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April 18, 2014

American Axle Defeats Trade Secret Lawsuit by Dana Re: Automotive Parts Suppliers

American Axle and Dana, two of the largest automotive parts suppliers in North America, were recently adversaries in a case tried before the Honorable Robert Holmes Bell in the United States District Court for the Western District of Michigan. Dana alleged that three of its former engineers disclosed Dana trade secrets to American Axle after being hired by American Axle. After a five-day bench trial, Judge Bell concluded that although Dana confidential information had been copied by the engineers, there was no evidence that Dana's confidential information was disclosed to American Axle or used by American Axle. The court issued an extensive 72-page opinion with its findings of facts and conclusions of law concerning the case, entering judgment in favor of American Axle and the engineers on all of Dana's claims.

There is an important lesson to be drawn from the case: the mere fact that a former employee copied trade secret information and then went to work for a competitor will not, in and of itself, support a successful misappropriation of trade secrets claim. The court noted that "the fact that [two of the individual 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."

The court rejected Dana's arguments that its trade secrets had been disclosed to American Axle or used by American Axle. "Throughout this case it has been Dana's practice to take one small piece of information from an [American Axle] email or engineering notebook that references the subject matter of one of the [Dana] trade secret documents taken by the defendants, and then to request the Court to infer that the trade secret documents were disclosed or used. The Court is not persuaded that such an inference is warranted."

Moreover, the court repeatedly emphasized that the former Dana employees are entitled to use their specialized knowledge and expertise gained while working at Dana on behalf of their new employer, American Axle. The court strongly suggested that it was incumbent on Dana to enter into non-competition agreements with employees if Dana wanted to have protection from an employee using his/her specialized knowledge for a competitor.

An additional lesson for those defending trade secrets claims is to advise your client to promptly return any alleged trade secret information that may have been taken. One of the defendant engineers testified that he had returned Dana's confidential information three weeks after leaving employment. The court found that a three-week delay in returning the confidential information to Dana was not unreasonable. At the end of the day, Dana's failure to prove that the confidential information copied by the engineers had actually been disclosed to American Axle and used by American Axle was fatal to Dana's lawsuit.

© 2014 Varnum LLP

About the Author

Bryan R. Walters, Business, Litigation, attorney, Varnum law firm
Partner

Bryan is a partner in Varnum’s trial group specializing in federal court and bankruptcy court litigation, both in west Michigan and across the country. He also assists businesses in resolving disputes involving sales contracts, noncompete agreements, trade secrets, and other business issues.

616-336-6865

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