Saturday, June 29, 2013

Copyright Law - Fifth Circuit:

Software, Preemption, Complete Preemption Doctrine, Removal from State Court,  Remand from Federal to State Court, Misappropriation of Trade Secrets, Conversion, Unfair Competition, Tortious Interference

Globeranger Corp. v. Software A.G., 691 F.3d 702 (Fifth Circuit August 17, 2012).  Plaintiff developer of passive radio frequency identification (RFID) system including software for a method of tracking objects like the EZ-Pass system for cars at toll booths sued over losing a Navy contract due to underhanded practices including improper relationship with the Navy and stealing Plaintiffs technology.   Defendant removed the action to federal court, alleging that the claims set forth in the complaint were preempted by the Copyright Act.  The district court denied a motion to remand to state court and dismissed the claims.   On appeal, the Fifth Circuit reversed the dismissal and remanded to the federal district court, not the state court.  This decision is important because for the first time the Fifth Circuit joins the Second, Fourth and Sixth Circuits’ approach and  adopts the “complete preemption” doctrine.  Under the complete preemption doctrine, state law actions preempted by Section 301(a) of the Copyright Act are deemed to “arise under” federal law.   The practical significance is that if a plaintiff files a complaint in state court alleging only state law claims, if the defendant can show a federal court that any of the state law claims have been preempted, the defendant may properly remove the action from state to federal court.   Ordinarily, a plaintiff is entitled to be master of the complaint and may choose the state forum by choosing not to plead federal claims.  This is known as the “well-pleaded complaint rule” – unless federal claims appear on the complaint’s face, the action stays in state court.   In Globeranger, the Fifth Circuit found that the state law conversion claim was probably just a copyright infringement claim and thus probably preempted and permitted the action to stay in federal court.  Although the complaint referenced “tangible property” it did not do so specifically, so at this jurisdictional stage the Fifth Circuit left the question for a federal factfinder, without prejudice to a later finding that no such tangible property exists, thus depriving the federal court of subject matter jurisdiction.   However the Fifth Circuit also found that other claims based on “procedures, processes, systems and methods of operation” are excluded from the protection of the Copyright Act and thus claims based on those factual allegations, if proven true, would not be preempted.  An important case for business processes and applications involving software, important to read for those pleading such claims and trying to navigate the removal/remand process.
 Purchase Copyright Litigation Handbook 2011 by Raymond J. Dowd from West here  

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