Federal Copyright Law Does Not Preempt Trade Secret Claim
Addressing issues of preemption, the US Court of Appeals for the Fifth Circuit affirmed the district court’s decision that federal copyright law did not preempt the plaintiff’s trade secret claim because trade secret claims seek to protect different rights than those protected under federal copyright law. GlobeRanger Corporation v. Software AG US, Inc., Case No. 15-10121 (5th Cir., Sept. 7, 2016) (Costa, J).
GlobeRanger is a software company that specializes in radio frequency identification (RFID) technology for inventory management. In 2007, GlobeRanger entered into a contract to build and implement a bundle of RFID technology for the US Navy. GlobeRanger provided the Navy with three instances of the solution before the Navy decided it wanted an enterprise-wide system that could be run from a single location rather than requiring servers at each location. The Navy considered proposals for the enterprise-wide system from both GlobeRanger and Software AG, and decided to go with Software’s proposal. While working on the Navy contract, Software accessed some of GlobeRanger’s data, manuals and software. GlobeRanger filed a complaint arguing, among other things, that Software misappropriated its RFID technology after taking over GlobeRanger’s subcontract with the Navy to implement the technology.
The jury found that Software misappropriated GlobeRanger’s trade secrets and awarded $15 million in compensatory damages. The district court also found that GlobeRanger proved neither malice nor conspiracy, and was not entitled to punitive damages. Software appealed.
On appeal, Software argued that federal copyright law preempted GlobeRanger’s trade secret claim, and if the trade secret claim was not preempted, then the case should be remanded to state court. The Fifth Circuit disagreed, explaining that trade secret claims seek to protect different rights than those protected under federal copyright law. A trade secret misappropriation claim requires a claimant to establish that the protected information was taken via improper means or breach of a confidential relationship—an element not required for a copyright violation claim. Because the state tort provides substantially different protection than copyright law, it is not preempted. This ruling brings Fifth Circuit case law on this issue in line with the other 10 regional circuits.
As for the request to remand to state court, the Fifth Circuit denied that request as well, noting that the case was originally removed to federal court based on a conversion claim, which was fully preempted by the copyright claim. Although the conversion claim was dismissed before trial, jurisdiction is determined at the time of removal, and so the case was properly before the district court.
The Fifth Circuit further concluded that GlobeRanger’s evidence was sufficient to show that Software used the Navy solution owned by GlobeRanger in developing its own product. Therefore, the Court affirmed the jury’s finding with respect to the trade secret claim.