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December 18, 2014

§ 301(a) of Copyright Act Creates Complete Preemption

Addressing preemption under the Copyright Act for the first time, the U.S. Court of Appeals for the Fifth Circuit joined the Second, Fourth and Sixth Circuits in holding that the preemptive force of the Copyright Act is so “extraordinary” that it converts an ordinary state common-law complaint into one stating a federal claim for the purpose of the well-pleaded complaint rule.  GlobeRanger Corp. v. Software AG et al., Case No. 11-10939 (5th Cir., Aug. 17, 2012) (Southwick, J.).

GlobeRanger, a Texas-based software company specializing in radio frequency identification systems, brought suit in state court alleging that the defendants misappropriated GlobeRanger’s trade secrets in developing a radio frequency identification solution for the United States Navy.  GlobeRanger asserted only state common-law claims of misappropriation of trade secrets, conversion, unfair competition, conspiracy and tortious interference.  The defendants removed the suit to federal court and moved to dismiss on the basis that all of GlobeRanger’s claims were preempted under the Copyright Act.  The district court granted the motion to dismiss and directed GlobeRanger to amend its complaint to reflect a Federal Copyright Act claim.  GlobeRanger appealed.

Complete Preemption

A case may not normally be removed to federal court based on a preemption defense.  However, where Congress has intended the federal cause of action to be the exclusive cause of action for particular claims, the “complete preemption” doctrine converts the state common-law claims into federal causes of action.  Following the 4th Circuit’s approach, the 5th Circuit determined that the grant of exclusive jurisdiction to the federal district courts over civil actions arising under the Copyright Act, combined with the preemptive force of § 301(a), compelled the conclusion that Congress intended that state-law actions preempted by § 301(a) of the Copyright Act arose under federal law.  As such, state-law claims preempted by § 301(a) are transformed into a federal claim for the purpose of the well-pleaded complaint rule.

Copyright Act May Preempt Some, but Not All, of GlobeRanger’s Claims

On a claim-by-claim basis, the court began to apply the two-factor test discussed in Carson v. Dynegy to determine whether each state-law claim would be preempted by the Copyright Act.  First, each claim is examined to determine whether it falls within the subject matter of copyright as defined by 17 U.S.C. § 102. 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.

The court determined that GlobeRanger alleged facts regarding the copying of business practices not wholly limited to the specific expression of the software.  Those solutions included types of procedures, processes, systems and methods of operations that are excluded from copyright protection and, thus, are not preempted by the Copyright Act.  However, the court also determined that certain clams may be preempted, such as GlobeRanger’s conversion claim.  This claim hinges on whether the claim refers to physical property, as under Texas law, or intangible property that may be protected by copyright. 

Since some of GlobeRanger’s claim may be preempted, the 5th Circuit determined that the district court has sufficient jurisdiction to keep the case in federal court at the motion to dismiss stage.  Due to the limited factual record, the case was remanded for the district court to make a more in-depth analysis of each claim to determine which claims are preempted and whether or not the district court has sufficient jurisdiction.

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