“We have twice held that Texas’s unfair competition-by-misappropriation tort does not afford protection qualitatively different from federal copyright law. We do so again here.” Motion Medical Technologies v. Thermotek, No. 16-11381 (Nov. 14, 2017) (citing Ultraflo Corp. v. Pelican Tank Parts, Inc., 945 F.3d 652, 657-59 (5th Cir. 2017) and Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 787-89 (5th Cir. 1999)).
Defendant hosted a website with a public forum called “HairTalk.” Plaintiffs sued for copyright infringement when celebrity photos, to which they owned the rights, were posted by third-party users on HairTalk without their consent. The Fifth Circuit affirmed summary judgment for Defendant, adopting the “volitional conduct” requirement for direct infringement cases, and observing: “[I]t does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet.” BWP Media USA v. T&S Software, No. 16-10510 (March 27, 2017).
Defendants won an intellectual property dispute with Plaintiff, and then sought recovery of $1 million in attorneys fees. This request led to the surprisingly complicated question of exactly what claims were in the case when the Defendants won. The Fifth Circuit concluded: “The [Texas Theft Liability Act] claim in the [First Amended Complaint]–the operative complaint at
the time of the attorneys’ fee award—was never held to be preempted [by federal copyright law]. [Our earlier opinion on the merits] addressed only the TTLA claim as it was pleaded in the Original Petition and did not consider the TTLA claim in the FAC. This is significant because the TTLA claim in the FAC was distinct from that in the Original Petition and specifically omitted allegations that were equivalent to copyright, with the intention of avoiding preemption. And the district court also never held that the FAC’s TTLA claim was preempted. Rather, the TTLA claim in the FAC was litigated and dismissed on the merits during summary judgment, and therefore it was proper to award attorneys’ fees under the TTLA because that law supplied the rule of decision.” Spear Marketing v. Bancorpsouth Bank, No. 16-10155 (revised Jan. 12, 2017). This opinion echoes the complexity in other recent cases that addressed the substance of preemption issues involving federal copyright law.
The plaintiff in GlobeRanger Corp. v. Software AG won a $15 million judgment for misappropriation of trade secrets. The Fifth Circuit affirmed, holding:
- After a thorough review of Circuit precedent – not all entirely consistent – “that GlobeRanger’s trade secret misappropriation claim requires establishing an additional element than what is required to make out a copyright violation: that the protected information was taken via improper means or breach of a confidential relationship. Because the state tort provides substantially different protection than copyright law, it is not preempted.”
- Recognizing the “jurisdictional Catch-22” created by that ruling, and referring back to an earlier panel opinion from the time of the case’s removal: “As the complaint [then] alleged only conversion of intangible property for which there is equivalency between the rights protected under that state tort and federal copyright law, complete preemption converted the conversion claim into one brought under the Copyright Act that supported federal question jurisdiction at the time of removal and supplemental jurisdiction after it was dismissed.”
- Found that GlobeRanger had offered sufficient evidence of: (1) what specifically constituted its claimed trade secrets; (2) whether Software AG acquired trade secrets improperly or with notice of impropriety, particularly in light of federal contracting regulations; and (3) whether Software AG “used” any trade secret.
The opinion concluded with an unfortunately apt observation about the business litigation that is the focus of this blog: “This case demonstrates the unfortunate complexity of much of modern civil litigation. A trial involving a single cause of action—misappropriation of trade secrets (plus a derivate conspiracy claim)—has resulted in an appeal raising numerous issues that span the lifecycle of the lawsuit: jurisdiction; preemption; federal contracting regulations; expert testimony on damages; and jury instructions.
Baker sued DeShong under the Lanham Act about use of the phrase “HIV Innocence Group,” in connection with advocacy programs for individuals accused of infecting others with HIV. DeShong won and sought an award of attorneys fees. The Fifth Circuit concluded that after Octane Fitness v. Icon Health & Fitness, 134 S. Ct. 1749 (2014) (a patent case, but analogous to the similar Lanham Act provision), an award of fees to a defendant was not limited to bad faith and did not require a “clear and convincing” showing. To qualify as an “exceptional” case that justifies a fee award, the court should consider a “nonexclusive’ list of ‘factors,’ including ‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Baker v. DeShong, No. 14-11157 (May 3, 2016).
Jose Guzman, writer of the Tejano song Triste Aventuerera, sued Hacienda Records, alleging that its affiliated band “The Hometown Boys” infringed his copyright with their song Cartas de Amor (link below). The Fifth Circuit affirmed judgment for the defendants. After reminding about the significant deference due to the trial court on credibility issues, the Court agreed that Guzman’s evidence about radio play and live performance was properly rejected as to the issue of the defendants’ “opportunity to view” his song. Similarly, while acknowledging similarity in the first sixteen words of both songs, expert testimony showed that the words were set to different music and appeared in other songs as well, thus supporting the trial court’s rejection of his alternative “striking similarity” theory. The Court also declined to adopt a “sliding scale” test for infringement that would be weighted by the degree of similarity between the works at issue.
Concerto Labs, a chiropractic practice, sued another practice for copyright infringement as to “a short video outlining a diagnostic procedure and a blank form to be filled in while conducting that procedure.” The Fifth Circuit affirmed summary judgment for the defendant as neither interest could be copyrighted. As to the video, “[b]ecause the Appellants cannot own a copyright in a procedure, it does not matter if the procedure presented in one work is the same as or identical to that presented in another.” As to the form, it was “merely ‘designed for recording information and does not in itself convey information.'” Concentro Laboratories, LLC v. Practice Wealth, Ltd., No. 15-10325 (Nov. 30, 2015, unpublished).
SMI alleged ten causes of action, claiming that the defendants “had stolen both technical and business trade secrets related to VaultWorks,” a software program that helps banks manage their cash inventories. Spear Marketing, Inc. v. Bancorpsouth Bank, No. 14-10753 (June 30, 2015). A series of unfortunate events for SMI ensued:
1. Defendants removed on the grounds of complete preemption under the copyright laws. Acknowledging a lack of Fifth Circuit precedent on the specific issues in this case, as well as a split among other circuits, the Court found that “the technical trade secrets found within VaultWorks fall within the subject matter of copyright,” and that SMI’s Texas Theft Liability Act claim — and to the extent it involved intangible assets, its conversion claim – – were preempted.
2. SMI’s post-removal amendment to drop the key language for preemption failed because “jurisdictional facts are determined at the time of removal, and consequently post-removal events do not affect that properly established jurisdiction.” The Court concluded that “SMI has conflated the question whether the initial removal was proper . . . with the question whether the district court should, in its discretion, remand the case when the federal claims disappear as the case progresses.”
3. The remaining claims — trade secret misappropriation, in particular — failed for a lack of proof that the defendants actually used the information in question.
An architectural firm sued a former employee and a competitor. The Fifth Circuit affirmed judgment for the defendants in Hunn v. Dan Wilson Homes, No. 13-11297 (June 15, 2015). As to the firm’s claim for breach of fiduciary duty, the Fifth Circuit found no error in the district court’s finding that “the plans in the AutoCAD files were the same as the physical copies of the plans that [had] already been disseminated by [Plaintiff]” to various homeowners. A noncompete claim failed for lack of an express promise related to confidential information. Other claims based on copyright, the Lanham Act, contract, and the Computer Fraud and Abuse Act failed for similar proof problems. Particularly as to the elements of a noncompete claim under Texas law, the opinion provides a practical summary of potential claims related to an employee’s departure, as well as several commonly-litigated factual issues related to those claims.
Only in New Orleans. During Mardi Gras, a form of folk art takes discarded beads and twists them into a dog shape, also known as a “bead dog.” A seller of king cakes obtained a trademark for its mascot based on that image (below left), and sued a jewelrymaker who sold necklaces and earrings that also drew upon that image (below right).
The Fifth Circuit affirmed summary judgment for the jewelrymaker, reasoning:
1. The bakery’s “Mardi Gras Bead Dog” mark was descriptive of its products;
2. The mark was not inherently distinctive, and thus may be protected only if it had acquired secondary meaning;
3. Under the applicable seven-factor test, the bakery failed to establish that the mark had acquired secondary meaning; and .
4. While a dog itself cannot be copyrighted, its distinctive collar could potentially be, but on this record the Court concluded that no reasonable juror could find the collars to be “substantially similar in protectable expression.”
Other related state law claims were also dismissed. Nola Spice Designs, LLC v. Haydel Enterprises, Inc., No. 13-30918 (April 8, 2015).
A design firm proved at trial that Hallmark Design Homes built hundreds of houses such as the one on the right, using its copyrighted plans without permission. Hallmark filed for bankruptcy; the remaining issue was whether the claim was “advertising injury” under Mid-Continent’s various liability policies. Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, No. 14-50649 (Feb. 26, 2015, unpublished).
The Fifth Circuit affirmed judgment for the insured. After reminding that additional evidence can be offered in a coverage dispute about matters addressed in a prior lawsuit, the Court held: “[I]t is undisputed that Hallmark’s primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public . . . .” Because the homes themselves were “advertisements,” Mid-Continent’s policies covered the prior judgment.
(This post’s title comes from an exchange between Falstaff and Mistress Ford in The Merry Wives of Windsor.)
The same week as the en banc vote in the whooping crane litigation, the Fifth Circuit analyzed “Whoomp! (There It Is).” The unfortunate song has been mired in copyright infringement litigation for a decade; the district court entered judgment for the plaintiff for over $2 million, and it was affirmed in Isbell v. DM Records, Inc., Nos. 13-40787 and 14-40545 (Dec. 18, 2014). [The opinion notes: “The word “‘Whoomp!’ appears to be a neologism, perhaps a variant of ‘Whoop!,’ as in a cry of excitement.”]
The main appellate issue was a variant of a frequently-litigated topic — the role of extrinsic evidence in contract interpretation. The assignment in question was governed by California law, which the Court found to “employ a liberal parol evidence rule” with respect to consideration of extrinsic evidence. The appellant argued that the district court erred “in interpreting the Recording Agreement without asking the jury to make any findings on the extrinsic evidence.” The Court disagreed, finding that the record did not present “a question of the credibility of conflicting extrinsic evidence” (emphasis in original): “The only dispute is over the meaning of the Recording Agreement and the inferences that should be drawn from the numerous undisputed pieces of extrinsic evidence. This is a question of law for the court, not for a jury.”
Aspen Technology Inc v. M3 Technology Inc. affirmed an $11 million judgment in a suit to enforce a noncompetition agreement. Nos. 12-20388 & 13-20268 (May 29, 2014, unpublished). Most of the grounds are fact-specific and substantially influenced by spoliation matters. On a key copyright issue, the Court held: “Aspen’s registration of its derivative materials permits Aspen to bring a claim that M3 had infringed preexisting versions of its software,” aligning the Fifth Circuit with several other courts that have addressed the point. The Court removed roughly $500,000 in attorneys fees arising in prior litigation from the award for tortious interference, noting that the opposing party in that litigation was also a party in this case, removing the fee claim from the “equitable exception” to the rule that a contract or statute must allow recovery of fees.
The plaintiffs in Garziano v. Louisiana Log Home, Inc. made 88 percent of the installment payments for a build-it-yourself log cabin kit, and then defaulted. No. 13-60291 (May 29, 2014, unpublished). The log cabin company won summary judgment against several contract and tort claims by the purchasers. Before final judgment was entered, however, it came to light that the company had resold several of the logs and actually was ahead on the transaction overall. The district court denied a Rule 59(e) motion about this information and entered judgment. The Fifth Circuit reversed, finding that the district court should not have focused on plaintiffs’ erroneous characterization of the issue as “unjust enrichment,” and by doing so, “essentially granted LLH an impermissible double recovery—making the earnest money provision an unenforceable penalty.” The Court remanded “with instructions for the district court to make findings on the amount of actual damages that LLH suffered and to amend the judgment to remit to the Garzianos any monies paid to LLH under the contract that were in excess of LLH’s actual damages.” (The defendant offers several packages for log homes, all of which look elegant and cost-effective to this author.)
Two unpublished cases offer nuts-and-bolts insight on pleading requirements. A pro se copyright infringement complaint failed when the plaintiff “[d]id not plausibly allege that the defendants copied any original work of authorship by her.” Richards v. BP Exploration & Production, No. 12-30508 (April 3, 2013, unpublished). A qui tam suit under the False Claims Act failed to allege fraud with sufficient particularity. The Court noted that while Fed. R. Civ. P. 9(b) applies to FCA claims, its application there is “context specific and flexible,” and a plaintiff can plead with enough particularity “without including all the details of any single court-articulated standard–it depends on the elements of the claim in hand.” Nunnally v. West Calcasieu Cameron Hospital, No. 12-30656 (April 3, 2013, unpublished) (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 189-90 (5th Cir. 2009)).
The parties in Silver Dream LLC v. 3MC Inc. settled a copyright dispute about jewelry sales “by agreeing, among other things, that the [individual defendants] would provide affidavits disclosing details of the infringing items.” No. 11-30968 (March 18, 2013, unpublished). The defendants warranted the affidavits would be “true, complete, and exact” but the agreement allowed termination only if the affidavits were discovered to be false within a year. The plaintiff took issue with the “qualified nature” of the affidavits as a reason to terminate the settlement, but the district court and Fifth Circuit stressed that the cancellation right was limited to a “false” statement. The plaintiff’s proof of alleged affirmative falsehoods in the affidavits was found to lack specificity. The Fifth Circuit also found no abuse of discretion in denying a motion for continuance to depose the individual defendants, noting delay in the request and a lack of specificity about what the plaintiff planned to establish.
Baisden v. I’m Ready Productions involved several challenges to a defense verdict in a copyright infringement case. No. 11-20290 (Aug. 31, 2012). Among other holdings, the Fifth Circuit reminded that “[c]onsent for an implied [nonexclusive] license may take the form of permission or lack of objection,” making the Copyright Act’s requirement of a writing inapplicable. Id. at 9-10 (reviewing Lulirama Ltd. v. Axcess Broad. Servs., 128 F.3d 872 (5th Cir. 1997)). The Court also reviewed a jury instruction that allegedly conflated the question of license with that of infringement — a potential problem since the burdens are different on the two points — but found that while “the question is not a model of clarity” it did not give rise to reversible error. Id. at 19-21.
Globeranger Corp. v. Software AG involved Texas state law claims about the development of a radio frequency identification system. No. 11-10939 (Aug. 17, 2012). The defendants removed and obtained dismissal on the grounds of Copyright Act preemption. The Fifth Circuit agreed that section 301(a) of the Act creates complete preemption, and on the applicable test: “whether [the claim] falls ‘within the subject matter of copyright'” and whether it “protects rights that are ‘equivalent'” to those of a copyright. Id. at 6 (citing Carson v. Dynegy, 344 F.3d 446, 456 (5th Cir. 2003)). After through review of prior cases, the Court held that the conversion claim was likely preempted (thereby maintaining federal jurisdiction), but that the general basis for the claims included business practices excluded from copyright protection, making dismissal at the Rule 12 stage inappropriate. Id. at 10-12.