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Ultraflo Corporation v. Pelican Tank Parts, Inc.

United States Court of Appeals, Fifth Circuit

January 11, 2017

ULTRAFLO CORPORATION, Plaintiff - Appellant

         Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, Chief Judge, and OWEN and COSTA, Circuit Judges.

          GREGG COSTA, Circuit Judge:

         This appeal requires us to again consider the preemptive force of the Copyright Act. Plaintiff Ultraflo Corporation asserts an unfair competition by misappropriation claim under Texas law alleging that a competitor stole its drawings showing how to design valves and then used them to make duplicate valves. We have previously held that copyright preempts this Texas cause of action when the intellectual property at issue is within the subject matter of copyright. Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 785-89 (5th Cir. 1999). Ultraflo contends that its claim escapes preemption because its valve design, when separated from the drawing itself, is afforded no protection under the Copyright Act. Because copyright preemption prohibits state interference with Congress's decision not to grant copyright protection just as much as it protects a decision to provide protection, the district court correctly found that the state claim is preempted.


         Ultraflo manufactures butterfly valves used in the transportation industry. With the help of its employee Thomas Mueller, Ultraflo redesigned its Model 390 butterfly valve. The new design was recorded in drawings that specify the valve's features and measurements.

         Mueller ultimately left Ultraflo to work at Pelican-a competing valve manufacturer. Soon after, Pelican entered the market with a valve that Ultraflo contends was strikingly similar to its own.

         Believing that Pelican hired Mueller to gain access to its design drawings and other intellectual property, Ultraflo sued Pelican and Mueller (jointly referred to as Pelican) in state court for conversion, civil conspiracy, unfair competition by misappropriation, and misappropriation of trade secrets. Pelican sought to remove the case to federal court, arguing that the state claims were preempted by the Copyright Act, but removal was untimely. Back in state court, Pelican won a motion to dismiss, which argued that the court lacked jurisdiction as the subject matter of the suit was subject to the copyright laws, because Ultraflo failed to respond.

         Before the state suit was dismissed, Mueller registered valve drawings with the U.S. Copyright Office and filed a complaint in federal court, seeking declaratory relief that the drawings (1) were copyrightable subject matter, (2) belonged to Mueller, and (3) were not "works for hire" under the Copyright Act. Mueller then voluntarily dismissed his suit in an attempt to encourage settlement.

         After the settlement failed to materialize, Ultraflo filed this federal action. It again asserted the state tort claims and also sought a declaratory judgment that Mueller was using a copyright that did not belong to him. The district court sua sponte questioned whether Ultraflo's state claims were preempted by the Copyright Act. It ordered Ultraflo to file a second amended complaint "avoiding allegations of state law claims that are clearly preempted by federal law."

         That pleading reasserts all of Ultraflo's state claims and notes that they arise from Pelican's "use of Ultraflo's [design] drawings to make actual valves." For example, it alleges that the "unauthorized activities by Mueller in retaining Ultraflo's confidential drawings [and] the subsequent use of them by Pelican . . . to make competitive valves, constitutes misappropriation of Ultraflo's valuable trade secrets." It further contends that Defendants engaged in unfair competition by misappropriating its "butterfly valves, valve features, and components."

         Pelican subsequently filed a motion to dismiss on preemption grounds. The district court agreed that all but Ultraflo's trade secret claim were preempted by the copyright laws.[1]

         In response, Ultraflo filed a third amended complaint that removed the preempted state claims and added a claim of copyright infringement. Pelican filed yet another motion to dismiss, seeking dismissal of the new copyright claim. The district court denied the motion because Ultraflo alleged "that Defendants infringed the drawings, not by taking the physical drawings, but by taking their intangible intellectual property, using it to make their own drawings and butterfly valve, and thereby infringing on Ultraflo's exclusive rights to reproduce its copyrighted work and to prepare derivative products based on the copyrighted work."

          The case proceeded to trial on the copyright and trade secret claims, both of which the jury rejected. After trial, Ultraflo moved under Rule 50(b) for judgment as a matter of law, or, alternatively, a new trial, on the ground that the unfair competition claim was not preempted. Finding that this was not the proper procedural vehicle to seek reconsideration of the pretrial dismissal of the unfair competition claim, ...

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