Polar Molecular Corp. v. Amway Corp., et al., No. 1:07-CV-460, 2007 WL 3473112 (W.D. Mich. Nov. 14, 2007).

A Michigan federal court recently declined to dismiss a petroleum additives company’s claim under the Michigan Uniform Trade Secrets Act (“MUTSA”) against several manufacturers and distributors of its fuel additive product, but held that the company’s common law claims of misappropriation and conversion were displaced by the statute.

Polar Molecular Corporation (“Polar”) sued twelve defendants, alleging violations of the Lanham Act, breach of contract, misappropriation of trade secrets under the MUTSA, and common law claims for misappropriation, conversion, and conspiracy. Polar had entered into a series of licensing agreements with certain defendants (the “Amway Defendants”) to make, use, and sell its fuel additive, called “DurAlt” and marketed as “Freedom Fuel.” Pursuant to the agreements, Polar provided the Amway Defendants with confidential formulas for DurAlt. After the parties had a falling-out over failed negotiations concerning royalties and fleet sales, Polar alleges that the Amway defendants provided its confidential formulas to another group of defendants (the “DNS Defendants”), who used the formulas to manufacture and sell a “knock off” of DurAlt called “ProFuel” and marketed as “Freedom 2.” Polar further alleges that the defendants misrepresented to potential customers that they had a licensing agreement with Polar for the manufacture and sale of “Freedom 2.”

The defendants argued that Polar’s claim under the MUTSA should be dismissed because Polar published the DurAlt formula in a patent, and thus it was no longer secret. Polar countered that, during the course of its licensing arrangement with the defendants, it had provided Amway with additional, improved DurAlt formulas that were not disclosed in the patent, including the specific formula at issue in this litigation. The court observed that “[a]lthough information disclosed in a patent cannot be a trade secret,…the existence of a patent covering the general subject matter does not necessarily mean that the patent disclosed the specific formula (the trade secret) used to produce a specific commercial product.” The court then concluded that the allegations in the complaint—that the defendants had obtained confidential information not known to others and that this information gave them a competitive advantage—were sufficient to state a claim for misappropriation of trade secrets under the MUTSA.

However the court also had before it the defendants’ motion for summary judgment on the MUTSA claim. The court found that Polar’s evidence was insufficient to controvert the seven affidavits produced by the Amway Defendants asserting that there had been no unauthorized disclosure of Polar’s confidential information and that ProFuel had been independently developed based on a reverse-engineering analysis of the Freedom Fuel product and the information in Polar’s expired patent. But the court concluded that Polar had shown a need for some discovery to resolve the issue, and thus declined to rule on the summary judgment motion until after a sixty-day period of limited discovery.

The court also dismissed the common law misappropriation and conversion claims, concluding that they were preempted by the MUTSA because Polar had not sufficiently alleged that these claims were based on wrongful conduct independent of the misappropriation that served as the basis for the MUTSA claim. But the court declined to dismiss the conspiracy claim as preempted, to the extent that, rather than being based upon the alleged theft of a trade secret, it was based on “palming-off or unfair competition” arising out of the defendants’ alleged representations that Pro-Fuel was a “knock off” of DurAlt and their alleged false statement that they manufactured it pursuant to a licensing agreement with Polar. The court also declined to dismiss the trademark infringement claim under the Lanham Act and granted summary judgment to the Amway defendants on the breach of contract claim to the extent that it was based upon a certain provision of the licensing agreement.