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New employer could have used trade secrets downloaded by engineer; DTSA claim survives

By Thomas Long, J.D.

An engineer who worked as the head of quality control for a manufacturer of electric motors could have misappropriated trade secrets by copying confidential business information onto a thumb drive without authorization, a federal district court in Illinois determined. The manufacturer adequately alleged that a competing company—which hired the engineer as its own head of quality control after he left employment with the complaining manufacturer—acquired or made use of the asserted trade secrets. Disclosure and use could be inferred under the “inevitable disclosure” doctrine, given the essentially identical responsibilities taken on by the former employee when he went to work for the competitor. The complaining manufacturer could go forward with a claim under the Defend Trade Secrets Act (DTSA) because it adequately alleged continuing use of information that was allegedly acquired prior to the statute’s effective date (Molon Motor and Coil Corp. v. Nidec Motor Corp., May 11, 2017, Chang, E.).

The plaintiff, Molon Motor and Coil Corp. made custom fractional and sub-fractional electric motors and gearmotors for manufacturers of vending machines, refrigerator ice makers, and breast pump motors, among other customers. Molon also made standardized, off-the-shelf motors for a wide variety of applications. The defendant, Nidec Motor Corp., was a direct competitor of Molon.

Molon alleged that its former head of quality control copied confidential data onto a portable data drive before leaving the company and going to work for Nidec. As a condition of his employment with Molon, the employee signed an employment agreement that included at least one covenant banning the unauthorized use of company data. Before he left Molon for Nidec, he allegedly copied dozens of Molon’s engineering, design, and quality control files onto a personal thumb drive. The documents included motor design and engineering drawings, motor production inspection protocols, data on motor production tools, quality control test protocols, quality control testing data and reports, and communication files with customers. His responsibilities for Nidec were similar to those he had at Molon. Without identifying specific instances, Molon alleged that the employee “unlawfully disclosed” the trade secrets on the thumb drive to Nidec and that Nidec used and continued to use the information. Molon sued Nidec for violating both the Illinois Trade Secrets Act (ITSA) and the federal DTSA.

Nidec moved to dismiss the complaint, asserting that the employee’s alleged actions did not constitute “misappropriation” under either statute. Nidec argued there was nothing unlawful about the employee copying the files while he was a Molon employee. In addition, Nidec asserted there was no ground for inferring that it had accessed or used any of the information. Finally, Nidec contended that the DTSA claim should be dismissed because all of the alleged misconduct took place prior to the DTSA’s effective date.

Trade secrets. The court first determined that Molon had adequately alleged the existence of trade secrets. The appendix to the complaint listed file names and summaries of motor design and engineering drawings; protocols for motor production inspection; production data; quality control protocols and testing data; and customer correspondence. This was more than enough detail to plausibly allege that what the employee had downloaded consisted of trade secrets.

Misappropriation. According to Nidec, the complaint did not adequately allege the employee had downloaded the information via “improper means.” The DTSA defined “improper means” as “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” The court noted that the ITSA and DTSA defined “improper means” very similarly.

In the court’s view, the employment agreement put the employee on notice that he was not to use his company’s confidential information for any purpose other than his work there. Molon stated that it did not provide or authorize the use of memory sticks or thumb drives for access to its computer network. Therefore, it was reasonable to infer that the employee’s use of the thumb drive was not part of the normal course of his employment, and that he took the information in order to eventually use it at a competing company. This conduct met the definition of “improper means,” the court concluded.

Acquisition or use. Although noting it was a close question, the court decided that Molon adequately pleaded that Nidec had acquired or used the asserted trade secrets. Molon argued that, at the pleadings stage, it was not required to give specifics regarding Nidec’s actions because use could be inferred under the “inevitable disclosure” doctrine. Molon alleged that Nidec was a direct and “serious” competitor, and that the employee’s position with Nidec was very similar to his former job at Molon. It was plausible that, as a quality control engineer, he would inevitably use Molon’s design secrets to perform quality control duties at Nidec.

Continuing use. The court declined to dismiss the DTSA claim on the ground that the alleged misappropriation occurred prior to the effective date of the statute, reasoning that the inference of inevitable disclosure reasonably extended to continuing use after that date. The alleged trade secrets—motor designs and associated quality control data—plausibly would retain its trade secret value well into the future. If the asserted secrets were still valuable, it was also plausible that Nidec would continue to use them.