presents a number of significant issues it is once again presents this court with a preemption argument under copyright and in patent that it also presents a waiver argument with regard to that preemption defense and whether that defense was actually preserved it also presents a an issue of legal sufficien loss profit for damages for unfair competition and fraud what this case does not present is any dispute as to mr wilford and his and and one other entities the liability for fraud and unfair competition there's been no dispute the jury found that he committed fraud the jury found that he committed in a very company in gauged in unfair competition those findings were never challenged so those stained where the unfair competition claim was set aside was based on a preemption argument that was never played it  was never played in the initial response of pleading there was never any request by the defendants to amend their pleading at any point not for trial not during trial not after trial the problem here and where the preemption issue was still given merit are still given consideration was because of the  exception that frankly has seemed to at least in this case and maybe other cases but in this case it seemed to swallow the general rule the under rule way that a an would i would argue that it was not substantively raised it was net there was never any motion for summary judgment on of the preemption argument and in fact they were there was a motion to for summary judgment on the unfair competition claim they did not mention preemption the first time it's raised is in two footnotes in a reply brief in support of the motion for summary judgment and in those footnotes all that aside it is the benito boats case which is a patent preemption case the argument being that to the extent we're relying on public information as part of our unfair competition climb those claims would be why just i view the argument you know that you've made it in briefs and now again here but weren't we foreclose from sort of considering it with allied chemicals are we already down the path of pragmatism and prejudice a district court can overlook it that allied chemical means certainly that's what then you know they've eligible says it's raised in a pragmatically sufficient time and so then if he makes the fact findings that sort of cabins are review even if now in hindsight you're pointing out other circuits or maybe saying this is swallowing a rule and there are bigger issues at play here we had that rule that formula and he applied it factually i think as far as the pragmatically sufficient time is concerned that that is probably true but before you get there there needs to be an analysis and of course in the harris case we sight out of the d c circuit is presented that are now but that's that's a court that  considering in the first instance that's correct but we've already got ally chemical yes ok but the and i'm not i'm not conceding the pragmatically sufficient time i think and i think we've argued that the court its discretion and in finding that it was raised as a pragmatically sufficient time but before you get there and i think it still is part of the overall consideration that there's got to be some acknowledgment of the pleading scheme that exists under the federal rules and those were never in that was simply never followed here in fact it the first time it was actually it was raised when it came up did you argue harris or did you accept the ally chemical formula and just say we were prejudice did you make the argument to the district court you're making to us when it when it was raised it's frontally presented in the motion reconsider right at that point it squarely in front of everybody and in the time of this court said you know this is this is going to be better let's consider a new trial essentially and are you prejudice and there was some record evidence that counsel said we don't we can't really point out our prejudice so it does seem that that he could say let's move forward and see if these items really are covered by copyright and patent or not well it but that aspect of it was never on the table because it was never substantively raised until we had rested our case ok that was the first time it was brought up and even at that point we were not we were not asked to substantively respond to the issue like i said it was it was raised first in a in a footnote to reply brief and then it was mentioned in a motion to reconsider that we get past it and now we have the benefit of the whole trial what items are not within the subject matter of copyright patent where can you give a record cite to something that doesn't fall within sure which when we get to trial there is there is in there is more than just articles that are reduced to riding or the physical product or best example of an item that's more than reduced to physical that the distribution system an essential part of this product was how you get paid for it and part of what thermo tech had done in producing the product in the product didn't just wasn't just housed within the within the four walls of the actual machine or the wrap itself but you had to get f d a approval for this product and then you had to you had to sell it to the doctors because these dart the the doctors only prescribe these these machines they're only available with a prescription so thermaltake had to develop the relationships with the doctors they had to develop the pricing structure they had to get codes that would allow you to charge insurance for these products at the time the at the time pharma take developed this product there were no codes that addressed this deep vein thrombosis treatment with these sort of machines and with these sort of wraps and so in the process they put together this this distribution system that included the pricing and the coding and all that sort of stuff that would not fall within the scope of copyright or patent protection in addition to that throughout the course of their relationship with mr wilford mr wilford was manufacturing problems with our product he was returning the product under the guise of  we've got some problems with these he would send them back and then he would offer to us it would be part of the process in determining where the problems were and that the argument at trial which the jury believed because they found in our favor the argument to trial was he was doing this under the as just a ruse in order to get more information about these products over than he could go out and manufacture his own which is exactly what he was doing but what that what he ended up doing was in it up coming into our facility got meetings with the engineers and was able to see exactly how we were doing that's not in from that is information that he yeah that is not subject to copyright act of the patent act that you know that's information that he that he's getting through direct interaction with the with our engineers with the people who are actually in designing the product and his information that he wouldn't have access to otherwise so there's information that exists beyond the copyright act and the patent act that that would be subsumed within this now throughout the trial preemption is not an issue so there's no reason there's no reason at that point for us to distinguish between the physical product or the product things that are reduced to writing and just as an aside i don't concede that anything that is reduced that or that everything that is reduced to writing is necessarily within the scope of the copyright act because the copyright act differentiates utilitarian designs there's got to be some artistic component to at least the you know graphic drawings or pictorial drawings you know that they argue and in fact the the court panel of this court recognized that distinction although it it ended up throwing everything into copyright preemption but it recognizes that useful articles or utilitarian articles fall outside of the scope of copyright act protection so you do agree don't you that copyright preemption is broader of the scope of copyright protection well that depends on whether we're talking about complete preemption versus ordinary preemption and i've gone round and round with this based on the globe ranger cases in the spear marketing cases but the latest  spear marketing case the one that came out just last year makes a good distinction between complete preemption in ordinary preemption and says that complete preemption is a jurisdictional issue complete preemption is is sweeping and so anything that falls within the scope and the scope under complete preemption principles is broad anything that falls within the scope of the federal court has jurisdiction so that if we're talking about removal or even original jurisdiction then those claims state law claims even if they deal with a product that may be exempt from copyright protection but falls within the scope of the federal court has jurisdiction to hear those climes but that's different from ordinary preemption ordinary preemption is the affirmative defense ordinary preemption is i a defense to the merits of the climb and so spear marketing draws a distinction now ultra flow that came out just at the beginning of this year it in the end i think ultra flow is distinguishable in that ultra flow had a claim for copyright infringement and so if you've got a claim for copyright infringement i think it's difficult to argue that your claims fall outside of the scope of copyright infringement so ultra low dismissed the claims on their merits but might well have a strong copyright infringement claim that there is possible it's possible that some items one would but not discussed in the trial i've not but i'm thinking the code in the pricing i would think that would naturally get reduced writing at some point get that that's your best case that is meant to impression or bit is outside of processes and in customer less than those kind of things that in in globe ranger one and two and i think even in spear marketing to ranger two it was a trade secrets case which gets us into the world of the extra element of wrongdoing well by globe ranger to the claims had been reduced there were there was not as the scope of the unfair competition of the misappropriation client had been knocked down to misappropriation of software which everybody acknowledged was fell within the scope of copyright protection but it's spear marketing acknowledges that the claims as as they originally existed in global marketing were much broader than that and that those claims would have fallen outside of the scope of their protection and presumably not be preempted so it's kind of a big circle back to what we would have done or what could have been done differently you could have distinguished all of these different items for purposes of the charge in determining what what aspects you know were addressed and you know what aspects were subject of the unfair competition climate and whatever aspects were so that the jury could the jury could break those down now they ok if you'd like to touch on the profits but limited to two minutes the the net profits is we did we proved net profits in the way we prove that sells other products other than just the product that was issued here in these particular wraps so those fixed expenses those normal business expenses those are when you're talking about the entire business  the profits of the entire business when you're talking about just approach a particular product line then that's when the gross profit margin is is the proper is the proper way to a show you don't have to allocate general business expenses then if you're only talking about one proton right because it takes it because the gross profit margin takes into account the cost associated with just those goods if it's an ongoing business and you've got other products that are being sold then you're taking care of your fixed expenses your ran your overhead all that kind of stuff with the rest of the business if you're looking at the profits lost just on a particular product line excuse me just with regard to that particular product line then the gross profit margin is that takes care of that in fact that's why our expert used the gross profit margin because when looking at what  waiver and your honor actually point to the hit the nail on the head when it came to what's at issue here district court had to determine whether or not we raise our firm defenses and pragmatically sufficient record determined that we hadn't sufficiently raised it in our answer and so into the fall back on to read see inside well in the fifth circuit the way we do things is you look to see has this defense been raised at a pragmatically sufficient time such that there is no unfair prejudiced to the opposing party and looked at the facts of the cases said well you raised during the summary judgment phase reason specifically on his motion to reconsider ration at that time the district court said well let's hold off on that let's wait until the trial you can raise it by post trial motion a jame all and so we followed district court's instructions discovery went on for another year trial wouldn't happen for another two years and when we got to and then we got to oral argument on that issue and we raised it again he's discussed it with the district court at that time the district court asked their own tech point blank what are you prejudiced for example what was your undervalues it it is it accurate is the jam on hearing how are you how are you prejudiced and their answer was quote i don't know practically speaking i don't think we would have done anything differently at trial so it was established at that point that there was no prejudice the district court exercises discretion agree other courts seem to be looking a little deeper into the rule a problem and whether there's a burden shifting here they've got to show prejudice but if you'd complied with the rule eight i would do one other court the dish records are those used in the d c circuit court  it what it what about the latest the argument they're trying to say there were items here that aren't copy right protected and i think ted had gained you've hit on something there this is the latest argument this is brand new is the first time that user manual f d a documents things like that the machine the wraps we listed all that evidence out in our brief on jame all that in dispute any of it there and to come in today and say well there might be some other stuff we're not exactly sure what it is we don't have a certain site in the record but there might be some things in there the religious doesn't isn't sufficient evidence to support substantiate a ruling in fact kind of a little bit ironic that the counsel here said well what we could have done is had a more particularized jury charge because in this case we specifically sought a particular history of charge and we went back and forth that the district court said we should list out what is their evidence because that might be granted and there may be instances where someone argues that something is not subject to preemption and that's why we want to have the specific list in case someone argues had a later date morning as far as the damages go it's high it's difficult to imagine a case where there are more obstacles after obstacle after obstacle with their damages theory  they actively went to trial on a cause of action that didn't match any particular cognisable damage there that they put on so let me go through each cause of action in order if that's ok we'll start off under competition first of all unfair competition was a big problem from a procedural stamp on the entirety of the case they said that they wanted to seek disgorgement of damages in fact in a hearing their lawyer stood up and said judge i got to have this kind of discovery cause i'm seeking this gorgeous if you look at their damages report it says we need disgorgement they get to trial things change no we don't mea have had profits profits from companies other than ours we'll get to that just a second companies other than ours and we want to take our clients profits and use that as a measure of their profits first time we've heard this trial that's their theory the problem is that the law does not allow that now it's important that you consider what the cause of action is what it's designed to protect and prevent and then look to see what measure is connected to that they have no case what so ever they have no one recoverable or private well you look to what the cause of action designed to protect in unfair competition this very narrow thing we're not talking about trade secret misappropriation we're talking about common law misappropriation it's designed to protect the product not the information and the courts have said well what happens is if somehow you someone uses a product and because of the time and money the plaintiff has put into developing  it could've spent less money in development than it would have without that product that's what that cause of that is designed to protect we're not in the trade secret trial we're in common law misappropriation now here's the problem they didn't the devore put any expert testimony on women back and there was nothing in their expert reports or discovery or at trial or in the jury charge on such measure ok so what do they do they say oh my goodness effectively we've got no law when we do what we did so and the first time on appeal they say aha here's what we'll do remember unfair competition is this general label of law there is no cause of action for under competition it's a general label or a banner for other things like tortious interference trademark infringement  common law misappropriation that sorts of things that each have their own unique elements of the cause of action and their own unique remedy that goes with it just maybe jump to because the unfair competition leads into the preemption what the measure of damages is net profits period there's not one case in the texas fifth circuit that he'll cite to you where gross profits is the measure it not even a measure that i'm arguing for fraud because remember unfair competition they're saying we're taking his profits for sales that they would have made to other people on fraud the measure is what's the harm that we know we know techno longer experiences for sales mr wilfer is no longer buying from them ok so it's purely a profits measure it's not unjust enrichment on the fraud so the fraud you've got just pure flatow texas law net profits so judge smith you ask gross profit growth there's not a case for gross profits in the texas law artificer you have to look at the entirety of the business ok because here's the thing what you think of this way companies experience lost profits not products so that's why you have all the revenues you have less cost of goods sold and all these fixed expenses you ask about because it's lost profits of the business that's why his net profits are good on a per product analysis which is contrary to law now judging in some directly you're from here that that's that's illustrates the problem perhaps you could have a scenario in a case where you would say well there increases spence's are effectively the damage but it has to be in a framework of what texas law requires on the wast profits of the business you have to put on evidence of the revenues of the company the expenses of cost of goods sold and then all the other things and see what comes out in the wash you can't just say here are the expenses now they start a case that seems to suggest that you could do that but that that we don't know what all the evidence was in that case here they have to go through that analysis so for example let's say i have five hundred thousand dollars in  revenues two hundred fifty in cost of goods sold and that are just expenses and then i have two fifty left in profit well depending on what all the and that's on a per product basis but what if i look at all my other revenues  my other expenses i could be negative you don't know when till someone puts on a true measure of damages that goes through all the financial facets of the business not just plucking out on a one analysis because there may be other aspects of the business depending on other profits and expenses are that for a business macro basis for the business come up with a different number so that's why the law requires last net profits analysis not looking at just a product that's what i'm saying there's no record before you with this macro complete analysis on that so judge fitzwater was absolutely right when he said you didn't do a full net profits analysis for the business don't just look at it at the product level that's the problem with that but on the now let me address fraud very quickly on fraud damages just wanted to get their information so he could take the product now their damages theory on fraud is well mr wilford he didn't keep buying the products so it's a logical disconnect that's what judge fitz want to recognize it's too speculative from that standpoint because you're saying well he never intended to that your fraud theory but my measure is he should kept buying for five more years in the face of a excuse on thirty days notice and you say well how long should you project it out for i don't know how about from the time the contract ended to the time we get to trial why that period even if you were to say ok you're the fifth this panel is going to be the first ever to say unjust enrichment is ok for common law misappropriation if you would be the first if you were to say that it's still not appropriate under their own theory because because of those cases that in a trial in a trade secret area where you can have unjust enrichment because there could be a partial destruction of the secret show his inability to prove his own lost profits before we even consider look at letting you use the defendant's profits as a proxy or taking the defendant's profits there's no showing in the record on that issue that they could no shoot choose their own lost profits and therefore get ours but even if you get beyond that they then apply their own gross profit number to our revenues so here's another problem there's mixed methodology they're taking their gross profit figure applying it to our revenues you have to have a single complete analysis so there are so many problems with this opinion looks like it's rolling logs here's a log here's a log here's a log one after another there's no cognisable way that ever proved suspicion damages under texas law frankly they drew that they want to try this like a trade secrets case they dismissed the trade for thank your honor real briefly on the preemption and the waiver issues at our ed pages thirty five thirty six of our brief that's where we address things that go beyond items that are reduced to writing so we do mention it and we have mentioned it this is not the first time that that this is being brought up we always sued for unfair competition when we originally filed the claim in texas state court against them we sued them for unfair competition so they had the opportunity from day one to raise their preemption argument and they never did and they've never played it they still never play one thing that's overlooked i think in the preemption argument is preemptions their firm of defense it's their burden of proof it was not our burden of proof to prove what was not included within the scope of copyright made died i don't recall making that argument in the argument i recall making at either the at the hearing on the jama well or in our response to their j motion was that they hadn't met their burden of proof to prove that everything was fell within the scope of copyright you want pretty items that were you were saying they hadn't proved that's correct  getting to the damages so our damage theory was always the same it was labeled as disgorgement but it has always been it had always been and it always was and stay that way at trial focused on the misappropriated profits that were earned by wilford in his into teas and our stolen products so the theory never changed we in  expert mr wise i had a trial admitted that you know it was probably a bad term to use discordant now i'm not necessarily on it as a practical matter many of the entities and this was also part of the problem throughout this trial as mr wilfer was constantly moving things around and there were entities they were created that were selling these products that were not within the jurisdiction of the court so wilford was here the measure that we chose to prove our damages was the profits that were earning by his entities that were selling our copied units and selling our coffee grounds those and that measure there's no i haven't found any case law in the common law misappropriation context that delineates exactly what or or limits the items of damage that are recoverable under a common law misappropriation unfair competition colline like mr cooke said these fall within a larger umbrella of unfair competition and well logics case the southwest energy out of the texas supreme court these are cases that deal with misappropriation now they do deal with misappropriation of trade secrets but there's nothing that differentiates between the trade secret context or just the common law misappropriation context under either scenario the unfair competition cause of action exists and it exists for a reason it exists to prevent someone from using someone else's product in direct competition with them and in the us sporting goods the wake of court of appeals case that where were the court of texas court of appeals recognized that in addition to you're also entitled money damages you don't want to turn this into a purely a business decision on the part of the the bad actor and that's exactly what happened in this case mr wil turn this into a what turned out to be a great business decision he earned millions and millions of dollars selling our copy product and he got away with it would ask this court to reverse