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.
The only issue on appeal to the Fifth Circuit was whether Ultraflo’s state law unfair competition by misappropriation claim was preempted by the Copyright Act. The Copyright Act provides that
On and after January 1, 1978, 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 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
17 USC §301(a).
The Fifth Circuit uses a two-part test derived from the §301(a) text to determine whether the Copyright Act preempts a state law claim. 1) Is the intellectual property at issue within the subject matter of copyright? 2) If so, then a state law claim is preempted if it protects rights that are equivalent to any of the exclusive copyright rights.
The Fifth Circuit determined that Ultraflo sought to protect a valve design within the subject matter of copyright. Ultraflo argued that Pelican misappropriated Ultraflo’s valve design. Copyright does not protect useful articles or ideas. However, the preemption statute is broader than the protection offered by the Copyright Act.
As the Fourth Circuit put it, ‘the shadow actually cast by the Act’s preemption is notably broader than the wing of its protection.’
(Opinion pdf page 7).
Ideas fixed in a tangible medium of expression come under copyright’s subject matter even though copyright law does not protect ideas. An idea is fixed in a tangible medium of expression when it is stable in that medium for more than a transitory period. Allowing states to protect fixed ideas would contravene the exclusion of ideas from federal copyright protection.
Congress’s exercise of its power under the Copyright Clause to not provide protection for the embodiment of ideas in useful articles is entitled to preemptive force. Allowing state law to protect such works would undermine the ‘deliberate exclusion’ of such subject matter from the federal copyright scheme.
(Opinion pdf page 8).
The second part of the test examines whether the state law seeks to protect rights equivalent to any of the exclusive copyright rights.
This is determined by the ‘extra elements’ test, which looks at whether ‘one or more qualitatively different elements are required to constitute the state-created cause of action being asserted.’ If so, the state law protects rights different than those that the Copyright Act protects and there is no preemption.
(Opinion pdf page 8).
The Fifth Circuit previously held that Texas’s unfair competition by misappropriation cause of action does not offer protection materially different from federal copyright law. Ultraflo’s arguments focused on using its drawings to make a useful article. Even though the Copyright Act gives Ultraflo the exclusive right to reproduce its drawings of the valve, the Copyright Act does not grant Ultraflo the exclusive right to make the useful article depicted in the drawing. The state law initially appears to grant a right that federal copyright law does not.
Again, however, the preemption inquiry operates on a more general level. The question is not whether state law provides a right identical to federal copyright law, but whether state law provides a right akin to those within the general scope of copyright as specified by section 106. Among the exclusive rights generally provided to copyright holders in section 106 is the right to make derivative use of copyrighted works. State claims protecting against such use by another thus are preempted by Section 301.
Similar to what we saw with the subject matter inquiry, the ‘equivalent rights’ inquiry thus looks not at the rights Congress actually provided but at the type of rights it has the power to confer. Withholding a particular right is part of the balance Congress struck between the need for copyright incentives and the value in public access to ideas. To allow state law protection in this area that Congress excluded from the ambit of copyright thus would run afoul of the familiar doctrine that the federal policy may not be set at naught, or its benefits denied by the state law.
(Opinion pdf pages 9 – 11).
This case is Ultraflo Corporation v. Pelican Tank Parts, Inc., No. 15-20084, Fifth Circuit Court of Appeals.