: Tech-Economic Times / ET