Ultraflo Corp. v. Pelican Tank Parts, Inc.

• Decision Date: 11 January 2017
• Docket Number: No. 15-20084,15-20084
• Citation: 845 F.3d 652,121 U.S.P.Q.2d 1307
• Parties: ULTRAFLO CORPORATION, Plaintiff–Appellant v. PELICAN TANK PARTS, INCORPORATED; Thomas Joseph Mueller; Pelican Worldwide, Incorporated, Defendants–Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

845 F.3d 652

121 U.S.P.Q.2d 1307

ULTRAFLO CORPORATION, Plaintiff–Appellant

v.PELICAN TANK PARTS, INCORPORATED; Thomas Joseph Mueller; Pelican Worldwide, Incorporated, Defendants–Appellees

No. 15-20084

United States Court of Appeals, Fifth Circuit.

Filed January 11, 2017

Travis Scott Crabtree, Gray Reed & McGraw, P.C., Houston, TX, for Plaintiff–Appellant.

John Karl Buche, Buche & Associates, P.C., La Jolla, CA, for Defendants–Appellees.

Before STEWART, Chief Judge, and OWEN and COSTA, Circuit Judges.

GREGG COSTA, Circuit Judge:

This appeal requires us to again consider the preemptive force of the Copyright Act. Plaintiff Ultraflo Corporation asserts an unfair competition by misappropriation claim under Texas law alleging that a competitor stole its drawings showing how to design valves and then used them to make duplicate valves. We have previously held that copyright preempts this Texas cause of action when the intellectual property at issue is within the subject matter of copyright. Alcatel USA, Inc. v. DGI Techs., Inc. , 166 F.3d 772, 785–89 (5th Cir. 1999). Ultraflo contends that its claim escapes preemption because its valve design, when separated from the drawing itself, is afforded no protection under the Copyright Act. Because copyright preemption prohibits state interference with Congress's decision not to grant copyright protection just as much as it protects a decision to provide protection, the district court correctly found that the state claim is preempted.

I.

Ultraflo manufactures butterfly valves used in the transportation industry. With the help of its employee Thomas Mueller, Ultraflo redesigned its Model 390 butterfly valve. The new design was recorded in drawings that specify the valve's features and measurements.

Mueller ultimately left Ultraflo to work at Pelican—a competing valve manufacturer. Soon after, Pelican entered the market with a valve that Ultraflo contends was strikingly similar to its own.

Believing that Pelican hired Mueller to gain access to its design drawings and other intellectual property, Ultraflo sued Pelican and Mueller (jointly referred to as Pelican) in state court for conversion, civil conspiracy, unfair competition by misappropriation, and misappropriation of trade secrets. Pelican sought to remove the case to federal court, arguing that the state claims were preempted by the Copyright Act, but removal was untimely. Back in state court, Pelican won a motion to dismiss, which argued that the court lacked jurisdiction as the subject matter of the suit was subject to the copyright laws, because Ultraflo failed to respond.

Before the state suit was dismissed, Mueller registered valve drawings with the U.S. Copyright Office and filed a complaint in federal court, seeking declaratory relief that the drawings (1) were copyrightable subject matter, (2) belonged to Mueller, and (3) were not "works for hire" under the Copyright Act. Mueller then voluntarily dismissed his suit in an attempt to encourage settlement.

After the settlement failed to materialize, Ultraflo filed this federal action. It again asserted the state tort claims and also sought a declaratory judgment that Mueller was using a copyright that did not belong to him. The district court sua sponte questioned whether Ultraflo's state claims were preempted by the Copyright Act. It ordered Ultraflo to file a second amended complaint "avoiding allegations of state law claims that are clearly preempted by federal law."

That pleading reasserts all of Ultraflo's state claims and notes that they arise from Pelican's "use of Ultraflo's [design] drawings to make actual valves." For example, it alleges that the "unauthorized activities by Mueller in retaining Ultraflo's confidential drawings [and] the subsequent use of them by Pelican ... to make competitive valves, constitutes misappropriation of Ultraflo's valuable trade secrets." It further contends that Defendants engaged in unfair competition by misappropriating its "butterfly valves, valve features, and components."

Pelican subsequently filed a motion to dismiss on preemption grounds. The district court agreed that all but Ultraflo's trade secret claim were preempted by the copyright laws.¹

In response, Ultraflo filed a third amended complaint that removed the preempted state claims and added a claim of copyright infringement. Pelican filed yet another motion to dismiss, seeking dismissal of the new copyright claim. The district court denied the motion because Ultraflo alleged "that Defendants infringed the drawings, not by taking the physical drawings, but by taking their intangible intellectual property, using it to make their own drawings and butterfly valve, and thereby infringing on Ultraflo's exclusive rights to reproduce its copyrighted work and to prepare derivative products based on the copyrighted work."

The case proceeded to trial on the copyright and trade secret claims, both of which the jury rejected. After trial, Ultraflo moved under Rule 50(b) for judgment as a matter of law, or, alternatively, a new trial, on the ground that the unfair competition claim was not preempted. Finding that this was not the proper procedural vehicle to seek reconsideration of the pretrial dismissal of the unfair competition claim, the court treated the motion as one asserted under Rule 59. It declined to change its earlier ruling finding preemption.

II.

Ultraflo's appeal does not challenge the jury's rejection of its copyright and trade secret claims. It seeks only reversal of the pretrial dismissal of the unfair competition by misappropriation claim on preemption grounds.

Pelican asserts that Ultraflo waived its right to challenge the pretrial preemption ruling by not raising the issue during trial in a number of ways. According to Pelican, Ultraflo needed to request a jury charge on the dismissed state law claims, introduce an offer of proof to show the evidence that supported them, and seek entry of judgment as a matter of law on the state claims under Rule 50(a) before the case was submitted to the jury.

The delay and expense resulting from such futile measures is not required to preserve appellate review of a pretrial dismissal.² The final judgment rule prevented Ultraflo from appealing the Rule 12 dismissal until now. See Dig. Equip. Corp. v. Desktop Direct , Inc. , 511 U.S. 863, 868, 114 S.Ct. 1992, 128 L.Ed.2d 842 (1994) (explaining that the rule provides that "a party is entitled to a single appeal, to be deferred until final judgment has been entered"). Indeed, Ultraflo followed the proper procedure by omitting the dismissed claims from its third amended complaint. Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc. , 787 F.3d 716, 724 (5th Cir. 2015) (noting that requiring the repleading of claims dismissed with prejudice would be at odds with judicial efficiency and might be sanctionable). As those state claims were no longer part of the live pleading in the case, Ultraflo could not have taken any of the actions with respect to them during trial that Pelican urges. But it is still allowed to appeal a dismissal with prejudice of claims asserted in its earlier pleadings. Id. (explaining that when a pretrial dismissal of a claim is "on the merits or with prejudice, the plaintiff may appeal that ruling without needing to include the claim in a later amended complaint").

III.

We thus may consider the merits of Ultraflo's appeal: whether its unfair competition by misappropriation claim is preempted by the Copyright Act. We review this question de novo . GlobeRanger Corp. v. Software AG United States of Am., Inc. , 691 F.3d 702, 705 (5th Cir. 2012).

Section 301 of the Copyright Act preempts state law claims that fall within the general scope of federal copyright law. Alcatel , 166 F.3d at 785. It provides that:

all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103 ... are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

17 U.S.C. § 301(a). This text is the source of the two-part test we use to determine if the Copyright Act preempts a state law cause of action. Alcatel , 166 F.3d at 785–86. Courts first ask whether the intellectual property at issue is within the subject matter of copyright. Id. If it is, then a state law claim is preempted if it protects rights in that property that are equivalent to any of the exclusive rights within the general scope of copyright. Id.

A.

The subject matter inquiry requires us to determine what intellectual property Ultraflo is seeking to protect. The design drawings themselves are undoubtedly within the scope of copyright protection;³ they were the basis for the copyright infringement claim Ultraflo took to trial. But the unfair competition claim is not based on Pelican's copying the drawings. Ultraflo instead alleges that Pelican used the drawings to make replica valves. Because the valve design—the work in which Ultraflo asserts a right—is what was allegedly misappropriated, Ultraflo argues that its claim does not seek protection for a work protected by the copyright laws.

Ultraflo is correct that its valve design is not protected under the Copyright Act: it is either a useful article⁴ or an idea.⁵ Were the question simply whether the work in which Ultraflo asserts a right is protected under the Copyright Act, its argument would carry the day.

The preemption statute, however, sweeps more broadly. It preempts state protection of works that fall within the subject matter (that is, the scope) of copyright, regardless whether the works are actually afforded protection under the Copyright Act. Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d 586, 596–97 (5th Cir. 2015). "[S]cope and...