Court rules that former seller employees stole seller trade secrets and are using them to compete against the buyer.

M&A Stories

March 16, 2023


When a buyer acquires a business, there is a risk that the seller’s employees may use stolen trade secrets to compete against the buyer. In this case, the buyer effectively managed this risk through the use of confidentiality agreements with the seller’s employees.

The deal

The seller, who had developed an advanced shipping pallet and related business applications, sold its assets, including valuable trade secrets, to the buyer for $5 million. The innovative pallet consisted of a lightweight, engineered wood core structure coated with a proprietary polymer for strength and rigidity. The seller’s trade secrets encompassed various aspects, such as the identification and sourcing of the engineered wood, the development and sourcing of the proprietary polymer, the methods for assembling and manufacturing the pallet, the incorporation of a tracking device, and the business methods for tracking the pallet’s movement.

The lawsuit   

Following the acquisition, a company formed by former employees of the seller began competing with the buyer’s business. The buyer filed a lawsuit against the former seller-employee company, accusing them of trade secret theft, and sought a preliminary injunction from the court to stop the competing company from using the trade secrets.

The court found that the former employees had signed confidentiality agreements with the seller, promising not to disclose or use the seller’s trade secrets. Additionally, it was evident that the competing company could not have swiftly started operations without access to the seller’s trade secrets. Consequently, the court granted the preliminary injunction, indicating that it is likely the former seller-employee company is using the trade secrets.

The court issued the preliminary injunction, finding that the former seller-employee company likely is using the seller’s trade secrets.

See Palltronics, Inc. v. Paliot Solutions, Inc., Case No. 22-12854, United States District Court, E.D. Michigan, Southern Division, (February 27, 2023).


To protect valuable trade secrets when acquiring a company, buyers should ensure that the seller’s employees are bound by confidentiality agreements. This case demonstrates the effectiveness of such agreements in preventing the unauthorized use of trade secrets.

By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.



Telephone:      714 273-6291


Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles

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