IP Audit —€“ the Fifth Circuit cuts a big hole in the IP safety net —€“ time to see if your business can still be protected?


  • Name
    DJ Healey
    Person title
    Senior Principal
    Headshot of DJ Healey

It is time for an IP audit for any company doing business in Texas following the U.S. Fifth Circuit Court of Appeals decision last week in Motion Medical Technologies LLC, et al. v. Thermotek Inc. v. TRI 3 Enterprises, LLC, No. 16-11381 (5th Cir. Nov. 14, 2017). Why? Texas had long provided protection for businesses against misappropriation of time, effort, skill, and investment, barring others from free-riding on material developed at significant expense, by making misappropriation of even non-secret material that cannot be copyrighted or patented, actionable as unfair competition. U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App.—Waco 1993, writ denied) ("Within the broad scope of unfair competition are the independent causes of action such as trade-secret law, 'palming off' or passing off, and misappropriation, to name only a few."). In Motion Medical Technologies LLC, the Fifth Circuit held "federal copyright and patent laws preempted the unfair-competition-by-misappropriation claim."

In doing so, the Fifth Circuit left intact trade secret, patent, and copyright protection, but eliminated the "catch-all" protection for business information and methods that were neither patentable nor copyrightable nor trade secret. Texas' unfair competition by misappropriation is —€“ or rather was —€“ important in today's environment where there are gaps in federal patent and copyright protection. For example, many business method patents are held to be void as claiming unpatentable subject matter, and it is questionable whether patents are still viable to protect business methods. Copyrights have been held not to cover compilations of data. The original Texas unfair competition by misappropriation case was a recording of a collection of bird songs that was held not be copyrightable. Likewise, trade secret law would not have protected the recording in Johnny Stewart Game Calls. In other words, while a business could go to common law unfair competition to protect its investments in intellectual capital, now it cannot.

So what do you do? You can often take extra measures in either your creation, use, or maintenance, of your intellectual capital to "gap fill." But to make sure you "max out" on your trade secret, copyright and patent protections you have to know what you have in order to protect it. Is there value and investment in how your software macros populate fields that enhance your business' efficiency or customer service or quality? Are there compilations of non-secret data that your business has developed over time? Are there methods of doing business in which you have invested and depend upon to differentiate from your competitors? If so, it is time for an IP audit as a first step to decide how to fill in the gap in protection the Fifth Circuit has now created under Texas law.

Author: DJ Healey