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Efremov v. Geosteering, LLC

Court of Appeals of Texas, First District

March 14, 2017

SERGEY EFREMOV, Appellant
v.
GEOSTEERING, LLC, Appellee

         On Appeal from the 400th District Court Fort Bend County, Texas Trial Court Case No. 16-DCV-229519

          Panel consists of Chief Justice Radack and Justices Jennings and Bland.

          MEMORANDUM OPINION

          Sherry Radack Chief Justice

         Plaintiff/appellee GeoSteering LLC sued defendant/appellant Sergey Efremov seeking a temporary restraining order, a temporary injunction, a permanent injunction, and damages. The trial court entered a temporary injunction in GeoSteering's favor, and Efremov brought this interlocutory appeal.

         BACKGROUND

         The service of "geosteering" involves monitoring drilling operations using real-time data. GeoSteering is an oil field service company that provides geosteering services. GeoSteering developed custom proprietary geosteering software, RigComms.

         Efremov is a scientist, mathematician, and a computer programmer. He began doing work for GeoSteering in 2009. GeoSteering alleges he was an employee; Efremov claims he was an independent contractor. The parties did not have a written contract governing the relationship.

         At issue in this case is software source code developed by Efremov. Efremov developed algorithms in Matlab, a programing language with an ".m" file extension. When GeoSteering determined a particular algorithm would be commercially useful, a GeoSteering software engineer would rewrite the Matlab .m file in C# programing language so that the algorithm could be implemented in RigComms. Efremov would assist GeoSteering's software engineer, explaining and testing the code as necessary during implementation.

         GeoSteering's petition alleges that from November 2009 until approximately February 2014, Efremov freely shared access to the software source code with GeoSteering through Dropbox. Because Efremov was consistently updating Dropbox files, GeoSteering did not discover that Efremov had stopped sharing code until the later part of 2015. In 2013, at GeoSteering's suggestion, Efremov compiled all the algorithms he was working on into a single executable file "toolbox" named the GS_Toolbox. Executable files do not reveal the source code, and require a passcode license key generated by Efremov which expires, denying access, after thirty or sixty days and requires renewal by Efremov. GeoSteering alleges that in January 2014, unbeknownst to GeoSteering, Efremov removed all the .m files that had not yet been implemented in RigComms, eliminating GeoSteering's access to the source code.

         GeoSteering considers both the software source code and the GS_Toolbox to be its confidential, proprietary, and trade secret information. In its petition, it requests a declaratory judgment that Efremov is an employee of GeoSteering and that all software source code and the GS_Toolbox is the sole property of GeoSteering as the employer. GeoSteering also seeks damages for breach of contract, promissory estoppel, conversion, money had and received, breach of fiduciary duty, and trade secret misappropriation. GeoSteering also requested that the trial court issue a temporary restraining order, and then an injunction.

         The trial court entered a temporary injunction in GeoSteering's favor. Its order stated that that Efremov is an employee of GeoSteering and accordingly all software source codes and the GS_Toolbox developed is the sole property of the employer, GeoSteering. It stated that Efromov breached his fiduciary duty to

          GeoSteering and breached his agreement with GeoSteering. The temporary injunction ordered Efremov to provide access to GS_Toolbox and prohibited Efremov from using, copying, marketing, or trying to license the software code.

         ISSUES ON APPEAL

         Efremov raises the following issues in his appellant's brief:

1. "The state court had no jurisdiction over Plaintiff's claims because they were preempted by federal law."
2. "The temporary injunction was granted in error because the status quo between the parties had not been such that Plaintiff was in possession of the source code."
3. "The district court should not have a granted a temporary injunction because Plaintiff had not established a probability of recovery on its causes of action."
4. "The trial court erroneously found that Dr. Efremov was an employee of GeoSteering, all the while no written contract between the parties existed and the statute of frauds required a writing."
5. "The court made erroneous and unnecessary factual findings and legal pronouncements."

         TEMPORARY INJUNCTION

         A temporary injunction's purpose is to preserve the status quo of the litigation's subject matter pending a trial on the merits. TMC Worldwide, L.P. v. Gray, 178 S.W.3d 29, 36 (Tex. App.-Houston [1st Dist.] 2005, no pet.) (citing Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993)). A temporary injunction is an extraordinary remedy and does not issue as a matter of right. Id. To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. Id. (citing Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)). A probable right to the relief sought is shown by alleging a cause of action and presenting evidence that tends to sustain it. Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex. App.-Houston [1st Dist.] 2002, no pet.). An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Id. at 610.

         STANDARD OF REVIEW

         The decision to grant or deny a temporary injunction lies in the sound discretion of the trial court, and the court's ruling is subject to reversal only for a clear abuse of discretion. TMC Worldwide, 178 S.W.3d at 36 (citing Walling, 863 S.W.2d at 58). We must not substitute our judgment for the trial court's judgment unless the trial court's action was so arbitrary that it exceeded the bounds of reasonable discretion. Id. (citing Johnson v. Fourth Ct. App., 700 S.W.2d 916, 918 (Tex. 1985)). In reviewing an order granting or denying a temporary injunction, we draw all legitimate inferences from the evidence in a manner most favorable to the trial court's judgment. Id. (citing CRC-Evans Pipeline Int'l v. Myers, 927 S.W.2d 259, 262 (Tex. App.-Houston [1st Dist.] 1996, no writ)). "Abuse of discretion does not exist if the trial court heard conflicting evidence and evidence appears in the record that reasonably supports the trial court's decision." Tanguy v. Laux, 259 S.W.3d 851, 856 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

         PREEMPTION

         In his first issue, Efremov argues that GeoSteering's claims are preempted by the federal Copyright Act, rendering the Fort Bend County state district court without jurisdiction. GeoSteering contends that its request for a declaration that Efremov is its employee and that GeoSteering owns the source code is not preempted. We agree with GeoSteering.

         A. Applicable law

On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 [17 U.S.C. § 106] in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103 [17 U.S.C. §§ 102 and 103], whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

17 U.S.C. § 301(a). Claims for relief that arise under the Copyright Act fall within the exclusive jurisdiction of the federal courts, to the exclusion of any state court. 28 U.S.C. § 1338(a). A two-part test determines whether a state law claim is preempted by the Copyright Act. Spear Mktg. Inc. v. BancorpSouth Bank, 791 F.3d 586, 594 (5th Cir. 2015). First, the claim is examined to determine whether it falls "within the subject matter of copyright" as defined by 17 U.S.C. § 102. Id. Second, "the cause of action is examined to determine if it protects rights that are equivalent to any of the exclusive rights of a federal copyright, as provided in 17 U.S.C. § 106." Id.

         B. Analysis

         Under the two-part test for determining preemption, GeoSteering's claims satisfy the first prong, as source code is recognized as copyrightable work under 17 U.S.C. § 102. E.g., Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 259 (5th Cir. 1988) ("Congress amended the Copyright Act in 1974 to include computer programs in the definition of protectable literary works."); Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1249 (3d Cir. 1983) ("[A] computer program, whether in object code or source code, is a 'literary work' and is protected from unauthorized copying, whether from its object or source code version."). The parties, however, dispute whether GeoSteering's claims satisfy the second prong.

         Efremov relies primarily on this Court's decision in Butler v. Continental Airlines, Inc., 31 S.W.3d 642 (Tex. App.-Houston [1st Dist.] 2000, pet. denied). In that case, Butler sued his former employer, Continental Airlines, alleging that "Continental copied and misappropriated the computer macros [Butler] authored" while he was employed at Continental. Id. at 648. Butler held that the first prong of preemption was satisfied because "[c]omputer programs fall within the subject matter of copyright, " Id. at 650 (citing Daboub v. Gibbons, 42 F.3d 285, 289-90 (5th Cir.1995)). We next analyzed whether Butler's claims satisfied the second preemption prong, i.e., whether the claim protects rights equivalent to any of the exclusive rights of a federal copyright, ultimately deciding that it did:

A state law claim is equivalent to a copyright claim where the core of the state law theory of recovery goes to wrongful copying. Daboub, 42 F.3d at 289-90. This inquiry requires a comparison of the nature of the rights protected under the Copyright Act with the nature of the state law rights being asserted. Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 787 (5th Cir. 1999). A state law cause of action is equivalent to the rights granted by the Copyright Act if "the mere act of reproduction, distribution, or display infringes it." Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990). In other words, a state law claim is equivalent to federal copyright law rights if the elements of the state law cause of action would not establish qualitatively different conduct by the defendant than the elements for an action under the Copyright Act. Alcatel, 166 F.3d at 787; Daboub, 42 F.3d at 290. "Federal courts have repeatedly recognized that allowing state claims where the core of the complaint centers on wrongful copying would render the preemption ...

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