- A manufacturer of solar inverter components, MAGicALL, has accused its former customer Advanced Energy Industries of stealing trade secrets and violating non-disclosure agreements relating to MAGicALL’s product designs.
- Trade secret law protects companies against the misappropriation of valuable business information that has been subject to reasonable efforts to maintain secrecy.
California’s MAGicALL, Inc. has filed a lawsuit against Advanced Energy Industries, Inc. (“AEI”) and several affiliated companies alleging breach of non-disclosure agreements and theft of trade secrets relating to MAGicALL’s solar inverter technology. In a Complaint filed in federal court in Colorado this month, MAGicALL requested that the court issue an injunction preventing AEI from continuing to sell any products containing MAGicALL’s proprietary technology, and award monetary damages in an amount yet to be determined.MAGicALL is a manufacturer of “high performance magnetic and electronic systems.” (http://www.magicall.biz/). AEI is a NASDAQ-listed manufacturer of power and control technologies headquartered in Fort Collins, Colorado. (https://www.advanced-energy.com/). The named defendants in the lawsuit include AEI and a pair of companies presumed to be AEI subsidiaries (AE Solar Energy, Inc.; Advanced Energy (Shenzhen) Co., Ltd.), which this post refers to collectively as “the AEI Defendants.” Four additional defendants are named, which appear to be suppliers to AEI of components for solar inverters (Eaglerise Electric and Electronic Co., Ltd.; Eaglerise E & E USA, Inc. (CA); Eaglerise E & E USA, Inc. (PA); Eaglerise Power Systems, Inc.). This post refers to these four defendants as “the Eaglerise Defendants.”
Solar inverters are a critical component in any photovoltaic system. Solar panels output power in direct current, which is incompatible with the commercial electric grid and the vast majority of electric consumption in the United States. For solar panels to have a useful output, their power must be converted from direct current to alternating current. A solar inverter performs this conversion.
MAGicALL claims to have developed “a highly efficient inductor” – a key piece of a solar inverter – that resulted in “dramatically improved inverter efficiency.” MAGicALL allegedly shared details of its inductor design with the AEI Defendants under a series of non-disclosure agreements and then began selling inductors to the AEI Defendants in 2010. After four years, MAGicALL alleges that AEI abruptly stopped purchasing the components and began to use “knock-off copies of MAGicALL’s proprietary inductors” manufactured by the Eaglerise Defendants.
A trade secret is valuable business information that is not publically known and is subject to reasonable efforts to preserve confidentiality. [Note 1]. To prevail on a claim of misappropriation of a trade secret, a party must show that it has a trade secret, and that another party “misappropriated” the trade secret by one of: (1) non-consensual disclosure, (2) acquisition from a person with a duty to maintain the trade secret, or (3) acquisition by improper means (i.e. theft, bribery, misrepresentation, or breach of secrecy).
MAGicALL specifically alleges in its Complaint that the AEI Defendants violated a pair of non-disclosure agreements and misappropriated trade secrets by copying technical drawings of MAGicALL’s inductors as their own. AEI allegedly used those copied drawings when directing Eaglerise in China to manufacture knock-off inductors that supplanted MAGicALL’s inductors.
If MAGicALL’s allegations are proven in court, the AEI Defendants could be found to have misappropriated trade secrets by sharing MAGicALL’s confidential inductor design without MAGicALL’s consent. The Eaglerise Defendants could be found to have misappropriated trade secrets by acquiring the secrets from another party (the AEI Defendants) with a duty to maintain the trade secrets.
One key issue for the court to resolve in this case is whether MAGicALL took reasonable efforts to preserve the secrecy of its inductor design. Because trade secret law does not prevent reverse engineering a product, the validity of MAGicALL’s alleged trade secret may hinge on the manner in which MAGicALL sold the inductors to AEI and how AEI then sold the inductors for public use. If MAGicALL did not include sufficient restrictions on the sale and use of the solar inverters containing its inductors, then the court may find that MAGicALL failed to take appropriate measures to protect its asserted trade secrets and therefore there can be no liability for misappropriation.
The defendants in this lawsuit will now have an opportunity to respond to MAGicALL’s allegations.
Note 1: This definition of a trade secret comes from the Defend Trade Secrets Act of 2016, which for the first time created a federal cause of action to trade secret theft. Prior to 2016, trade secret lawsuits were brought under state law.