trade secret misappropriation

Departing Employee imageAlarms sounded when John Absmeier, technical director of Delphi Automotive’s Silicon Valley autonomous vehicle project, announced he was leaving to join Samsung’s Silicon Valley innovation center where he would lead a self-driving car technology team.  They grew louder upon Delphi’s determination that Absmeier downloaded hundreds of thousands of company files and folders onto personal devices prior to giving notice, deleted tens of thousands of files of unknown subject matter on or before giving notice, and retained possession of tens if not hundreds of thousands of company files (contained on personal external hard drives or personal cloud accounts) after having left Delphi.

Delphi has thus far been able to identify some of what Absmeier downloaded—including over 100 gigabytes of data that appears to be the contents of his “My Documents” folder and his Outlook e-mail folder. These documents consist of many, if not all, of the work emails that Absmeier sent and received while a global executive. Those emails include confidential and sensitive information, and confidential and sensitive documents in the form of e-mail attachments. There was no legitimate reason for Absmeier to be downloading work-related documents and emails in the days and weeks before his resignation— and, in fact, there is no evidence that he had ever downloaded documents from his work computer onto external hard drives before October 15, 2015.

Delphi v Absmeier Am Cmplt

This conduct appeared to give Delphi a strong basis for asserting wrongful acquisition of its trade secrets and actionable trade secret misappropriation.  Delphi filed a lawsuit and moved for a preliminary injunction in federal court under the court’s diversity jurisdiction, but the court found that Delphi was unlikely to succeed on its trade secret misappropriation claims and denied injunctive relief on these grounds.

Luckily for Delphi, in addition to being able to assert trade secret misappropriation, it also had a signed non-compete agreement.  Doubly lucky for Delphi, choice-of-law rules dictated the application of Michigan law, which favored enforcement of the agreement over the competing policy favoring freedom of employees to seek new employment (recognized in other states like California).  Delphi was able to obtain an injunction enforcing the non-compete.

The game-changing combination of choice-of-law rules pointing to the law of jurisdictions enforcing non-competes is a subject for another day (and hopefully a separate post!).

For now, the interesting question is what was done by the departing Delphi engineer Absmeier and his counsel (no doubt in close coordination with new employer Samsung) to avoid trade secret misappropriation liability?  The answers provide something of a checklist for departing engineers and new employers on what they can do to mitigate the risk of liability for trade secret misappropriation.  In particular, in the Delphi case, the defense was able show:

#1 Departing employee was forthcoming about taking new job with potential competitor.

#2 Departing employee offered explanation for the challenged pre-departure downloads and  deletions, e.g., done as part of routine company file back-up, or to remove personal  documents and photos.

#3 Departing employee within approximately two weeks of notice returned all remaining  company devices (e.g., thumb drives) and company-related documents

#4 Departing employee and counsel retained a third-party forensic consultant to:

quarantine all personal storage devices that contained a mixture of company and personal information

sequester any personal cloud-based storage accounts (e.g. Dropbox) containing folders holding company information

sequester personal email (e.g., Gmail) and delete all emails relating to company as opposed to personal information

#5 Departing employee swore on oath that A) he no longer had any company information in  his possession and B) that he had not disclosed or used any Delphi data or documents in  course of his employment with Samsung.

#6 Defense counsel made available for inspection the data and devices sequestered with  third-party consultant.

These actions were described in detail in sworn declarations provided by the departing engineer, Absmeier (attached- Departing Enginner Absmeier Declaration), along with supporting declarations of his counsel and the forensic consultant.  Based on this evidence, Delphi was unable to meet its burden of showing “a significant lack of candor or willingness to misuse trade secrets,” and therefore Delphi was not entitled to enjoin Absmeier’s employment with Samsung based on alleged threatened misappropriation of Delphi trade secrets. (Preliminary Inj. Order attached-Delphi Automotive PLC v Absmeier)

The Delphi litigation falls within the category of cases holding that mere possession of company data subsequent to departure (absent additional evidence such as prior bad behavior, that the data was improperly acquired prior to departure, intent to disclose or use the data in the future, or refusal to return the data) will not be sufficient to establish liability for threatened trade secret misappropriation.  See, e.g., FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1279 (2009); Cent. Valley Gen. Hosp. v. Smith, 162 Cal. App. 4th 501, 528 (2008).