GlobeRanger Corporation v. Software AG et al
Filing
27
MEMORANDUM OPINION AND ORDER denying 10 Motion to Remand to State Court. (Ordered by Judge Jane J Boyle on 8/11/2011) (Judge Jane J Boyle)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
GLOBERANGER CORPORATION
Plaintiff,
v.
SOFTWARE AG, et. al.,
Defendants.
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§ CIVIL ACTION NO. 3:11-CV-0403-B
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MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff GlobeRanger Corporation’s (“GlobeRanger”) Motion to Remand
(doc. 10). Having considered the Motion, the Court finds that it should be and hereby is DENIED.
I.
BACKGROUND1
This case concerns Defendants Software AG-Germany, Software AG- USA, Inc., Software
AG, Inc., Naniq Systems, LLC, and Main Sail, LLC, (collectively the “Defendants”) alleged
misappropriation of GlobeRanger’s trade secrets related to the GlobeRanger RFID Solution, a radio
frequency identification (“RFID”) system. (Pl.’s Original Pet. ¶¶ 21-27). By way of background,
GlobeRanger uses its RFID software platform, along with necessary hardware, to create customtailored GlobeRanger RFID Solutions for its customers. (Id.). GlobeRanger alleges that it was
denied an opportunity to present its RFID Solution to the Naval Supply Chief Information Officer
The background facts are derived from undisputed facts gleaned from the parties' court papers. Where
there may be a dispute over a stated fact the Court has so indicated by claiming the fact as one stated by
that party to be true.
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due to misconduct by Defendants.(Id. at 53, 68). Additionally, GlobeRanger alleges that Defendants
used their access to GlobeRanger’s RFID Solution technology to reverse-engineer the program and
create and market their own RFID Solution. (Id. at 42, 44, 88-93).
On February 24, 2011 GlobeRanger filed suit in state court, asserting claims of
misappropriation of trade secrets, conversion, unfair competition, conspiracy, and tortious
interference against Defendants. (Pl.’s Original Pet. ¶¶ 95-119). Defendants removed the action
to this Court from the Dallas County Court at Law No. 1 on March 1, 2011, alleging that
GlobeRanger’s state law claims are preempted by the Copyright Act. (Def.’s Notice of Removal 2).
Plaintiff GlobeRanger filed its Motion to Remand (doc. 10) on March 25, 2011. The Motion being
ripe, the Court now turns to the merits of its decision.2
II.
LEGAL STANDARDS
A. Motion to Remand
A defendant may remove an action filed in state court to federal court if the case could have
originally been filed in federal court. 28 U.S.C. § 1441(a). Federal subject matter jurisdiction is
limited, and federal courts may entertain only those cases involving a question of federal law or those
where parties are of diverse citizenship. See 28 U.S.C. §§ 1331-32. Because the removal statute is
strictly construed, any ambiguities are construed against removal. Manguno v. Prudential Prop. &
Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002); see also Acuna v. Brown & Root, Inc., 200 F.3d 335,
Previously, on December 3, 2010, GlobeRanger filed an almost identical action in federal court, assigned
to this Court. (Case No. 3:10-CV-2464-B) GlobeRanger later voluntarily dismissed the case without
prejudice on February 24, 2011. (Doc. 22 Feb. 24, 2011).
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339 (5th Cir. 2000) (stating that doubts regarding removal are resolved against federal jurisdiction).
The party invoking federal jurisdiction has the burden of establishing it. De Aguilar v. Boeing Co.,
47 F.3d 1404, 1408 (5th Cir. 1995). The district court may “pierce the pleadings” and consider
outside evidence in determining whether remand is appropriate. See Burden v. Gen’l Dynamics Corp.,
60 F.3d 213, 216-17 (5th Cir. 1995). However, the Court must limit its consideration of outside
evidence to factual issues related to jurisdiction. Id. If at any point during the course of litigation “it
appears that the [federal] district court lacks subject-matter jurisdiction, the case shall be
remanded.” 28 U.S.C. § 1447(c).
B. Supplemental Jurisdiction
Federal courts are vested with supplemental jurisdiction when, having original jurisdiction
over a federal claim, additional state claims “are so related to claims in the action within such
original jurisdiction that they form part of the same case or controversy under Article III of the
United States Constitution.” 28 U.S.C. § 1367(a). The federal court may exercise supplemental
jurisdiction over state law claims that “derive from a common nucleus of operative fact.” United
Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966). If a plaintiff’s state and federal claims are
of such a character “that he would ordinarily be expected to try them all in one judicial proceeding,
then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.”
Id.
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III.
ANALYSIS
In their Notice of Removal, Defendants claim that although Plaintiff’s Original Petition does
not include a copyright claim, the causes of action asserted are preempted by the Copyright Act.
(Def.’s Notice of Removal 2-5).
Federal courts have exclusive original jurisdiction over claims of copyright infringement.
Goodman v. Lee, 815 F.2d 1030, 1031 (5th Cir. 1987) (citing 28 U.S.C. § 1338(a)). The Copyright
Act generally preempts state law claims that are equivalent to any of the exclusive rights created by
the copyright law. 17 U.S.C. § 301(a). In determining whether a state law claim is preempted by
the federal copyright law, the Court applies a two-prong test. Carson v. Dynegy, Inc., 344 F.3d 446,
456 (5th Cir. 2003)(citing Daboub v. Gibbons, 42 F.3d 285, 288-89 (5th Cir. 1995)). First, the Court
determines whether the claim falls within the subject-matter of copyright. Id. Next, the Court looks
to whether the state law cause of action protects rights that are “equivalent” to any of the exclusive
rights protected by copyright, which include rights to reproduce, distribute, perform, and display the
copyrighted work. 17 U.S.C. § 106; Carson, 344 F.3d at 456. A state-created right is equivalent to
these rights “if the mere act of reproduction, distribution, or display infringes it.” Taquino v. Teledyne
Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990) (citations omitted). The “extra-element” test
is used to determine whether the protected rights under state law are equivalent to the rights
protected under the Copyright Act. A state claim is equivalent if it involves “‘elements that would
not establish qualitatively different conduct by the defendants than the elements for an action under
the Copyright Act.’” Daboub, 42 F.3d at 290 (quoting Quincy Cablesystems, Inc. v. Sully’s Bar, Inc.,
650 F.Supp. 838, 850 (D.Mass. 1986)).
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A. Subject-Matter Jurisdiction
The Court must first determine whether the GlobeRanger RFID Solution falls within the
subject-matter of the Copyright Act, which states:
(a) Copyright protection subsists . . . in original works of authorship fixed in any
tangible medium of expression, now known or later developed, from which they can
be perceived, reproduced, or otherwise communicated, either directly or with the aid
of a machine or device. . .
(b) In no case does copyright protection for an original work of authorship extend to
any idea, procedure, process, system, method of operation, concept, principle, or
discovery, regardless of the form in which it is described, explained, illustrated, or
embodied in such work.
17 U.S.C. § 102 (a-b).
Here, Defendants argue that GlobeRanger’s suit is preempted by the Copyright Act because
computer programs are protected by the Copyright Act, and GlobeRanger’s claims are based on
Defendant’s improper access to and use of GlobeRanger’s computer software. (Def.’s Notice of
Removal 2-5). GlobeRanger maintains in its Motion to Remand that the Defendants stole its “ideas
and processes,” not its computer software or program. (Pl.’s Mot. Remand 16).
In its Original Petition, GlobeRanger alleges that Defendants reverse-engineered
GlobeRanger’s software codes. (Pl.’s Original Pet. ¶¶ 75-85). Defendants argue that the act of
reverse-engineering necessarily falls within the scope of the Copyright Act because only tangible
expressions of ideas and processes can be reverse-engineered, not the ideas and processes themselves.
(Def.’s
Notice of Removal 5).
GlobeRanger counters that Defendants already possessed
webMethods, a software platform capable of implementing an RFID system. (See Pl.’s Original Pet.
¶ 34). GlobeRanger further argues that the GlobeRanger RFID Solution is different for every client.
(Pl.’s Mot. Remand 10-11). As a result, GlobeRanger argues, Defendants did not steal the tangible,
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creative expression of a particular GlobeRanger RFID Solution. Rather, they stole the intangible
research, development, skills, labor, reputation and expenditures used to create a variety of
GlobeRanger RFID Solutions. (Id. at 12).
It is well-settled that computer software falls within the scope of copyright protection.
Computer Mgmt. Assistance Co. v. Robert F. DeCastro, Inc., 220 F.3d 396, 400 (5th Cir. 2000)(citing
Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 259 (5th Cir. 1988)). The plaintiff in Alcatel USA,
Inc. v. DGI Technologies, Inc., 166 F.3d 772, 789 (5th Cir. 1999), argued that its misappropriation and
infringement claims against a competitor were not preempted by the Copyright Act because they
were based on facts contained within copyrightable software, rather than on the copyrightable
software itself. Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 789 (5th Cir. 1999). The
Fifth Circuit disagreed, holding that the plaintiff undermined its argument against preemption by
basing its misappropriation claim on the competitor’s use of and reliance on the plaintiff’s software,
firmware, and manuals in developing the competing product. Id.
Here, GlobeRanger’s arguments against preemption under the first prong of the subjectmatter analysis likewise fall short of their mark. In its Motion to Remand, GlobeRanger characterizes
Defendants’ alleged misconduct according to the process developed by GlobeRanger rather than the
software.
However, GlobeRanger’s Original Petition
alleges that Defendants conspired to
unlawfully acquire the GlobeRanger RFID Solution developed for the Navy, that Defendants
“gain[ed] unlawful access to GlobeRanger’s data dictionary and workflows,” and that Defendants
reverse-engineered code from the GlobeRanger RFID Solution. (See Pl.’s Original Pet. ¶¶ 75-77, 8182, 85). From this language, the Court determines that this action centers on the software and not
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the process, and thus is within the subject matter of the Copyright Act. See 17 U.S.C. § 102(a);
Computer Mgmt. Assistance Co., 220 F.3d at 400.
B. Claims Equivalent to Exclusive Rights Granted by Copyright Act
Having determined that GlobeRanger’s claims fall within the subject-matter of the Copyright
Act, the Court next applies the equivalency test to each of GlobeRanger’s claims. If an asserted state
law claim protects rights equivalent to the rights protected under the Copyright Act, it is preempted
and this Court has original exclusive jurisdiction over the claim. See Carson, 344 F.3d at 456. The
“extra element” test is used to evaluate the equivalency of rights. Id. Under the test, “if ‘one or more
qualitatively different elements are required to constitute the state-created cause of action being
asserted, then the right granted under state law does not lie within the general scope of copyright,
and preemption does not occur.’” Id. If the core of a state law theory of recovery is the same as the
interests clearly protected by the Copyright Act — the wrongful copying, distribution or presentation
of the copyrighted material — then the elements are not qualitatively different than the elements
for an action under the Copyright Act. See Daboub, 42 F.3d at 289-90 (5th Cir. 1995); see also Sony
Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 450 (1984)(recognizing that the purpose
of the Copyright Act “is to create incentives for creative effort.”).
To prevail on a misappropriation claim under Texas law, the plaintiff must establish that “‘(1)
a trade secret exists; (2) Defendants acquired the trade secret by breach of a confidential relationship
or other improper means; and (3) Defendants used the trade secret without authorization.’” Gen.
Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 449 (5th Cir. 2007). The Fifth Circuit explains that
“[i]n contrast to federal copyright law, which focuses on the value of creativity, [Texas]
misappropriation law is specifically designed to protect the labor – the so-called ‘sweat equity’ – that
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goes into creating a work.” Alcatel, 166 F.3d at 788 (emphasis in original). However, the Fifth
Circuit held that if the “acts that form the basis of [a] misappropriation claim touch on interests
clearly protected by the Copyright Act” then the claim is preempted. Id. at 789.
At the core of GlobeRanger’s misappropriation of trade secrets claim are allegations that
Defendants wrongfully copied and misused GlobeRanger’s RFID Solution software. (See Pl.’s
Original Pet. ¶¶ 81, 84, 97). GlobeRanger alleges that Defendants’ deliberate misappropriation of
its trade secrets and proprietary information destroyed the competitive advantage GlobeRanger
obtained by spending considerable time and money on development. (See id. at ¶¶ 21-27, 93). Since
a Texas misappropriation of trade secrets claim shares the same purpose as the Copyright Act and
protects the same interests, the Court finds that GlobeRanger’s misappropriation of trade secrets
claim is preempted by the Copyright Act.
The Court next addresses GlobeRanger’s unfair competition claim. Under Texas law, unfair
competition “is the umbrella for all statutory and nonstatutory causes of action arising out of business
conduct which is contrary to honest practice in industrial or commercial matters.” Taylor Pub. Co.
v. Jostens, Inc., 216 F.3d 465, 486 (5th Cir. 2000)(quoting American Heritage Life Ins. Co. v. Heritage
Life Ins. Co., 494 F.2d 3, 14 (5th Cir. 1974). The cause of action “requires that the plaintiff show an
illegal act by the defendant which interfered with the plaintiff’s ability to conduct its business.” Id.
In a per curiam opinion, the Fifth Circuit recognized that “state-law claims of unfair
competition . . . are preempted by section 301(a) of the Copyright Act.” West v. Perry, 392 Fed.
Appx. 328, 328-39 (5th Cir. 2010) (per curiam); see also MicroSource, Inc. v. Superior Signs, Inc.,
1998 WL 119537, at *2 (N.D. Tex. 1998)(citing Daboub, 42 F.3d at 289)(finding that because
plaintiff alleged that defendants wrongfully copied and distributed the plaintiff’s software, the unfair
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competition claim satisfied the Daboub test and was preempted). At the center of GlobeRanger’s
unfair competition cause of action is the allegation that Defendants wrongfully copied and misused
its software. Accordingly, GlobeRanger’s unfair competition claim fails the “extra element” test, and
the claim is preempted by the Copyright Act.
GlobeRanger’s tortious interference, conversion, and conspiracy causes of action derive from
the same nucleus of operative fact as the events giving rise to the misappropriation and unfair
competition claims (Pl.’s Original Pet. ¶¶100-105, 110-113). Accordingly, the Court may exercise
supplemental jurisdiction over them and need not address whether each of those claims is
independently preempted by the Copyright Act. See 28 U.S.C. § 1367(a); Gibbs, 383 U.S. at 725.
IV.
CONCLUSION
GlobeRanger’s claims for misappropriation of trade secrets and unfair competition are
preempted by the Copyright Act and are subject to this Court’s jurisdiction. Additionally,
GlobeRanger’s state-law claims for tortious interference, conversion, and conspiracy are subject to
supplemental jurisdiction because they share a common nexus of operative facts with the preempted
claims. For these reasons, the Court DENIES Plaintiff GlobeRanger’s Motion to Remand this case
and declines to award costs under 28 U.S.C. § 1447(c).
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SO ORDERED.
SIGNED August 11, 2011
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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