Employee Access vs. Misappropriation of Trade Secrets

The Michigan District Court in Dana Limited v. American Axle and Manufacturing Holdings, Inc., 1:10-cv-00450 (W.D. Mich. Aug. 19, 2013) addressed an important aspect of a trade secret misappropriation claims, holding that the mere fact that a former employee had access to a valid trade secret does not necessarily mean that he or she misappropriated the trade secret just, by the act of accepting employment at a competing company.

In May 2010, Dana sued its competitor, American Axle and Manufacturing Holdings Inc., alleging that the employees who left its facility in April 2010 and began working for American Axle had downloaded numerous files from the company prior to leaving Dana. The complaint includes claims of trade secret misappropriation, breach of contract and unfair competition.

The court entered partial summary judgment in favor of the defendants in June 2012, dismissing claims that the employees violated the Computer Fraud and Abuse Act and that they breached their fiduciary duties. In February 2013, the court tried the remaining claims that the three employees breached their contracts, that American Axle committed tortious interference and that all four defendants misappropriated trade secrets under Michigan’s Uniform Trade Secrets Act and engaged in unfair competition.

The court concluded that although some of the information downloaded by the former employees was considered trade secrets, Dana was unable to show that it was misappropriated, which would be required to prevail. The court also found that Dana failed to provide sufficient evidence to support breach of contract claims against the employees.

In its ruling, the court also found that Dana failed to show that any of the information downloaded by the employees was solicited by, disclosed to or used by American Axle, therefore, dismissing the tortious interference claim.

The court also dismissed the plaintiff’s unfair competition claims, finding that the evidence admitted at trial was insufficient to support Dana’s theory that American Axle raided its employees or conspired to obtain the company’s information to unfairly compete against it.

For a misappropriation claim to stand, first, there must be a taking by defendant of actual trade secrets. The Dana ruling takes it one step further by requiring the plaintiff to prove that the taking of information was inappropriate or that it was ultimately used to compete with the plaintiff.

It is notable that under most states’ trade secret laws, a misappropriation claim can stand not just in instances where the trade secrets were used by the defendant, but also in instances where, while not used, they were improperly acquired in the first place.

In Dana, the plaintiff company’s employment agreement contained no clause prohibiting employees from storing company files on their personal computers, so there was nothing improper when the defendants happened to walk away with some company files as part of his final backup process.

Accordingly, where employees have access to sensitive information, companies should consider inserting a clause prohibiting storage of company information on personal computers in its employment agreements, or take measures of similar effect, as recommended by counsel.