HIGHLIGHTS:

  • Molon Motor & Coil Corporation v. Nidec Motor Corp. is a significant application of the "inevitable disclosure" doctrine to cases arising under the federal Defend Trade Secrets Act and the Uniform Trade Secret Act as adopted by most states.
  • The U.S. District Court for the Northern District of Illinois allowed the plaintiff to sue its direct competitor for misappropriation trade secrets based entirely on the improper taking of trade secrets by the plaintiff's own former employee, who then quit to work for the defendant.
  • The District Court reached its decision based on the doctrine of inevitable disclosure, noting that because the former employee's duties with his new employer were substantially the same as those in his prior employment, it was plausible to allege that he would rely on the plaintiff's trade secrets in his new employment.

A recent decision by the U.S. District Court for the Northern District of Illinois allowed one company to sue its direct competitor for misappropriation of trade secrets based entirely on the improper taking of trade secrets by the plaintiff's own former employee, who then quit to work for the defendant. The court reached that result based on the doctrine of inevitable disclosure.

Case Background

In Molon Motor & Coil Corporation v. Nidec Motor Corp., 2017 WL 1954531 (N.D. Ill. 5/11/2017), Molon Motor sued its competitor under the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act for misappropriation of trade secrets based solely on the conduct of a former Molon employee. Manish Desai had been Molon's Head of Quality Control before quitting to work for Molon's direct competitor, Nidec Motor, to do substantially the same quality-control work he had been doing for Molon. Before leaving, Desai downloaded onto a portable hard drive dozens of files containing Molon's trade secrets, including engineering drawings, product designs, quality-control protocols and some customer-communication files.

The new employer, Nidec, moved to dismiss, contending that the complaint failed to identify any specific instance of Desai's disclosing to Nidec the information he took from Molon. Therefore, it argued, there was no ground for inferring that Nidec itself had accessed or used any of the information that Desai had improperly taken.

District Court Decision

The District Court disagreed, noting that downloading files onto a thumb drive was not something Desai did in the ordinary course of his employment. That made plausible the former employer's contention that Desai took the information to use at his new company, a competing business.

While Desai's alleged acquisition of trade secrets by improper means did not necessarily show that Nidec itself acquired or used those secrets, the court allowed that inference under the "inevitable disclosure" doctrine. As the court explained, that doctrine "allows a plaintiff to 'prove a claim of trade secret misappropriation by demonstrating that the defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets.' " Id. at *5.

That inference was justified by three facts: 1) Nidec was Molon's "serious competitor" in the "custom motor market"; 2) Desai, having been the head of quality control for Molon, would likely use his former employer's trade secrets to perform his quality control duties at Nidec; and 3) there was no evidence that Nidec had done anything to prevent Desai from using or disclosing the trade secrets of his former employer.

Considerations for Employers

Employers desiring to protect their trade secrets should not assume that claiming "inevitable disclosure" will always be enough to obtain a favorable court ruling. And, significantly, the court in this case was not being asked to enjoin Desai's working for Nidec, but only to decide whether Molon's claim of trade-secret misappropriation against its competitor could be sustained based on the misconduct of Molon's former employee. Nonetheless, the doctrine of inevitable disclosure is potentially available in cases, like this, where a highly placed employee quits to work for a direct competitor in an intensely competitive market to do for that new employer substantially the same work he had been doing for the one he left and, shortly before resigning, surreptitiously copies trade secrets of the company he is leaving behind.