Spear Marketing v. BancorpSouth Bank

Citation
Spear Marketing, Inc. v. BancorpSouth Bank, 2013 WL 2149570 (N.D. Tex. May 16, 2013) (full-text).

Factual Background
VaultWorks is Spear Marketing's proprietary system for optimizing the amount of cash a banking institution needs on hand at its branch and ATM locations to satisfy customer demand and operate profitably. BancorpSouth had a contract with Spear to use VaultWorks.

During a VaultWorks demonstration to ARGO Data Resource, upon ARGO's offer to buy VaultWorks, Spear mentioned that one of its biggest customer was BancorpSouth. BancorpSouth was also an existing customer of ARGO, using its product to process its teller transactions. However, no agreement was reached by the parties and no transaction resulted from the demonstration.

District Court Proceedings
In its lawsuit, Spear Marketing (SMI) accused ARGO Data Resource and BancorpSouth Bank of theft of Spear Marketing's trade secrets. Spear Marketing alleged that after the demonstration of VaultWorks, ARGO communicated SMI's trade secrets to BancorpSouth, resulting in the latter's termination of its contract with SMI. It further alleges of the parties use of the trade secrets contained in VaultWorks without SMI’s consent.

The defendants filed a motion to remove the case to federal court, alleging preemption of the claims under Copyright Act. In response to the removal motion, SMI amended its claim and file a motion to remand. The court held that to determine whether a claim is preempted, the original complaint must be considered, rather than the amended complaint. It found that for removal on the basis of preemption, the plaintiff may not amend the original claim to drop all preempted claims. It used Globeranger's two-prong test to determine if the claim is preempted under the Copyright Act. First, the court looks at the subject matter of copyright, next it looks at state law to see if it protects rights that are "equivalent" to any of the exclusive rights under copyright law.

There was no dispute that the copying of the software was within the subject matter of copyright, but SMI alleged that it was not mere the copying, but wrongful access, disclosure, and theft of its trade secrets. The court, referring to the analysis in Globeranger, found that SMI's complaint comprised of know-how, ideas, procedures, systems, methods of operation, concepts, and other information relating to VaultWorks. which constituted SMI's trade secrets following into two categories: technical data and information and business information. The court further explained that such allegations &mdash; the types procedures, systems and methods of operation &mdash; are excluded from copyright protection because they are not limited to specific expressions. Moreover, the court concluded that although the original complaint established items that were outside of the types of copyrightable expressions, at least some of the allegations were within the subject matter of copyright and might concern specific expressions &mdash; for example, the selection of categories of input and output data used by VaultWorks.

The court held that SMI's claims, such as the copying and disclosure of SMI's objects, devices, substances or writings, are partially based on "defendant's reproduction, distribution or display of SMI's trade secrets, and therefore are equivalent and preempted by the Copyright Act.

The court held that SMI's claim of conversion of VaultWorks' physical property is not preempted, however, the claim based on conversion of intangible property is preempted.

The court concluded that SMI's Texas Theft Liability and conversion claims were partially preempted, and defendant’s removal was proper. SMI's motion to remand was denied.