Mike's Train House, Inc. v. Lionel, L.L.C.
| Citation | 472 F.3d 398 |
| Decision Date | 14 December 2006 |
| Docket Number | No. 05-1095.,05-1095. |
| Parties | MIKE'S TRAIN HOUSE, INC., Plaintiff-Appellee, v. LIONEL, L.L.C., Defendant-Appellant, Korea Brass and Yoo Chan Yang, Defendants. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
ARGUED: Walter E. Dellinger, Jonathan D. Hacker, O'Melveny & Myers, Washington, D.C., for Appellant. Robert A. Swift, Kohn, Swift & Graf, Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Walter E. Dellinger, Jonathan D. Hacker, Melissa A. Holyoak, O'Melveny & Myers, Washington, D.C., Kathleen McCree Lewis, Joseph H. Hickey, Dante A. Stella, Dykema Gossett, Detroit, Michigan, for Appellant. Robert A. Swift, Robert J. LaRocca, Kohn, Swift & Graf, Philadelphia, Pennsylvania, Harold Z. Gurewitz, Gurewitz & Raben, Detroit, Michigan, Jeffrey D. Bukowski, Stevens & Lee, Reading, Pennsylvania, for Appellee.
Before: DAUGHTREY and COLE, Circuit Judges; GRAHAM, District Judge.*
Defendant-Appellant Lionel, L.L.C., appeals a jury verdict finding it liable for misappropriation of trade secrets and unjust enrichment, and awarding Plaintiff-Appellee Mike's Train House, Inc. ("MTH") damages exceeding $40 million. After unsuccessfully moving the district court for a new trial and judgment as a matter of law, Lionel appeals the jury verdict, the district court's evidentiary decisions, the specificity with which MTH identified its "trade secrets," the imposition of joint and several liability, and the amount of the damage award. Lionel also appeals the district court's order granting MTH's request for an injunction. Because Lionel correctly argues that the district court erred in admitting expert testimony and in imposing joint-and-several liability, and because the jury award improperly "double counts" MTH's damages, we REVERSE the district court's order denying Lionel's motion for a new trial and REMAND this case for further proceedings consistent with this opinion. Because the district court's injunction is based entirely on the jury's verdict, we REVERSE that order as well.
This case involves MTH's claim that Lionel misappropriated MTH's trade secrets and was unjustly enriched by that misappropriation. Before MTH brought this claim, the parties were involved in both criminal and civil litigation in South Korea, based on the same underlying events. After several individuals associated with Lionel were convicted of criminal charges, and Lionel and MTH settled the civil suit, MTH filed the instant complaint against Lionel in federal district court.
Lionel and MTH are both distributors of O-gauge model trains. The model trains they distribute are scale replicas of actual trains. Both Lionel and MTH contract with third parties for the manufacture of their trains and then release the trains for distribution under their own names. "Gauge" refers to the width of the track; collectors tend to collect trains of only one gauge (in this case "O gauge"), so that all their trains can operate on the same track. The trains are manufactured by a process known as zinc die-casting, which is a precise method of construction in which molten metal is injected into pre-shaped molds. This method requires extensive design work for the construction of a single train; accordingly, designers produce "design drawings," which contain all the information necessary to build a die-cast train. About 200 to 300 design drawings are required to produce each scale engine.
Lionel has been producing O-gauge model trains since the 1930s. In 1987, Lionel hired MTH, founded by Michael Wolf, to work with Samhongsa, a Korean supplier, to design and manufacture die-cast trains, for release under Lionel's name. MTH and Samhongsa designed and produced several different die-cast trains for Lionel between 1987 and 1993. MTH's relationship with Lionel ended in 1993. Between 1993 and 1998, Lionel used a number of die-cast manufacturers, but none produced high-quality trains at competitive prices. In 1994, Samhongsa began making O-gauge die-cast trains for resale under MTH's name, a relationship that continued until 2002.
Soon-Gap Ahn, one of the leading designers at Samhongsa from 1997-98, assisted in designing trains for both Lionel and MTH during each company's relationship with Samhongsa. Ahn testified that Samhongsa designers, subcontract designers, members of various departments at Samhongsa, and other subcontractors had access to all Samhongsa designs and were allowed to make and retain copies of those designs. Ahn also testified that Korean designers use a common numbering system in their design drawings to refer to the same parts of the model train. For example, engine parts are numbered in the "1000 range" by Korean design companies.
During the time that Samhongsa worked for both Lionel and MTH, Samhongsa subcontracted with a company named Korea Brass ("KB"), a supplier of wax castings for model trains. KB had been formed in 1984 by Sung-Won Cho, a former Samhongsa employee. In 1998, KB expanded and became a direct supplier and manufacturer of model trains. After Cho and Yoo Chan Yang, KB's sales agent in the United States, approached Lionel in April 1998, Lionel placed an order with KB to manufacture two die-cast-model-train lines.
KB then hired Ahn to design trains that it intended to manufacture for Lionel. Before departing Samhongsa, Ahn copied design drawings for MTH trains onto computer disks; Ahn testified that he took the drawings to work on them at home, and that the other designers acted similarly. While working for KB, Ahn hired Bok-Dong Chung, a Samhongsa subcontractor, to assist him with the drawings for an O-gauge die-cast model train. Ahn testified that he instructed Chung to draw the designs differently from those produced by Samhongsa.
In 1999, Lionel distributed the two die-cast trains designed and manufactured by KB. After purchasing samples of each model in July of that year, Wolf immediately traveled to Korea because he was concerned that the trains had been designed and manufactured based on MTH's design drawings. Wolf asked Samhongsa to conduct an internal investigation, during which Chung admitted to copying Samhongsa designs of MTH trains and giving them to Ahn. Korean law-enforcement authorities launched an investigation into whether crimes had been committed in connection with the use of these designs. As part of that investigation, the police seized Ahn's computer and the computers belonging to other former and current Samhongsa employees to determine whether they contained evidence of criminal activity.
The Korean authorities prosecuted Ahn, along with three other Samhongsa employees, for misappropriation of trade secrets, a criminal offense in Korea. As part of that case, Professor Kun-Woo Lee, a Korean engineering expert, was appointed as a special master. Lee compared 3307 pairs of Samhongsa and KB drawings and found substantial evidence of copying. A Korean court found Ahn and three Samhongsa employees guilty of the unlawful misappropriation of MTH's trade secrets. Samhongsa then brought a civil suit in Korea against Ahn, Cho, KB, and the three Samhongsa employees. The Korean court found all of the defendants liable for misappropriation of MTH's trade secrets. During the defendants' preparation for an appeal of that judgment, the parties settled the civil litigation and the case was dismissed.
In 2000, MTH filed a complaint against Lionel, KB, and Yang in the United States District Court for the Eastern District of Michigan, alleging (1) misappropriation of trade secrets; (2) unfair competition by the misappropriation of products; (3) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); (4) violations of Korea's Prevention of Unfair Competition and Trade Secret Protection Law; and (5) unjust enrichment. The district court granted the defendants' motion for summary judgment as to the count alleging a violation of Korea's trade-secrets act, and MTH withdrew its claims of unfair competition and violations of the Lanham Act. On June 12, 2004, a jury trial began on the remaining claims, i.e., misappropriation of trade secrets and unjust enrichment.
The jury returned a verdict in favor of MTH against all defendants on both claims. It awarded MTH $11,978,887 for lost profits and $13,794,518 for future lost profits. The jury also awarded an additional $12,834,820 against Lionel and $2,167,440 against KB and Yang for unjust enrichment. Further, the court granted MTH's request for a permanent injunction, prohibiting Lionel from using the design drawings at issue. The court denied Lionel's motion for a new trial and for judgment as a matter of law. Lionel now appeals, requesting that we reverse the district court's order denying its motion to vacate the jury's verdicts as to both liability and damages, and grant either its motion for a new trial or for judgment as a matter of law. Lionel also asks that we reverse the district court's injunction.
We review de novo a district court's refusal to grant a party's motion for judgment as a matter of law. Greene v. B.F. Goodrich Avionics Sys., Inc., 409 F.3d 784, 788 (6th Cir.2005). Under Rule 50, a court may grant judgment as a matter of law on a particular issue if "there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue . . . ." Fed.R.Civ.P. 50(a)(1). In cases based on diversity jurisdiction, we apply the forum state's substantive standard for determining when judgment as a matter of law is appropriate. Greene, 409 F.3d at 788 (citing Morales v. Am. Honda Motor Co., 151 F.3d 500, 506 (6th Cir. 1998)). For a party to be entitled to judgment as a matter of law after the jury enters an adverse verdict in Michigan, the evidence viewed in the light most favorable to the non-moving party must fail to establish a...
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