United States: Recent Developments On Copyright Preemption Of Trade Secret Claims In The Fifth Circuit

For the latest on the copyright preemption doctrine (codified at 17 U.S.C. § 301(a)) look no further than the Fifth Circuit, which, together with its district courts, issued a string of recent decisions regarding the preemption of trade secret claims involving software.  Most recently, the Fifth Circuit found that preemption extends to all fixed original works of authorship, even those works incorporating ideas, systems and processes, among other types of noncopyrightable material as defined in § 102(b) of the Copyright Act. Spear Mktg., Inc. v. BancorpSouth Bank, Case No. 14-10753 (5th Cir. June 30, 2015).

Spear Mktg involved claims that the defendants violated the Texas Theft Liability Act ("TTLA") and several other Texas laws by allegedly stealing technical and business trade secrets incorporated in software products for the banking industry.  The defendants removed the case to the N.D. Texas on preemption grounds because the plaintiff alleged they received the alleged trade secret information through screen prints and product demos — information and ideas fixed in a tangible medium as would be required in a copyright claim.  The plaintiff petitioned for remand, which the district court denied.

On appeal, the Fifth Circuit focused on preemption of the TTLA claim, applying the well-established two-part test to determine whether a state law claim is preempted by the Copyright Act:

First, the claim is examined to determine whether it falls "within the subject matter of copyright" as defined by 17 U.S.C. § 102. And 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.

For the first element, the court explained that it favored the defendants' reading of the preemption doctrine, finding that "state law claims based on ideas fixed in tangible media are preempted."  In doing so, the Fifth Circuit sided with the Second, Fourth, Sixth and Seventh Circuits on this question, departing only from the Eleventh Circuit's reading.  This was the Fifth Circuit's first time addressing this issue because, as the unanimous panel noted, its prior decisions generally focused on the second ("equivalency") element of the preemption test, which is typically more hotly litigated.

With regard to the second element, the court reasoned that the TTLA claim consisted of allegations of "copying, communicating, and transmitting," which the court found sufficiently equivalent to the exclusive rights protected by copyright law.

Another trade secret defendant may look to Spear Mktg for support in appealing a 15 million dollar judgment issued by the same Texas district Court.  GlobeRanger Corp. v. Software AG, Case No. 15-10121 (5th Cir. 2015).  GlobeRanger involves a Texas trade secret misappropriation claim, which the district court found was not preempted based on the presence of "extra" elements, such as improper use, not present in a copyright claim.  GlobeRanger Corp. v. Software AG, 3:11-CV-0403-B (N.D. Tex June 11, 2015). These extra elements, according to the court, weigh against an equivalency finding.

Some commentators anticipate that Software AG will rely heavily on Spear Mktg in its appeal, but a closer look at the Spear Mktg opinion may give Software AG some pause.  In particular, the Spear Mktg panel commented on Globeranger and an earlier appeal for that case, suggesting that Globeranger's trade secret misappropriation count differs from the TTLA count in Spear Mktg.:

GlobeRanger, our most recent foray into copyright preemption, appears to touch on the issue, but the claims in that case involved actual physical acts, not just software:

Software AG's opening brief in the GlobeRanger litigation is due later this month, and trade secret practitioners will be watching closely to determine if the Fifth Circuit choses to extend the preemption doctrine even further.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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