Court Opinion

ID: 806919
Source: CourtListenerOpinion
Date Created: 2012-08-17 23:17:43+00
Date Added: 2024-06-11T18:00:22.542429
License: Public Domain

Case: 11-10939   Document: 00511960675     Page: 1   Date Filed: 08/17/2012

          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                    FILED
                                                                  August 17, 2012

                                  No. 11-10939                    Lyle W. Cayce
                                                                       Clerk

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

                  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.
  Case: 11-10939    Document: 00511960675     Page: 2   Date Filed: 08/17/2012

                                 No. 11-10939

              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.

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       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

      1
        Bacon’s relationship with that employee ended in a manner that resulted in the Navy
placing him on administrative leave.

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were preempted by the Copyright Act. See 28 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 (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

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claim for purposes of the well-pleaded complaint rule.” Id. (quotation marks and
citations omitted). “The question in complete preemption analysis is whether
Congress intended the 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.”2 13D 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.,

       2
         In an unpublished opinion, the Third Circuit concluded that in the context of the
state-law claim at issue there was no copyright preemption. Bd. of Chosen Freeholders of
Cnty. of Burlington v. Tombs, 215 F. App’x 80, 82 (3d Cir. 2006). One commentator notes,
citing Tombs, that the Third Circuit has “rejected complete preemption in the copyright
context.” Copyright Litigation Handbook § 10:1 (2d ed.). It is correct that Tombs rejected the
application of preemption to a specific cause of action. Tombs did not reject, however,
complete preemption generally under the Copyright Act.

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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 claim is examined to determine whether it falls ‘within the subject matter
of copyright’ as defined by 17 U.S.C. § 102.” Carson v. Dynegy, Inc., 344 F.3d
446, 456 (5th Cir. 2003) (citation omitted). “And second, the cause of action is
examined to determine if it protects rights that are ‘equivalent’ to any of the
exclusive rights of a federal copyright, as provided in 17 U.S.C. § 106.” Id.
(quotation marks and citation omitted).
         A.    Copyright Subject Matter
         GlobeRanger argues that the subject matter of copyright is more limited
than the claims it has brought. It relies in part on the source of copyright
subject matter. See 17 U.S.C. § 102(b). That section states that “[i]n no case
does copyright protection for an original work of authorship extend to any idea,
procedure, process, system, method of operation, concept, principle, or

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discovery.” Id. GlobeRanger argues that its RFID system is precisely what
Section 102(b) is describing, a “process, system, method of operation.” Section
102(b)’s exclusion of subject matter extends even if the excluded subject matter
is embodied in a copyrightable work.
      GlobeRanger further argues that its claims are indistinguishable from
claims that the Northern District of Illinois held were excluded subject matter.
See Chicago Bd. Options Exch., Inc. v. Int’l Sec. Exch., LLC, 06-CV-6852, 2007
WL 604984 (N.D. Ill. Feb. 23, 2007). In that case, the Chicago Board of Options
Exchange sought to use not just the Dow Jones Index, which was within the
subject matter of copyright, but the Board also intended to employ the “research
and development used to create the Indexes,” which was not within the copyright
subject matter. Id. at *5. GlobeRanger argues that just because part of the
defendants’ improper conduct included unauthorized access to its software, not
all of their conduct related to copyright subject matter. It argues this is
analogous to Chicago Board’s planned use of both the Indexes (within copyright)
and R&D (not within copyright).
      The defendants argue that “copyright protection extends not only to the
literal elements of a program, i.e., its source code and object code, but also to its
‘nonliteral’ elements, such as the program architecture, ‘structure, sequence and
organization’, operational modules, and computer-user interface.” Eng’g
Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1341 (5th Cir. 1994),
opinion supplemented on denial of reh’g, 46 F.3d 408 (5th Cir. 1995) (footnote
omitted). They catalog cases standing for the proposition that a plaintiff may
not recast copyrightable work simply as the ideas contained within that work.
The defendants quote various parts of GlobeRanger’s petition to support their
argument that the allegations only pertain to the defendants copying the ideas
and processes contained within GlobeRanger’s iMotion software. They argue

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that the RFID system GlobeRanger is discussing is no more than the “structure,
sequence, and organization” this court was discussing in Engineering Dynamics.
      We have noted that “as one moves away from the literal code to more
general levels of a program, it becomes more difficult to distinguish between
unprotectable ideas, processes, methods or functions, on one hand, and
copyrightable expression on the other.” Id. This difficulty has led us to conclude
that some nonliteral aspect of computer programs are within the scope of
copyright. Id. at 1342. That is not to say, however, that copyright protection
sweeps so broadly as to encompass whole structures or systems of which
software is only a part. To explain, we explore our precedent in greater depth.
      In Engineering Dynamics, the plaintiff sought copyright protection of
computer manuals and data cards associated with its software. Id. at 1339. Our
discussion of the data cards is the more helpful part of the opinion for this case.
The data cards provided input formats to use in categorizing data such that a
computer program could utilize that data. Id. at 1339-40. The plaintiff alleged
copying of its input formats.     Id. at 1339.    The plaintiff claimed that its
copyrightable work was “several dozen input formats taken together . . . because
they represent but one of many ways of expressing a mode of computerized
structural analysis.” Id. at 1342. We concluded that the nonliteral elements of
input formats were copyrightable as expressive and did not fall under Section
102(b)’s “useful article exception.” Id. at 1341-42. We noted at the time that the
“[c]ourt decisions are, generously described, in a state of creative ferment
concerning the methods by which nonliteral elements of computer programs may
be identified and analyzed for copyrightability.” Id. at 1341.
      The crucial distinguishing fact between Engineering Dynamics and this
case is that even at its broadest point Engineering Dynamics is about software.
The current case contains plausible allegations that extend beyond software.
For example, one part of GlobeRanger’s petiton alleges that “Defendants could

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see how GlobeRanger went about actually deploying on site, how it set up its
readers, how it tagged its product, how it incorporated business process into the
design of the warehouse, and how it had trained sailors.”
      We use two examples to show how seemingly analogous cases are still
limited to specific expressions of computer programs and their nonliteral
elements. One example is a data input card discussed in Engineering Dynamics.
Data cards were essential in order for the computer program to be able to read
the inputs and were protected under the copyright: “functional interfaces that
directly teach or guide the user’s independent decisions are more expressive than
functional interfaces that lack these qualities.” Id. at 1339.
      Another example is a case in which we reviewed a copyright infringement
claim over alleged copying of the software expression of a specific business
model. Kepner-Tregoe, Inc. v. Leadership Software, Inc., 12 F.3d 527, 531 (5th
Cir. 1994). There, the plaintiff had licensed a computer program designed to
assist in management decisions that contained “eight ‘questions’ or ‘problem
attributes’ and five ‘definitions’ or ‘processes.’” Id. The original authors of the
program created a modified program, which retained the original questions and
definitions, but added four new questions. Id. We concluded the new program
was infringing because “[e]ven if each of the eight questions and five processes
conveys unprotectable ideas, the specific words, phrases, and sentences selected
to convey those ideas are protectable expression.” Id. at 534. When reviewing
a modified program, however, we classified as unprotectable both the “basic idea
of a management training program” and “the more specific idea of training
managers by asking them a series of questions about their decision-making
landscape, and then-based on           their   answers-suggesting     a preferred
decision-making process.” Id. at 535.
      Even though the allegations in GlobeRanger’s petition include copying of
specific expressions, it has also alleged the copying of its business practices that

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are not necessarily limited to specific expressions. GlobeRanger’s allegations
plausibly establish copying of more than the types of copyrightable expressions
we discussed in Engineering Dynamics and Kepner-Tregoe.
      The defendants argue that GlobeRanger is merely recasting its
copyrightable work as noncopyrightable subject matter. The defendants are
correct that district courts must be alert to artful pleading intended to bypass
copyright preemption. See Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772,
786 (5th Cir. 1999).     In Alcatel, the plaintiff alleged the defendant had
misappropriated the “information” in its copyrighted firmware, software, and
manuals. Id. We rejected this argument because “[w]ithout objection, the
district court instructed the jury on [the defendant’s] use of these works, and not
specific pieces of information contained in them.” Id. GlobeRanger’s petition,
although it discusses software, also makes claims not wholly limited to software.
They are thus broader than the “works” in Alcatel.
      We requested at argument that the defendants provide their best support
for granting a motion to dismiss in this type of case as opposed to awaiting
further factual development of the case. They cite one of our recent unpublished
cases as “granting a motion to dismiss state-law claim for conversion of computer
software.” See Real Estate Innovations, Inc. v. Hous. Ass’n of Realtors, Inc., 422
F. App’x 344, 350 (5th Cir. 2011). Although their characterization is accurate,
in that case the parties did not dispute that the allegations were within the
scope of the Copyright Act, which is the factor we are currently resolving. The
other cases on which the defendants rely are unhelpful because they were also
resolved on the second prong of the copyright preemption inquiry. See, e.g.,
Briarpatch Ltd., L.P., 373 F.3d at 306.
      To summarize, GlobeRanger alleges that it implements RFID solutions at
client sites. Those solutions include the types of procedures, processes, systems,
and methods of operation that are excluded from copyright protection under

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Section 102(b). These factual allegations, if proven true, would be outside of the
subject matter of the Copyright Act and not preempted.
      B.    Copyright Equivalency – Conversion
      Because we have concluded that at least part of the factual basis for
GlobeRanger’s claims may fall outside of the scope of copyright, we leave open
the application of this holding to the remainder of the copyright preemption
analysis on remand. If none of the claims were preempted, though, there would
not be federal jurisdiction under the complete preemption doctrine. Barrois, 533
F.3d at 331. The best argument by the defendants for preemption is on
GlobeRanger’s conversion claim.
      GlobeRanger argues that because Texas conversion law pertains to
physical property, it is not equivalent to copyright protection. See Carson, 344
F.3d at 456. The defendants argue that this court has held that claims for
conversion of intangible property are preempted. See Daboub v. Gibbons, 42
F.3d 285, 289-90 (5th Cir. 1995). GlobeRanger only mentions in a footnote of its
brief that the defendants “converted tangible property.”        To support this
argument, it refers to two paragraphs of its complaint pertaining to intangible
property, such as where GlobeRanger places RFID readers. The allegations
GlobeRanger identifies are not allegations relating to tangible property. Thus,
for the purposes of jurisdictional analysis, the defendants make a sufficient
argument to keep this case in federal court at the motion to dismiss stage. See
Carson, 344 F.3d at 456; Briarpatch, 373 F.3d at 308.
      To be clear, our conclusion on conversion is without prejudice to
GlobeRanger’s ability to prove its claim relates to physical property.        For
example, the second paragraph in the petition that it highlights alleges the
defendants took the information they learned from observing GlobeRanger and
“hooked it up to the GlobeRanger iMotion server.” If, with the aid of a more
developed record, the district court concludes that GlobeRanger’s conversion

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claim relates to physical property, a different analysis will be required. If,
however, the district court concludes that neither the conversion claim nor any
other is preempted, it will lack jurisdiction over this case.

                                 CONCLUSION
      We have only been presented with a question of copyright preemption at
the motion to dismiss stage. The order of dismissal did not determine whether
the complaint plausibly asserted state-law claims upon which relief can be
granted. We thus reach only modest conclusions. First, GlobeRanger has pled
factual allegations that at least in part fall outside of the scope of copyright.
Further, the defendants have argued enough of a basis for preemption on
GlobeRanger’s conversion claim to stay in federal court.
      REVERSED and REMANDED.

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