Dow Corning Corp. v. Jie Xiao

283 F.R.D. 353, 2012 U.S. Dist. LEXIS 75392, 2012 WL 1957293
CourtDistrict Court, E.D. Michigan
DecidedMay 31, 2012
DocketNo. 11-10008-BC
StatusPublished
Cited by3 cases

This text of 283 F.R.D. 353 (Dow Corning Corp. v. Jie Xiao) is published on Counsel Stack Legal Research, covering District Court, E.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Dow Corning Corp. v. Jie Xiao, 283 F.R.D. 353, 2012 U.S. Dist. LEXIS 75392, 2012 WL 1957293 (E.D. Mich. 2012).

Opinion

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO COMPEL

THOMAS L. LUDINGTON, District Judge.

In this trade secrets case, Dow Corning Corp. and Hemlock Semiconductor Corp. have brought suit against Jie Xiao, LXE Solar, Inc., and LXEng LLC. Alleging misappropriation of trade secrets, Plaintiffs contend that Defendants used the misappropriated information to lure customers away from Plaintiffs’ trichlorosilane and polysilicon businesses. In particular, Plaintiffs allege that Defendants misappropriated Plaintiffs’ trade secrets regarding “first generation” fluid bed reactor technology (those secrets used in designing Plaintiffs’ facility in Michigan) and used them in several multi-million dollar contracts with foreign firms.

The present dispute centers on whether Defendants may compel the disclosure of Plaintiffs’ trade secrets regarding subsequent generations of fluid bed reactor technology (those used, for example, in designing Plaintiffs’ facilities in Tennessee and China). Moving to compel disclosure, Defendants assert that this information is relevant for determining whether the first generation trade secrets have been rendered obsolete by the subsequent generations. Defendants explain, “Obsolete information cannot constitute a trade secret because the information has no economic value.” Defs.’ Mot. to Compel 12 (quoting Fox Sports Net North, LLC v. Minnesota Twins P’ship, 319 F.3d 329, 336 (8th Cir.2003)). Additionally, Defendants move to compel production of all other documents “concerning Plaintiffs’ use of fluid bed reactors in the production of trichlorosilane.”

Defendants are correct that trade secrets regarding subsequent generations of fluid bed reactor technology may be relevant to valuing the trade secrets at issue. Mere relevance, however, is not sufficient to compel disclosure of trade secrets. The moving party must show the information sought is both relevant and “necessary.” R.C. Olmstead, Inc. v. CU Interface, LLC, 606 F.3d 262, 269 (6th Cir.2010). The Sixth Circuit cautions, moreover, that courts must also balance “whether the need outweighs the harm of disclosure.” Id. (quoting Centurion Indus., Inc. v. Warren Steurer & Assocs., 665 F.2d 323, 326 (10th Cir.1981)).

Defendants do not demonstrate that they need the trade secrets requested. As a general matter, subsequent generations of technology do not necessarily render the prior generations obsolete. (“Obsolete” in this context means “information has no economic value.” Defs.’ Mot. 12 (quoting Fox Sports Net, 319 F.Sd at 336)). Rather, multigenerational product diffusion is a relatively common marketing and production strategy.1 Apple, for example, simultaneously sells several generations of the iPhone. The availability of the iPhone 4S does not render the trade secrets associated with the iPhone 4 of “no economic value.”

Plaintiffs utilize several generations of fluid bed reactor technology. Demonstrating that subsequent generations of the fluid bed reactor technology are in use, however, will not necessarily establish that the trade se[355]*355erets associated with the first generation technology had no economic value during period of time relevant to this action. The only thing that will necessarily determine obsolescence is whether some firm was willing to pay for the first generation technology during the period of time relevant to this action. Defendants have not demonstrated that the trade secrets sought are necessary to their ease.

As Defendants have not demonstrated a need for the requested trade secrets, they are not entitled to discover this information. Defendants are, however, entitled to discover other relevant documents concerning Plaintiffs’ use of fluid bed reactors in the production of trichlorosilane. Accordingly, the Court will grant Defendant’s motion in part and deny it in part.

I

A

Dow Corning manufactures polysilieon products, including trichlorosilane. Pls.’ Compl. ¶¶ 12-17, ECF No. 1. In 1960, Dow Corning selected Hemlock, Michigan as the site for its polysilieon plant, forming Hemlock Semiconductor in 1979. Id. ¶ 19. Hemlock Semiconductor now manufactures polysilieon using Dow Coming’s trichlorosilane; Dow Corning remains the majority shareholder of Hemlock Semiconductor. Id. ¶ 4. Fluid bed reactors are used in the production of trichlorosilane. Id. ¶ 27.

Michael Little was employed by Dow Corning for twenty five years as a chemical engineer. Id. ¶ 25. While employed by Dow, Mr. Little was involved in the manufacture of both trichlorosilane and polysilieon. Id. “In particular, Little learned certain process specifications and process design techniques including ... the specifications and characteristics for Dow Coming’s fluid bed reactors.” Id. ¶ 27. For a period of time, Mr. Little served as the leader of Dow Coming’s trichlorosilane production facility in Michigan. Id. Mr. Little also signed several contracts promising not to disclose “any trade secret, confidential know-how or confidential business or technical information of Dow Coming.” Id. ¶ 26.

In May 2002, Mr. Little left Dow Corning. Id. ¶25. In 2007, Dr. Xiao and Mr. Little formed LXEng, a limited liability company formed under the laws of Nevada. Pls.’ Compl. ¶¶ 5-6. Each gentleman owned a fifty-percent stake in LXEng. Id. Although both gentlemen were chemists, only Mr. Little had expertise in the trichlorosilane and polysilieon industries—Dr. Xiao, before joining LXEng, worked in the pharmaceutical industry. Id. ¶ 29.

Dow Corning alleges that shortly after LXEng was formed, it secured contracts worth as much as $18.4 million to provide trichlorosilane and polysilieon technology to two companies. Id. ¶ 33. LXEng also entered into negotiations with two other companies for contracts worth as much as $12 million. Id. ¶ 34. During the course of negotiations with these companies, Plaintiffs allege, Mr. Little and Dr. Xiao disclosed Plaintiffs’ trade secrets to Defendants’ customers, including the specifications and characteristics of Dow Coming’s first generation fluid bed reactors. Id. ¶¶ 35-36. Plaintiffs further allege that Mr. Little, who was also a pilot and photographer, conducted aerial surveillance of Plaintiffs’ manufacturing facility in Michigan and used that information to explain the processes to LXEng’s prospective clients. Id. ¶ 37.

Mr. Little died unexpectedly in November 2007, when the single-engine plane he was flying crashed near Gladwin, Michigan. Pls.’ Compl. ¶ 39. Dr. Xiao and LXEng then placed advertisements in Michigan publications seeking to hire Plaintiffs’ employees with expertise in the trichlorosilane and polysilicon industries; they also contacted Plaintiffs’ employees with similar expertise. Id. ¶¶ 42-43.

In March 2008, Dow Coming’s counsel wrote a letter to LXEng, expressing concern that Mr. Little may have shared Dow Coming’s trade secrets with LXEng and its customers and emphasizing Dow Coming’s intent to “protect its trade secrets and other intellectual property rights.” Id. ¶ 41. Dow Corning asked LXEng to consent to an independent inspection of a laptop computer that was used by Mr. Little before his death. Id. The request was refused. Id.

[356]*356Around this time, Dr.

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283 F.R.D. 353, 2012 U.S. Dist. LEXIS 75392, 2012 WL 1957293, Counsel Stack Legal Research, https://law.counselstack.com/opinion/dow-corning-corp-v-jie-xiao-mied-2012.