Soelect, Inc. v. Hyundai Motor Company

Background

Soelect, Inc., a battery company, alleged that Hyundai Motor Company (HMC), a car company, misappropriated Soelect’s trade secrets in violation of the federal Defend Trade Secrets Act. Soelect develops lithium anode battery technology. HMC’s subsidiary, HATCHI, which was not a party to this case, approached Soelect about its Lithium-X Anode product.

Soelect and HATCHI entered into a nondisclosure agreement and later a Materials Transfer and Testing Agreement. The testing agreement prohibited HMC and HATCHI from attempting to determine the composition or structure of Soelect’s proprietary material and from performing certain characterization testing, including scanning electron microscopy. Soelect sent battery samples to HMC’s testing facility in South Korea.

Soelect alleged that HMC later provided images that could only have been produced through scanning electron microscopy. Soelect claimed that HMC therefore breached the testing agreement and later misappropriated the technology after a 2023 newspaper report said HMC would develop and manufacture its own lithium-metal battery anodes.

Related litigation and motions

Soelect previously sued HATCHI in the Northern District of Illinois for allegedly allowing HMC to perform testing prohibited by the testing agreement. In that earlier round of the dispute, the court granted partial summary judgment for Soelect on whether HATCHI breached the agreement, while leaving disputes about the liquidated-damages provision and other issues for further proceedings.

In this case, HMC moved to dismiss under Federal Rules of Civil Procedure 12(b)(2), 12(b)(3), and 12(b)(6), asserting lack of personal jurisdiction, improper venue, and failure to state a claim. HMC also moved in the alternative to stay the case until after the related litigation. Because the court granted the motion to dismiss, it did not reach the motion to stay.

Personal jurisdiction

The court held that Soelect failed to establish specific personal jurisdiction over HMC. Specific personal jurisdiction requires, among other things, that the defendant purposefully direct activities toward the forum and that the claim arise from or relate to those activities.

The court rejected Soelect’s proposed contacts between HMC and California. The October 2020 video meeting did not show that HMC purposefully directed conduct toward California because it occurred after the alleged scanning and HMC personnel attended from South Korea. The court also held that HATCHI’s negotiations with Soelect could not automatically be attributed to HMC merely because HATCHI was HMC’s subsidiary. Even assuming those negotiations could be attributed to HMC, the court found that negotiating part of the agreement in California was incidental and did not show that HMC expressly aimed the alleged wrongdoing at California.

The court also rejected Soelect’s reliance on an invitation to California to discuss business opportunities. It found that the invitation was a single, later event unrelated to the testing agreement or the alleged misappropriation, and Soelect did not allege that it accepted the invitation.

The court further held that Soelect did not allege harm in California. Soelect’s principal place of business was in North Carolina, and the alleged testing, use, and misappropriation occurred in South Korea. The court concluded that Soelect failed the purposeful-direction requirement and therefore did not need to decide whether the claim arose from HMC’s forum contacts or whether exercising jurisdiction would be reasonable.

The court granted the motion to dismiss based on lack of personal jurisdiction. It also rejected Soelect’s request for jurisdictional discovery, finding that the request was conclusory, based largely on a hunch, and did not identify a reasonable probability that additional discovery would change the result. The court also noted that Soelect had already obtained discovery from HATCHI and some discovery from HMC in the related litigation.

Venue

The court separately held that the Northern District of California was an improper venue. Soelect relied on the fact that HATCHI and Soelect negotiated part of the testing agreement in California. The court found that this negotiation was not a substantial part of the events giving rise to the claim.

The court explained that the alleged misappropriation and injury occurred elsewhere: HMC conducted the testing and use in South Korea, while Soelect’s principal place of business was in North Carolina. Because the California contract negotiations made up only a small part of the events underlying the claim, the court held that Soelect did not satisfy the applicable venue statute and granted the motion to dismiss based on improper venue.

Failure to state a claim under the Defend Trade Secrets Act

The court also granted the motion under Rule 12(b)(6) for failure to state a claim. The Act can apply to conduct outside the United States only if an act furthering the alleged misappropriation was committed in the United States.

Soelect pointed to the testing agreement’s negotiation and execution in the United States and to communications leading to its decision to ship samples to HMC. The court rejected those allegations because HATCHI, not HMC, negotiated and executed the agreement; Soelect did not allege that HATCHI acted improperly during the contracting process; and the alleged misappropriation occurred entirely in South Korea. The court also found no allegation that the trade secrets were used in the United States.

The court stated that, if failure to state a claim had been the only basis for dismissal, it would have allowed Soelect to amend. But because Soelect also failed to establish personal jurisdiction and proper venue, the court found that amendment would be futile and did not grant leave to amend.

Disposition

The court granted HMC’s motion to dismiss based on lack of personal jurisdiction, improper venue, and failure to state a claim. It did not grant jurisdictional discovery or leave to amend, and it did not reach HMC’s alternative motion to stay.