XPEL Technologies Corp. v. American Filter Film Distributors, 2008 WL 3540345 (W.D. Tex.)
The parties compete in producing designs for window film and paint and headlamp protection products for cars. XPEL sued two competitors for copying product images and distibuting them to other businesses and auto dealers. It alled breach of contract, violation of the Digital Millennium Copyright Act, copyright infringement, and the usual slew of business torts, including false advertising.
As XPEL tells the story, some of XPEL’s designs are delivered through the internet, accessed by the end user’s computer. A EULA is required before a user may access its products; XPEL contends that charging for access is essential to its business model. XPEL registered the copyright in its Design Access Program in early 2005 and applied for copyright protection for its Kit Designs in August 2007. (Applied for, hunh? That suggests a lack of subject matter jurisdiction until the registration issues, but for some reason the defendant argued instead that no claims could be considered based on conduct before the Copyright Office received the application. This is bizarrely wrong, and the court stated it was awaiting further facts on the copyright claim.)
XPEL alleges that, since November 2002, defendants have intermittently provided XPEL Kit Designs to dealers and customers. They accepted the EULA, but kept “Capture” software to copy an XPEL Kit Design on their computers. (More details would be nice—if, as Remeirdes would have it, pointing a video camera at a computer screen to capture DVD output is not circumvention barred by the DMCA, then it really seems like taking a screenshot with capture software would also not be circumvention, since neither interfere with access controls.) At times, defendants responded to a customer request for an XPEL Kit Design by using a copied pattern without paying, and they sold copies or derivative works to car dealerships, which exceeded the scope of their license.
XPEL argued that defendants’ kit designs constituted a false designation of origin because they were created by modifying XPEL’s designs and defendants didn’t disclose that to customers. Under Dastar, that’s a plain loser, despite XPEL’s halting attempts to distinguish Dastar as a case about public domain works. XPEL argued that it was actually pleading a false advertising claim, as contemplated by Dastar. The court invited further briefing on the matter. I assume this can be pled correctly, but good luck showing matieriality, even if one could determine that it was false for defendants to fail to disclose the source of the designs they modified; the current cases suggest that whenever a party has some involvement in the ultimate product it provides—for example, modifying the design—it’s not false to identify that party as the source of the product.
Likewise, XPEL’s state-law conversion claim was dismissed because Texas doesn’t recognize a claim for conversion of intangibles. Defendants’ copying didn’t in any way interfere with XPEL’s own possession of its designs, only its economic interests.
Defendants’ arguments that most of the state claims were preempted were premature, in the absence of further factual development. However, the court noted that trade secret misappropriation could be found qualitatively different from copyright infringement. And the court was confident that contract claims weren’t preempted, even if some of the promises contained in the EULA simply track copyright rights. “Given the length and complexity of the EULA, it is impractical to go line by line through it to determine how each provision corresponds to the rights protected by the Copyright Act. Rather, the Court believes the more prudent inquiry to be whether the contract as a whole includes elements that are qualitatively different than those involved in a copyright infringement claim. Under such analysis, it is clear that additional elements are present.”
Defendants moved to dismiss the claims for statutory damages and attorneys’ fees because XPEL has yet to receive a registration. XPEL argued that its registration for its Design Access Program predated some of the infringement, and that its Kit Design registrations will be retroactive to the application date. (Note that copying the kit designs apparently doesn’t copy the design access program; it is only if breach of the EULA makes defendants infringers of the Design Access Program, rather than mere contract-breachers, that the registration for the Design Access Program matters.)
As defendants pointed out, however, if infringement begins before registration, statutory damages and attorneys’ fees are unavailable. But with multiple defendants, some of whom may have acted before the registration date and some after, the facts were as yet unclear. (Again, one thing that’s not unclear: XPEL has no currently viable claim for infringement of the Kit Designs, since the court will lack subject matter unless and until the registrations for the Kit Designs issue.)Final note: Keep an eye on this DMCA issue. Though the court's discussion suggests that it's the violation of the EULA that allegedly violates the DMCA, a EULA is not a technical measure controlling access to a protected work. Moreover, we need to be clear about which work is allegedly accessed by circumvention here. At most, the design access program is itself a technical measure controlling access to the designs, but defendants didn't circumvent the design access program, they just allegedly used it as it was supposed to be used. A lie is not an act of circumvention. But if a court were to accept this kind of bootstrapping, then every internet infringement will quickly convert to a DMCA violation. This is part of the reason that it can be so important to separate copyright in a program from copyright in the content delivered by the program; see also the different registration statuses of the program and the Kit Designs here.