875 F.3d 765
5th Cir.2017Background
- ThermoTek designs and sells the VascuTherm medical device and proprietary wraps and provides distributors with manuals, billing codes, and password‑protected materials.
- Mike Wilford and affiliated companies purchased VascuTherm from ThermoTek, obtained ThermoTek materials, later developed and sold a competing Recovery system, and ThermoTek ended the relationship.
- ThermoTek sued Wilford and related entities in Texas court for fraud and unfair competition (misappropriation); it voluntarily dismissed a trade‑secrets claim before trial.
- The jury found for ThermoTek on fraud and unfair competition and awarded over $7.5 million in lost‑profits damages; Wilford renewed a Rule 50 motion arguing federal preemption and insufficient damages proof.
- The district court granted JMOL for defendants: copyright and patent law preempted the unfair‑competition claim, and ThermoTek failed to prove lost profits (used gross profits, not net).
- The Fifth Circuit affirmed: no waiver of preemption defense; copyright and patent preempted the misappropriation claim; lost‑profits evidence was legally insufficient.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of affirmative‑defense preemption | Wilford failed to plead preemption so defense waived | Preemption raised in summary judgment, pretrial order, Rule 50 — timely and not prejudicial | No waiver; district court did not abuse discretion |
| Copyright preemption of state misappropriation claim | State claim differs because jury instruction excluded reverse engineering and implied wrongdoing element | Misappropriated written materials fall within copyright subject matter; state claim seeks equivalent rights | Copyright §301 preempts the unfair‑competition‑by‑misappropriation claim as to written materials |
| Patent preemption of misappropriation claim protecting functional products | Claim protects nonfunctional, source‑identifying aspects | Claim protects functional aspects of device/wraps (sweat‑equity) and would give patent‑like protection without patent requirements | Patent law preempts state misappropriation claim insofar as it seeks protection of functional aspects of the devices/wraps (Bonito Boats line) |
| Damages — lost profits sufficiency | Jury award reflects lost profits from lost sales and additional costs; Restatement supports gross‑profit measure | Plaintiff’s expert used gross profits; no evidence of net profits or business overhead; plaintiff bears burden to prove net profits | JMOL proper: evidence was of gross, not net, profits; lost‑profits award unsupported and vacated |
Key Cases Cited
- Ultraflo Corp. v. Pelican Tank Parts, Inc., 845 F.3d 652 (5th Cir. 2017) (copyright preemption test and scope of §301)
- Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999) (Texas misappropriation tort preempted by copyright when equivalent)
- Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989) (state law protecting functional product aspects preempted by federal patent policy)
- GlobeRanger Corp. v. Software AG United States of Am., Inc., 836 F.3d 477 (5th Cir. 2016) (trade‑secrets misappropriation not preempted because it requires improper means beyond reproduction)
- Atlas Copco Tools, Inc. v. Air Power Tool & Hoist, Inc., 131 S.W.3d 203 (Tex. App. 2004) (Texas requirement that lost profits be shown with reasonable certainty and that net, not gross, profits must be proved)