LexShares Case #1101: The Copycat Fuel Injection System
A small engineering firm proved a €14 billion auto giant stole their technology — but $50M+ in claimed damages became a 1.12x return
The Numbers
| Invested | $30,000 |
| Returned | $33,710 |
| Net Profit | $3,710 |
| MOIC | 1.12x |
| IRR | 4% |
| Holding Period | 1,699 days |
The Case
A Michigan engineering firm developed an innovative, low-cost fuel injection system for small engines — perfect for Asian motorcycle markets where customers wanted inexpensive bikes with good fuel efficiency.
The technology was clever: a unique one-sensor design that could measure five streams of data simultaneously, reducing costs while maintaining performance. The firm owned patents and trade secrets covering the “secret sauce” that made it work.
Enter the giant.
A European auto components manufacturer — €14 billion in revenue, 62,000+ employees, supplier to Ferrari, Lamborghini, and Ducati — wanted to expand into Asian markets. But they had no experience with low-cost, small engine components.
In 2010, the parties signed licensing agreements. The manufacturer would pay royalties for each unit sold using the technology. In exchange, they got full access to the engineering firm’s confidential designs, software, calibrations, and know-how.
Then things went sideways.
According to the engineering firm:
- The manufacturer became “less cooperative” around 2012 — after learning the technology’s secrets
- In 2014, the manufacturer announced a partnership with the world’s largest motorcycle maker (11+ million bikes/year) — without telling the engineering firm
- The manufacturer claimed there was “no market interest” in the technology
- When pressed, the manufacturer refused to provide any information about its new partnership
The engineering firm terminated the agreement in 2015. Then they discovered the manufacturer was mass-producing a nearly identical product — selling it to the world’s largest motorcycle maker as an exclusive supplier.
The Evidence
The engineering firm obtained and examined the manufacturer’s competing product:
- It used the same unique one-sensor design
- The same executive who had evaluated their technology in 2009 now oversaw the copycat product
- The product couldn’t function without using the engineering firm’s patented and trade secret technology
- Nearly 2 million units had already been sold
Claimed damages: $50 million+ (disgorgement of profits, past royalties, future royalties)
Timeline
| Date | Event |
|---|---|
| Apr 2010 | License agreements signed |
| 2014 | Manufacturer secretly partners with world’s largest motorcycle maker |
| 2015 | Engineering firm terminates agreement |
| 2017 | Manufacturer launches copycat product |
| Apr 2020 | My investment — $30,000 (arbitration filed) |
| Jul 2020 | Plaintiff wins first discovery dispute |
| Oct 2020 | Hearing postponed — defendant can’t produce documents |
| Sep 2021 | Case bifurcated into liability and damages phases |
| Jun-Jul 2022 | Liability arbitration hearing (6 days) |
| Jan 2023 | Won liability phase — breach of contract + unjust enrichment |
| Dec 2023 | Damages arbitration hearing (3 days) |
| Feb 2024 | Post-hearing briefing completed |
| May 2024 | Final Award — won, but “significantly below” claimed damages |
| Jun-Sep 2024 | Negotiating payment schedule with defendant |
| Sep 2024 | First installment — $8,027 |
| Dec 2024 | Final installments — $25,683 — case closed as win |
Why the Returns Were Modest
Won the war, lost the damages battle. The arbitration panel found the manufacturer liable for breach of contract and unjust enrichment. But the damages award was “significantly below the amount asserted by the Claimants.”
$50M+ claimed → $2.6M recovered. That’s a 95% discount from the original damages claim. The fund recovered enough to pay back principal plus a small profit — but nowhere near the projected returns.
| Metric | Amount |
|---|---|
| Claimed damages | $50,000,000+ |
| Actual recovery | $2,600,000 |
| Total funding | $2,000,000 |
| Financing/broker fees | ($150,000) |
| Fund expenses | ($11,374) |
| Gross MOIC | 1.21x |
Limitation of liability clauses mattered. The original agreements contained provisions limiting recoverable damages. The plaintiff argued these didn’t apply to theft of confidential information — but arbitrators may have applied some limits.
4.5 years of arbitration. From my investment in April 2020 to final payment in December 2024, the case went through discovery disputes, bifurcated proceedings, multiple hearings, delayed schedules, and payment negotiations. Time kills returns.
Defendant played delay games. The manufacturer repeatedly delayed proceedings — failing to produce documents, causing hearings to be postponed, requesting additional briefing, and taking months to finalize a payment schedule after the award.
Distribution Breakdown
| Date | Amount | Note |
|---|---|---|
| Sep 23, 2024 | $8,026.72 | First installment |
| Dec 3, 2024 | $25,682.90 | Final (2nd + 3rd) |
| Total | $33,709.62 | 1.12x |
What Went Right
Strong legal team. The plaintiff’s IP attorneys had engineering backgrounds and prior experience — they’d already won a patent case against another manufacturer using the same technology.
Clear evidence of copying. The defendant’s product used the same unique design. The same executive who evaluated the technology in 2009 now ran the copycat division. The paper trail was strong.
Won on liability. The arbitration panel found breach of contract and unjust enrichment. That’s not nothing — proving a €14B company stole your technology is a significant legal victory.
Deep-pocket defendant paid. The manufacturer (owned by a major private equity firm) had the resources to pay the award. Collection wasn’t an issue — just timing.
What I Learned
Winning isn’t enough — damages matter. The plaintiff proved the defendant copied their technology. But proving $50M+ in damages was harder. Arbitrators are conservative with disgorgement and speculative royalties.
Limitation of liability clauses are real risks. The original contracts contained damage caps. Even with an exception for confidential information theft, these provisions can constrain recoveries.
Bifurcated proceedings extend timelines. Splitting into liability and damages phases made strategic sense but added years. Each phase had its own discovery, hearings, and briefing schedules.
4% IRR over 4.5 years barely beats a savings account. A 1.12x return sounds positive, but spread over nearly 5 years with inflation running 3-4%, the real return was minimal.
This counts as a “win.” And it is — principal returned plus profit. But litigation finance “wins” come in many sizes. This was the minimum viable win.
The Silver Lining
A small Michigan engineering firm proved that a €14 billion European auto giant — backed by one of the world’s largest private equity firms — stole their technology and used it to become the exclusive supplier to the world’s biggest motorcycle manufacturer.
They got their money. Not $50 million, but enough to matter. The technology they invented is now acknowledged as theirs.
For investors, it’s a reminder that even wins can disappoint. The case had everything: clear copying, a paper trail, a deep-pocket defendant, strong counsel. But claimed damages rarely survive contact with arbitrators.
This was my 17th and final LexShares investment. I held it for 4.7 years through bifurcated arbitration, won on liability, won on damages (sort of), and got 1.12x back. A win is a win — but some wins feel more like draws.