Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Tex.: Manufacturer’s counterclaim for copyright infringement not subject to remand, (Sep 5, 2014)

By Linda O’Brien, J.D., LL.M.

A former moveable wall distributor was not entitled to remand of its action against the manufacturer and a former employee for alleged breach of contract and tortious interference with prospective business relations where the manufacturer sufficiently pleaded a counterclaim for copyright infringement under the Copyright Act, the federal district court in San Antonio, Texas has decided (DEA Specialists Co., Inc. v. DeLeon, September 4, 2014, Rodriguez, X.).

In 2000, Hufcor, a manufacturer of moveable walls, entered into an exclusive distributorship agreement with DEA Specialties in which DEA was the exclusive distributor of its wall products in 56 Texas counties. In 2011, DEA entered into an employment agreement with Ernest DeLeon, wherein DeLeon was employed as a sales and architectural representative of DEA. In June 2013, DEA and Hufcor terminated the exclusive distributorship and DEA became a distributor for another manufacturer’s products.

In August 213, DeLeon ended his employment with DEA and began to work for Hufcor. DEA filed suit in state court against DeLeon and Hufcor, alleging that DeLeon breached his employment agreement by using confidential and proprietary information from DEA to contact prospective DEA customers and that Hufcor interfered with DEA’s employment contract with DeLeon. Hufcor filed a counterclaim against DEA for copyright infringement and removed the case to the federal district court. DEA moved to remand.

The court found that Hufcor sufficiently pleaded a claim under the Copyright Act in its counterclaim to confer jurisdiction and allow Hufcor to remove the case from state court under 28 U.S.C. §1454. The section creates an exception to general rules that removal jurisdiction depends on the allegations in a well-pleaded complaint and only defendants may remove and provides that any party asserting a claim for relief arising under any Act relating to patents or copyrights may be removed to the district court.

Hufcor contended that it developed a proprietary computer software program for its business, allowing its authorized distributors to input details regarding a prospective job. Hufcor stated that it is the sole owner of the copyrights for the program, DEA failed to return its copies of the software when the distributorship agreement was terminated, and DEA continues to use the software in competition with Hufcor. Thus, Hufcor sufficiently alleged a claim against DEA that arose under the Copyright Act, according to the court.

DEA’s arguments that Hufcor could not show that DEA copied the software after termination of the agreement went to the merits of the claim and not to whether the claim was sufficiently pleaded to confer jurisdiction, the court concluded.

The case is No. 13-1325.

Attorneys: Daniel Oren Kustoff (Kustoff & Phipps, LLP) for DEA Specialties Co., Inc. Arthur Gollwitzer, III (Michael Best & Friedrich LLP) for Hufcor, Inc.

Companies: DEA Specialties Co., Inc.; Hufcor, Inc.

Cases: FranchisingDistribution TexasNews