Globeranger Corp. v. Ag

• Decision Date: 17 August 2012
• Docket Number: No. 11–10939.,11–10939.
• Citation: 691 F.3d 702,2012 Copr.L.Dec. P 30305,103 U.S.P.Q.2d 1859
• Parties: GLOBERANGER CORPORATION, Plaintiff–Appellant, v. SOFTWARE AG; Software AG United States of America, Incorporated; Software AG, Incorporated; Naniq Systems, L.L.C.; Main Sail, L.L.C., Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

691 F.3d 702

2012 Copr.L.Dec. P 30,305

103 U.S.P.Q.2d 1859

GLOBERANGER CORPORATION, Plaintiff–Appellant,

v.SOFTWARE AG; Software AG United States of America, Incorporated; Software AG, Incorporated; Naniq Systems, L.L.C.; Main Sail, L.L.C., Defendants–Appellees.

No. 11–10939.

United States Court of Appeals, Fifth Circuit.

Aug. 17, 2012.

Kerry Cecile Peterson (argued), Matthew Daniel Rinaldi, Miller, Egan, Molter & Nelson, L.L.P., Dallas, TX, for Plaintiff–Appellant.

Thomas S. Leatherbury (argued), Tyler James Bexley, William D. Sims, Jr., Vinson

& Elkins, L.L.P., Charles Rodney Acker, Karl G. Dial, Fulbright & Jaworski, L.L.P., Dallas, TX, Eric Gordon Walraven, James Thomas Drakeley, Hiersche, Hayward, Drakeley & Urbach, P.C., Addison, TX, for Defendants–Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before DAVIS, OWEN and SOUTHWICK, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

GlobeRanger alleged a number of Texas claims against a group of software companies in state court. The defendants removed the suit to federal court and obtained a dismissal from the district court on the basis that all of GlobeRanger's claims were preempted by the Copyright Act. Because GlobeRanger plausibly pled more than copying of a tangible medium of expression, dismissing the case at this stage of the litigation was in error. We REVERSE and REMAND.

FACTUAL AND PROCEDURAL BACKGROUND

The plaintiff GlobeRanger developed a passive radio frequency identification (RFID) system for commercial use. That party describes RFID using an analogy to a grocery store. Instead of scanning each item individually with a system such as a bar code scanner, RFID permits items to pass through an area with an RFID reader and data on those items' movement will be registered. Another example of RFID use is in enabling motor-vehicle drivers to pay tolls at highway speeds as their cars pass under RFID readers.

In order to utilize RFID technology, there must be a system that optimizes the placement of physical tags on items and locates RFID readers to read those tags as the products move. GlobeRanger's petition alleges the system is important because “RFID tags and readers provide automatic acknowledgment that ‘something’ has crossed the reader, but the Business Processes and software associated with those Business Processes tell the RFID System how to recognize what the ‘something’ is, where it came from, where it is going, how long it took to get there, and most importantly what the RFID System should do about it.”

GlobeRanger has a generic RFID software platform named iMotion. GlobeRanger utilizes this software along with a customized physical placement of RFID tags, readers, and servers for each customer in order to deploy an RFID system.

Defendant Software AG is a parent company. Software AG United States of America, Inc., and Software AG, Inc. are its subsidiaries. Software AG owns software entitled “webMethods” that GlobeRanger characterizes as middleware. Middleware helps different computer systems work together. GlobeRanger uses the example of a company using middleware to target its marketing by connecting its customer database with its ordering system. Another example would be connecting an RFID database with a procurement database to automatically order new supplies as they leave a warehouse.

In 2004, the Department of Defense mandated implementation of RFID technology at each of its agencies. GlobeRanger obtained some contracts to help implement this DoD mandate. Defendants Naniq Systems, L.L.C. and Main Sail, L.L.C. are information technology services companies that served as subcontractors on GlobeRanger's military contracts.

In 2008, the Navy sought to implement a new RFID architecture. GlobeRanger bid on this contract, but it lost. It alleges a number of reasons why. GlobeRanger alleges that an employee of Naniq had an improper relationship with the Navy contracting officer in charge of soliciting bids, Bob Bacon.¹ GlobeRanger alleges that Naniq and Main Sail used their inside position to steal GlobeRanger's technology and that along with Bacon passed along this technology to Software AG. One basis stated in the petition to support these claims stems from Bacon's participation on a panel discussion at an RFID conference. A questioner asked if the Navy could trust Software AG's “webMethod's between the reads and the business systems.” Bacon answered that the Navy “reverse engineered code from GlobeRanger.”

GlobeRanger also alleges that Software AG, in order to gain a competitive advantage, misrepresented that Software AG developed the Navy's RFID system. It also alleges that the employee who had an improper relationship with Bacon misrepresented that she was a compliance officer with the Navy, which she was not.

GlobeRanger sued the defendants in Texas state court. Its petition alleged five counts: (1) misappropriation of trade secrets; (2) conversion; (3) unfair competition; (4) conspiracy; and (5) tortious interference. The defendants removed to the United States District Court for the Northern District of Texas. They alleged the district court had jurisdiction because GlobeRanger's claims were preempted by the Copyright Act. See28 U.S.C. § 1338. The defendants also moved to dismiss GlobeRanger's petition. GlobeRanger moved to remand to state court and opposed the defendants' motion to dismiss. On August 11, 2011, the district court denied GlobeRanger's motion to remand. On August 15, the district court granted the defendants' motion to dismiss. GlobeRanger timely appealed.

DISCUSSION

This court reviews de novo dismissals for failure to state a claim. Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir.2011). “Dismissal is appropriate only if the complaint fails to plead enough facts to state a claim to relief that is plausible on its face.” Id. (quotation marks and citation omitted).

It is under this standard of review that we first decide that the complete preemption doctrine applies in copyright preemption cases. Next, we conclude at least some of GlobeRanger's claims are not preempted at this stage. Finally, we determine that this case may remain in federal court based on the likely preemption of GlobeRanger's conversion claim.

I. Jurisdiction

The defendants removed GlobeRanger's state court action on the basis that, even though GlobeRanger did not plead any copyright claims, its claims were preempted by the Copyright Act, creating subject-matter jurisdiction in the federal courts. 28 U.S.C. § 1338. It is “settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption.” Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). “There does exist, however, an ‘independent corollary’ to the well-pleaded complaint rule, known as the ‘complete pre-emption’ doctrine. On occasion, the Court has concluded that the pre-emptive force of a 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.” Id. (quotation marks and citations omitted). “The question in complete preemption analysis is whether Congress intendedthe federal cause of action to be the exclusive cause of action for the particular claims asserted under state law.” New Orleans & Gulf Coast Ry. Co. v. Barrois, 533 F.3d 321, 331 (5th Cir.2008). Jurisdiction is proper if Congress intended there be an exclusive federal cause of action. Id.

This circuit has yet to determine whether the Copyright Act is the type of “extraordinary” statute that the Court had in mind in Caterpillar. The Fourth Circuit, in a thoroughly reasoned opinion, has concluded that the Copyright Act is such a statute. Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 232–33 (4th Cir.1993). The court reasoned that a “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), compels the conclusion that Congress intended that state-law actions preempted by § 301(a) of the Copyright Act arise under federal law.” Id. at 232. Thus, “the preemptive force of § 301(a) of the Copyright Act transforms a state-law complaint asserting claims that are preempted by § 301(a) into a complaint stating a federal claim for purposes of the well-pleaded complaint rule.” Id. at 232–33.

The Second and Sixth Circuits adhere to the Fourth Circuit's approach. “There is increasing authority for the proposition that § 301(a) of the Copyright Act completely preempts the substantive field.”²13D Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3582, at 742 (3d ed.2008); see also Ritchie v. Williams, 395 F.3d 283, 285 (6th Cir.2005); Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 304–06 (2d Cir.2004). We hold that Section 301(a) of the Copyright Act completely preempts the substantive field.

The real jurisdictional dispute in this case is whether the Copyright Act preempts any of GlobeRanger's claims. If it does, then the district court properly exercised jurisdiction over this case. Further, if it preempts all of them, then the case should be dismissed. If it plausibly preempts some but not all, however, then the case can continue in federal court. We now discuss preemption.

II. Copyright Preemption

The parties agree on the relevant standard. They dispute its application. “Copyright ownership is shown by proof of originality and copyrightability in the work as a whole and by compliance with applicable statutory formalities.” Computer Mgmt. Assistance Co. v. Robert F. DeCastro, Inc., 220 F.3d 396, 400 (5th Cir.2000) (quotation marks and citation omitted). “Computer programs are entitled to copyright protection.” Id. For a state-law claim to be preempted by the Copyright Act, “both prongs of a two-factor test must be satisfied .... First, the...