Ultraflo Corporation v. Pelican Tank Parts, Inc., et al

Filing

PUBLISHED OPINION FILED. [15-20084 Affirmed] Judge: CES, Judge: PRO, Judge: GJC. Mandate pull date is 02/01/2017 [15-20084]

Case: 15-20084

Document: 00513830789

Page: 1

Date Filed: 01/11/2017

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 15-20084

United States Court of Appeals
Fifth Circuit

FILED
January 11, 2017

ULTRAFLO CORPORATION,

Lyle W. Cayce
Clerk

Plaintiff - Appellant
v.
PELICAN TANK PARTS, INCORPORATED; THOMAS JOSEPH
MUELLER; PELICAN WORLDWIDE, INCORPORATED,
Defendants - Appellees

Appeal from the United States District Court
for the Southern District of Texas
Before STEWART, Chief Judge, and OWEN and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
This appeal requires us to again consider the preemptive force of the
Copyright Act. Plaintiff Ultraflo Corporation asserts an unfair competition by
misappropriation claim under Texas law alleging that a competitor stole its
drawings showing how to design valves and then used them to make duplicate
valves. We have previously held that copyright preempts this Texas cause of
action when the intellectual property at issue is within the subject matter of
copyright. Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 785–89 (5th Cir.
1999). Ultraflo contends that its claim escapes preemption because its valve
design, when separated from the drawing itself, is afforded no protection under
the Copyright Act. Because copyright preemption prohibits state interference

Case: 15-20084

Document: 00513830789

Page: 2

Date Filed: 01/11/2017

No. 15-20084
with Congress’s decision not to grant copyright protection just as much as it
protects a decision to provide protection, the district court correctly found that
the state claim is preempted.
I.
Ultraflo manufactures butterfly valves used in the transportation
industry. With the help of its employee Thomas Mueller, Ultraflo redesigned
its Model 390 butterfly valve. The new design was recorded in drawings that
specify the valve’s features and measurements.
Mueller ultimately left Ultraflo to work at Pelican—a competing valve
manufacturer.

Soon after, Pelican entered the market with a valve that

Ultraflo contends was strikingly similar to its own.
Believing that Pelican hired Mueller to gain access to its design drawings
and other intellectual property, Ultraflo sued Pelican and Mueller (jointly
referred to as Pelican) in state court for conversion, civil conspiracy, unfair
competition by misappropriation, and misappropriation of trade secrets.
Pelican sought to remove the case to federal court, arguing that the state
claims were preempted by the Copyright Act, but removal was untimely. Back
in state court, Pelican won a motion to dismiss, which argued that the court
lacked jurisdiction as the subject matter of the suit was subject to the copyright
laws, because Ultraflo failed to respond.
Before the state suit was dismissed, Mueller registered valve drawings
with the U.S. Copyright Office and filed a complaint in federal court, seeking
declaratory relief that the drawings (1) were copyrightable subject matter, (2)
belonged to Mueller, and (3) were not “works for hire” under the Copyright Act.
Mueller then voluntarily dismissed his suit in an attempt to encourage
settlement.
After the settlement failed to materialize, Ultraflo filed this federal
action. It again asserted the state tort claims and also sought a declaratory
2

Case: 15-20084

Document: 00513830789

Page: 3

Date Filed: 01/11/2017

No. 15-20084
judgment that Mueller was using a copyright that did not belong to him. The
district court sua sponte questioned whether Ultraflo’s state claims were
preempted by the Copyright Act. It ordered Ultraflo to file a second amended
complaint “avoiding allegations of state law claims that are clearly preempted
by federal law.”
That pleading reasserts all of Ultraflo’s state claims and notes that they
arise from Pelican’s “use of Ultraflo’s [design] drawings to make actual valves.”
For example, it alleges that the “unauthorized activities by Mueller in
retaining Ultraflo’s confidential drawings [and] the subsequent use of them by
Pelican . . . to make competitive valves, constitutes misappropriation of
Ultraflo’s valuable trade secrets.” It further contends that Defendants engaged
in unfair competition by misappropriating its “butterfly valves, valve features,
and components.”
Pelican subsequently filed a motion to dismiss on preemption grounds.
The district court agreed that all but Ultraflo’s trade secret claim were
preempted by the copyright laws. 1
In response, Ultraflo filed a third amended complaint that removed the
preempted state claims and added a claim of copyright infringement. Pelican
filed yet another motion to dismiss, seeking dismissal of the new copyright
claim. The district court denied the motion because Ultraflo alleged “that
Defendants infringed the drawings, not by taking the physical drawings, but
by taking their intangible intellectual property, using it to make their own
drawings and butterfly valve, and thereby infringing on Ultraflo’s exclusive
rights to reproduce its copyrighted work and to prepare derivative products
based on the copyrighted work.”

The court’s ruling on the trade secret claim accords with our subsequent decision in
GlobeRanger Corp. v. Software AG United States of Am., Inc., which held that a claim under
Texas trade secret law is not preempted. 836 F.3d 477, 486–88 (5th Cir. 2016).
1

3

Case: 15-20084

Document: 00513830789

Page: 4

Date Filed: 01/11/2017

No. 15-20084
The case proceeded to trial on the copyright and trade secret claims, both
of which the jury rejected. After trial, Ultraflo moved under Rule 50(b) for
judgment as a matter of law, or, alternatively, a new trial, on the ground that
the unfair competition claim was not preempted. Finding that this was not the
proper procedural vehicle to seek reconsideration of the pretrial dismissal of
the unfair competition claim, the court treated the motion as one asserted
under Rule 59. It declined to change its earlier ruling finding preemption.
II.
Ultraflo’s appeal does not challenge the jury’s rejection of its copyright
and trade secret claims. It seeks only reversal of the pretrial dismissal of the
unfair competition by misappropriation claim on preemption grounds.
Pelican asserts that Ultraflo waived its right to challenge the pretrial
preemption ruling by not raising the issue during trial in a number of ways.
According to Pelican, Ultraflo needed to request a jury charge on the dismissed
state law claims, introduce an offer of proof to show the evidence that
supported them, and seek entry of judgment as a matter of law on the state
claims under Rule 50(a) before the case was submitted to the jury.
The delay and expense resulting from such futile measures is not
required to preserve appellate review of a pretrial dismissal. 2

The final

judgment rule prevented Ultraflo from appealing the Rule 12 dismissal until
now. See Dig. Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863, 868 (1994)
(explaining that the rule provides that “a party is entitled to a single appeal,
to be deferred until final judgment has been entered”).

Indeed, Ultraflo

Confusion may have arisen from Ultraflo filing a post-trial Rule 50(b) motion for
judgment on the pleadings raising the preemption issue. The district court correctly noted
that this was not a proper motion to challenge the pretrial dismissal of claims. As discussed
infra, however, that is not because the same motion should have been asserted during trial.
There was no need to do anything during or after trial to preserve appellate review of the
Rule 12 dismissal.
2

4

Case: 15-20084

Document: 00513830789

Page: 5

Date Filed: 01/11/2017

No. 15-20084
followed the proper procedure by omitting the dismissed claims from its third
amended complaint. Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., 787
F.3d 716, 724 (5th Cir. 2015) (noting that requiring the repleading of claims
dismissed with prejudice would be at odds with judicial efficiency and might
be sanctionable). As those state claims were no longer part of the live pleading
in the case, Ultraflo could not have taken any of the actions with respect to
them during trial that Pelican urges.

But it is still allowed to appeal a

dismissal with prejudice of claims asserted in its earlier pleadings.

Id.

(explaining that when a pretrial dismissal of a claim is “on the merits or with
prejudice, the plaintiff may appeal that ruling without needing to include the
claim in a later amended complaint”).
III.
We thus may consider the merits of Ultraflo’s appeal: whether its unfair
competition by misappropriation claim is preempted by the Copyright Act.
We review this question de novo. GlobeRanger Corp. v. Software AG United
States of Am., Inc., 691 F.3d 702, 705 (5th Cir. 2012).
Section 301 of the Copyright Act preempts state law claims that fall
within the general scope of federal copyright law. Alcatel, 166 F.3d at 785. It
provides that:
all legal or equitable rights that are equivalent to any of the
exclusive rights within the general scope of copyright as specified
by section 106 in works of authorship that are fixed in a tangible
medium of expression and come within the subject matter of
copyright as specified by sections 102 and 103 . . . are governed
exclusively by this title. Thereafter, no person is entitled to any
such right or equivalent right in any such work under the common
law or statutes of any State.
17 U.S.C. § 301(a). This text is the source of the two-part test we use to
determine if the Copyright Act preempts a state law cause of action. Alcatel,
166 F.3d at 785–86. Courts first ask whether the intellectual property at issue
5

Case: 15-20084

Document: 00513830789

Page: 6

Date Filed: 01/11/2017

No. 15-20084
is within the subject matter of copyright. Id. If it is, then a state law claim is
preempted if it protects rights in that property that are equivalent to any of
the exclusive rights within the general scope of copyright. Id.
A.
The subject matter inquiry requires us to determine what intellectual
property Ultraflo is seeking to protect. The design drawings themselves are
undoubtedly within the scope of copyright protection; 3 they were the basis for
the copyright infringement claim Ultraflo took to trial.

But the unfair

competition claim is not based on Pelican’s copying the drawings. Ultraflo
instead alleges that Pelican used the drawings to make replica valves. Because
the valve design—the work in which Ultraflo asserts a right—is what was
allegedly misappropriated, Ultraflo argues that its claim does not seek
protection for a work protected by the copyright laws.
Ultraflo is correct that its valve design is not protected under the
Copyright Act: it is either a useful article 4 or an idea. 5 Were the question

Section 102 of the Copyright Act provides that “[w]orks of authorship include . . .
pictorial, graphic, and sculptural works.” 17 U.S.C. § 102. Section 101 defines “pictorial,
graphic, and sculptural works” to include “technical drawings.” 17 U.S.C. § 101. And design
drawings are considered copyrightable technical drawings. See Taquino v. Teledyne Monarch
Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990) (treating engineering drawings as
copyrightable); M–I LLC v. Stelly, 733 F. Supp. 2d 759, 782 (S.D. Tex. 2010) (treating tool
design drawings as copyrightable).
4 A useful article is “an article having an intrinsic utilitarian function that is not
merely to portray the appearance of the article or to convey information.” 17 U.S.C. § 101.
Section 101 further states that “the design of a useful article, as defined in this section, shall
be considered a pictorial, graphic, or sculptural work [that is, copyrightable] only if, and only
to the extent that, such design incorporates pictorial, graphic, or sculptural features that can
be identified separately from, and are capable of existing independently of, the utilitarian
aspects of the article.” Id. Neither party disputes that the Model 390 butterfly valve design
includes only utilitarian features and thus is not subject to copyright protection.
5 “In no case does copyright protection for an original work of authorship extend to
any idea [or] concept . . . regardless of the form in which it is described, explained, illustrated,
or embodied in such work.” 17 U.S.C. § 102(b).
3

6

Case: 15-20084

Document: 00513830789

Page: 7

Date Filed: 01/11/2017

No. 15-20084
simply whether the work in which Ultraflo asserts a right is protected under
the Copyright Act, its argument would carry the day.
The preemption statute, however, sweeps more broadly. It preempts
state protection of works that fall within the subject matter (that is, the scope)
of copyright, regardless whether the works are actually afforded protection
under the Copyright Act. Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d
586, 596–97 (5th Cir. 2015). “[S]cope and protection are not synonyms.” Id. at
596 (quoting U.S. ex rel. Berge v. Bd. of Trs. of the Univ. of Ala., 104 F.3d 1453,
1463 (4th Cir. 1997)). As the Fourth Circuit put it, “the shadow actually cast
by the Act’s preemption is notably broader than the wing of its protection.”
U.S. ex rel. Berge, 104 F.3d at 1463.
This distinction led us to hold in Spear Marketing that state claims based
on ideas fixed in a tangible medium of expression fall within the subject matter
of copyright even though copyright law does not protect the mere ideas. 791
F.3d at 597. The parties disputed whether copyright preemption extended to
state claims protecting the noncopyrightable material—ideas—contained in
copyrightable works—a software program. Id. at 594. In finding that it did,
we noted that to allow states to protect fixed ideas would intrude upon
Congress’s exclusion in section 102(b) of ideas from federal copyright
protection. Id. at 596 (citing 5 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER
ON COPYRIGHT

§ 19D.03[A][2][b]).

The result should be no different for the valve design that Congress also
chose to exclude from copyright protection. 6 Indeed, the exclusion of useful
articles from copyright protection is a corollary of the idea-expression
A copyright treatise reaches the same conclusion in considering the preemption
question for another type of subject matter that is excluded from copyright protection:
typeface. HOWARD B. ABRAMS, THE LAW OF COPYRIGHT § 6:22 (2016) (concluding that if
“Congress deliberately made certain classes of subject matter ineligible for federal copyright
protection, as was clearly the case for typeface designs, then . . . the state law is preempted”).
6

7

Case: 15-20084

Document: 00513830789

Page: 8

Date Filed: 01/11/2017

No. 15-20084
dichotomy that Spear Marketing rejected as a basis for the dividing line of
when copyright preemption applies. See Mazer v. Stein, 347 U.S. 201, 217
(1954); Durham Indus. v. Tomy Corp., 630 F.2d 905, 913 (2d Cir. 1980) (“Just
as copyright protection extends to expression but not ideas, copyright
protection extends only to the artistic aspects, but not the mechanical or
utilitarian features, of a protected work.”). Congress’s exercise of its power
under the Copyright Clause to not provide protection for the embodiment of
ideas in useful articles is entitled to preemptive force. Allowing state law to
protect such works would undermine the “deliberate exclusion” of such subject
matter from the federal copyright scheme. Spear Mktg., 791 F.3d at 596.
B.
That the valve design is within the subject matter of copyright does not,
on its own, mean that the state claim is preempted. As mentioned at the
outset, the state law must also seek to protect rights equivalent to those
“within the general scope of copyright.” 17 U.S.C. § 301. This is determined
by the “extra elements” test, which looks at whether “one or more qualitatively
different elements are required to constitute the state-created cause of action
being asserted.” Alcatel, 166 F.3d at 787. If so, the state law protects rights
different than those that the Copyright Act protects and there is no
preemption. Id.
We

have

previously

held

that

Texas’s

unfair

competition

by

misappropriation cause of action 7 does not afford protection materially
different from federal copyright law. Id. at 787–89. In doing so, we rejected
Alcatel’s attempt to satisfy the extra elements test by pointing to the state
The elements of Texas’s unfair competition by misappropriation are: (1) the creation
by a plaintiff of a product through extensive time, labor, skill, and money; (2) the use of that
product by defendant in competition with plaintiff; and (3) commercial damage to the
plaintiff. U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 218
(Tex. App.—Waco 1993, writ denied).
7

8

Case: 15-20084

Document: 00513830789

Page: 9

Date Filed: 01/11/2017

No. 15-20084
tort’s elements of sweat equity and use against a competitor. Id. With respect
to the former, we concluded “the time, labor, skill, and money expended by the
author in creating the work are necessarily contemplated in [] copyright,”
which requires independent creation. Id. at 789. As to the latter, we held that
reproduction or derivate use of a copyright by a competitor would suffice to
show copyright infringement. 8 Id.
Ultraflo attempts to get around Alcatel by focusing on the special
copyright status of drawings depicting useful articles. Although the Copyright
Act provides the owner of such a drawing the exclusive right to reproduce the
drawing itself, it does not grant the exclusive right to use the drawing to make
the useful article depicted. See 17 U.S.C. § 113(b) (“This title does not afford, to
the owner of copyright in a work that portrays a useful article as such, any greater
or lesser rights with respect to the making, distribution, or display of the useful
article so portrayed than those afforded to such works under the law . . . .”); 1
NIMMER, supra, § 2A.12. At first blush, it thus appears that Ultraflo’s unfair
competition by misappropriation claim protects a right that federal copyright
does not: exclusive use of the copyrightable design drawings to make the
depicted valves.
Again, however, the preemption inquiry operates on a more general
level. The question is not whether state law provides a right identical to
federal copyright law, but whether state law provides a right akin to those
“within the general scope of copyright as specified by section 106.” 17 U.S.C. §
301 (emphasis added).

Among the exclusive rights generally provided to

Ultraflo also contends that unfair competition by misappropriation is qualitatively
different because it requires intent to engage in dishonest conduct. That a state law requires
scienter as a condition to liability, however, does not save the state law from preemption. See
R.W. Beck, Inc. v. E3 Consulting, LLC, 577 F.3d 1133, 1148–49 (10th Cir. 2009) (holding that
the addition of a scienter element did not render defendant’s unfair competition claim
qualitatively different from copyright infringement).
8

9

Case: 15-20084

Document: 00513830789

Page: 10

Date Filed: 01/11/2017

No. 15-20084
copyright holders in section 106 is the right to make derivative use of
copyrighted works. 17 U.S.C. § 106. State claims protecting against such use
by another thus are preempted by Section 301. See Alcatel, 166 F.3d at 789
(holding that plaintiff’s unfair competition by misappropriation claim was
preempted by the Copyright Act when plaintiff alleged defendant stole its
software, used it to make microprocessors, and then distributed the
microprocessors in competition with plaintiff); M–I LLC v. Stelly, 733 F. Supp.
2d 759, 784–85 (S.D. Tex. 2010) (holding that plaintiff’s unfair competition by
misappropriation claim, alleging defendant used, without permission,
plaintiff’s tool design drawings to make a competing product, did not supply a
qualitatively different element and thus was preempted).

Indeed, section

113(b), by carving out use of technical drawings to make useful articles from
copyright protection, recognizes that such derivative use may otherwise be
protected by the copyright laws.
Similar to what we saw with the subject matter inquiry, the “equivalent
rights” inquiry thus looks not at the rights Congress actually provided but at
the type of rights it has the power to confer. Withholding a particular right is
part of the balance Congress struck between the need for copyright incentives
and the value in public access to ideas. See H.R. REP. NO. 94-1476, at 105
(1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5720 (explaining that Congress,
through

section

113(b),

reaffirmed

the

longstanding

idea-expression

dichotomy, which provides that ideas contained in copyrighted works are free
to the public unless otherwise protected by patent law). Section 113(b), as a
particular application of the idea-expression dichotomy, also plays a role in
demarcating the boundary between copyright and patent law. Id.; see generally
Baker v. Selden, 101 U.S. 99 (1879). To allow state law protection in this area
that Congress excluded from the ambit of copyright thus would run afoul of the
“‘familiar doctrine’ that the federal policy ‘may not be set at naught, or its
10

Case: 15-20084

Document: 00513830789

Page: 11

Date Filed: 01/11/2017

No. 15-20084
benefits denied’ by the state law.” Sears, Roebuck & Co. v. Stiffel Company,
376 U.S. 225, 228 (1964) (quoting Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S.
172, 176 (1942)).
*

*

*

The district court correctly held that the Copyright Act preempted
Ultraflo’s unfair competition claim. The judgment is AFFIRMED.

11