IP Law Daily, TRADE SECRETS—E.D. Mich.: Former employee, competitor could have misappropriated electronics parts company’s proprietary data, (Jun 27, 2016)

By Peter Reap, J.D., LL.M.

Automotive and electronic parts supplier American Furukawa’s claim for misappropriation of trade secrets against former employee Isthihar Hossain and competitor HT Wire and Cable America in connection with Hossain’s access of information on his company laptop would proceed to trial as motions for summary judgment on the claim brought by the parties were denied, the federal district court in Detroit has decided (American Furukawa, Inc. v. Hossain, June 23, 2016, Drain, G.). In addition, Furukawa was denied summary judgment on its remaining claims, and the defendants’ motion for summary judgment on Furukawa’s conversion claim was granted, but denied as to the remaining claims.

Furukawa is a supplier of advanced automotive technology, electronics, and specialty products. Hossain accepted employment with Furukawa in September 2011 as a Power Systems Electrical Engineer. By 2014, Hossain had become a Senior Production Manager with access to Furukawa’s know-how, intellectual property and other confidential information. On March 11, 2014, while he was still employed by Furukawa, Furukawa asserted that Hossain entered into an "Employment Agreement" with Heibei Huatong Wires & Cables Group Co., ("Huatong")—a competitor and supplier to Furukawa.

As a result of an alleged injury, Hossain was granted a leave of absence, commencing March 18, 2014. As a condition for granting leave, Furukawa asserted that it instructed Hossain that he could not do any work for Furukawa while he was away. Despite the instructions to the contrary, Furukawa alleged that Hossain accessed information on his company laptop, copied Furukawa files, and sent them from his company email to his personal "gmail" account during his leave of absence. Furukawa accepted Hossain’s resignation, effective April 29, 2014, and paid him through May 2, 2014.

After looking into the actions of Hossain, Furukawa brought the instant action alleging eight claims: (I) violation of the Computer Fraud and Abuse Act ("CFAA"); (II) fraud; (III) breach of contract; (IV) breach of fiduciary duty; (V) misappropriation of trade secrets under the Michigan Uniform Trade Secrets Act ("MUTSA"); (VI) conversion; (VII) tortious interference; and (VIII) civil conspiracy. The parties’ motions for summary judgment were before the court.

The defendants’ motion for summary judgment—MUTSA claim. In order to establish a violation of MUTSA, the plaintiff must show that (1) it has protectable trade secrets, and (2) defendant has improperly acquired, disclosed or used those trade secrets. The statute defines a "trade secret" as "information, including a formula, pattern, compilation, program, device, method, or process," that (1) "[d]erives independent economic value, actual or potential, from not being generally known" and (2) "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." MICH. COMP. LAWS § 445.1902(d).

The defendants argued that the product information alleged to have been misappropriated was in fact "within the knowledge and control of" Huatong—parent company to Defendant HT Wire—before Hossain ever downloaded any files. According to the defendants, Huatong gained access to this information via the creation of a Joint Venture Agreement with Furukawa’s parent company.

First, this line of argument has already been rejected by the Supreme Court of Michigan, the court reasoned. Hayes-Albion v. Kuberski, 421 Mich. 170, 185 (1984) ("First, information may qualify as a trade secret although others possess it."). Therefore, without more, the defendants’ argument was insufficient to rule that the allegedly misappropriated files were not trade secrets.

Second, as Furukawa noted, the defendants did not identify, or evidence, what information was possessed by Huatong, and if it indeed encompasses all of the alleged trade secrets were purportedly stolen. Their argument discounted the fact that "customer and supplier contact information, customer requirements, pricing information, factory costs and factory capacity"—which may also be trade secrets—were also alleged to have been misappropriated. Therefore, there was a dispute of fact as to whether all of the information was even possessed by the defendants, the court explained. Accordingly, Furukawa’s MUTSA claim survived the motion.

The defendants’ motion for summary judgment—damages. The defendants argued that Furukawa could not claim damages for materials it has never manufactured, and further, that Furukawa could not articulate the method by which he calculated damages, and thus they were too vague. These arguments however, were without merit, the court determined.

The defendants’ motion for summary judgment—tort claims. The defendants next argued that Furukawa’s tort claims were displaced by its MUTSA claim. Under Michigan Law, a claim under MUTSA preempts tort claims when the allegations center exclusively on the defendant’s misappropriation and unauthorized use of trade secrets, the court noted.

Furukawa’s fraud claim rested not on Hossain’s misappropriation of information, but instead on several representations and omissions made by Hossain. Thus, this claim was not preempted, the court held. Furukawa’s breach of fiduciary duty claim is based not only on the "using and disclosing of confidential information," but also on "entering into an Employment Agreement with Huatong while still employed by Furukawa," and actively "diverting business away from Furukawa." Similarly, Furukawa’s tortious interference claim survived preemption because Furukawa evidenced that Hossain committed a wrongful act by directly interfering with Furukawa’s current customers. Furukawa’s civil conspiracy claim was also premised on conduct other than the misappropriation of trade secrets, the court concluded.

However, Furukawa’s conversion claim rested solely on Hossain taking possession of "various computer files and confidential information." Furukawa failed to point to any copied information that was not arguably a trade secret. This claim therefore rested solely on the misappropriation of potential trade secrets and was preempted by MUTSA.

Furukawa’s motion for summary judgment—CFAA claim. To successfully bring an action for a violation of § 1030(a)(4), Furukawa must show that Hossain: (1) accessed a protected computer, (2) without authorization or exceeding such authorization that was granted, (3) knowingly and with intent to defraud, and thereby (4) furthered the intended fraud and obtained anything of value," causing (5) a loss to one or more persons during any one-year period aggregating at least $5,000 in value.

In this case, upon learning that there was a data breach, Furukawa took remedial action to investigate the matter. However, Furukawa did not provide the court with the documents detailing its expenses. Therefore, as of now, there was no way to determine whether the response to the offense resulted in over $5,000 in expenses. Accordingly, Furukawa failed to prove a necessary element of their claim, and thus summary judgment could not be granted.

Furukawa’s motion for summary judgment—MUTSA claim. The defendants argued that Furukawa failed to specifically identify their trade secrets, and provide evidence that the content of the allegedly misappropriated documents derive any economic value from not being generally known. The court agreed.

Michigan courts have held that an alleged trade secret must be identified clearly, unambiguously, and with specificity. Here, Furukawa offered very little evidence demonstrating with any degree of clarity how the information at issue has competitive value in the advanced technology and electronics industry. Furukawa argued that the copied information derives economic value by virtue of the fact that Hossain copied them, and the information would give him a "competitive advantage." This argument—it is valuable because he took it—was circular, the court said. Furukawa failed to explain the nature of the information’s value, or how it would give a third party a competitive advantage. Thus, Furukawa was denied summary judgment on this claim.

Furukawa’s motion for summary judgment—remaining claims. Furukawa was not entitled to summary judgment on any of the remaining claims, the court held.

The case is No. 2:14-cv-13633-GAD-SDD.

Attorneys: Joseph J. Vogan (Varnum, Riddering, Schmidt & Howlett LLP) for American Furukawa, Inc. Jason M. Shinn (Shinn Legal, Plc) for HT Wire & Cable Americas, LLC.

Companies: American Furukawa, Inc.; HT Wire & Cable Americas, LLC

Cases: TradeSecrets TechnologyInternet MichiganNews