WIENER, Circuit Judge:
Plaintiff-Appellant Spear Marketing, Inc. ("SMI") brought various Texas state law claims against Defendants-Appellees BancorpSouth Bank ("BCS") and ARGO Data Resource Corp. ("ARGO") (collectively, "Defendants") in Texas state court. SMI's claims related to Defendants' alleged theft of trade secrets in connection with a software program developed and sold by SMI. Defendants removed the case to federal court on the basis of complete preemption by the Copyright Act.
SMI is a small, family-run business that produces one product for the banking industry, a computer program called VaultWorks. VaultWorks helps banks manage their cash inventories so that each of their branches has the optimum supply of cash available on site. The program enables
Although VaultWorks is a software program, none of SMI's customers has access to the software itself. Instead, "SMI's customers can only view the specific user interface screens and reports they are given access to via the internet."
BCS was one of SMI's largest customers. BCS and SMI first entered into a one-year agreement for the use of VaultWorks in May 2002. The parties extended the agreement several times, the last extension occurring in March 2010 for a term of two years.
ARGO, like SMI, develops software for the banking industry. It is significantly larger than SMI and offers a range of products. At all relevant times, BCS used ARGO's automatic teller program, BANKPRO Teller. Around 2004, ARGO began to develop its own cash management program, which ARGO envisioned would eventually be bundled with its BANKPRO Teller. This product, named Cash Inventory Optimization ("CIO"), uses different predictive algorithms than does VaultWorks. Because CIO is installed directly on a bank's computers, it is integrated with the rest of the bank's operating system.
Starting in 2008, ARGO began pitching CIO and an upgraded version of the BANKPRO Teller system to BCS. BCS demurred on both products until March 2010, when it told ARGO that it would be interested in CIO if that system could be integrated with the existing version of BANKPRO Teller that BCS was then using rather than ARGO's upgraded replacement product. ARGO discussed this concern internally and, on April 1, 2010, emailed BCS that this integration would be possible.
Also around April 1, 2010, SMI contacted ARGO to see if it would be interested in acquiring SMI. ARGO expressed interest, representing that it neither had nor was currently developing a cash management product similar to VaultWorks. On the strength of ARGO's expression and representations, SMI arranged to demonstrate VaultWorks to ARGO, which it did over the phone and online on April 6. During this demonstration, which lasted approximately one hour, SMI disclosed confidential business and technical information about VaultWorks. After a few more exchanges, ARGO lost interest in acquiring SMI and stopped responding to SMI's emails.
Through the rest of 2010, ARGO continued marketing CIO to BCS. Finally, in early January 2011, BCS agreed to license CIO from ARGO. The two companies conducted a lengthy implementation process that lasted the rest of the year. During this time, BCS sent ARGO various screenshots of the VaultWorks user interface because ARGO needed historical cash usage data from BCS's branches to troubleshoot
CIO was finally implemented successfully at the end of 2011, and BCS "notified SMI on January 12, 2012 of its intention not to renew the VaultWorks Agreement."
In September 2012, SMI filed this suit against Defendants in Texas state court, alleging ten causes of action: violation of the Texas Theft Liability Act ("TTLA"), misappropriation of trade secrets, conversion, unjust enrichment, fraud, constructive fraud, breach of contract, tortious interference, unfair competition, and civil conspiracy. SMI claimed that Defendants had stolen both technical and business trade secrets related to VaultWorks.
Defendants removed the case to federal court on the ground that SMI's claims were completely preempted by the Copyright Act. SMI then amended its state court petition ("Original Petition") to delete its conversion claim and remove various references to copying and distribution. It then moved for remand, contending that removal had been improper because none of its claims were preempted. SMI explained in its opening brief that it voluntarily abandoned its conversion claim "[t]o narrow the issues in this lawsuit" and that it removed portions of its TTLA claim related to copying of trade secrets "even though this district's own precedent holds [those portions] are not preempted by the Copyright Act." The district court denied SMI's motion, holding that the conversion and TTLA claims were completely preempted. The court did not consider whether SMI's remaining claims were preempted, choosing instead to exercise supplemental jurisdiction over them per 28 U.S.C. § 1367.
After discovery, Defendants filed a motion for summary judgment, seeking dismissal of all of SMI's remaining claims. The district court granted this motion, holding that "SMI ha[d] failed to establish that genuine factual disputes exist for certain essential elements of its nine Texas state law claims, and as such, summary judgment in Defendants' favor [wa]s warranted."
"We review the denial of a motion to remand to state court de novo."
The district court considered SMI's motion to remand by evaluating the Original Petition for grounds for removal. SMI asserts that the district court should have considered SMI's amended complaint ("Amended Complaint"), in which SMI dropped its conversion claim and deleted language accusing Defendants of copying VaultWorks. Defendants counter that removal is assessed according to the time-of-filing rule.
Nothing cited by SMI disturbs this conclusion. First, SMI relies on 28 U.S.C. § 1447(c), which requires a district court to remand an action "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction."
Second, SMI quotes the Supreme Court's decision in Grupo Dataflux v. Atlas Global Group, L.P. as limiting the
Third, SMI relies on the Third Circuit's decision in New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., which held that, in a case in federal court solely because of the involvement of the Resolution Trust Corporation ("RTC"), subsequent dismissal of the RTC did affect federal jurisdiction.
We conclude that the district court was correct to consider only the Original Petition when deciding SMI's motion to remand. SMI has conflated the question whether the initial removal was proper — which follows the time-of-filing rule — with the question whether the district court should, in its discretion, remand the case when the federal claims disappear as the case progresses.
We turn now to the question whether the Original Petition provided a basis for federal jurisdiction. Defendants removed this case on the ground that 17 U.S.C. § 301(a), which establishes the exclusivity of the federal Copyright Act, completely preempts SMI's claims. Although preemption is usually a defense and thus not a basis for removal, when "the pre-emptive force of a [federal] statute is so `extraordinary' that it converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule," removal is proper.
We use a two-part test to determine whether a state law claim is preempted by the Copyright Act:
A claim must satisfy both prongs of this test to be preempted.
The statutory basis for complete copyright preemption is found in 17 U.S.C. § 301(a), which states:
Section 102(a) extends federal copyright protection to "original works of authorship fixed in any tangible medium of expression."
The parties dispute whether § 301(a) preemption extends to all works satisfying the requirements of § 102(a), even those that also contain noncopyrightable material as defined in § 102(b). SMI asserts that it carefully defined its trade secrets to include only "know-how, ideas, procedures, processes, systems, methods of operation, and concepts," thus excluding them from the subject matter of copyright. Defendants counter that the first element of the preemption analysis focuses not on the copyrightability of the expression at issue, but on whether the alleged work is the type of work described in 17 U.S.C. § 102. According to Defendants, the relevant inquiry is whether the property at issue — in this case, a software program — is an original, fixed work under § 102(a). If it is, then it does not matter if it also contains elements that are unprotected under § 102(b).
We thus held that at least some of the plaintiff's claims were not preempted.
Neither do our other copyright preemption cases shed much light on the instant question. Many of our decisions rest on the second ("equivalency") element of the preemption test,
Looking to other circuits, we find a clear and lopsided split. The Second,
The venerable treatise Nimmer on Copyright agrees with the majority of circuits: "Though the matter is not without controversy, [Nimmer] concludes that the better view is that ideas do fall within the subject matter of copyright for purposes of pre-emption (albeit pre-emption may still be avoided on the basis of lack of equivalence)."
The Fourth Circuit's explanation in U.S. ex rel. Berge v. Board of Trustees of the University of Alabama aligns with Nimmer.
Finding this reasoning is persuasive,
When we apply this principle to SMI's claims, we see that the technical trade secrets found within VaultWorks fall within the subject matter of copyright. First, computer software is a tangible medium protected by the Copyright Act.
Having established that SMI's trade secrets fall within the subject matter of copyright, the next step in the complete preemption analysis is the equivalency test: We examine SMI's causes of action "to determine if [they] protect[] rights that are `equivalent' to any of the exclusive rights of a federal copyright."
In the conversion section of the Original Petition, SMI claimed that it owned "certain physical property, documents, and confidential information pertaining to VaultWorks" and "certain trade secrets pertaining to [its] proprietary ideas, processes, and/or other methodologies of VaultWorks." SMI then contended that Defendants "knowingly or intentionally, with malice, and without SMI's consent, exercised dominion and control over SMI's property."
To the extent that SMI's claim alleges conversion of physical property, it is not preempted by § 301(a).
SMI's TTLA claim, as advanced in its Original Petition, consists of three allegations: (1) Defendants "stole[] SMI's physical property, documents, and confidential information"; (2) they "copied objects, materials, devices or substances, including writings representing SMI's confidential information"; and (3) they "communicated and transmitted SMI's confidential information." Although we have never applied the equivalency test to claims under the Texas Theft Liability Act, one of our district courts has concluded that a TTLA claim "is preempted as to the theft of trade secrets that fall within the subject matter of copyright."
We conclude by affirming the district court's denial of SMI's motion to remand and holding that it properly exercised jurisdiction over this action as a result of complete preemption by the Copyright Act.
"We review a grant of summary judgment de novo under the same standard applied by the district court."
"Once a movant who does not have the burden of proof at trial makes a properly supported motion" for summary judgment, "the burden shifts to the nonmovant to show that [the motion] should not be granted."
"Trade secret misappropriation under Texas law is established by showing: (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff."
"As a general matter, any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a `use[.]'"
First, SMI contends that it "produced a substantial amount of direct evidence establishing that BancorpSouth shared SMI's trade secrets with ARGO in order to help ARGO finalize the development and implantation [sic] of CIO." It then cites, without explanation,
Second, SMI contends "that, on multiple occasions, ARGO requested access to SMI's trade secrets so that it could test and validate its own product, and ... BancorpSouth sent ARGO those trade secrets." But SMI's record citations indicate, at most, that ARGO requested data from BCS so that it could calibrate CIO to handle anomalous cashflow situations. SMI does not and cannot claim as its own trade secret BCS's branch cashflow data. Moreover, SMI incorrectly credits an unpublished case from this court, Cudd Pressure Control Inc. v. Roles,
Third, SMI advances a theory of trade secret use premised on timing. According to SMI, "a jury could reasonably infer that [Defendants] used SMI's trade secrets" because ARGO, after years of unsuccessful attempts to license CIO to BCS, made headway with BCS at about the same time that SMI attempted to sell VaultWorks to ARGO. But, not only does SMI fail to identify how its trade secrets were allegedly used by Defendants,
Rather, it appears that SMI relies on the access-plus-similarity test proposed by the Restatement (Third) of Unfair Competition for circumstantial proof of trade secret use: "Although the trade secret owner bears the burden of proving unauthorized use, proof of the defendant's knowledge of the trade secret together with substantial similarities between the parties' products or processes may justify an inference of use by the defendant."
On this evidence, it would not be reasonable for a jury to infer that Defendants used SMI's trade secrets.
The district court also dismissed all of SMI's remaining claims. It held that each of these claims (1) requires a finding of trade secret misappropriation and thus fail with the misappropriation claim, and (2) fails for an independent reason. SMI's opening brief addresses its misappropriation claim only, omitting entirely any mention of its eight remaining claims. SMI has therefore waived its right to appeal the district court's judgment with respect to these claims.
For the foregoing reasons, we AFFIRM the district court's order denying SMI's motion for remand and its judgment dismissing SMI's action with prejudice.
The parties did not brief this issue, and the district court did not appear to consider it. Indeed, the district court neither dismissed the partially preempted claims (while allowing SMI to amend) nor expressly converted those claims to federal ones (i.e., treated them like claims for copyright infringement), before granting Defendants' motion for summary judgment. Any error, however, is harmless, as SMI cannot satisfy the elements of copyright infringement. "A copyright infringement claim requires proof of (1) ownership of a valid copyright and (2) actionable copying, which is the copying of constituent elements of the work that are copyrightable." Bridgmon v. Array Sys. Corp., 325 F.3d 572, 576 (5th Cir.2003). Actionable copying consists of (1) actual copying, i.e. "whether the alleged infringer ... `actually used the copyrighted material in his own work'"; and (2) substantial similarity between the two works. Id. (quoting Eng'g Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1340 (5th Cir. 1994)). As discussed further infra, SMI has produced no evidence that ARGO actually used VaultWorks in developing CIO. Actual copying may also be proved with circumstantial evidence "if the defendant had access to the copyrighted work and there is `probative similarity' between the works." Id. (quoting Eng'g Dynamics, 26 F.3d at 1340). But, even if SMI were to rely exclusively on circumstantial evidence, it has not pointed to any similarities between the two products sufficient to satisfy the "probative similarity" test. See Positive Black Talk Inc. v. Cash Money Records, Inc., 394 F.3d 357, 370 (5th Cir.2004) (defining probative similarity as "similarities between the two works (whether substantial or not) that, in the normal course of events, would not be expected to arise independently"). Furthermore, SMI has not performed a side-by-side comparison of the two programs, a failure fatal to the substantial similarity prong of the test. See Bridgmon, 325 F.3d at 577 ("[T]he law of this circuit prohibits finding copyright infringement without a side-by-side comparison of the two works....").