Opinion ID: 761260
Heading Depth: 3
Heading Rank: 2

Heading: Unfair Competition by Misappropriation

Text: 41 Next, DSC asserted--and the jury found--that DGI's use of DSC's firmware, operating system software, and DSP manuals in developing its own DMP 2800 microprocessor card, DTD card, BT card and PCMI card, constituted misappropriation under the Texas common law of unfair competition. In contending that the district court erred when it denied DGI's motion for a JML, DGI argues that DSC's state law misappropriation action is preempted by federal copyright law. We agree. 42 With a few exceptions, all causes of action falling within the scope of the Copyright Act are expressly preempted. 36 Section 301 of the Act 37 sets forth two conditions, both of which must be satisfied, for preemption of a right under state law to occur: First, the work in which the right is asserted must come within the subject matter of copyright as defined in sections 102 38 and 103. 39 Second, the right that the author seeks to protect must be equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106. 40 43 We begin our analysis under the first prong by noting that the Copyright Act protects expression, not facts. 41 A compilation of facts is not entitled to copyright protection unless the compilation itself possesses some degree of originality. 42 Moreover, even if a compilation is original by virtue of the selection or arrangement of its component facts, the copyright is limited to that selection or arrangement and does not extend to the information contained in it. 43 44 DSC rejects preemption of its misappropriation claim based on these fundamental principles. In the instant case, contends DSC, DGI's offense was not the use of DSC's firmware, software, and manuals, but rather the use of uncopyrightable information--presumably facts 44 --contained within these copyrightable works. This assertion is belied by the fact that DSC has consistently framed its misappropriation count in the context of DGI's use of its firmware, operating system software and DSP manuals. Without objection, the district court instructed the jury on DGI's use of these works, and not specific pieces of information contained in them. In response, the jury found that DGI had impermissibly relied on DSC's firmware, software, and manuals in developing its competing microprocessor and expansion cards. Because the jury also found DSC to be the owner of copyrights in these works, these works, by definition, come within the subject matter of copyright. Consequently, we conclude, the first prong of the preemption analysis is satisfied. 45 The second prong is more complex, however, requiring a comparison of the nature of the rights protected under federal copyright law with the nature of the state rights for which DSC seeks protection. If these rights are determined to be equivalent, then the state law cause of action is preempted. We evaluate the equivalency of rights under what is commonly referred to as the extra element test. 45 According to this test, if the act or acts of DGI about which DSC complains would violate both misappropriation law and copyright law, then the state right is deemed equivalent to copyright. 46 If, however, one or more qualitatively different elements are required to constitute the state-created cause of action being asserted, then the right granted under state law does not lie within the general scope of copyright, and preemption does not occur. 47 46 The purpose of copyright law is to promote and protect creativity. 48 For a work to qualify for copyright protection, it must be original. 49 And originality, as the term is used in copyright, requires both independent creation and a modicum of creativity. 50 The requisite level of creativity is extremely low. 51 Nevertheless, without some creative spark--no matter how crude, humble or obvious 52 --the labor that goes into independently creating (as opposed to simply reproducing) a work is insufficient to bring that work within the scope of copyright. 53 And, if a work is entitled to copyright protection, its author is granted exclusive rights over its reproduction, 54 adaptation, 55 distribution, 56 performance, and display. Use of a copyrighted work by one who does not own the copyright constitutes infringement under federal law, 57 provided the use falls within the scope of a copyright owner's exclusive rights. 58 47 In contrast to federal copyright law, which focuses on the value of creativity, state misappropriation law is specifically designed to protect the labor--the so-called sweat equity--that goes into creating a work. 59 This purpose is evident in the elements of proof required to succeed under a Texas misappropriation claim. These elements, as articulated by the Texas Court of Appeals in United States Sporting Products, Inc. v. Johnny Stewart Game Calls, Inc., 60 include: 48 (i) the creation by plaintiff of a product through extensive time, labor, skill and money; (ii) the use of that product by defendant in competition with plaintiff, thereby giving the defendant a special competitive advantage because he was burdened with little or none of the expense incurred by plaintiff in the creation of the product; and (iii) commercial damage to plaintiff. 61 49 Despite the seemingly divergent purposes of federal copyright law and state misappropriation law, we conclude that, under the discrete facts of this case, the rights protected under these laws are equivalent. 50 This conclusion is supported by our holding in Daboub v. Gibbons. 62 Daboub involved the performance by the band ZZ Top of music that the plaintiffs alleged originally belonged to them. The complained-of acts centered around ZZ Top's live performances and sales of studio recordings of this music. 63 Plaintiffs brought suit alleging various Texas state law claims, including misappropriation, but we held that plaintiffs' state claims were preempted by the Copyright Act. In so doing, we stated that [plaintiffs'] state claims center on the improper copying of the song, an interest clearly protected by the Copyright Act.... The core of each of [their] state law theories of recovery ..., without detailing the specific elements comprising each claim, is the same: the wrongful copying, distribution, and performance of the lyrics of Thunderbird. 64 We held that the state claims were preempted because plaintiffs had failed to allege or produce evidence of 'any element, such as an invasion of personal rights or a breach of fiduciary duty', 65 which would have rendered their claims different in kind from copyright infringement. 51 Likewise, the acts that form the basis of DSC's misappropriation claim touch on interests clearly protected by the Copyright Act, including (1) the reproduction of its firmware, software, and manuals; (2) the use of these materials in the preparation of allegedly derivative works--DGI's microprocessor and expansion cards; and (3) the distribution of these works in competition with DSC. Nevertheless, DSC insists, its claim is not preempted because Texas misappropriation law requires proof of elements qualitatively different from those necessary to establish copyright infringement. 52 First, submits DSC, state law requires proof that DSC's product was created through extensive time, labor, skill and money whereas, under the Copyright Act, this proof is irrelevant. As previously noted, however, copyright protection is awarded only to those works in which independent creation and creativity converge. DSC is correct in its observation that no amount of time, labor, skill, and money can bestow copyright eligibility on a work that is devoid of creativity. While proof of these elements is not sufficient to establish copyright protection, however, these elements are fundamental to the independent creation of a work, proof of which is necessary under the Copyright Act. Thus, under circumstances in which a work has been granted copyright protection--such as the circumstances that are before us in the instant case--the time, labor, skill, and money expended by the author in creating the work are necessarily contemplated in that copyright. 53 Next, submits DSC, a Texas misappropriation claim requires proof that DGI used DSC's firmware, software, and manuals in competition with DSC. Because an unauthorized act of reproduction would violate copyright law but would not, in itself, offend the competition requirement of state law, DSC argues, its misappropriation claim is qualitatively different. This type of reverse reasoning defies logic. The owner of a copyright has a claim under federal law for the infringement of his exclusive rights to reproduce, adapt, distribute, perform, and display his works. Whether the infringing act touches on all of these rights or just one is irrelevant for the purposes of copyright law. In the instant case, alleges DSC, DGI reproduced works created by DSC, prepared derivative works based on those creations, and then distributed its product in competition with DSC. To establish a claim under state law, proof of this final infringing act is necessary. Although not necessary, such proof is sufficient to establish a claim under federal copyright. That proof of reproduction would, in itself, be sufficient to establish a copyright claim as well means only that the scope of protection afforded by copyright law is broader than that afforded by state misappropriation. 54 We conclude that, because DSC has failed to demonstrate the presence of any element that renders different in kind its rights under state and federal law, DSC's state misappropriation claim is preempted by federal copyright law. Consequently, the district court erred in denying DGI's motion for a JML on this issue, and its award of damages on DSC's claim of unfair competition by misappropriation must be vacated. Unfortunately, however, the monetary damages awarded to DSC were not itemized, and we have no way of parsing that award to reduce its quantum appropriately and render it. Therefore, we have no choice but to remand this particular issue to the district court for it to recalculate the damages in accordance with this opinion and render a revised judgment accordingly.