State Law Can’t Protect Butterfly Valve from the Copyright Preemption Net

Ultraflo Corporation manufactures butterfly valves for use in the transportation industry. Ultraflo redesigned its Model 390 butterfly valve with the help of employee Thomas Mueller. Mueller left Ultraflo to work for Pelican Tank Parts, one of Ultraflo’s competitors. Pelican then produced a valve Ultraflo claimed was strikingly similar to Ultraflo’s own butterfly valve.

Ultraflo pursued its legal remedies, eventually suing Pelican and Mueller in federal court for state tort claims and copyright infringement. At trial, the jury rejected both Ultraflo’s trade secret and copyright claims. Ultraflo appealed the district court’s pretrial dismissal on preemption grounds of Ultraflo’s unfair competition by misappropriation claim. The Fifth Circuit Court of Appeals affirmed the district court’s ruling.

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Trade Secret Misappropriation Defeats Maze of Copyright Preemption Claims

GlobeRanger is a software company that specializes in radio frequency identification (RFID) technology.  GlobeRanger RFID solutions focus on inventory management, allowing users to filter, process and store inventory information in real time.  Pursuant to a contract through the Department of Defense, GlobeRanger installed RFID technology solutions at three Navy bases.  The Navy then decided to consolidate into an enterprise-wide RFID solution to be run from one location.  The Navy awarded the contract to Software AG and ordered GlobeRanger to stop its work.  GlobeRanger sued Software AG for misappropriating its trade secrets, alleging that Software AG accessed some of GlobeRanger’s data, manuals and software while working on the Navy contract.

GlobeRanger initially filed its lawsuit against Software AG in federal court.  Software AG objected, arguing lack of federal court jurisdiction, so GlobeRanger dismissed its federal lawsuit and filed in state court.  Software AG then decided that the lawsuit belonged in federal court and removed the case to federal court.  The district court denied GlobeRanger’s motion to remand and ruled that GlobeRanger’s misappropriation claims were preempted by the Copyright Act.  GlobeRanger appealed that decision to the Fifth Circuit, which reversed and remanded the case to the district court. (GlobeRanger I).  Software AG appealed to the Fifth Circuit in the second appeal after a $15 million jury verdict in GlobeRanger’s favor.  Software AG argued that GlobeRanger’s trade secret claim was preempted by federal copyright right law, but that even if the trade secret claim was not preempted, the federal court lacked jurisdiction due to the lack of a federal law claim.  The Fifth Circuit ruled that GlobeRanger’s trade secret claim was not preempted, but that GlobeRanger’s dropped conversion claim was preempted and supported the required federal jurisdiction.

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Former NFL Pros’ State Right of Publicity Claims Preempted by Copyright Act

John Frederick Dryer, Elvin Lamont Bethea, and Edward Alvin are former National Football League (NFL) players who participated in a class action against the NFL.  The former players sued the NFL, claiming right of publicity and Lanham Act (trademark) violations by the NFL for showing the players in films about significant moments in NFL history.  NFL Films sells consumers copies of the films and licenses the films for public display to Warner Home Video, Hulu, ESPN and others.  The other class action participants settled with the NFL, but Dryer, Bethea and Alvin did not.

The district court granted the NFL’s motions for summary judgment on the players’ right of publicity and Lanham Act claims.  The Eight Circuit affirmed the district court’s ruling.

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Copyright Preemption Nixed in Models’ Privacy and Misappropriation Case

Professional models Amber Coyle and Jasmin Dustin were paid to participate in a photo and video shoot by Michael O’Rourke and O’Rourke Holdings, LLC.  Coyle and Dustin later sued O’Rourke and O’Rourke Holdings (O’Rourke) for violating the oral and written agreements the parties entered into at the time of the photo and video shoot.  Coyle and Dustin brought their suit in Los Angeles Superior Court.  They alleged the California state law claims of invasion of privacy and misappropriation of likeness against O’Rourke.

O’Rourke removed the case from state court to federal court, then immediately moved to dismiss the case.  O’Rourke claimed that Coyle’s and Dustin’s state law claims were preempted by the Copyright Act, which is federal law.  Preemption means that the federal law displaces the state law.  Coyle’s and Dustin’s complaint did not mention anything about copyright.

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Not All Copyright Ownership Disputes Get Decided in Federal Court

It has long been established in this Circuit that a title dispute is a traditional state court property dispute which does not necessarily confer federal copyright jurisdiction.  If it were otherwise, then every copyright title dispute could be brought in federal court. That said, many copyright ownership disputes clearly do arise under the Copyright Act.  For example, a dispute that turns on whether a copyrighted work was created independently or as a ‘work made for hire’ is an ownership dispute that unquestionably arises under the Copyright Act.

(Opinion pdf page 4). 

Federal courts have exclusive jurisdiction (i.e., power to decide the case) over copyright cases.  State courts do not have jurisdiction to decide federal copyright issues.  What determines whether a copyright ownership dispute is simply a contractual issue to be decided in state court or whether it is a copyright issue to be decided in federal court?

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Policy Limiting Tweeting at UW Basketball Games Excessive, Unconstitutional

The University of Washington’s enforcement of its Live Coverage Policy at UW basketball games has the media crying foul.  The UW’s Live Coverage Policy states that members of the media who are “Credential Holders” “are not permitted to promote or produce in any form a ‘real time’ description of the event.”  A local reporter was recently reprimanded for sending excessive tweets during a UW basketball game. 

On what legal authority does the UW base the adoption of its Live Coverage Policy?  When considered in light of the live NBA broadcast, hot news and college football First Amendment cases discussed below, the UW’s actions exceed the scope of its live broadcast rights and violate the First Amendment.

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“Untenable” Negligence Claim Dismissed In Action Alleging Copyright Piracy

Liberty Media Holdings, LLC (Liberty) brought suit for copyright infringement against Cary Tabora and Schuyler Whetstone for allegedly using BitTorrent to pirate a motion picture, Corbin Fisher’s Down on the Farm.  Tabora is alleged to have let his roommate, Whetstone, use Tabora’s Internet connection to pirate copyrighted content.  Liberty asserted direct copyright infringement, contributory copyright infringement and negligence claims against Tabora.  The district court for the Southern District of New York granted Tabora’s motion to dismiss Liberty’s complaint for failure to state a claim upon which relief can be granted.

Section 301 of the Copyright Act preempts “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 …and come within the subject matter of copyright as specified by sections 102 and 103 ….”  State law causes of action are preempted when the works are the type protected by the Copyright Act and the state law protects a right equivalent to an exclusive right protected by copyright law.  Negligence is a state law cause of action.

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Forest Park’s Breach of Contract Suit Over USA Network’s “Royal Pains” Not Preempted by Copyright Act

Forest Park Pictures pitched its idea for a television show it called “Housecall” to USA Network.  Forest Park created and submitted written materials and made an oral presentation to USA Network about a doctor who treats medical patients who cannot pay, gets expelled from the medical community for doing that, then becomes a “concierge” doctor to rich and famous people in Malibu, California.  Communication between Forest Park and USA Network about Housecall ended after a few exchanges. 

About four years later, USA Network aired its own television show called “Royal Pains,” about a doctor who gets expelled from the medical community for treating patients who cannot pay, then becomes a concierge doctor to rich and famous people in The Hamptons on Long Island, New York.  Forest Park sued USA Network for breach of contract.  The district court dismissed Forest Park’s suit, holding that it was preempted by the Copyright Act.  The Second Circuit Court of Appeals vacated and remanded, holding that the Copyright Act did not preempt Forest Park’s claim and that the complaint alleged an enforceable state law contract.

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Wall Street Firms Cannot Protect Business Model with “Hot News” Misappropriation Claim

Fly, despite the Firms’ understandable desire to protect their business model, is breaking it.

(Opinion pdf page 60).

Financial services firms Barclays Capital, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and Morgan Stanley & Co., Inc., (the Firms) sued news aggregator (pdf) Theflyonthewall.com (Fly) for copyright infringement and for committing the New York state law tort of “hot news” misappropriation.  Fly did not dispute the copyright claims.  The district court ruled in favor of the Firms on the “hot news” misappropriation claim.  On appeal, the Second Circuit Court of Appeals reversed the district court’s ruling on that issue.

The Parties.  The Firms generate research reports on publicly traded companies, employing hundreds of research analysts and spending hundreds of millions of dollars on these activities each year.  Before the market opens in the morning, the Firms release their Recommendations generated by their research activities to a select group of people.  The Firms believe that investors are more likely to place a trade with a Firm if the investor receives that information directly from the Firm.  “They assert that the timely, exclusive delivery of research and Recommendations therefore is a key to what they frequently refer to as their ‘business model.”  (Opinion pdf pages 12-13). 

Fly is a news aggregator, defined by the court as “a website that collects headlines and snippets of news stories from other websites.”  (Opinion pdf page 13).  Fly offers a subscription service providing early access to investors who are not authorized by the Firms to receive their Recommendations.  Fly compiles information and does not perform any independent analysis.  Fly views itself as a source of breaking financial news.  It continually updates its online newsfeed between 5:00 a.m. and 7:00 p.m. on market days.  Fly obtains its information from news outlets, chat rooms, IM blasts and conversations with its industry contacts.  The Firms view Fly’s activities as a threat to their business model and filed suit against it.

Copyright Preemption in generalPreemption is the principle that federal laws made pursuant to the U.S. Constitution are “the supreme law of the land” and that federal law displaces state law when there is a conflict between the two.  My blog post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law discusses preemption as viewed by the Ninth Circuit, which is slightly different from the Second Circuit’s discussion.

Title 17 U.S.C. § 301, enacted in 1976, sets forth a two-part test to determine whether a state-law claim is preempted by the Copyright Act, with a further ‘extra elements’ exception we discuss below. Such a claim is preempted (i) if it seeks to vindicate ‘legal or equitable rights that are equivalent’ to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C. § 106 — the ‘general scope requirement’; and (ii) if the work in question is of the type of works protected by the Copyright Act under 17 U.S.C. §§ 102 and 103 — the ‘subject matter requirement.’

(Opinion pdf pages 36-37).

The Second Circuit in Fly discussed the three prong “extra-element” test from the NBA case described below, declined to apply the test, but did not articulate its own test.

What is “hot news”?  The court illustrated what “hot news” is through its discussion of two other hot news cases:  International News Service v. Associated Press (INS) and National Basketball Association v. Motorola, Inc. (NBA).

In INS, AP investigated and reported the news.  INS took news facts from AP bulletins and wired them to INS papers, representing those facts as resulting from its own work, when it did not gather the facts or independently investigate them.  The U.S. Supreme Court “held that INS’s conduct was a common-law misappropriation of AP’s property.”  (Opinion pdf page 41).  The INS court indicated that the facts gathered by AP were the news of the day and were not copyrightable.  The decision was based on unfair competition law and not on copyright law.

The INS court defined the ‘hot news’ tort in part as ‘taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and appropriating it and selling it as the defendant’s own.’

(Opinion pdf page 61).

In NBA, one of the defendants gathered information on NBA games as they were occurring, including score changes, ball possession, free-throw bonus, the quarter and time left in the quarter.  These statistics were transmitted to pagers owned or leased by Motorola almost simultaneously with the live games.  The NBA sued Motorola and the statistics gathering firm, claiming hot news misappropriation.  The Second Circuit ruled that since the statistics firm incurred the expense of gathering its own statistics, the defendants were not free-riding on the NBA’s product and that the defendants did not misappropriate the NBA’s hot news.

Although the Second Circuit in NBA ruled that Motorola did not commit the tort of hot news misappropriation, the court set out some factors to determine when the hot news misappropriation tort has been committed.  Both the district court judge and the parties in Fly thought that the correct analysis was to apply the NBA factors.  The Second Circuit disagreed:

[I]n NBA, the Court held that the facts of that case could not support a non-preemted “hot news” claim.  Its language regarding the elements that might in some later case allow a claim to avoid preemption, and its discussion of why such an exception to preemption was narrow, were useful commentaries on the reasoning and possible implications of the Court’s holding.  But the language itself was not meant to, and did not, bind us, the district court, or any other court to subsequently consider this subject.

(Opinion pdf, footnote 32, page 54).

The Second Circuit in Fly pointed out that the NBA opinion sets out two inconsistent five-part tests and a three prong “extra element” test as further justification that those parts of the opinion cannot be the law.

Copyright Preemption applied to this case.  The court ruled that the Firms claims under the New York state law tort of “hot news” misappropriation were preempted by the Copyright Act:

  • The Firms’ reports and Recommendations are works of the type covered by 17 U.S.C. §102, i.e. original works of authorship fixed in a tangible medium of expression, fulfilling the subject matter requirement.
  • The Firms’ reports and Recommendations fulfill the “general scope” requirement because the rights in those materials may be diminished by an act that, by itself, such as reproduction, performance or distribution, would infringe an exclusive right under the Copyright Act.
  • Fly is not “free-riding” on the Firms’ efforts.

The rest of this post focuses on the court’s third point – the lack of free-riding.  Free-riding in this context is “unfair use of another’s labor, skill, and money, and which is salable by complainant for money.”  (Opinion pdf page 61).  The term “free-riding” implies acts that are inherently unfair.  Fly collects, collates and disseminates factual information.  The Firms’ Recommendations are news in and of themselves.  The court noted that Recommendation of the Firms can influence the price of a stock, at least in the short term.

The court also made the point that

In pressing a “hot news” claim against Fly, the Firms seek only to protect their Recommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting.

(Opinion pdf page 62).

The court summed up by stating:

We conclude that in this case, a Firm’s ability to make news — by issuing a Recommendation that is likely to affect the market price of a security — does not give rise to a right for it to control who breaks that news and how.

(Opinion pdf page 71).

The panel consisted of Judges Rosemary S. Pooler, Robert D. Sack and Reena Raggi.  Judge Sack wrote the opinion for the panel.  Judge Raggi wrote her own concurring opinion.  She agreed that the Firms’ hot news misappropriation claim was preempted by federal copyright law, but did not think the NBA five factor test should be rejected.

This case is Barclays Capital Inc. v. Theflyonthewall.com, Inc., No. 10-1372.

Copyright, Lanham Act and Some State Law Claims Survive Motion to Dismiss in Floral Art Case

Plaintiff Susan Tierney Cockburn filed suit (pdf) in the Western District of Washington against five out of state defendants – one manufacturing defendant and four retail defendants.  The defendants filed motions to dismiss the complaint for lack of personal jurisdiction and to dismiss plaintiff’s Lanham Act (federal trademark) and state law claims for failure to state a claim upon which relief can be granted under Fed. R. Civ.P. 12(b)(6).  The defendants also questioned whether plaintiff’s works were copyrighted, although that does not appear to have been part of the formal motion.  Judge Robert S. Lasnik granted the motion to dismiss in part and denied it in part.

Facts.  Plaintiff is a professional author and artist in Redmond, Washington.  She creates floral art with paper and three dimensional paper flowers for use in crafts and hobbies.  She “developed a unique line of paper punches to enhance her paper floral art and three dimensional paper flowers.”  (Order pdf page 2).  Plaintiff registered copyrights for two books:  Paper Bouquet and The Paper Garden – Summer Blooms.

Defendant SWS Industries, Inc. is an Illinois corporation that manufactures punches used in office products, industrial supply/hardware and crafts.  An SWS representative contacted plaintiff in 2009, asking whether plaintiff would work with it on augmenting its existing paper punches.  SWS later presented plaintiff with a contract to purchase and manufacture her floral designs, but the parties failed to come to an agreement.  Plaintiff alleges that SWS created infringing works which it sold to Internet and retail customers all over the United States.  Plaintiff alleges that the retail defendants sold SWS’s infringing products either online or through retail stores.  The retail defendants are Archiver’s, a Minnesota corporation, Notions, a Michigan corporation, Moore, a Florida corporation, and CreateForLess, LLC, an Oregon limited liability company.  The defendants are not licensed to do business in Washington state and do not have employees or a physical presence in Washington.

Plaintiff claimed copyright infringement, violation of the Lanham Act, 15 USC §1125(a), violation of Washington’s Consumer Protection Act, and violation of Washington trade dress and trade name protection.  She sought a constructive trust and an accounting, both of which are state law claims.

Personal Jurisdiction.  The court undertook the same analysis described in my June 1, 2011, post Personal Jurisdiction Found Lacking in Copyright Infringement Action.  Washington State’s long arm statute extends to the limit of the Due Process Clause. 

For a forum state to have personal jurisdiction over an out-of-state defendant, that defendant must have certain minimum contacts with the forum state, such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.

(Order pdf page 5).

The court set out the three-part test used in the Ninth Circuit to analyze specific jurisdiction:

  1. The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
  2. the claim must be one which arises out of or relates to the defendant’s forum-related activities; and
  3. the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.

(Order pdf page 5).

The court indicated that “[i]n tort cases, courts typically inquire whether a defendant purposefully directs his activities at the forum state, applying an ‘effects’ test that focuses on the forum in which the defendant’s actions were felt, whether or not the actions themselves occurred within the forum.”  (Order pdf page 6).  Tort claims include a claim for willful copyright infringement. 

The first part of the above three-part test, purposeful availment, has its own three part test:  “the defendant allegedly must have (1) committed an intentional act, which was (2) expressly aimed at the forum state, and (3) caused harm, the brunt of which is suffered and which the defendant knows is likely to be suffered in the forum state.”  (Order pdf page 6). 

The Ninth Circuit has approved a sliding scale analysis in addition to the effects test:  “[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.”  (Order pdf page 6). 

The court ruled that the defendant retailers conduct with Washington involved the sale of a small number of non-infringing products and was “insufficient to show that they directed their activity towards Washington in a substantial way.”  (Order pdf page 7).  The retail defendants’ conduct was also found not to have been expressly aimed at the forum, as the retail defendants did not previously know of plaintiff’s existence, her dispute with SWS or her residence in Washington state.  The court granted the retail defendants’ motion to dismiss for lack of personal jurisdiction.

SWS argued that exercising personal jurisdiction over it would be unreasonable.  “Defendant must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.”  (Order pdf page 8).  The seven factors for determining reasonableness are:

  1. the extent of the defendants’ purposeful contacts;
  2. the burden on defendant of having to defend in Washington;
  3. the extent to which jurisdiction conflicts with the sovereignty of the defendant’s resident state;
  4. Washington’s interest in adjudicating the dispute;
  5. which forum is the most efficient for resolution of the dispute;
  6. plaintiff’s interest in choosing the Washington forum; and
  7. the existence of an alternative forum to adjudicate plaintiff’s claims.

The court discussed the factors one by one.  It found that factors one, three, four and six weigh in favor of the plaintiff and factors two, five and seven weigh in favor of the defendant.  SWS did not present a compelling case that jurisdiction in Washington State is unreasonable.  The court denied SWS’s request to dismiss for lack of personal jurisdiction.

Copyright.  The defendants questioned whether plaintiff’s works were copyrighted, but did not provide support for that argument.  Defendants next argued that plaintiff’s designs become a useful article when used with a paper punch.  However, the designs can be cut with scissors or drawn.  The court did not think they were useful articles.  Defendants also argued that plaintiff’s floral designs are scenes a faire, since their origins are objects of nature.  The court ruled that this doctrine is inapplicable, since plaintiff did not claim copyright protection for the shape of certain flowers, but only for the designs of those flowers as rendered in her books. 

Lanham Act claim.  Plaintiff argued that SWS’s products used a trade dress confusingly similar to her products, in violation of the Lanham Act, 15 U.S.C. §1125(a).  Defendants argued that plaintiff’s Lanham Act claims duplicated her copyright claims and failed as a matter of law.  The court stated that “parallel copyright and Lanham Act claims are not per se improper” and that courts limit the application of trademark law when copyright laws “provide an adequate remedy.”  (Order pdf page 12).  The court indicated that plaintiff’s Lanham Act claim includes other elements that are not necessarily compensable under copyright law, such as a false designation of origin and/or sponsorship and SWS passing off its products as plaintiff’s.  The court stated that “courts typically resolve the issue of whether the Lanham Act and copyright claims overlap at the summary judgment stage rather than on a motion to dismiss.”  (Order pdf page 13).  The court denied defendants’ motion to dismiss the Lanham Act claim.

State law claims.  The defendants argued that plaintiff’s state law claims are preempted by the Copyright Act.  Preemption was discussed in my May 10, 2011, post Ninth Circuit Upholds Script Writer’s Implied Contract Claim under California State Law.  The two part preemption test adopted by the Ninth Circuit is

  • courts must first determine whether the subject matter of the state law claim falls within the subject matter of copyright as described by 17 U.S.C. §§102 and 103, and
  • courts must determine whether the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. §106.

To survive preemption, the state law claim must include an extra element that is not protected by the Copyright Act.  The court ruled that plaintiff’s Consumer Protection Act (CPA) claim does not include the required extra element and dismissed that claim as preempted.  Of note to attorneys practicing in the Western District of Washington, the court stated that

[P]laintiff’s response does not address her CPA claim, which the Court construes, pursuant to Local Rule 7, as a concession that defendants’ arguments regarding that claim have merit.

The court found that plaintiff’s Washington State trade dress claims are not preempted, for the same reason the Lanham Act claims are not preempted.

The court found that plaintiff’s state law trade name claim based on words used by plaintiff in her copyrighted works is preempted by copyright law. 

Plaintiff’s state law trade name claim based on the alleged misuse of her name by the defendants is not preempted by copyright law.  “A person’s name or likeness is not a work of authorship within the meaning of 17 U.S.C. §102.”  (Order pdf page 15).

Plaintiff’s state law constructive trust claim was dismissed as preempted, as it was based on defendants’ violation of plaintiff’s copyrights. 

This case is Susan Tierney Cockburn v. SWS Industries, Inc., et al., Case No. C10-1566 RSL, Western District of Washington at Seattle.