Case Information
*1 Before ELROD, GRAVES, and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
Software maker GlobeRanger obtained a $15 million judgment in a trade secret misappropriation trial against competitor Software AG. Software AG challenges that result on a number of grounds, but its principal argument is that GlobeRanger finds itself in a jurisdictional Catch-22. It argues that GlobeRanger’s trade secret claim is preempted by federal copyright law, but if not, then the result is no federal claim to support jurisdiction. Because we find that the trade secret claim is not preempted but that a dismissed conversion claim was preempted and supports federal jurisdiction, we also consider challenges to the sufficiency of the evidence, the damages award, and jury instructions. Finding no reversible error on those grounds, we AFFIRM.
I.
A. GlobeRanger specializes in radio frequency identification (RFID) technology, a type of wireless technology used to identify and track items and information. Those who drive on toll roads are likely grateful for the technology, even if they don’t recognize the term RFID. It is what allows drivers to speed through tollbooths while an electronic reader gathers information from a tag inside the car that is connected to the driver’s account.
GlobeRanger’s software incorporates RFID for a different purpose: inventory management. Its RFID solutions filter, process, and store information from incoming inventory items in real time to help the user keep track of the items. The core of its RFID solution is its proprietary “iMotion platform”, which is used in all of its inventory tracking software. This platform connects with RFID readers to quickly process transactions and implement complex workflows in real-time. For particular markets or companies with unique needs, the platform is then supplemented with add-ons, known as “solution accelerators,” that customize the product to satisfy those particular demands. For example, GlobeRanger may combine the iMotion platform with a certain solution accelerator that helps make the RFID tracking system integrate or work well with other systems that are already used by clients in a particular industry.
GlobeRanger has subcontracted on several projects creating RFID programs for Department of Defense agencies and their suppliers. This case arises from one such contract. In 2007, GlobeRanger entered into a subcontract with Science Applications International Corporation (SAIC) to build and implement a bundle of RFID technology for the Navy. The parties refer to this as the “Navy Solution.” GlobeRanger installed “instances,” which are fully-functioning versions of the Navy Solution, at three Navy bases. But the Navy then decided it wanted an enterprise-wide RFID system that could be run from a single location, rather than GlobeRanger’s system that required servers at each location. After considering competing proposals from GlobeRanger and Software AG (a larger, more general software company), the Navy went with Software AG’s proposal rooted in its “webMethods” software platform. The Navy ordered GlobeRanger to stop its subcontracting work and said it would convert the three existing instances to the enterprise-wide system.
Prior to receiving this Navy contract—termed RAVE (RFID Asset Visibility Enterprise)—Software AG had not implemented RFID for a client. While working on the Navy contract, Software AG accessed some of GlobeRanger’s data, manuals, and software. GlobeRanger asserts that in doing so Software AG misappropriated trade secrets in its Navy Solution. Software AG maintains that any access and use were permissible, particularly in light of federal regulations that applied to GlobeRanger’s work for the Navy.
B. This litigation has a lengthy and messy history with both parties changing their view on whether this case should be in state or federal court. GlobeRanger initially brought suit in federal court. After Software AG objected that there was no subject matter jurisdiction, GlobeRanger voluntarily dismissed the case and refiled it in state court.
In its state court filing, GlobeRanger alleged misappropriation of trade secrets, conversion, unfair competition, civil conspiracy, and tortious interference. Software AG now thought the dispute belonged in federal court. It removed the case, arguing that the Copyright Act completely preempted all of the state law claims except conspiracy.
Back in federal court, Software AG filed a Rule 12(b)(6) motion to dismiss on preemption grounds. GlobeRanger sought remand to state court, arguing that none of its claims were completely preempted and thus the court lacked jurisdiction. The district court denied the motion to remand, finding that the misappropriation of trade secrets and unfair competition claims were preempted. Soon thereafter it ruled that the tortious interference and conversion claims were also preempted. As that left no remaining tort to support the derivative conspiracy claim, the court granted Software AG’s motion to dismiss in full.
That dismissal was appealed, resulting in a ruling from this court the meaning of which is perhaps the most contentious issue in this second appeal. There will be more to say about that decision later, but for now we can summarize GlobeRanger I as follows. A different panel of this court overturned the dismissal, holding that at least some of the factual allegations in the trade secret misappropriation claim were outside the subject matter of the Copyright Act and therefore not preempted. GlobeRanger Corp. v. Software AG , 691 F.3d 702, 709 (5th Cir. 2012) (“ GlobeRanger I ”). We also affirmed the denial of GlobeRanger’s motion to remand based on actual (or possible—this is the source of the intense debate) preemption of the conversion claim. Id. at 709– 10.
Although language in GlobeRanger I suggested that the district court could have found on remand with a more developed record that the conversion claim was not preempted because it involved subject matter outside the scope of copyright, id. , that issue was never reconsidered. Instead, less than a year after the remand, GlobeRanger dropped the conversion claim.
At the conclusion of discovery, Software AG moved for summary judgment on the merits of the remaining claims, without invoking its preemption defense. The district court granted summary judgment on the tortious interference claim and denied it on the trade secret misappropriation, unfair competition, and conspiracy claims. At a pretrial conference, GlobeRanger narrowed the case even more by dismissing its unfair competition claim. That left only the trade secret misappropriation and derivative conspiracy claim for trial.
The district court denied Software AG’s motions for judgment as a matter of law. The jury found that Software AG misappropriated GlobeRanger’s trade secrets and awarded $15 million in compensatory damages. It found that GlobeRanger did not prove malice, and so was not entitled to punitive damages, nor did it prove conspiracy. The district court denied post-trial motions for judgment as a matter of law, a new trial, and remittitur.
Software AG appeals on the following grounds: (1) the trade secret misappropriation claim is preempted by copyright law; (2) if this claim is not preempted, then the district court lacked jurisdiction; (3) if the court did have jurisdiction, GlobeRanger failed to prove its claim or its damages; (4) the trial court’s damages award was erroneously calculated and excessive; and (5) the district court abused its discretion in formulating the jury charge.
II.
We turn first to the preemption and alternative jurisdictional
arguments, both of which are subject to de novo review.
See Franks Inv. Co. v.
Union Pac. R.R. Co.
,
A.
The different spheres of intellectual property protection can sometimes overlap. As the software code in this case illustrates, the same intellectual property can be protectable under the copyright laws or subject to trade secret protection. If the creator seeks the protection of the copyright laws, it obtains the exclusive right to make copies of the work for decades but must publicly register the work before enforcing that right through a lawsuit. 17 U.S.C. § 411(a). The creator might prefer to not publicly disclose the creation, in which case it can maintain the material as a trade secret if it takes reasonable measures to preserve secrecy. See generally , Stephen M. Dorvee, Protecting Trade Secrets Through Copyright , 1981 D UKE L.J. 981, 982 (1981) (describing how copyright protection is limited compared to trade secret protection in that it only covers expression and not underlying ideas, and requires disclosure of the trade secret). Depending on the business situation, one of these tradeoffs will be preferable to the other.
The supremacy of federal law in the area of copyright means, however,
that state protection of copyrightable subject matter must sometimes give way
to its federal counterpart. Not surprisingly given the increasing importance of
intellectual property to our economy, we have confronted this question of
“copyright preemption” numerous times in recent years.
See, e.g.
,
GlobeRanger
I
,
The Copyright Act preempts a state law claim when two conditions are
met. We have already referred to this first requirement: the “work in which
the right is asserted must come within the
subject matter
of copyright.”
Alcatel
,
In GlobeRanger I , the first inquiry concerning copyrightable subject matter was the most hotly contested. If the allegations just targeted conduct relating to GlobeRanger’s software code, the “falling within the subject matter of copyright” requirement for preemption was satisfied. But it was not then clear whether the allegations also included misappropriation of GlobeRanger’s “procedures, processes, systems, and methods of operations,” such as how GlobeRanger “actually deploy[ed] [the RFID program] on site,” “incorporated business process into its design of the warehouse,” and “trained sailors,” 691 F.3d at 708, 709. Given the pleading stage, we deferred to GlobeRanger’s assertions that the allegations did extend not just to theft of software but also to misappropriation of business methods beyond the scope of copyright protection. Id. at 709.
That uncertainty about whether all of the creations for which GlobeRanger sought protection fall within the scope of copyright law is now gone. By the time of trial, GlobeRanger had whittled its case down to misappropriation of software that it concedes is copyrightable.
That leaves equivalency of rights as the only disputed question for preemption. The test to determine equivalency is the “extra element test”:
[I]f the act or acts of [the defendant] about which [the plaintiff] complains would violate both misappropriation law and copyright law, then the state right is deemed “equivalent to copyright.” If, however, one or more qualitatively different elements are required to constitute the state-created cause of action being asserted, then the right granted under state law does not lie “within the general scope of copyright,” and preemption does not occur.
Alcatel
, 166 F.3d at 787 (internal footnotes omitted). Whether a claim is
equivalent requires looking to the actual alleged misconduct and not merely
the elements of the state cause of action.
Id.
at 788 (equivalency is based on
“the discrete facts of [a] case”);
Daboub v. Gibbons
,
GlobeRanger argues that the right it seeks to vindicate under Texas
trade secret law is not equivalent to the anti-copying principle of federal
copyright law because the state law prevents acquisition “through a breach of
a confidential relationship or . . . improper means.”
Tewari De-Ox Sys., Inc. v.
Mountain States/Rosen, L.L.C.
, 637 F.3d 604, 610 (5th Cir. 2011) (quoting
Phillips v. Frey
, 20 F.3d 623, 627 (5th Cir. 1994)) (interpreting Texas
misappropriation of trade secret law);
see also, e.g.
,
Twister B.V. v. Newton
Research Partners, LP
,
We have never applied the extra element test to a common law misappropriation of trade secret claim. Our use of this test in cases involving other business torts provides guidance. In Alcatel , we held that a claim for misappropriation under the Texas common law of unfair competition was preempted because “the acts that form the basis of [Plaintiff’s] misappropriation claim touch on interests clearly protected by the Copyright Act,” such as “reproduction” and “use” of the plaintiff’s firmware, software, and manuals, and “distribution” of works derived from those materials. 166 F.3d at 789. The state law’s requirement that works be produced through “extensive time, labor, skill and money” was not an “extra element” sufficient to satisfy the equivalency test. Id. at 787–88. Because copyright protects work “in which independent creation and creativity converge,” the creator’s time, labor, and skill “are fundamental to the independent creation of a work” and thus “are necessarily contemplated in [a granted] copyright.” Id. at 789.
We also found preemption in
Spear Marketing
, which considered claims
for conversion of trade secrets as well as theft of trade secrets under the Texas
Theft Liability Act (though notably no preemption defense was raised as to the
misappropriation of trade secret claim).
In the “no preemption” column is
Computer Management Assistance Co.
,
The extra element in that Louisiana statute is similar to the right Texas trade secret law provides against the taking of protected information “through a breach of a confidential relationship or . . . improper means.” Tewari De-Ox , 637 F.3d at 610. Indeed, akin to the “fraud, misrepresentation or other unethical conduct” that Computer Management held to be an extra element is the following evidence in this case: Software AG’s inducement of a former GlobeRanger employee to break his nondisclosure agreement in order to obtain source code; Software AG’s knowledge from technical manuals it obtained that end user agreements prohibited disclosure; and its installment and exploration of the Navy Solution in a computer lab—given Software AG’s stated purpose of “replicat[ing] current GlobeRanger functionality” and GlobeRanger’s insistence that its software and license keys only be used for “direct support” of the existing Navy installments. Software AG’s actions go beyond the copying, communicating, and transmitting alleged in Alcatel and Spear Marketing .
Because trade secret law protects against not just copying but also any
taking that occurs through breach of a confidential relationship or other
improper means, all ten circuits that have considered trade secret
misappropriation claims have found them not preempted by the Copyright Act.
See Seng-Tiong Ho v. Taflove
,
Software AG tries to distinguish much of this authority on the ground
that a “considerable number” of the cases “held that misappropriation of trade
secrets claims are not preempted because they require proof of a confidential
relationship, which provides the extra element required to survive
preemption.”
Stromback
,
We thus conclude that GlobeRanger’s trade secret misappropriation claim requires establishing an additional element than what is required to make out a copyright violation: that the protected information was taken via improper means or breach of a confidential relationship. Because the state tort provides substantially different protection than copyright law, it is not preempted.
B.
Our holding that the trade secret misappropriation claim is not
preempted requires us to consider Software AG’s alternative jurisdictional out:
that no federal question jurisdiction exists, so the case should have been
remanded to state court.
[2]
In light of our holding that the trade secret claim is
not preempted, subject matter jurisdiction depends on whether some of the
other, now-dismissed state law claims were completely preempted by the
Copyright Act.
[3]
Caterpillar Inc. v. Williams
,
Before delving into
GlobeRanger I,
we begin with some basic principles
of federal jurisdiction that inform our reading of it. First is the “fundamental
principle” that jurisdiction is determined based on the time of removal.
Pullman Co. v. Jenkins
,
One of the changed circumstances that does not undo an initial
determination of jurisdiction is the dismissal of claims. We have applied this
principle before when the original jurisdiction in a removed case flowed from
complete preemption.
Hook v. Morrison Milling Co.
,
Software AG’s argument is that this Court departed from the time-of-
removal principle in
GlobeRanger I
and left open the question of jurisdiction
for a later determination that was never made. Its position hinges on the
opinion’s following language that comes right after the statement that “for the
purposes of jurisdictional analysis, the defendants make a sufficient argument
to keep this case in federal court at the motion to dismiss stage.”
GlobeRanger
I
,
To be clear, our conclusion on conversion is without prejudice to GlobeRanger’s ability to prove its claim relates to physical property. . . . If, with the aid of a more developed record, the district court concludes that GlobeRanger’s conversion claim relates to physical property, a different analysis will be required. If, however, the district court concludes that neither the conversion claim nor any other is preempted, it will lack jurisdiction over this case.
Id. (emphasis added). As GlobeRanger dismissed the conversion claim that was the focus of this discussion after the case was back in district court, no further jurisdictional assessment occurred.
We recognize some conflicting language in
GlobeRanger I.
But
considering its context, language, and holding—as well as the background
jurisdictional principles we have just discussed—our best reading is that it
made a determination of federal jurisdiction over the since-dismissed
conversion claim at the time of removal.
GlobeRanger I
spends most of its time
discussing the first question of copyright preemption—whether the state law
claims cover material subject to copyright protection—in general terms
applicable to all of the claims. That was a difficult determination to make at
that early stage of the case because the complaint discussed both technical
features of the software, which are the subject of copyright, and “procedures,
processes, systems, and methods of operation” that fall outside the scope of
copyright protection. 691 F.3d at 707–09. After noting that these latter
allegations concerning business practices meant that “at least part of the
factual basis for GlobeRanger’s claims may fall outside of the scope of
copyright,” the panel noted that a finding that none of the claims were
preempted would mean “there would not be federal jurisdiction.”
Id.
at 709. It
thus considered whether at least one claim was preempted that would support
the continued pendency of the case in federal court, and focused on the best
case for preemption, which was the conversion claim because that is a state
law claim that essentially punishes taking or copying.
See Spear Marketing
,
The discussion of the conversion claim that followed focused on whether
that claim related to physical property (in which case no preemption because
a conversion claim relating to physical property “is not equivalent to copyright
protection”) or intangible property “such as where GlobeRanger places RFID
readers” (in which case preemption because conversion of intangible property
provides the same protection as the Copyright Act).
GlobeRanger I,
691 F.3d
at 709. Although GlobeRanger tried to argue in its brief that its conversion
claim involved the taking of physical property, the panel noted that the
portions of the complaint it cited actually referred to intangible property.
Id
.
After observing that the complaint only alleged the preempted claim of
converting intangible property,
GlobeRanger I
twice stated that it was finding
federal jurisdiction based on the pleadings.
Id
. (“[F]or the purposes of
jurisdictional analysis, the defendants make a sufficient argument to keep this
case in federal court at the motion to dismiss stage”);
id
. at 710 (“Further, the
defendants have argued enough of a basis for preemption of GlobeRanger’s
conversion claim to stay in federal court.”). As discussed, such a finding that
a claim is completely preempted at the time of removal supports federal
jurisdiction even if the claim is later dismissed.
Giles v. NYLCare Health
Plans, Inc.
,
Consistent with that well-established principle as well as
GlobeRanger
I
’s holding that removal jurisdiction existed, we read that opinion’s language
about a later jurisdictional determination as contemplating only that the
conversion claim might not have ended up being governed by federal copyright
law. Contrary to Software AG’s central premise,
GlobeRanger I
did not say
that the district court had to make a renewed jurisdictional finding on remand.
Instead, it gave GlobeRanger the option of “prov[ing that] its claim relates to
physical property” contrary to the panel’s understanding of the claim.
GlobeRanger I
,
If GlobeRanger had accepted that invitation and produced evidence to show that its conversion claim related only to physical property so as not to be preempted, then GlobeRanger I was recognizing it could ultimately pursue that claim under state law. In that case, the copyright claim that was read into the pleading via complete preemption would have gone away. That situation would be no different than one in which a federal claim fails at the Rule 12(b)(6) stage, is found to lack evidentiary support at the summary judgment stage, or is voluntarily dismissed as actually happened in this case. In any of those scenarios, the court no longer has federal question jurisdiction over any pending claim, but the presence of the federal claim at the outset of the case supports supplemental jurisdiction over the remaining state claims. [4] That is what happened here. As the complaint alleged only conversion of intangible property for which there is equivalency between the rights protected under that state tort and federal copyright law, [5] complete preemption converted the conversion claim into one brought under the Copyright Act that supported federal question jurisdiction at the time of removal and supplemental jurisdiction after it was dismissed. [6]
III.
With GlobeRanger having successfully navigated these jurisdictional challenges, we finally reach the merits of the case.
Software AG argues that GlobeRanger failed to prove three different
elements of a trade secret misappropriation claim: (1) what specifically
constitutes the trade secrets; (2) whether Software AG acquired trade secrets
improperly or with notice of impropriety, particularly in light of federal
regulations governing contracts between the Navy and outside contractors;
and (3) whether Software AG “used” any trade secret because there was no
proof of copying.
See Tewari De-Ox
,
Some of the arguments Software AG raises involve legal questions,
which we always review de novo. But to the extent they turn on factual
findings by the jury, our standard of review “is especially deferential.”
Wellogix, Inc. v. Accenture, L.L.P.
,
A.
Software AG first challenges the most foundational element of GlobeRanger’s claim: whether a trade secret existed.
A trade secret is defined by Texas courts as “any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” In re Bass , 113 S.W.3d 735, 739 (Tex. 2003) (internal quotation marks omitted). Whether a trade secret exists is a question of fact. Wellogix , 716 F.3d at 874. Texas courts weigh six factors, rooted in the Restatement (First) of Torts § 757 (1939), to determine whether a trade secret exists:
(1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and to its competitors; (5) the amount of effort or money expended in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
In re Union Pac. R.R. Co
.,
GlobeRanger produced sufficient evidence for a jury to reasonably conclude that at least some portion of its Navy Solution constituted a trade secret. Relevant to whether the software was valuable to the business and its competitors, there was testimony explaining how GlobeRanger’s “filtering” technology was unique and its ability to filter large amounts of information in real time added value compared to traditional inventory management systems. Both the value and the difficulty in reproducing the technology were also shown through emails and testimony from Software AG employees. For example, when questioned about an email in which another Software AG employee asked a former GlobeRanger employee how to access the .Net source code in GlobeRanger’s solution, a testifying Software AG employee who described himself as the “technical lead” on the RAVE project explained that they needed the code because:
When we were looking at the workflows in GlobeRanger, we could see step 1, then step 2, then step 3. Step 2 was a transformation. And looking at the workflow, we couldn’t see what the transformation was—we didn’t know what fields were being transformed and what business logic was being implemented, as what Navy logic was being implemented in step 2.
In terms of the extent that the information is known outside the business
and efforts to keep it secret, GlobeRanger offered testimony about its unique
source code for iMotion and other proprietary software, and how a “secret code”
was required for each customer’s database. GlobeRanger’s Vice President of
Software Services and Delivery detailed how the company worked to keep its
software “contractually, as well as physically and electronically” protected,
including: restricting physical access to the data center; requiring double
password protection to access the “source code control system;” limiting access
to source code only to developers rather than all employees; and licensing
requirements for the software. And the unique license key required to access
a particular product—including the Navy Solution software—can limit use of
the product for a certain time period or to a certain number of devices.
GlobeRanger also produced evidence that it reminded the Navy and RA that a
license key it provided was only for maintenance of the current installation and
not any other purpose. Considering this and other evidence produced at trial,
a jury could reasonably conclude that at least some aspects of the Navy
Solution constituted a “formula, pattern, device or compilation of information”
GlobeRanger used to “obtain an advantage over competitors who do not know
or use it.”
In re Bass
,
Software AG’s primary problem is with the “some aspects” part of what
we just said. It argues that this evidence was not enough because GlobeRanger
needed to show more specific, “concrete secrets.”
Composite Marine Propellers,
Inc. v. Van Der Woude
,
B.
Software AG’s next contention—and one of the more complex issues in this case—is that GlobeRanger did not prove that Software AG acquired any of its alleged trade secrets improperly, and therefore failed to prove the second element of Texas trade secret misappropriation. Its arguments are rooted in application of Federal Acquisition Regulations (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). FAR and DFARS regulate Department of Defense contracts. They impact what rights the Navy has to the technology it acquires from or pays to have developed by outside contractors like GlobeRanger. The regulations attempt to balance contractors’ interest in retaining their intellectual property with the government’s interest in obtaining sufficient rights to operate technology over its full life cycle and to retain the ability to work with other contractors on matters involving the technology. Christine C. Trend, Killing the Goose that Laid the Golden Egg: Data Rights Law and Policy in Department of Defense Contracts, 34 P UB . C ONTRACT L.J. 287, 296 (2005).
Resolution of this issue turns largely on which of three classifications the Navy Solution is given: “Technical Data,” “Noncommercial Computer Software and Noncommercial Computer Software Documentation,” or “Commercial Computer Software and Commercial Computer Software Documentation.” If a GlobeRanger trade secret constitutes technical data or noncommercial computer software/documentation, then the Navy possesses either “government purpose rights” or “unlimited rights” in that information, and may share it with subsequent contractors like Software AG. Defense Federal Acquisition Regulation Supplement (DFARS), 48 C.F.R. § 252.227–7013(a)– (b), § 252.227–7014(a)–(b). [8] In that case, Software AG’s use would have been lawful and not subject to a misappropriation claim.
But the third category, commercial computer software, has different default rights; namely, this software “shall be acquired under the licenses customarily provided to the public unless such licenses are inconsistent with Federal procurement law or do not otherwise satisfy user needs.” 48 C.F.R. § 227.7202–1(a). If the government requires broader rights than are normally granted in the private market, such rights must be negotiated for and specified in the contract. 48 C.F.R. § 227.7202–3(b). The terms of GlobeRanger’s general license, like those of most software companies, do not allow the end user to copy or distribute its product .
The “commercial” designation signifies that the technology was initially developed in the general marketplace before its use in a military contract, which is why the contractor should be able to retain its intellectual property rights unless the military negotiates greater rights. The definition of the term thus focuses on when the technology was developed. [9] In order to be “commercial,” it must be “software developed or regularly used for non- governmental purposes” that meets one of the following requirements:
(i) Has been sold, leased, or licensed to the public; (ii) Has been offered for sale, lease, or license to the public; (iii) Has not been offered, sold, leased, or licensed to the public but will be available for commercial sale, lease, or license in time to satisfy the delivery requirements of this contract; or (iv) Satisfies criterion expressed in paragraph (a)(1)(i), (ii), or (iii) of this clause and would require only minor modification to meet the requirements of this contract.
48 C.F.R. § 252.227–7014(a)(1).
The Navy Solution was not sold, leased or licensed to the public as a package, nor was it intended to be in the future. But various products with the iMotion platform were. The question thus becomes whether the Navy Solution was only a minor modification of the iMotion product already sold in the marketplace. Id . § 252.227–7014(a)(1)(iv). “Minor modification” is “a modification that does not significantly alter the nongovernmental function or purpose of the software or is of the type customarily provided in the commercial marketplace.” 48 C.F.R. § 252.227–7014(a)(13). Indeed, this was the focus of the argument at trial, with the court giving the jury a definition of minor modification that tracked the regulation.
The evidence permitted a reasonable jury to find that the specification performed for the Navy was customary for all clients or that the modifications made to the underlying iMotion and accelerator add-ons were minimal. Of the over 3.2 million lines of code in the installments of Navy Solution at the Hawaii bases, only about 24,000, or less than 1%, involved changes from the preexisting product. Cf. 48 C.F.R. § 2.101(b) (noting that for a “commercial item,” “the value and size of the modification and the comparative value and size of the final product” is a “factor[]” in determining if a modification is minor). The process of specializing iMotion for the Navy was similar to customization provided to commercial clients, such as a large, international flower sales company. And the time and money spent on the Navy project included training on the new programs and installing them at different bases, thus countering Software AG’s argument that the $3 million price tag was too much for such “minor” changes.
At a minimum, components of the Navy Solution easily qualify as commercial computer software. The source code underlying iMotion or one of the accelerator add-ons is “commercial computer software,” as these components were made available to other customers. Indeed, iMotion and one accelerator were even on the Government Services Association Federal Supply Schedule, which by definition lists commercial products. 48 C.F.R. § 8.402(a) (describing the Federal Supply Schedule program).
In addition to arguing that the evidence showed that the Navy Solution required more than minor modifications to the preexisting iMotion platform, Software AG argues that meeting the definition of commercial computer software is not enough for GlobeRanger to retain trade secret protection against future Navy contractors. It contends that as long as the Navy contributed any funding to the development of the Navy Solution, it retained a broader license in the product that allowed for Software AG’s later use.
At trial and afterwards, the district court determined that funding did not matter because it interpreted the DFARS provisions to mean that if alleged trade secrets were commercial computer software, then normal licensing terms applied. Not just the language of the “commercial software” regulation quoted above, but also multiple secondary authorities support that view. Andrea B. Mayner, Understanding DFARS Technical Data Rights Regulations , C ONT . M GMT ., Nov. 2004, at 16, 23, available at http://www.maynerlaw.com/files/0C2F8_CM_Nov04_p16.pdf (explaining that “contractors are able to make minor modifications to commercial software at government expense” and the software “will still be considered commercial”); Trend, 34 P UB . C ONT . L.J. at 323 (“Minor modifications to [commercial computer] software will not deprive it of commercial status.”).
On appeal, Software AG relies for the first time on the following regulation to support its assertion that funding matters for all three categories of technology, including commercial computer software:
[U]se the clause at 252.227-7013, Rights in Technical Data– Noncommercial Items, in addition to the clause at 252.227-7015 [Technical Data—Commercial Items], if the Government will have paid for any portion of the development costs of a commercial item. The clause at 252.227-7013 will govern the technical data pertaining to any portion of a commercial item that was developed in any part at Government expense, and the clause at 252.227- 7015 will govern the technical data pertaining to any portion of a commercial item that was developed exclusively at private expense.
48 C.F.R. § 227.7102-4(b).
[10]
This regulation was not presented to the district
court, which alone means we should not use it to overturn the verdict.
[11]
Louque v. Allstate Ins. Co.
,
For another thing, section 227.7102-4(b) refers to a “commercial item” and the most applicable definition excludes computer software from that term. Software AG cites a definition in 48 C.F.R. § 2.101, a FAR definition provision that says “computer software” can be a “commercial item.” But the DFARS definition explicitly states that “Commercial item does not include commercial computer software.” 48 C.F.R. § 252.227—7015(a)(1). Because this definition not only comes from the more specific defense contracting regulations, but is cross-referenced in the provision at issue to govern rights in any technical data for a privately-funded commercial item, the best reading is that this provision does not cover “commercial computer software.”
Finally, the provision states that the provisions giving the government broader rights will “govern the technical data pertaining to any portion of a commercial item.” 48 C.F.R. § 227.7102-4(b) (emphasis added). “Technical data” does not include computer software. 48 C.F.R. § 252.227–7013(a)(15). For this additional reason, section 227.7102-4(b) does not apply.
Our foray into the byzantine world of government contracting regulations thus does not find a basis for upsetting the verdict. The district court properly read the regulations to find that the Navy, and thus Software AG, could not lawfully use anything from the earlier Navy project that constituted “commercial computer software.” And there was sufficient evidence for the jury to apply that classification to GlobeRanger’s technology.
C.
Software AG’s final argument for why it should have been granted
judgement as a matter of law is that GlobeRanger failed to prove Software AG
used any trade secrets. It primarily relies on its interpretation of
Spear
Marketing
, which it argues requires that if an alleged trade secret is in
software, “use” must be “copying” and demonstrated via the “access-plus-
similarity test.”
Spear Mktg., Inc.
,
We disagree that trade secret cases involving software require
application of the access-plus-similarity test when direct evidence is
unavailable.
[13]
“Use” has a “broad” definition in trade secret law.
Id.
at 600.
“As a general matter, any exploitation of the trade secret that is likely to result
in injury to the trade secret owner or enrichment to the defendant is a ‘use[.]’”
Wellogix
,
Nonetheless, in upholding a finding of trade secret misappropriation
when the software was used to assist in research and development of a new
project,
Wellogix
is arguably in tension with the statement a year later in
Spear
Marketing
that “when the trade secret at issue is a
technical
feature of a
computer program—as opposed to ‘marketing or mode of doing business trade
secrets’—‘the issue of misuse boils down to evidence of
copying
.”
Spear Mktg.,
Inc.
,
of Lubbock v. Goodpasture Computer Serv., Inc.
, 807 F.2d 1256, 1263 (5th
Cir.1987)). Software AG argues
Spear Marketing
should control because it is
“more recent.” But to the extent there is conflict between the two, under our
rule of orderliness, the earlier case controls.
See, e.g., Spong v. Fid. Nat’l Prop.
& Cas. Ins. Co.
,
But that begs the question whether
Plains Cotton
, the 1987 case on
which
Spear Marketing
relies, is in conflict with
Wellogix
. Although some of
the
Plains Cotton
language is suggestive of a restrictive approach to software
trade secrets, we conclude that, given other language and the context of the
opinion, it does not preclude “use” from including reliance on trade secrets in
facilitating research and development. The Court explained that “[i]f no
copying occurred
on any level
, [plaintiff] cannot demonstrate that [defendants]
misused the trade secrets,” and noted that the plaintiff must show the
defendants “
in any way
‘cop[ied]’
any part
of appellant’s protected idea or
expression”
Plains Cotton
,
But all this parsing of our case law is not dispositive on this question of
Texas trade secret law. A recent pronouncement from the Supreme Court of
Texas is.
See Savoie v. Huntington Ingalls, Inc.
,
GlobeRanger’s evidence is sufficient to show that Software AG used the
Navy Solution in developing its own product. Indeed, much of the “use”
evidence is similar to that in
Wellogix
, including the following: Software AG
accessed implementations of the Navy Solution; received confidential system
keys under the pretense of maintenance; acknowledged trying to replicate
GlobeRanger’s functionality; and obtained confidential source code from a
former GlobeRanger employee in order to figure out how the technology
worked, all while it was in the process of making its own product to perform
similar functions.
See
IV.
Software AG’s next claims of error go to the damages award. It asserts that (1) GlobeRanger’s expert’s damages model was “unreliable and flawed,” resulting in an erroneous award, and (2) even if the model was allowable, the award was excessive because Software AG presented evidence that it only earned $860,000 from its project with the Navy and only could have obtained $140,000 in cost savings as a result of any misappropriation. Neither of these arguments convinces us to disturb the jury’s award.
First, we consider the claim that the damages model itself was impermissible. We review a district court’s decision to allow an expert’s testimony—including decisions regarding reliability of that expert’s opinion— for abuse of discretion. Roman v. W. Mfg., Inc. , 691 F.3d 686, 692 (5th Cir. 2012).
GlobeRanger’s expert based his $19.7 million damages opinion on an unjust enrichment theory rooted in research and development costs that Software AG avoided. His calculation was based on the amount GlobeRanger spent on research and development for iMotion and the Navy solution between 1999 and 2009. Costs for accelerator add-ons not a part of the Navy solution were not included, nor were project costs that were paid by a customer. Software AG alleges a number of flaws in the model, including that it did not take into account Software AG’s preexisting RFID capabilities, consider which trade secrets were useful to Software AG, consider how Software AG’s cost- structure would impact its own costs, or exclude all costs for non-proprietary elements of the solution. GlobeRanger disagrees with a number of these characterizations.
Texas takes a “‘flexible and imaginative’ approach” to damages
calculation in trade secret misappropriation cases that allows calculation of
damages based on defendant’s avoided costs.
Sw. Energy Prod. Co
, 2016 WL
3212999, at *6 (“Damages in misappropriation cases can therefore take several
forms, including . . . the development costs the defendant avoided by the
misappropriation” (citing
Bohnsack v. Varco, L.P.
,
Instead, Software AG’s arguments go to the weight a factfinder should
give the testimony.
See Fair v. Allen
,
In its motion for a new trial, Software AG also asserted that the damages
award should either be overturned or lowered through a remittitur. An
appellate court should undo a jury’s assessment of damages for excessiveness
only on “the strongest of showings.”
Caldarera v. E. Airlines, Inc.
, 705 F.2d
778, 783–84 (5th Cir. 1983) (quoting
Martin v. City of New Orleans
, 678 F.2d
1321, 1327 (5th Cir.1982))). Ordering a new trial on damages thus is proper
only when the amount awarded is “so excessive as to be the product of passion
or prejudice.”
Esposito v. Davis
, 47 F.3d 164, 168 (5th Cir. 1995). We can
alternatively lower the amount of an award if the jury’s number is deemed not
to be the result of passion or prejudice, but nonetheless “exceeds the bounds of
any reasonable recovery.”
Brunnemann v. Terra Int’l, Inc.
,
Most of the basis for finding the award excessive is a comparison to the
$860,000 in profits Software AG earned from the Navy project. But as we have
already explained, plaintiffs are not limited to damages based on the
misappropriator’s profits. This makes sense because the difficulty of
predicting the future profit stream from stolen intellectual property may
undercompensate the victim. It was thus recognized long ago in patent law
“the question is[] not what profits the [infringer] has made in his business, or
from his manner of conducting it, but what advantage has he derived from his
use of the patented invention.”
In re Cawood Patent
,
Software AG also offered testimony that it could have developed RFID technology for only $140,000 and thus its unjust enrichment should be limited to that amount. But the jury did not have to use this measure, nor believe that it was accurate; the jury also heard evidence from GlobeRanger’s expert and other witnesses that it cost GlobeRanger millions to develop its RFID technology. The jury had all of this information when it decided on a $15 million award. That the jury did not blindly accept the number of GlobeRanger’s expert indicates the award was not the product of passion or prejudice, but rather reasoned evaluation of competing evidence. There is no basis for a new trial or remittitur.
V.
The final claims of error relate to the jury instructions. Jury instructions
are reviewed for abuse of discretion, and any error will support reversal “only
if the charge as a whole creates substantial and ineradicable doubt whether
the jury has been properly guided in its deliberations.”
Battle v. Mem’l Hosp.
at Gulfport
,
Software AG contends that in light of the importance of whether an
alleged trade secret is “commercial computer software,” “noncommercial
computer software” or “technical data,” it was an abuse of discretion not to
require greater specificity in the jury instructions describing the alleged trade
secrets. Yet we have previously held that a broad form instruction that does
not break down individual alleged trade secrets is generally allowed.
DSC
Commc’ns Corp. v. Next Level Commc’ns
, 107 F.3d 322, 327 (5th Cir. 1997)
(rejecting argument that broad form instruction could result in a verdict for
the plaintiff even though the jury has not unanimously found the same trade
secret). Software AG is surely correct that determining whether the technology
fit the “commercial computer software” definition was not an easy task;
arguably it was more challenging in this case than it may have been if the
claimed trade secrets were more explicitly defined. But our abuse of discretion
review does not require that the best instructions be given. As discussed in
Part III.A, Texas law does not require great detail in the definition of a trade
secret or that the jury delineate what specific trade secrets it found existed.
And given that GlobeRanger focused its trade secret arguments on the
software aspects of the Navy Solutions, there is no reason to suspect that the
jury disobeyed its instructions and found something that did not fit the
commercial computer software definition to be the basis of its misappropriation
finding.
See Weeks v. Angelone
,
Related to its concern about trade secret specificity, Software AG contends that the jury instructions should have included the definitions of “technical data” and “noncommercial computer software.” The jury instructions only included the definition of “commercial computer software,” and not the other two terms. But while providing the other definitions might have given additional context, Software AG has again failed to show that the district court abused its discretion or failed to provide sufficient guidance. The court explicitly considered whether giving all three definitions would better equip the jury to decide if a trade secret met the commercial software definition; it decided, however, that given the extensive directions already in the jury charge, providing these definitions would “add much more confusion than clarity . . . and won’t substantively add anything.” This was particularly the case because both technical data and noncommercial computer software by definition exclude and are “carve[] out[s]” from commercial computer software. It was enough for the jury to determine whether or not the alleged trade secret is commercial computer software because, if it is not, then the claim would automatically fail. This decision was not an abuse of the court’s discretion.
Finally, Software AG contends that the court improperly asked the jury to determine the legal question of the Navy’s right to disclose GlobeRanger’s alleged trade secrets. This is largely a reiteration of its contention that the Navy had the right to share the technology with Software AG under the DFARS. See Part III.B. But to the extent Software AG asserts that asking the jury to determine whether a trade secret was “commercial software” asked it to make a legal conclusion, it misinterprets the law. Software AG cites a Federal Circuit case holding that interpretation of government regulations included within contracts is a question of law and not of fact . Rumsfeld v. United Techs. Corp. , 315 F.3d 1361, 1369 (Fed. Cir. 2003). But although interpretation of the regulation itself is a question of law, whether particular technology that the jury found to be a trade secret fits within “commercial computer software” is a question of fact. The instructions provided the applicable legal definitions, and made clear that the jury was to determine if an alleged trade secret “qualifies as commercial computer software or commercial computer software documentation under the federal contracting regulations.” The court told the jury that, if a trade secret did fit this definition, “then that alleged trade secret could have been misappropriated by Software AG . . . to the extent that you so find, if at all.” But “[i]f, on the other hand, you find that the alleged trade secret does not qualify as commercial computer software or commercial computer software documentation,” then it “could not have been misappropriated by Software AG.” This instruction properly asked the jury to determine disputed facts and then informed the jury of the legal ramifications that finding has for the other questions it had to decide. That the question about “commercial computer software” was more technical than those a jury is usually asked to decide does not alter this proper allocation of the role of judge and jury. See King v. LaBelle , 623 Fed. App’x. 233, 234 (5th Cir. 2015) (explaining in assault case that district court did not abuse its discretion “in leaving [a] factual determination to the jury and then accurately instructing the jury on the legal consequences of its potential finding”).
Software AG has not shown that the jury instructions created
“substantial and ineradicable doubt” about whether the jury was correctly
guided.
Battle
,
* * *
This case demonstrates the unfortunate complexity of much of modern civil litigation. A trial involving a single cause of action—misappropriation of trade secrets (plus a derivate conspiracy claim)—has resulted in an appeal raising numerous issues that span the lifecycle of the lawsuit: jurisdiction; preemption; federal contracting regulations; expert testimony on damages; and jury instructions. Some of these issues presented closer calls than others. But having given thorough consideration to each claim of error, we conclude that the jury’s verdict should be upheld.
The judgment is AFFIRMED.
Notes
[1] The district court also found—as GlobeRanger’s brief mentions in a footnote without
argument—that “secrecy” is an additional element. This is arguably foreclosed by the holding
in
Spear Mktg., Inc. v. BancorpSouth Bank
,
[2] There is no diversity jurisdiction, so federal question jurisdiction is the only basis for subject matter jurisdiction.
[3] So long as one of the state law claims originally asserted was actually a federal claim due to complete preemption, then supplemental jurisdiction existed over other claims, like the trade secret claim that went to trial. See 28 U.S.C. § 1367(a); Spear Mktg., Inc. , 791 F.3d at 594 (finding one claim preempted by copyright, and considering the district court’s merits ruling on remaining state law claims).
[4] As noted, when only state claims remains, a party can ask the court to exercise its discretion in remanding those claims to state court. Software AG did not do so after GlobeRanger dismissed the preempted conversion claim.
[5]
GlobeRanger I,
[6] Moreover, even if
GlobeRanger I
required an additional determination of removal
jurisdiction after remand that the district court never conducted, we would be able to make
that assessment now.
In re Berman-Smith
,
[7] Software AG also asserted in its Rule 59(b) motion for a new trial that the jury’s
findings were against the great weight of the evidence. In its appellate briefing, it notes the
applicable standards of review, but does not address the weight of the evidence separate from
its arguments as to why, as a matter of law, judgment should have been granted in its favor.
As a basis for overturning the denial of its 59(b) motion, any weight of the evidence argument
is therefore forfeited.
Calderon-Ontiveros
,
[8] Even when it comes to technical data or noncommercial computer software, a Department of Defense contract can specify that the government only obtain “limited rights.” This allows flexibility in negotiating with private contractors who have a particularly strong interest in retaining the intellectual property rights. This requires, however, that the relevant data or software be “conspicuously” marked according to the regulations. 48 C.F.R. § 252.227–7013(b), (e), § 252.227–7014(b), (e). There is nothing in the record indicating that any information was so marked in this case.
[9] Computer software is defined under the DFARS as “computer programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae, and related material that would enable the software to be reproduced, recreated, or recompiled.” 48 C.F.R. § 252.227–7014(a)(4). Computer software documentation “means owner’s manuals, user’s manuals, installation instructions, operating instructions, and other similar items, regardless of storage medium, that explain the capabilities of the computer software or provide instructions for using the software.” 48 C.F.R. § 252.227–7014(a)(5).
[10] This is the current citation for this provision. At the time of GlobeRanger’s contracting, the provision was at located at § 227.7102-3(b). Comments to the DFARS revisions confirm that the change was not substantive. See 76 Fed. Reg. 58144-01 (September 20, 2011).
[11] It is also notable that the expert Software AG presented on government contracting did not cite this regulation.
[12]
See Peel & Co. v. The Rug Mkt.
,
[13]
Spear Marketing
does not say that the access-plus-similarity test is the
only
way to
circumstantially prove copying in a trade secret case, addressing it only after other
arguments because that was the test the plaintiff invoked.
[14] We had essentially made an
Erie
guess that it would because it had cited the same
section of this Restatement for the definition of a trade secret.
See General Univ. Sys.
, 500
F.3d at 450 n.5. (citing
In re Bass
,