Human Resources, Law, and Manufacturing

Auto supplier employees exit trade secret lawsuit

September 10, 2013
| By Pete Daly |
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American Axle & Manufacturing's Three Rivers plant produces customized drive systems for the automotive industry. Photo via youtube.com

A recent trade secret lawsuit between major auto suppliers highlights what employers should know about requiring new employees to sign a non-compete agreement.

Detroit-based American Axle & Manufacturing — which operates a southwest Michigan plant in Three Rivers — and Maumee, Ohio-based Dana Ltd. were in court after Dana sued American Axle, alleging that three of its former engineers disclosed Dana trade secrets to American Axle after being hired by American Axle.

In August, Judge Robert Holmes Bell of the U.S. District Court for the Western District of Michigan ruled in favor of American Axle and the engineers, finding that although the engineers had copied confidential Dana information, Dana didn't present evidence that its confidential information was disclosed to or used by American Axle.

Firms

American Axle & Manufacturing Holdings was represented by Grand Rapids-based Wheeler Upham and Driggers Schultz & Herbst, according to Law360.

Dana was represented by Miller Johnson, Beals Hubbard and Seyfarth Shaw, Law360 reports.

The three engineers, who had worked at Dana in Kalamazoo before it moved its operations to Toledo, were represented by Wheeler Upham and Koernke & Crampton PC.

Analysis

Bryan Walters
Bryan Walters. Courtesy Varnum

Bryan Walters, a partner at Varnum’s Grand Rapids office, examines the case at Varnum’s blog.

If an employee copies trade secret information and then works for a competitor, the acts, in and of themselves, "will not support a successful misappropriation of trade secrets claim,” according to Walters.

However, an attorney defending trade secret claims should advise their client to “promptly return any alleged trade secret information” that might have been taken, Walters writes.

Walters notes that the court “repeatedly emphasized” that former Dana employees can use the knowledge gained at Dana at a new employer — such as American Axle

Non-compete agreement

If Dana wants protection from employees using their knowledge for a competitor, the court strongly suggests that it’s “incumbent on Dana” to enter into non-compete agreements with employees, Walters writes.

Employers often fail to ask new employees to sign a non-compete agreement, Walters told the Business Journal. That might be because the employer just doesn’t think of it, is uncomfortable asking for it or because the individual being recruited is highly regarded.

He added that it’s also “common for an employer to face a situation where a departing employee had access to confidential information — and because they work in a narrow industry, their next job is with a competitor.”

“So I advise clients to, whenever possible, talk with their potential new employees up front about signing a non-competition agreement, and why there is a legitimate reason for it,” Walters said. “As long as the non-compete doesn’t over reach and is and reasonable, in terms of how long it lasts, what geographic area it covers and the specific type of work it covers, employees are normally very understanding of why the company wants a non-compete agreement.”

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