Monday, 12 September 2016 20:43

US Copyright Law Does Not Preempt State Trade Secret Claims

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In a software misappropriation case, the 5th Circuit recently held that trade secret misappropriation claims are not preempted by the Copyright Act. In making this ruling, the 5th Circuit joins ten other circuits in establishing an almost-uniform holding across the US.

Federal law preemption, such as copyright preemption, would generally transform any state-law complaint into a federal claim for purposes of the well-pleaded complaint rule. In holding that copyright preemption does not apply to state trade secret law, the 5th Circuit accordingly upheld a $15 million judgment for trade secret misappropriation brought by GlobeRange Corp. against Software AG.

In arriving at its decision, the 5th Circuit recognized that the Copyright Act could preempt a state law claim, if: (1) the work fell within the subject matter of US copyright law; and (2) the right the claimant is seeking to protect is equivalent to the exclusive rights within the scope of US copyright law. In analyizing the first prong, the 5th Circuit found that a misappropriation claim in software undoubtedly fell within the scope of the Copyright Act; however, in analyzing the second prong, the court found that state trade secret law additionally sought to protect the taking, rather than the copying, of information by improper means. 

Presently, 11 circuits (all but the 8th) follow the rule that the Copyright Act does not preempt state trade secret misappropriation claims --

Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164– 65 (1st Cir. 1994) abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (2010);
Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 716–21 (2d Cir. 1992); 
Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197, 217–18 (3d Cir. 2002);
Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 658–60 (4th Cir. 1993);
Stromback v. New Line Cinema, 384 F.3d 283, 302–05 (6th Cir. 2004);
Seng-Tiong Ho v. Taflove, 648 F.3d 489, 503–04 (7th Cir. 2011);
S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090 n.13 (9th Cir. 1989).
Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 846–48 (10th Cir. 1993);
Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1549–50 (11th Cir. 1996);
DSC Commc’ns Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354, 1365 (Fed. Cir. 1999);

For the full opinion --

Read 2213 times Last modified on Friday, 30 September 2016 21:15
Tony Guo

As a specialized technology counsel, Tony supports his clients in the high tech, creative, and online industries. His primary areas of practice include intellectual property protection, Internet law, and startups. Tony is a USPTO registered patent attorney, as well as a licensed lawyer in California and Florida. He comes from a background involving considerable hardware and software development experience, having worked in both development and IT roles in the tech and finance industries.