EDMOND E. CHANG, District Judge.
Molon Motor and Coil Corporation sued Nidec Motor Corporation for, among other things, violation of the federal Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 376, and the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. R. 64, Third Am. Compl.
For purposes of this motion, the Court accepts as true the allegations in the Third Amended Complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). Nidec is the successor corporation to Merkle-Korff Industries, Inc., which in 2016 merged with Nidec Kinetek Corporation. Third Am. Compl. ¶ 4. Nidec Kinetek then ultimately merged with Nidec Motor Corporation, the defendant in this case. Id.
Molon makes bespoke fractional and sub-fractional electric motors and gearmotors for customers across various industries, such as manufacturers of vending machines, refrigerator ice makers, and breast pump motors. Third Am. Compl. ¶¶ 55, 66. It also makes standardized, off-the-shelf motors that are widely distributed. Id. ¶ 66. According to Molon, Nidec competes in precisely the same industries, battling for market share in both the custom and standardized motor markets. Id.
Before June 2013, Manish Desai served as Molon's Head of Quality Control. Third Am. Compl. ¶ 58. In this position, he oversaw product liability testing, coordinated the production of engineering data, and processed quality assurance test results as well as other compliance paperwork. Id. ¶ 61. As a condition of getting that job, he signed an employment agreement which included at least one restrictive covenant banning the unauthorized use of company data. Id. ¶¶ 57, 60. According to Molon, Desai's job put him in a position to access "all of Molon's trade secrets and confidential business information" through his work computer. Id. ¶ 64.
In June 2013, Desai left Molon for Nidec. Third Am. Compl. ¶ 58. But before leaving, he allegedly copied dozens of Molon's engineering, design, and quality control files onto a personal Kingston portable data drive.
After making these data transfers to his own thumb drive, Desai then moved to a new job at Merkle-Korff (Nidec's predecessor), taking up responsibilities similar to those he had at Molon. Third Am. Compl. ¶ 67. Without identifying specific instances, Molon alleges (on information and belief) that Desai "unlawfully disclosed" the trade secrets he took from the memory stick to Nidec and that Nidec used and continues to use that information. Id. ¶¶ 59, 67, 71, 79.
Nidec's dismissal motion primarily argues that Molon has failed to state a plausible claim because Desai's actions, even as alleged, do not constitute "misappropriation" under either the Illinois Trade Secrets Act or the Defend Trade Secrets Act of 2016. Nidec's Mot. to Dismiss at 1-2, 6. Nidec goes on to contend that there is no ground for inferring that it accessed or used any of the information Desai pulled. Id. at 7-9. And finally, Nidec argues that even if Desai did take trade secrets and gave them to Nidec, all of that occurred before the effective date of the Defend Trade Secrets Act, so at least the federal claim must be dismissed. Id. at 9-10.
Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This short and plain statement must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (internal quotation marks and citation omitted). The Seventh Circuit explained that this rule "reflects a liberal notice pleading regime, which is intended to `focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002)).
"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "[A] complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Allegations that are entitled to the assumption of truth are those that are factual, instead of mere legal conclusions. Iqbal, 556 U.S. at 678-79.
In Count 3 of its Third Amended Complaint, Molon accuses Nidec of violating the federal Defend Trade Secrets Act of 2016. Third Am. Compl. ¶¶ 55-72. And in Count 4, Molon contends Nidec also ran afoul of the Illinois Trade Secrets Act. Id. ¶¶ 73-81. For both of these claims, Nidec says that the complaint does not adequately allege (1) that Desai downloaded the information via "improper means" under the relevant statute; or (2) that Nidec has used the alleged trade secrets. The federal and Illinois claims can be discussed together because the pertinent definitions of the two acts overlap.
The Defend Trade Secrets Act of 2016 allows "[a]n owner of a trade secret that is misappropriated . . . [to] bring a civil action . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b)(1).
Similarly, the Illinois Trade Secrets Act authorizes a civil action for "[a]ctual or threatened misappropriation[s]" of trade secrets.
For purposes of the dismissal motion, Nidec does not directly contest that what Desai allegedly put onto a thumb drive could have contained trade secrets. Nidec acknowledges that, in a sealed appendix to the Third Amended Complaint, Molon has added details—file names and summaries—of the alleged stolen trade secrets, but Nidec suggests that these additions do not ultimately change the fact that there remains no "plausible basis for alleging that [Nidec] accessed or used any alleged trade secrets." Nidec's Mot. to Dismiss at 6.
Although not directly contested by Nidec, for the sake of completeness, the Court notes that Molon did sufficiently allege that the downloaded files do comprise trade secrets. To be sure, alleging what trade secrets were misappropriated does require some concreteness and specificity at this stage, but the claims do not need to be as detailed as when the case is going to trial. See AutoMed Techs., Inc. v. Eller, 160 F.Supp.2d 915, 920-21 (N.D. Ill. 2001); Mobile Mark, Inc. v. Pakosz, 2011 WL 3898032, at *1 (N.D. Ill. Sept. 6, 2011). Molon's Appendix to the Third Amended Complaint—which lists out file names and summaries of motor design and engineering drawings; protocols for motor production inspection; production data; quality control protocols and testing data; and customer correspondence—provides more than enough detail to plausibly allege that what was downloaded comprises trade secrets. Appendix to Third Am. Compl. Beyond this, Nidec will be free to demand more specifics in interrogatories, and additional discovery will flesh out further facts. But at this dismissal-motion stage, the allegations plausibly assert that Manish Desai downloaded trade secrets.
The next question arises from the second half of the federal and Illinois trade secrets acts' "misappropriation" definition: did Nidec know or have reason to know that the trade secret was acquired by "improper means"? Nidec argues that Desai's behavior does not fit this definition. Nidec's Mot. to Dismiss at 6. It contends that Desai's access to the files in the Molon computer system was authorized. Id. To Nidec's way of thinking, nothing improper happened because Desai was still an employee when he put the data on the thumb drive, and used his normal username and password to get access. Id. So even if what Desai took was ultimately a trade secret, he did not, in Nidec's view, take it through "improper means." For its part, Molon disagrees. Citing the definition of "improper means" from the trade secret statutes, it argues that Desai's actions qualify as a "breach or inducement of a breach of a confidential relationship or other duty to maintain secrecy or limit use." R. 72, Molon's Resp. Br. at 3-4. This confidential relationship and duty to maintain secrecy, Molon avers, was established by Desai's employment agreement with Molon. Id. at 4 (quoting Third Am. Compl. ¶ 62 ("Mr. Desai agreed that he would follow this and other restrictive covenants regarding Molon's trade secrets and confidential business information during his employment with Molon and for as long as the confidentiality of trade secrets and proprietary business information were to be maintained under applicable law.")).
Misappropriation can manifest in different ways, but according to the statutory definitions, the method of acquisition needs to be "improper": "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." 18 U.S.C. § 1839(6).
Through his employment agreement with Molon, Desai was on notice that he was not to use his company's confidential information for any purpose other than his work there. Third Am. Compl. ¶ 62 ("In the restrictive covenants in his employment agreement, including those concerning trade secrets and confidential information, Mr. Desai agreed that Molon's trade secrets and confidential information . . . were Molon's sole and exclusive property."). Molon alleges that it has adopted policies and procedures to protect its trade secrets, and insists that it does not provide or use memory sticks for access to its computer network. Id. ¶¶ 56, 69. Based on those allegations, it is reasonable to infer (and Molon gets the benefit of reasonable inferences right now) that Desai's use of the thumb drive was not part of the normal course of his employment.
That brings us to the closest question in the case: even if Desai allegedly acquired a trade secret by improper means, Molon still must adequately allege that Nidec acquired or used that secret. Nidec argues that, on this issue, Molon "provides no specific allegations that would plausibly show that Mr. Desai disclosed the alleged trade secrets to [Nidec] or that [Nidec] otherwise obtained and used any information allegedly copied by Mr. Desai." Nidec's Mot. to Dismiss at 7. Molon, on the other hand, argues that it does not need to give specifics on this front, because the disclosure and use can be inferred under the "inevitable disclosure doctrine." Third Am. Compl. ¶ 67; Molon's Resp. Br. at 5-7.
The "inevitable disclosure doctrine" allows a plaintiff to "prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets." PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995). In evaluating whether the facts justify this circumstantial-evidence inference, courts consider: "(1) the level of competition between the former employer and the new employer; (2) whether the employee's position with the new employer is comparable to the position he held with the former employer; and (3) the actions the new employer has taken to prevent the former employee from using or disclosing trade secrets of the former employer." Saban v. Caremark Rx, L.L.C., 780 F.Supp.2d 700, 734-35 (N.D. Ill. 2011); see also Triumph, 834 F. Supp. 2d at 809; Mobile Mark, 2011 WL 3898032, at *1.
Taking these factors in order, Molon has sufficiently pled at this stage that Nidec is a serious competitor. Molon provides details about the nature of the custom motor market in which it and Nidec compete, as well as the "standard, off-the-shelf" market, which is also a competitive arena for both parties. Third Am. Compl. ¶ 66; Molon's Resp. Br. at 6.
On the second factor, Molon has also adequately pled that Desai's position with Nidec is similar to his former position at Molon. Third Am. Compl. ¶ 67; Molon's Resp. Br. at 5-6. Nidec implicitly acknowledged the overlap in Desai's responsibilities between companies in its motion to dismiss, Nidec's Mot. to Dismiss at 8-9,
Desai was Head of Quality Control at Molon: this was not a limited, low-rung position, but instead a very broad role with a far-reaching set of tasks. Third Am. Compl. ¶ 61. Specifically, Molon alleges that Desai's duties in that role included, among other things, "providing quality control engineering, including through product reliability testing," "engaging Molon service personnel to achieve sales and service objectives by providing accurate engineering data," and "providing timely and accurate reports on quality assurance test results as required by Molon management." Id. In view of these duties, it is plausible that Desai had access to a wide variety of trade secrets. Indeed, Molon's Appendix to the Third Amended Complaint lists many different types of downloaded files. Some are ostensibly design files, while others appear to relate directly to Desai's work in quality control engineering and communications. Appendix to Third Am. Compl. And even if the design files do not directly intersect with Desai's previous or current work—a question that is too premature to answer at this stage of the case
On the third factor that courts examine when deciding whether the inevitable disclosure doctrine has been triggered, namely, actions the new employer has taken to prevent the incoming employee from using or disclosing the former employer's trade secrets, the record is silent. At this stage of the litigation, that silence is not surprising, because a complaint is not likely to contain any allegations about what, if anything, the competitor did to safeguard the plaintiff's secrets.
All told, Molon's allegations on the direct competition between the parties, as well as the allegations on the employment breadth and similarity of Desai's quality control work at the two companies, are enough to trigger the circumstantial inference that the trade secrets inevitably would be disclosed by Desai to Nidec. To be sure, going forward, Molon ultimately will bear the burden of proving— not just alleging—enough facts such that disclosure is not premised on a mere unsubstantiated fear. PepsiCo, Inc., 54 F.3d at 1268-69; Saban, 780 F. Supp. 2d at 734; Teradyne, 707 F. Supp. at 357. For now, Molon has pled enough for the trade secrets claims to avoid the Rule 12(b)(6) chopping block.
Nidec's final argument is that the federal Defense of Trade Secrets Act claim should fail because no acts occurred after the effective date of the Act, specifically, May 11, 2016. Nidec's Mot. to Dismiss at 9-10; Nidec's Reply Br. at 9-10. The key question is whether the inference of inevitable disclosure reasonably extends to continued use beyond the Act's effective date.
It is true that inferences should not be stacked on top of one another past the point of reasonableness and crossing the line into speculation. But that is not what is happening here. At least on the limited record—the Third Amended Complaint— the alleged trade secrets are not of the nature that would necessarily go stale in the course of a couple of years. A motor design, and the quality control data associated with it, plausibly would retain its trade secret value well into the future. If it is plausible that some of the alleged trade secrets maintain their value today, then it is also plausible that Nidec would be continuing to use them. Of course, further discovery could upend any or all of this, but at this stage, continued use beyond the May 2016 effective date is plausible.
For the reasons discussed, Nidec's Motion to Dismiss Counts 3 and 4 is denied. The status hearing of June 1, 2017, is accelerated to May 18, 2017, at 9:15 a.m., to discuss the discovery plan on the trade secrets claims. The parties also should immediately start engaging in settlement negotiations, now that both the summary judgment motion and the dismissal motion have been decided.
18 U.S.C. § 1839(5).
