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Commercial Litigation

Federal Copyright Preemption of State Law Claims – Still a Powerful Defense Tool in Commercial Litigation

November 7, 2016

Commercial Litigation

Federal Copyright Preemption of State Law Claims – Still a Powerful Defense Tool in Commercial Litigation

November 7, 2016

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Recently the Fifth Circuit’s decision in GlobeRanger Corp. v. Software AG USA, Inc., 2016 WL 4698270 (5th Cir., Sept. 7, 2016), focused on the Court’s discussion of the damages available to a plaintiff in a common law trade secrets case. The GlobeRanger opinion also devoted considerable attention to the “Copyright Preemption” doctrine, addressing Software AG’s contention that GlobeRanger’s common law misappropriation of trade secrets claim was preempted under the federal Copyright Act, 17 U.S.C. §106 because the software GlobeRanger claimed was misappropriated by Software AG was indisputably copyrightable. Although the Fifth Circuit had dealt with issues of Copyright Preemption in prior cases (including an earlier appeal in the GlobeRanger v. Software AG USA litigation), it had never directly dealt with the issue of whether a state common law claim of misappropriation of copyrightable trade secrets was preempted under the Copyright Act.

Federal copyright law preempts all state-law claims regarding rights that are equivalent to the exclusive rights protected by the Copyright Act. 17 U.S.C. § 301(a). Courts apply a two-part test to determine whether a state-law claim is preempted. First, the claim is examined to determine whether it falls “within the subject matter of copyright as defined by 17 U.S.C. § 102.” Carson v. Dynegy, 344 F.3d 446, 456 (5th Cir. 2003). The Fifth Circuit has held that copyright preemption can extend not only to documents and other works “fixed in a tangible medium of expression,” but also to the ideas and information contained or reflected in those documents. Spear Marketing v. BancorpSouth Bank, 791 F.3d 586, 593–97 (5th Cir. 2015). The great majority of federal circuit courts agree with the position set forth in Spear Marketing. See id. at 595–96 (citing cases from the Second, Fourth, Sixth, Seventh, and Ninth Circuits).

Second, “the cause of action is examined to determine if it protects rights that are ‘equivalent’ to any of the exclusive rights of a federal copyright, as provided in 17 U.S.C. § 106.” Carson, 344 F.3d at 456. These exclusive rights include the rights to reproduce, distribute, and publicly display copyrighted works, and to adapt or prepare derivative works based on those works. 17 U.S.C. §§ 106, 301(a). If the conduct forming the basis for the state-law claim is equivalent to an infringement of these rights, the claim is preempted. GlobeRanger, 2016 WL 4698270, at *4. However, if the state-law claim requires an “extra element” that is “qualitatively different” from a claim for copyright infringement, then the state-law claim is not preempted. Id.

The Fifth Circuit held that GlobeRanger’s claim for common law trade secret misappropriation was not preempted under the “extra element” analysis. In doing so, the Court found itself in harmony with the other federal circuits that had considered the issue:

Because trade secret law protects against not just copying but also any taking that occurs through breach of a confidential relationship or other improper means, all ten circuits that have considered trade secret misappropriation claims have found them not preempted by the Copyright Act.

2016 WL 4698270, at *5.

Yet in its review of the relevant Copyright Preemption case law, the Fifth Circuit’s GlobeRanger decision makes clear that other state common law and statutory claims commonly employed by plaintiffs in commercial litigation are subject to dismissal on Copyright Preemption grounds. The Court pointed to its own prior rulings holding that state law claims for unfair competition, conversion of trade secrets, and violation of the Texas Theft Liability Act were all preempted when directed at conduct that could also form the basis of a claim under federal copyright law. See Spear Mktg, 791 F.3d at 597–98; GlobeRanger Corp. v. Software AG USA, Inc., 691 F.3d 702, 709 (5th Cir. 2012); Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999). As other courts have pointed out, in an appropriate case, Copyright Preemption may also require the dismissal of state law claims based on breach of contract. Thus, a breach of contract claim is preempted to the extent that the breach is equivalent to an infringement of rights protected by 17 U.S.C. § 106. See Tavormina v. Evening Star Productions, Inc., 10 F. Supp. 2d 729, 734 (S.D. Tex. 1998) (contract claim was preempted as to breach based on unauthorized copying); Evolution, Inc. v. Suntrust Bank, 342 F. Supp. 2d 943, 960–61 (D. Kan. 2004); Wolff v. Institute of Electrical and Electronics Engineers, Inc., 768 F. Supp. 66, 69 (S.D.N.Y. 1991). In other words, when the breached contractual obligation simply involves a promise not to copy, distribute, publish, or prepare derivative works, the claim is preempted. Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 457–58 (6th Cir. 2001); see 1 Nimmer on Copyright § 1.01[B][1][a] at 1-22 (“[P]re-emption should continue to strike down claims that, though denominated ‘contract,’ nonetheless complain directly about the reproduction of expressive materials.”).

In short, while state common law trade secret misappropriation claims appear to be invulnerable to a Copyright Preemption attack, other claims based on any “state law protecting the same rights that the Copyright Act seeks to vindicate” are preempted. See GlobeRanger, 2016 WL 4698270, at *3. Thus, attorneys defending against such state law claims should take a close look at whether Copyright Preemption comes into play to some or all of a plaintiff’s causes of action..

[1][1] Applicable only to claims based on trade secret misappropriation commenced before September 1, 2013.  See Tex. Civ. Prac. & Rem. Code § 134.002(2) (deleting trade secret theft from the varieties of theft covered by the Act, effective September 1, 2013).

Blog Authors

David S. Morris | Of Counsel

David Morris is a trial attorney in Fish & Richardson’s Austin Office. His practice focuses on commercial and intellectual property litigation and also includes inter partes review (IPR) matters before the Patent Trial and Appeal Board. Earlier in David’s career,...

Tommy Jacks | Of Counsel

Tommy Jacks is Of Counsel to the Austin office of Fish & Richardson. His practice emphasizes general commercial litigation. Mr. Jacks has over 45 years of experience in general litigation on a wide range of complex commercial, trade secrets, qui tam, class action, professional...

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