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A Better Partnership
April 21, 2017

COA: MUTSA preemption limited to misappropriation of trade secret, does not encompass other common-law unfair competition claims

The Michigan Uniform Trade Secrets Act does not preempt all common-law unfair competition claims, said the Michigan Court of Appeals in Planet Bingo LLC v. VKGS LLC, No. 328896. Instead, its preemption provision is limited to misappropriation of trade secrets.
 
Planet Bingo LLC (Planet Bingo) was the provider of a software program called EPIC, to be used on the electronic bingo equipment manufacturer VKGS LLC d/b/a Video King (Video King). The parties have had a business relationship since 2000. At some point before 2011, Video King allegedly improperly used EPIC to develop and sell its own version, called OMNI.
 
The history of litigation between the parties spans three courts and dates back to 2011. Planet Bingo filed the first action in the U.S. District Court for the Western District of Michigan and was dismissed for lack of diversity jurisdiction. One week before it sued in Ingham County, Planet Bingo filed its claim against Video King in Nebraska’s Douglas County. That action was dismissed for lack of personal jurisdiction, was then overturned by the Nebraska Supreme Court, and now remains pending in the district court.
 
Planet Bingo’s three claims against Video King – breach of contract, common-law unfair competition, and unjust enrichment – are all based on Video King’s alleged use of confidential information about EPIC to develop OMNI, in violation of the 2005 agreement between the parties (the Agreement). The Agreement forbade the use of Planet Bingo’s confidential information at any time, including the five years of business relations predating the Agreement (but not beyond three years after the Agreement’s execution, when it was terminated and replaced with a contract without such language).
 
After contentious discovery and a slew of pre-trial motions, the circuit court ultimately ruled the following: (1) Planet Bingo’s common-law unfair competition claim was preempted by the Michigan Uniform Trade Secrets Act (MUTSA); (2) the remainder of Planet Bingo’s claims were dismissed because the pending action in Nebraska involved the same claims; and (3) discovery would be limited to a period beginning seven months before the date of the Agreement.
 
The Court of Appeals largely disagreed. On the first point it held that MUTSA preempted the unfair competition claims based on Video King’s creation of OMNI, but not those based on its sale of OMNI to third parties or its alleged misrepresentation to a potential customer that a bingo hall was already using OMNI when it was actually using EPIC. It reasoned that MUTSA’s preemption provision is limited to common-law claims of misappropriation of a trade secret, whereas unfair competition encompasses other acts of fraud, bad-faith misrepresentation, or product confusion.
 
As to the second holding regarding the Nebraska action the COA held that the circuit court must hold further proceedings to develop the record and act accordingly depending on its findings. The circuit court’s ruling to dismiss came after it had summarily disposed of plaintiffs’ claims and may not have taken those claims into account when determining that the Nebraska action involved the same claims, but the record was not sufficient for the appellate court to conduct a de novo review. The COA also instructed the lower court to stay proceedings if it determines that the Nebraska action will ultimately resolve the claims involved in this action on their merits.
 
As to the scope of discovery, the Court overturned the circuit court’s ruling to limit discovery to post-January 28, 2005 documents. It found that the selection of that date, based on the arbitrary date of VKGS’s acquisition of Video King, was an abuse of the circuit court’s discretion. In the event that a stay of the proceedings or summary disposition based on the Nebraska action is unwarranted, the circuit court must allow the parties to conduct reasonable pre-January 28, 2005 discovery.
 

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