Opinion
Civil Action No. 3:04-CV-0082-N.
August 30, 2004
ORDER
Before the Court is Defendant Capital Lending Strategies, LLC's ("Capital Lending") Motion to Dismiss, filed June 4, 2004. Capital Lending argues Plaintiff Centrix Financial LLC's ("Centrix") state law claims for unfair competition and injury to business reputation are preempted by federal copyright law and should be dismissed. Because Centrix's state law claims each require proof of an "extra element" not needed for a finding of copyright infringement, those claims are not subject to preemption. Accordingly, Capital Lending's motion is denied.
It is well-settled that Section 301 of the Copyright Act of 1976 provides the exclusive remedy for claims of copyright violation. 17 U.S.C. § 301 (a) (1998). In the Fifth Circuit, preemption is required if state law claims satisfy a two-pronged test. "First, the content of the protected right must fall in the subject matter of copyright. Second, the nature of the rights granted under state law must be equivalent to any of the exclusive rights in the general scope of a federal copyright." Brown v. Ames, 201 F.3d 654, 657 (5th Cir. 2000). If "one or more qualitatively different elements are required to constitute the state-created cause of action being asserted, then the right granted under the state law does not lie `within the general scope of copyright,' and preemption does not occur." Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 787 (5th Cir. 1999) (citation omitted).
Centrix argues that its state law claims for unfair competition and injury to business reputation require proof of extra elements not required for a finding of copyright violation. When faced with defendants' arguments that copyright law preempts Texas unfair competition claims, Texas courts have consistently refused to find preemption. The Western District of Texas denied a defendant's motion to dismiss a state unfair competition claim in Spectrum Creations, Inc. v. Catalina Lighting Inc., No. Civ. A.SA-00-CA-875-F, 2001 WL 1910566, at * 13 (W.D. Tex. Aug. 1, 2001), holding that unfair competition claims require extra elements not required for proof of copyright violation. Id. The court explained,
To establish unfair competition under Texas law, there must be a likelihood of confusion between the plaintiff's product and the defendant's product. Furthermore, "a ruling on the likelihood of confusion under the Lanham Act also controls an unfair competition claim under state law." A claim for unfair competition under Texas law "is the umbrella for all statutory and nonstatutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters." Texas tort law requires that the plaintiff show an "illegal act by the defendant," albeit not necessarily in violation of criminal law, as an independent tort interferes with the plaintiff's business practices.Id. (citations omitted). Accordingly, Centrix's unfair competition claims require proof of an "extra element," and are not preempted by Section 301.
Similarly, Centrix's claim for injury to business reputation is not preempted. Although Section 16.29 of the Texas Business Commerce Code is frequently referred to as the "Texas Anti-Dilution Statute," the plain language of the statute includes a claim for injury to business reputation. TEX. BUS. COM. CODE § 16.29; See also Proctor Gamble Co. v. Amway Corp., 80 F. Supp. 2d 639, 670 (S.D. Tex. 1999), rev'd in part on other grounds, 242 F.3d 539 (5th Cir. 2001) ("In the absence of any contrary authority from this jurisdiction, the Court declines to hold that a claim under Section 16.29 must be limited to the dilution of a mark's distinctive quality."). By the very wording of the statute, success on this count requires proof of injury to business reputation, an element not required for copyright infringement. Accordingly, Section 301 preemption does not apply, and Capital Lending's motion is denied.