5th Circuit Gets Tricky Trade Secret Case; Failed Suits Against Pop Stars Go to 4th, 7th

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July 3 — The U.S. Court of Appeals for the Fifth Circuit will review a case that the district court struggled mightily with, issuing two seemingly inconsistent opinions about whether the claims for trade secret misappropriation, which are related to software source code, were preempted by the Copyright Act, Spear Marketing, Inc. v. BancorpSouth Bank, No. 14-10753, (5th Cir., appeal docketed 7/2/14).  

The trade secrets are related to the software source code of a cash management system that allows banks to optimize the amount of cash needed in individual automated teller machines in order to satisfy customer demand.

In the first decision, the U.S. District Court for the Southern District of Texas held in May 2013 that the misappropriation claim, which included allegations that the defendant had stolen at least some software source code, was partially preempted by the Copyright Act, and it therefore it said that the case was appropriately removed to federal court.

Key to that analysis was the Fifth Circuit's decision in GlobeRanger Corp. v. Software A.G 691 F.3d 702, 103 U.S.P.Q.2d 1859 (5th Cir. 2012), which found that business practices suggested by the output from running a software program were not preempted by the Copyright Act. In the instant case as well, at least some of the claims included procedures, processes, and methods of operations that were beyond the scope of copyright law, the court said. However, the instant case also involved allegations that the defendant had copied portions of the plaintiff's software and so the misappropriation claims were at least partially preempted, the court said. It thus declined to remand the case back to state court.

But two months later in a denial of a motion to dismiss the court found all of the claims preempted. The court, however, declined to remand the case back to state court, saying it would retain jurisdiction over the case for “the interests of justice and judicial economy.” In June the district court granted the defendants' motion for summary judgment, finding that the plaintiff had failed to allege that the defendants “used” any protected trade secrets. The court at the time said it need not consider the defendants' preemption defenses.

Uptick in Infringement Suits Against Pop Stars?

Appeals were also recently filed in copyright infringement cases against Lady Gaga, Usher and Justin Bieber. Both cases—Bieber and Usher are codefendants in one of the actions—were dismissed by district courts on the grounds that there was no evidence that the popular artists had infringed the works of the plaintiffs.

In the action against Stefani Germanotta, who performs as Lady Gaga, the U.S. District Court for the Northern District of Illinois determined in June that there was no substantial similarity between Lada Gaga's hit song “Judas” and the plaintiffs song, “Juda.” The plaintiff appealed that case to the Seventh Circuit, Francescatti v. Germanott No. 14-02432, (7th Cir., appeal docketed 7/1/14).

In March, the Eastern District of Virginia dismissed with prejudice a copyright infringement claim against Bieber and Usher Raymond that alleged that their 2010 song “Somebody to Love” infringed the plaintiffs' 2008 song of the same name. The court said the songs were “not intrinsically similar.” That ruling has been appealed to the Fourth Circuit, Copeland v. Bieber No. 14-01654, (4th Cir., appeal docketed 7/2/14).

In May, Usher secured dismissal of another infringement suit, that one alleging that his 2005 single “Caught Up” infringed the plaintiff's 2002 composition of the same name, Edwards v. Raymond, 2014 BL 144493 (S.D.N.Y. 2014).

In November, a district court ruled that there was no substantial similarity between a number of Katy Perry's hit songs and songs that a plaintiff claimed he distributed to college radio stations between 2008 and 2009, Lyles v. Capital-EMI Music Inc., 2013 BL 312769, 108 USPQ2d 2017 (S.D. Ohio 2013). The court dismissed the complaint.

Section 505 Lurks

The apparent increase in infringement litigation against popular artists therefore appears to have been ineffective from a plaintiff's perspective. Indeed, the suits can be devastating to the plaintiff if the court determines that claims were objectively unreasonable in the first place, and thus justify an award of attorneys' fees under Section 505 the Copyright Act, 17 U.S.C. § 505.

Section 505 was invoked in yet another case against a pop star. Specifically, Madonna was awarded $670,000 in costs and attorneys' fees for having to defend an infringement suit alleging that her hit song “Vogue” made infringing uses of a single chord from a 1977 copyrighted recording. After finding that the single chord was not sufficiently original to merit copyright protection, the court determined that the complaint was objectively unreasonable. That ruling was appealed to the Ninth Circuit in May, VMG Salsoul, LLC v. Ciccone,No. 14-55837, (9th Cir., appeal docketed 5/23/14).

To contact the reporter on this story: Tamlin Bason in Washington at tbason@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com