Dana, a maker of car parts such as axles, recently lost a trade secrets misappropriation action against American Axle, a fierce competitor in the auto-parts industry, after three Dana employees downloaded Dana’s files and then went to work for American Axle. Dana’s unsuccessful attempt to protect its trade secrets provides a useful lesson to practitioners about how to defend a misappropriation case.
The court’s decision was based on the following three main criteria: (1) Dana did not make a strong enough showing that American Axle was a direct and fierce competitor and American Axle successfully argued that it targets a different market segment (Asia instead of the United States); (2) Dana failed to show that American Axle used the trade secrets, and failed to show that the employees misused them. The court made this point by saying, “the fact that [some of the defendants] copied their work files before departing their employment does not create an inference that they did so in an attempt to steal confidential information from Dana or to bring that information to American Axle. Copying work files at the conclusion of employment does not, in and of itself, support an inference of suspect behavior”; and (3) American Axle was able to show that it did not poach the employees it hired since those employees had been laid off by Dana.
Additionally, “Dana had not previously enforced any prohibition against copying Dana files for personal use.” Defendant Adelman “said he copied the files so that he could review all the projects he had worked on before he updated his resume.” To remedy what might otherwise seem like a valid reason to copy such files, a company policy that states that company property cannot be taken for personal use could have strengthened Dana’s case. Dana lacked such a policy. To that effect, a company has to enforce its policy, not just print it and distribute it. Defendant Wenstrup testified that he was accompanied by a Dana HR employee when he went to his office after he was terminated and copied the entire contents of the “My Documents” file from his office computer to his personal computer. This type of corporate behavior opens the door for defendants to successfully argue that such behavior is tolerated by the plaintiff corporation.
Lastly, Dana’s lawyers failed to properly organize the large volume of data that they claimed was stolen. The court noted that “[t]he manner in which the evidence was presented tended to blur the distinctions between what was confidential and what was not, what was reasonably protected and what was not, what was used and what was merely downloaded, what was copied and what was returned.” Since the first step of a successful misappropriation claim is to establish the existence of a trade secret, practitioners should be thorough and methodical about parsing out and encapsulating the confidential information and tracing a direct connection the defendants’ use of that information.