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Motion Medical Technologies, L.L.C. v. ThermoTek, Inc.

United States Court of Appeals, Fifth Circuit

November 14, 2017

MOTION MEDICAL TECHNOLOGIES, L.L.C.; WABASH MEDICAL COMPANY, L.L.C.; ORTHOFLEX, INCORPORATED, doing business as Integrated Orthopedics, Plaintiffs-Counter Defendants-Appellees
v.
THERMOTEK, INCORPORATED, Defendant-Counter Claimant-Third Party Plaintiff-Appellant
v.
TRI 3 ENTERPRISES, L.L.C.; THERMO COMPRESSION SOLUTIONS, L.L.C.; WMI ENTERPRISES, L.L.C., Third Party Defendants-Appellees THERMOTEK, INCORPORATED, Plaintiff-Appellant
v.
MIKE WILFORD, Defendant-Appellee

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

          Before SMITH, OWEN, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, CIRCUIT JUDGE.

         ThermoTek, Inc. convinced a jury that Mike Wilford and his companies engaged in unfair competition and fraud in violation of Texas law. The district court, however, granted judgment as a matter of law to the defendants, concluding that federal law preempted the unfair competition claim and that ThermoTek failed to prove its damages for fraud. We affirm.

         I.

         ThermoTek designs, manufactures, and sells the VascuTherm system, which consists of a medical device and specially designed wraps that provide thermal and compression therapy. ThermoTek sells this equipment to medical goods distributors, who then sell or lease it to hospitals and clinics. Once a doctor prescribes VascuTherm, a distributor delivers it to, demonstrates it for, and fields questions from the patient. The distributor then bills the patient's insurance.

         In addition to vending VascuTherm to distributors, ThermoTek trains those distributors to use and care for the unit and wraps. Distributors receive access to a password-protected portion of ThermoTek's website, user manuals, pricing data, insurance coding information, and other written materials.

         Mike Wilford is an executive of several medical equipment companies, including Orthoflex, Inc., Motion Medical Technologies, LLC, and Wabash Medical Co., LLC (the Orthoflex companies). In 2008, Wilford, through his companies, began buying and distributing the VascuTherm system. As a distributor, Wilford received various ThermoTek materials, including billing codes and product manuals. He visited ThermoTek's facilities at least twice.

         Soon after his companies started purchasing the VascuTherm system, Wilford reported problems with the product and requested information about its design, repairs, and manufacturing. ThermoTek believes these reports were pretexts for Wilford to obtain proprietary information about VascuTherm. In March 2010, the Orthoflex companies sued ThermoTek in the Northern District of Illinois, alleging breach of the products' warranties. ThermoTek alleges that Wilford used the discovery process to obtain additional proprietary information, including a non-public version of ThermoTek's § 510(k) application[1] to the Food and Drug Administration (FDA) for VascuTherm. Wilford eventually developed and began selling his own unit and wraps, dubbed the Recovery system. ThermoTek ended its relationship with Wilford in August 2010.

         Three months later, in November 2010, ThermoTek sued Wilford and another of his companies, WMI Enterprises, LLC, for fraud and unfair competition in Texas state court.[2] Wilford removed that case to the Northern District of Texas, which then consolidated it with the related breach-of-warranty suit from Illinois. After several pretrial motions and amended pleadings, the parties tried the following to a jury:

(1) the Orthoflex companies' counterclaim against ThermoTek for breach of express warranty;
(2) ThermoTek's claim against Wilford for fraud;
(3) ThermoTek's claim against Motion Medical, Wabash Medical, and Tri 3 Enterprises LLC[3] for breach of contract; and
(4) ThermoTek's claim against Wilford and Thermo Compression Solutions, LLC[4] for unfair competition by misappropriation.

         Important for our purposes, ThermoTek's Texas common law claim of unfair competition by misappropriation was the only unfair competition claim tried to the jury. Although ThermoTek had pleaded a distinct claim for misappropriation of trade secrets, it voluntarily dismissed that claim before trial.[5]

         The jury broke ThermoTek's way. It rejected the Orthoflex companies' warranty claim, but found for ThermoTek on the fraud, contract, and unfair competition claims. The jury also awarded ThermoTek more than $7.5 million in damages for "lost profits." On the unfair competition claim, it awarded $4 million for infringing unit sales and $2 million for infringing wrap sales. On the fraud claim, it awarded $770, 000 for VascuTherm wrap sales; $500, 000 for VascuTherm unit sales; $193, 000 for additional expenses from unit repairs; $90, 000 for additional engineering costs; and $13, 000 for additional evaluation and tooling costs. (The jury awarded no damages for breach of contract.)

         In response, Wilford and Thermo Compression renewed their motion for judgment as a matter of law. See Fed. R. Civ. P. 50.[6] They argued that federal copyright and patent law preempted ThermoTek's misappropriation claim, and that ThermoTek failed to prove its damages. The district court agreed and entered an amended judgment dismissing all claims with prejudice and denying all requested relief.[7]

         ThermoTek's appeal raises three issues. The first is waiver-whether the failure to plead preemption bars that defense. Second is the preemption defense's merits-whether federal law indeed forecloses ThermoTek's unfair competition claim. And last is the money-whether the jury had enough evidence to assess lost profits. Though we neither examine nor question the jury's factual finding that Wilford made material misrepresentations, we affirm the district court's decision to grant the motion for judgment as a matter of law and dismiss ThermoTek's claims.

         II.

         First up is whether Wilford and Thermo Compression waived their preemption defenses by failing to plead them. The district court said no-an answer we review for abuse of discretion.[8] We find no abuse of discretion here.

         Federal Rule of Civil Procedure 8(c) requires a defendant to state affirmative defenses in its responsive pleading. Fed.R.Civ.P. 8(c) ("In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense . . . ."). Failure to comply with this rule may result in waiver. Lucas v. United States, 807 F.2d 414, 417 (5th Cir. 1986) (citing Starcraft Co. v. C.J. Heck Co., 748 F.2d 982, 990 n.11 (5th Cir. 1984)). But if "the [affirmative defense] is raised in the trial court in a manner that does not result in unfair surprise, " then a "technical failure to comply precisely with Rule 8(c) is not fatal." Id. at 417 (quoting Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855-56 (5th Cir. 1983) (per curiam)). Because Rule 8(c)'s purpose is to give the plaintiff fair notice, we recognize "some play in the joints." Rogers v. McDorman, 521 F.3d 381, 385 (5th Cir. 2008). A defendant thus avoids waiver if (1) the defendant raised the affirmative defense "at a pragmatically sufficient time, " and (2) the plaintiff "was not prejudiced in its ability to respond." Lucas, 807 F.2d at 418 (quotation mark omitted) (quoting Allied Chem., 695 F.2d at 856); see also 2 Moore's Federal Practice § 8.08[3] (3d ed. 2016).

         ThermoTek got fair notice. It learned of the preemption defense at a pragmatically sufficient time and suffered no prejudice. The preemption issue first surfaced at the summary judgment stage before discovery closed and nearly two years before trial. And, in denying the motion to reconsider its summary judgment order, the district court noted that it could "consider a preemption challenge to ThermoTek's unfair competition claim by motion for judgment as a matter of law and by post-judgment motion, if necessary, assuming ThermoTek prevails on that claim at trial." The parties therefore had two years' notice that preemption was on the table.

         Preemption resurfaced closer to and during trial. After the parties had engaged in substantial additional discovery-and still before trial-Wilford and Thermo Compression raised copyright and patent law preemption in the parties' joint proposed pretrial order. Wilford and Thermo Compression raised those defenses again in Rule 50 motions at the close of both cases-in-chief. See Fed. R. Civ. P. 50. The charge conference also addressed preemption.[9]

         All this was enough to meet our "sufficiently pragmatic" requirement. We have repeatedly rejected waiver arguments when a defendant raised an affirmative defense for the first time at summary judgment-or even later. See, e.g., Pasco ex rel. Pasco v. Knoblauch, 566 F.3d 572, 578 (5th Cir. 2009) (no waiver when defendant first raised affirmative defense of qualified immunity in summary judgment motion filed two months before discovery was due and six months before the pretrial conference); Lafreniere Park Found. v. Brous-sard, 221 F.3d 804, 808 (5th Cir. 2000) (no waiver where defendants first raised affirmative defense of res judicata in summary judgment motion and plaintiffs had fourteen months to respond and filed three responsive briefs during that period); Allied Chem., 695 F.2d at 855-56 (no waiver where defendant first raised affirmative defense of usury in motion for summary judgment and the defense appeared in the pretrial order); Lucas, 807 F.2d at 417-18 (no waiver when the government first raised affirmative defense of a statutory damages cap at trial immediately after expert testimony on damages). In fact, we have recognized that sometimes a preemption defense is most suitably raised after the defendant answers the complaint. See Fisher v. Halliburton, 667 F.3d 602, 610 (5th Cir. 2012) ("Unless the complaint itself establishes the applicability of a federal-preemption defense-in which case the issue may properly be the subject of a Rule 12(b)(6) motion-a defendant should ordinarily raise preemption in a Rule 12(c) motion for judgment on the pleadings or a Rule 56 motion for summary judgment." (footnote omitted)).

         Nor did ThermoTek suffer prejudice "in its ability to respond." Allied Chem., 695 F.2d at 856. The company admitted as much to the district court. When asked to identify specific prejudice, including what it would have done differently had Wilford and Thermo Compression pleaded preemption, Ther-moTek's counsel stated, "I don't know what we would have done differently, " and "[p]ractically speaking, I don't know that we would have done anything differently."

         The district court did not abuse its discretion in reaching the preemption defense on the merits.

         III.

         The merits question is whether federal copyright and patent laws preempted the unfair-competition-by-misappropriation claim. They did.

         A.

         The district court held that federal copyright law preempts ThermoTek's unfair competition claim insofar as that claim relates to works of authorship fixed in a tangible medium of expression-here, ThermoTek's ...


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