U.S. Court of Appeals for the Second Circuit, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv

Insurance Law

 

Could State Insurance Law Reverse-Preempt the Foreign Sovereign Immunities Act (“FSIA”)?

 

McCarran–Ferguson Act

 

 

 

(…) Shortly after Stephens I, we decided another case involving the MFA, Stephens v. Nat'l Distillers & Chem. Corp. (Stephens II), 69 F.3d 1226 (2d Cir. 1995), amended (Jan. 11,1996). That decision assessed whether the MFA allowed state insurance law to reverse-preempt the Foreign Sovereign Immunities Act (“FSIA”). Id. at 1231–32. The panel in that case, noting the earlier Stephens I in a footnote, ultimately rested its decision on the grounds that “international law preempted the relevant state insurance law before the passage of both the McCarran–Ferguson Act and the FSIA” and codification of international law standards in the FSIA did not undermine that preexisting preemptive force. Id. at 1233 & n.6. As the Convention and its implementing legislation both post-date the MFA, that holding is inapplicable here, and we address Stephens I alone in this opinion. Compare McCarran–Ferguson Act, c. 20, § 2, 59 Stat. 33, 34 (1945) (codified at 15 U.S.C. § 1012), with An Act To Implement the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Pub. L. 91-368, § 1, 84 Stat. 692 (1970) (codified at 9 U.S.C. § 201) (providing that “the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be enforced in United States courts in accordance with this chapter.”). (Fn. 2).

 

 

 

(U.S. Court of Appeals for the Second Circuit, May 8, 2025, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv)

 

U.S. Court of Appeals for the Second Circuit, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv

Insurance Law

 

Surplus Lines Insurers

 

Arbitration

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

 

Supremacy Clause of the United States Constitution

 

McCarran-Ferguson Act (“MFA”), 15 U.S.C. § 1012(b)

 

Self-Executing Treaty Provisions

 

Reverse Preemption

 

Assignation of Rights

 

Louisiana Law

 

 

 

 

 

This opinion addresses two cases, each of which involves an insurance policy issued by certain surplus lines insurers at Lloyd’s, London (“the Insurers”). Both policies contain an identical arbitration clause, which the Insurers argue is enforceable under Article II Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), adopted June 10, 1958, 21 U.S.T. 2517. The defendants-appellees argue that the clauses are unenforceable because (1) Louisiana law prohibits arbitration clauses in insurance contracts, (2) the McCarren Ferguson Act (“MFA”), 15 U.S.C. § 1012(b), allows state insurance laws to “reverse preempt” any treaty provisions that are not “self-executing,” and (3) we previously held that Article II Section 3 of the New York Convention was not “self-executing” in Stephens v. American International Insurance (“Stephens I”), 66 F.3d 41, 45 (2d Cir.1995). We conclude, however, that our reasoning in Stephens I has been fatally undermined by the Supreme Court’s subsequent decision in Medellín v. Texas, 552 U.S. 491 (2008). Medellín established an entirely different test for determining whether a treaty provision should be considered “self-executing” than the one we applied in Stephens I, and under the new Medellín test, Article II Section 3 is clearly self-executing. As a result, we abrogate Stephens I to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, reverse the underlying district court decisions to the extent they relied on that holding in Stephens I, and remand the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

(…) Surplus lines insurers “fill an important niche in the insurance market by covering otherwise uninsurable risks.” James River Ins. Co. v. Blue Ox Dance Hall, LLC, No. 16 Civ. 151, 2017 WL 5195877, at *3 (N.D. Okla. Nov. 9, 2017). One common use for their policies is to insure against the cost of hurricane damage in high-risk zones, including areas of Louisiana.

 

 

(…) The sellers, who were the named insureds under the policies, assigned their rights under the policies to 3131 Veterans and Mpire.

 

 

Louisiana state insurance law is unfriendly to arbitration clauses. It provides that “no insurance contract delivered or issued for delivery in this state . . . shall contain any condition, stipulation, or agreement . . . depriving the courts of this state of the jurisdiction or venue of action against the insurer.” La. R.S. § 22:868(A)(2). In 2015, the Louisiana Supreme Court observed that this provision “effectively prohibits the enforcement of arbitration provisions in the context of insurance disputes.” Courville v. Allied Professionals Ins. Co., 174 So.3d 659, 666. (La. Ct. App. 2015).

 

 

In contrast with Louisiana law, arbitration clauses are generally enforceable under federal law, because the FAA puts arbitration clauses “on an equal footing with other contracts.” Coinbase, Inc. v. Suski, 602 U.S. 143, 148 (2024); see also 9 U.S.C. § 2. Ordinarily under the Supremacy Clause of the United States Constitution, a federal statute like the FAA would “preempt a state law that withdraws the power to enforce arbitration agreements.” Southland Corp. v. Keating, 465 U.S. 1,16 n.10 (1984). Thus, an arbitration clause could generally be expected to prevail even in the face of state laws – like Louisiana’s – that purport to prohibit or void such clauses. See Stephens I, 66 F.3d at 43. “However, Congress created an exception to the usual rules of preemption when it enacted the McCarran–Ferguson Act.” Id. Under the MFA, state laws enacted “for the purpose of regulating the business of insurance” are generally exempt from preemption. Id. Specifically, the MFA provides that no Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance. 5 U.S.C. § 1012(b). Under the MFA, the normal rules of preemption apply to a state insurance law only when an incompatible federal law exists that also relates to insurance. Humana Inc. v. Forsyth, 525 U.S. 299, 307–08 (1999).

 

 

Because the MFA’s reverse-preemption rule applies not to federal policies generally but to “Acts of Congress” specifically, 15 U.S.C. § 1012(b), we have held that state law can reverse-preempt a treaty provision under the MFA only when that treaty provision relies on an “Act of Congress” to take effect – in other words, when the provision is not “self-executing.” Stephens I, 66 F.3d at 45. Where a treaty provision is self-executing and requires no implementing Act of Congress, the MFA by its own terms does not apply. Accordingly, the principal disagreement in this case is whether Article II Section 3 of the New York Convention is “self-executing,” making it exempt from reverse-preemption under the MFA, or whether it relies on an Act of Congress for its effect, such that it can be reverse-preempted by Louisiana law.

 

 

In Medellín, the Supreme Court did not confine its analysis to the narrow question of whether Congress enacted legislation purporting to implement the treaty at issue (there, the United Nations Charter). 552 U.S. at 508. Instead, the Court identified several hallmarks of a “self-executing” treaty provision within a larger treaty – namely: (1) that it provides “a directive to domestic courts” of the contracting nation, id.; (2) that it “provides that the United States ‘shall’ or ‘must’” take a particular action, id., and (3) that the “text, background, negotiating and drafting history” regarding the provision indicate the Senate and/or the President’s intention, id. at 523, that the ratified treaty take “immediate legal effect in domestic courts,” id. at 508. A non-self-executing treaty provision, in contrast, would merely “call upon [member] governments to take certain action.” Id. (quotation marks omitted). Because Article 94 of the U.N. Charter, the specific provision at issue, lacked those hallmarks of a “self-executing” treaty provision, the court held that it was not self-executing. Id. at 508–09.

 

 

Since Medellín, other circuits addressing the New York Convention have reasoned persuasively that under the test announced in that case, Article II Section 3 of the Convention is in fact self-executing. The First Circuit held that “the text of that provision manifests precisely the type of directive to United States courts that is a hallmark of a self-executing treaty provision.” Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, 68 F.4th 662, 668 (1^st Cir. 2023).

 

 

Under the Medellín factors, Article II Section 3 of the New York Convention is self-executing. As the First and Ninth Circuits have observed, the text of Article II Section 3 readily appears “self-executing” under the first two Medellín factors. CLMS Mgmt. Servs., 8 F.4th at 1013; Green Enterprises, 68 F.4th at 667-68. The text expressly provides that when a party before a contracting nation’s court seeks to enforce the type of arbitration agreement contemplated by the New York Convention, that court “shall . . . refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” New York Convention, art. II § 3. That instruction serves as “a directive to domestic courts” of the member state, and it “provides that the United States ‘shall’ or ‘must’” take a particular action. Medellín, 552 U.S. at 508. Thus, both the first and second factors strongly suggest that the provision is self-executing.

 

 

(…) Under the Medellín test, Article II Section 3 of the New York Convention is self-executing, with the result that it cannot be reverse preempted by Louisiana law under the MFA.

 

 

For the foregoing reasons, we ABROGATE Stephens v. American International Insurance, 66 F.3d 41 (2d Cir. 1995) to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, REVERSE the district courts’ decisions to the extent that they relied on that holding in Stephens I, and REMAND the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

 

 

(U.S. Court of Appeals for the Second Circuit, May 8, 2025, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv)

 

 

U.S. Court of Appeals for the Second Circuit, Universal Instruments Corp. v. Micro Sys. Engʹg, Inc., Docket No. 17‐2748‐cv

Sale of Equipment and Software for an Automated Assembly System
Contract Drafting
Breach of Contract
Preemption by the Copyright Act
Copyright Infringement
License Rights
Misappropriation
Unfair Competition
Trade Secret
Tolling
Tort: Continuing Tort Theory
Equitable Relief
Computer Source Code
Software
17 U.S.C. § 117(a)
Choice of Law


Appeal from a judgment entered in the United States District Court for the Northern District of New York (Sharpe, J.), dismissing plaintiffʹs claims for breach of contract, copyright infringement, misappropriation, and unfair competition arising from its sale of equipment and software for an automated assembly system. On appeal, plaintiff contends that the district court erred in granting defendantsʹ motion for judgment as a matter of law.
Affirmed.

Corporation (ʺUniversalʺ) developed and sold an automated assembly system to defendant‐counter‐plaintiff‐appellee Micro Systems Engineering, Inc. (ʺMSEIʺ) in 2007 pursuant to a purchase agreement. MSEI developed a multi‐phase plan to build a system to automate the handling of medical devices during its quality testing process, and Universal won the bid to provide the equipment for the first phase. MSEI awarded the second and third phases of the project not to Universal, but to Universalʹs competitor, defendant‐counter‐plaintiff‐appellee Missouri Tooling & Automation, Inc. (ʺMTAʺ). In implementing phases two and three, MSEI and MTA used intellectual property, including computer source code, that Universal had provided for phase one.
(…) Test Handling System (the ʺTHSʺ)

Universal brought this action below alleging, inter alia, that MSEI and MTA had infringed Universalʹs copyright in its source code, breached the terms of the purchase agreement, and misappropriated Universalʹs trade secrets. Certain claims were dismissed on defendantsʹ motion for judgment on the pleadings, and, after discovery, the parties proceeded to a jury trial on the remaining claims. At the close of the evidence, however, the district court granted defendantsʹ motion for judgment as a matter of law. Universal appeals.

Beginning in 2006, MSEI obtained bids from suppliers for phase one. One of the bidders was Universal, a developer of automated assembly platforms. MSEI awarded phase one to Universal, and the parties memorialized their agreement in an Equipment Purchase Agreement (the ʺEPAʺ), executed in June 2007.

The THS ultimately developed by Universal had two software components: the station software and the server software. The station software was embedded on each individual Polaris station and ʺmanaged the operation of conveyors, elevators, stacks and robotic arms.ʺ J. Appʹx at 2606. This software was stored on each stationʹs programmable logic controller and could be downloaded on site by physically connecting a computer to the station and downloading the source code. Id. at 1299‐1300, 1480‐81, 1532‐34. The server software, on the other hand, was the ʺbrains of the operation,ʺ id. at 988, which ʺsynchronized the activities of the hardware and softwareʺ and was ʺresponsible for coordinating the movement of the module trays,ʺ id. at 2606.
The source code for the server could not be downloaded in the same way as the station software, and under the EPA, Universal was under no obligation to provide the server source code to MSEI. Id. at 2344 (providing that ʺsource code will not be providedʺ). The parties agreed, however, in their Final Customer Acceptance letter (the ʺFCAʺ) that Universal would provide MSEI with a copy of the server source code at the time of delivery. The THS was delivered in October 2008.

In 2009, MSEI solicited bids for the next phase (ʺTHS2ʺ). The bid documents for THS2 indicated that MSEI had the responsibility to provide the software for the station and server source code to be used in the project. In April 2010, MSEI awarded the project to MTA, a competitor of Universal, which submitted a lower bid for the project. On April 8, 2010, MSEI and MTA entered into an agreement (the ʺMTA Agreementʺ). On April 16, Universal and MTA were notified by email that MSEI had ʺawarded the business to MTA for the THS line two project.ʺ J. Appʹx at 2878. MTA subsequently sought to purchase Polaris stations from Universal for use in THS2, but on August 4, 2010, Universal declined to sell them to MTA. Thereafter, MSEI downloaded the source code from the individual Polaris stations and the server source code that Universal gave to MSEI on delivery of phase one; it then gave the code to MTA to use in the production of THS2. MSEI and MTA subsequently modified the server source code to meet the requirements of THS2.

The EPA contains several provisions relating to the partiesʹ intellectual property rights. Section 8 is entitled ʺIntellectual Property.ʺ Section 8.2(d) provides that
if [Universal] uses any Pre‐Existing Intellectual Property in connection with this Agreement, [Universal] hereby grants MSEI, MSEIʹs subcontractors, or suppliers, a non‐exclusive, royalty‐free, worldwide, perpetual license, to use, reproduce, display, of the Pre‐Existing Intellectual Property for MSEIʹs internal use only. J. Appʹx at 2336. ʺPre‐Existing Intellectual Propertyʺ is defined as ʺany trade secret, invention, work of authorship, mask work or protectable design that has already been conceived or developed by anyone other than MSEI before [Universal] renders any services under the Agreement.ʺ Id.
Exhibit E to the EPA, entitled ʺEquipment Acceptance Form,ʺ contained a blank form for the parties to fill in upon final delivery and acceptance.

On October 31, 2008, Universal and MSEI signed a negotiated ʺFinal Customer Acceptanceʺ letter, which stated, among other things, that Universal agrees to provide the THS server code as is with the understanding that MSEI assumes the risk of invalidating the warranty in the event a change made by MSEI to the source code causes damage to any of the THS line hardware. J. Appʹx at 2361.

It is undisputed that in completing phases two and three, MSEI and MTA used source code that Universal had provided for phase one. The principal issue presented is whether the EPA permitted them to do so. We hold that defendantsʹ conduct did not breach § 8.2(d) of the EPA and was non‐infringing because that provision permitted defendants to reproduce and use the station and server source code; defendantsʹ adaptation of the server source code was non‐infringing because it was authorized by 17 U.S.C. § 117(a); Universalʹs contract claim that defendantsʹ modification of the server source code breached the EPA is preempted by the Copyright Act; Universalʹs claim of misappropriation of trade secrets is time‐barred; and MTA did not unfairly compete with Universal because its conduct was not in bad faith. Accordingly, we affirm.

Copyright Infringement
Universalʹs copyright infringement claim turns on whether defendantsʹ conduct fell within the scope of the non‐exclusive license provided in the EPA. This is so because a valid license ʺimmunizes the licensee from a charge of copyright infringement, provided that the licensee uses the copyright as agreed with the licensor.ʺ Davis v. Blige, 505 F.3d 90, 100 (2d Cir. 2007). Where a claim turns on the scope of a license, ʺthe copyright owner bears the burden of proving that the defendantʹs [use] was unauthorized.ʺ Tasini v. N.Y. Times Co., 206 F.3d 161, 171 (2d Cir. 2000) (quoting Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995)). Whether the partiesʹ license agreement encompasses the defendantsʹ activities is ʺessentiallyʺ a question of contract interpretation. See Bourne, 68 F.3d at 631. ʺA written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.ʺ Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) (citing R/S Assocs. v. N.Y. Job Dev. Auth., 98 N.Y.2d 29, 32 (2002)). Where, however, ʺthe language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, then the interpretation of the contract becomes a question of fact for the jury and extrinsic evidence of the partiesʹ intent properly is admissible.ʺ Bourne, 68 F.3d at 629. The existence of an ambiguity, if any, is to ʺbe ascertained from the face of an agreement without regard to extrinsic evidence.ʺ Reiss v. Fin. Perf. Corp., 97 N.Y.2d 195, 199 (2001); see also Duane Reade Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 390 (2d Cir. 2005).

We hold, for the reasons discussed below, that the EPA unambiguously permitted MSEI and MTA to reproduce and use Universalʹs pre‐existing intellectual property in subsequent phases of the THS. Defendantsʹ conduct was, therefore, not infringing. We further conclude that MSEI and MTAʹs adaptation of the server source code for use in additional testing stations was authorized by 17 U.S.C. § 117(a) and thus non-infringing.

(…) There is no evidence that the source code was used by MSEI and MTA for anything other than developing and implementing phases two and three of MSEIʹs internal test handling system.

(…) This understanding is reinforced by our recent holding that ʺunder long‐established principles of agency law, a licensee under a non‐exclusive copyright license may use third‐party assistance in exercising its license rights unless the license expressly provides otherwise.ʺ Great Minds v. Fedex Office & Print Servs., Inc., 886 F.3d 91, 94 (2d Cir. 2018). Here, the license expressly provided that the rights extended to MSEIʹs suppliers, which surely included MTA. Hence, MSEI and MTAʹs reproduction of the source code for MSEIʹs internal use did not, as a matter of law, exceed the scope of the license.

Choice-of-Law
The EPA does not contain a choice‐of‐law provision, but the parties agree that New York law applies. See Federal Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 566 (2d Cir. 2011) (noting that where, during the course of litigation, ʺthe parties agree that New York law controls, this is sufficient to establish choice of lawʺ).

Modification of the Source Code was Authorized by 17 U.S.C. § 117(a)
It is axiomatic that ʺan unlicensed use of the copyright is not an infringement unless it conflicts with one of the specific exclusive rights conferred by the copyright statute.ʺ Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 447 (1984). The Copyright Act grants copyright holders a bundle of exclusive rights, including the rights to ʺreproduce . . . in copies,ʺ ʺprepare derivative works,ʺ ʺdistribute copies,ʺ ʺperform,ʺ and ʺdisplayʺ their works. 17 U.S.C. § 106. Source code, the human‐readable literal elements of software, is copyrightable. See Oracle Am., Inc. v. Google Inc., 750 F.3d 1339, 1355‐56 (Fed. Cir. 2014). It is also well established that copyright owners may grant others license to use their rights. John Wiley & Sons, Inc. v. DRK Photo, 882 F.3d 394, 410 (2d Cir. 2018). But because copyright licenses prohibit any use not authorized, a licensee infringes the ownerʹs copyright if its use exceeds the scope of its license. Gilliam v. Am. Broad. Cos., 538 F.2d 14, 20 (2d Cir. 1976) (noting that ʺone who obtains permission to use a copyrightedʺ work ʺmay not exceed the specific purpose for which permission was grantedʺ and concluding that ʺunauthorized editing of the underlying work, if proven, would constitute an infringement of the copyright in that work similar to any other use of a work that exceeded the license granted by the proprietor of the copyrightʺ); see also S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088 (9th Cir. 1989). Thus, § 8.2(d) of the EPA arguably prohibits, at least impliedly, MSEI and its suppliers from modifying Universalʹs pre‐existing intellectual property.

The Copyright Act, however, provides an affirmative defense that allows the owner of a copy of a computer program to copy or modify the program for limited purposes without incurring liability for infringement. See 17 U.S.C. § 117(a). Section 117(a) provides, in relevant part:
Notwithstanding the provisions of section 106 [which lists the exclusive rights of a copyright holder], it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1)that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner . . . .

Thus, a defendant seeking protection under § 117(a) must demonstrate that the new adaptation (1) was made by the ʺowner of a copy of the computer program,ʺ (2) was ʺcreated as an essential step in the utilization of the computer program in conjunction with a machine,ʺ and (3) was ʺused in no other manner.ʺ 17 U.S.C. § 117(a); see Krause v. Titleserv, Inc., 402 F.3d 119, 122 (2d Cir. 2005).

MSEI Is the ʺowner of a copy of a computer programʺ
We have held that ʺownerʺ as used in § 117(a) does not require formal title in a program copy. Titleserv, 402 F.3d at 123. Instead, ʺcourts should inquire into whether the party exercised sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of § 117(a).ʺ Id. at 124.
In Titleserv, we found the following facts sufficient to consider defendant an owner under § 117(a): defendant paid plaintiff ʺsubstantial consideration to develop the programs for its sole benefitʺ; plaintiff ʺcustomized the software to serve defendantʹs operationsʺ; plaintiff stored copies ʺon a server owned by [defendant]ʺ; plaintiff ʺnever reserved the right to repossess the copies used by [defendant] and agreed that [defendant] had the right to continue to possess and use the programs forever, regardless whether its relationship with [defendant] terminatedʺ; and ʺ[defendant] was similarly free to discard or destroy the copies any time it wished.ʺ Id.

(…) We further held that the ʺaddition of new features,ʺ which ʺwere not strictly necessary to keep the programs functioning, but were designed to improve their functionality in serving the business for which they were created,ʺ were also ʺessential.ʺ Id.; see also Final Report of the National Commission on New Technological Uses of Copyrighted Works 13 (1978) [hereinafter ʺCONTU Reportʺ] (ʺA right to make those changes necessary to enable the use for which it was both sold and purchased should be provided. The conversion of a program from one higher‐level language to another to facilitate use would fall within this right, as would the right to add features to the program that were not present at the time of rightful acquisition.ʺ). In doing so, however, we noted an important limitation: an ʺessentialʺ improvement ought not to ʺharm the interests of the copyright proprietor.ʺ Id. at 129 (citing CONTU Report at 13).

(…) MSEIʹs use did not inhibit Universalʹs ability to market or sell its server software to others, nor did it divulge sensitive Universal information or enrich MSEI or MTA at the expense of Universal. MSEI made and authorized the making of minor modifications, narrowly tailored to adapting the server software for the use for which it was designed ‐‐ orchestration of the test handing stations to ensure the quality of MSEIʹs implantable medical devices.

The Adaptation was ʺused in no other mannerʺ
Finally, to warrant the protection of § 117(a), MSEI must show that the server software was ʺused in no other manner,ʺ that is, it was used only to make an adaptation as an essential step in utilizing the software in conjunction with the test handling system. Universal argues that MSEIʹs modification of the server software to operate with new machines, rather than the existing machines created by Universal, defeats MSEIʹs claim to protection from § 117(a).

ʺWhether a questioned use is a use in another manner . . . depends on the type of use envisioned in the creation of the program.ʺ Titleserv, 402 F.3d at 129. The server software was designed to be the ʺbrains of the operation,ʺ J. Appʹx at 988, which ʺsynchronized the activities of the hardware and softwareʺ and was ʺresponsible for coordinating the movement of the module trays,ʺ id. at 29 2606. These are precisely the purposes for which MSEI and MTA made modifications, as indicated in the Statement of Work. See id. at 2366 (ʺUpdate THS Server software to add functionality for the new stations.ʺ); see also id. at 2367 (ʺScope of the project . . . is first to replicate the existing system . . . , and then expand this configuration to add the capability to add three . . . electrical testers . . . , one RF testing stations and one Shaker test station.ʺ). There is nothing in the record to suggest that the server source code was used for any purpose other than to adapt the system to handle new testing stations for MSEIʹs internal use. See Titleserv, 402 F.3d at 130 (ʺWhat is important is that the transaction for which the programs are used is the type of transaction for which the programs were developed.ʺ). Thus, MSEI ʺsimply increased the versatility of the programs by allowing themʺ to interoperate with new test handling stations, which ʺconstitutes use in the same manner, with the benefit of an adaptation increasing versatility.ʺ Id.

Breach of Contract & Preemption by the Copyright Act
MSEI and MTAʹs use and reproduction of Universalʹs pre‐existing intellectual property for use in subsequent phases of the THS was non‐infringing because defendants were expressly licensed to do so under § 8.2(d) of the EPA. See supra Part I.B.1. It necessarily follows that MSEIʹs use and reproduction of the source code was not in breach of the EPA. See Davis, 505 F.3d at 100; Bourne, 68 F.3d at 631. Universalʹs breach of contract claim is thus reduced to its assertion that MSEI breached the EPA by modifying the server source code. We do not reach the merits of this question, however, because what remains of Universalʹs breach of contract claim is preempted by the Copyright Act.

The Copyright Act exclusively governs a claim when (1) the particular work to which the claim is being applied falls within the type of works protected by the Copyright Act under 17 U.S.C. §§ 102 and 103, and (2) the claim seeks to vindicate legal or equitable rights that are equivalent to one of the bundle of exclusive rights already protected by copyright law under 17 U.S.C. § 106. Briarpatch L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 305 (2d Cir. 2004). ʺA state law right is equivalent to one of the exclusive rights of copyright if it may be abridged by an act which, in and of itself, would infringe one of the exclusive rights.ʺ Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424, 430 (2d Cir. 2012). ʺʹBut if an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state‐created cause of action,ʹ there is no preemption.ʺ Id. (quoting Comput. Assocs. Intʹl, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992)). Preemption, therefore, turns on ʺwhat the plaintiff seeks to protect, the theories in which the matter is thought to be protected and the rights sought to be enforced.ʺ Comput. Assocs., 982 F.2d at 716.

As we have recognized, ʺpreemption cannot be avoided simply by labeling a claim ʹbreach of contract.ʹʺ Forest Park, 683 F.3d at 432; see also 5 Nimmer on Copyright § 19D.03[C][2][b] (suggesting that a contract that ʺdoes not purport to give [the plaintiff] any protection beyond that provided . . . by copyright law itselfʺ would be preempted). In Forest Park, we held the contract at issue not to be preempted because it included an ʺextra elementʺ of a promise to pay, and plaintiff sought contract damages when defendant used plaintiffʹs copyrighted work without paying for the privilege. Forest Park, 683 F.3d at 428. Here, by contrast, there is no dispute over payment. Universal does not argue that defendants violated the EPA by failing to pay for use of the intellectual property.

Misappropriation of Trade Secrets
A plaintiff claiming misappropriation of a trade secret must prove that (1) ʺit possessed a trade secret,ʺ and (2) the trade secret was used by defendant ʺin breach of an agreement, confidence, or duty, or as a result of discovery by improper means.ʺ Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990). We do not reach the merits of this claim, however, because it is time‐barred by the applicable statute of limitations.

In New York, a cause of action for the misappropriation of trade secrets is governed by a three‐year statute of limitations, while claims for equitable relief are subject to a six‐year statute of limitations. Compare N.Y. C.P.L.R. § 214(4) (providing three‐year‐statute of limitations for claims of misappropriation of trade secrets), with id. § 213(1) (providing six‐year statute of limitations for claims seeking equitable relief). Universal argues that its claim for injunctive relief is governed by the more generous six‐year limitations period.

ʺCourts determine the applicable limitations period . . . by analyzing the substantive remedy that the plaintiff seeks.ʺ ABS Entmʹt, Inc. v. CBS Corp., 163 F. Supp. 3d 103, 108 (S.D.N.Y. 2016) (applying New York law). ʺWhere the remedy sought is purely monetary in nature, courts construe the suit as alleging ʹinjury to propertyʹ within the meaning of CPLR 214(4), which has a three‐year limitations period.ʺ IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139 (2009). In IDT, the equitable relief was incidental to the damages sought, so ʺlooking to the reality, rather than the form, of the action,ʺ the New York State Court of Appeals concluded that IDT principally sought a monetary remedy and, thus, held that the three‐year statute of limitations applied. Id. at 139‐40. Similarly, in this case, the main remedy that Universal seeks is monetary damages. Universalʹs Third Amended Complaint requested that it be awarded profits and a royalty, not just an injunction, in connection with its misappropriation of trade secrets claim, as well as double damages, punitive damages, and attorneysʹ fees. Therefore, because the reality of the cause of action is that it is one for damages, not injunctive relief, the three‐year statute of limitations applies.

Universal argues that this statute of limitations should be tolled or extended on a continuing tort theory. ʺA continuing tort theory may apply . . . where the plaintiff alleges that a defendant has kept a secret confidential but continued to use it for commercial advantage.ʺ Andrew Greenberg, Inc. v. Svane, Inc., 830 N.Y.S.2d 358, 362 (App. Div. 2007). ʺWhere, however, the ʹplaintiff had knowledge of the defendantʹs misappropriation and use of its trade secret, the continuing tort doctrine does not apply.ʹʺ PaySys Intʹl, Inc. v. Atos Se, No. 14‐ 10105, 2016 WL 7116132, at * 9 (S.D.N.Y. Dec. 5, 2016) (quoting VoiceOne Commcʹns, LLC v. Google Inc., No. 12‐9433, 2014 WL 10936546, at *10 (S.D.N.Y. Mar. 31, 2014)) (citing cases). Here, Universal had knowledge of MSEI and MTAʹs alleged misappropriation and use of its trade secret and, accordingly, the continuing tort theory does not apply.

Unfair Competition
Universalʹs remaining claim against MTA for unfair competition was also properly dismissed. ʺThe essence of an unfair competition claim under New York law is that the defendant has misappropriated the labors and expenditures of anotherʺ with ʺsome element of bad faith.ʺ Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980). MTA was informed prior to executing the MTA Agreement that MSEI and its suppliers were licensed to use and reproduce Universalʹs source code. Moreover, Bob Archer, MTAʹs CEO and co‐owner, testified at trial that MTA relied on the language of the EPA in agreeing to supply MSEI with subsequent phases of the THS.

As we have held, the EPA in fact authorized MTA as MSEIʹs supplier to use and reproduce Universalʹs pre‐existing intellectual property for the THS replication project. See supra Part I.B.1. And to the extent MTA adapted the server source code, such adaptions were authorized under federal law.


(U.S. Court of Appeals for the Second Circuit, May 8, 2019, Universal Instruments Corp. v. Micro Sys. Engʹg, Inc., Docket No. 17‐2748‐cv)

Solus Industrial Innovations, LLC v. Superior Court, S222314

Labor law: Workplace safety: Cal/OSHA: Unfair competition: Unfair advertising: Consumer protection: Supremacy clause: Preemption: Equitable remedies:

(…) The federal OSH Act (29 U.S.C. § 651 et seq.) provides that the federal Secretary of Labor shall adopt standards for occupational safety and health, but federal law does not preempt state authority when (1) there is no federal standard or (2) there is a state plan for occupational safety and health that has been approved at the federal level.

The federal OSH Act grants the federal Department of Labor the authority to provide and enforce mandatory national standards. (29 U.S.C. § 651(b)(3); see also id., § 655 [calling for promulgation of standards].) The federal Secretary of Labor has delegated certain authority to the federal Occupational Safety and Health Administration (hereafter sometimes federal OSHA) to adopt standards. (Gade v. National Solid Wastes Management Ass’n (1992) 505 U.S. 88, 92 (Gade) (plur. opn. of O’Connor, J.).) If the Secretary of Labor has not promulgated a federal standard with respect to an occupational safety or health issue, states may supply their own standards. (29 U.S.C. § 667(a) [“Nothing in this chapter shall prevent any State agency or court from asserting jurisdiction under State law over any occupational safety or health issue with respect to which no standard is in effect under section 655 of this title”].)

Moreover, even when there are federal standards on an issue relating to occupational safety and health, a state may assume responsibility for developing and enforcing state standards on such issues by developing and submitting to the Secretary of Labor a plan to “preempt” federal standards. In a provision entitled “Submission of State plan for development and enforcement of State standards to preempt applicable Federal standards,” the federal OSH Act states: “Any State which, at any time, desires to assume responsibility for development and enforcement therein of occupational safety and health standards relating to any occupational safety or health issue with respect to which a Federal standard has been promulgated under section 655 of this title shall submit a State plan for the development of such standards and their enforcement.” (29 U.S.C. § 667(b).)

The Secretary must give adequate notice and an opportunity for a hearing before rejecting a state plan. (Id., § 667(d).)

The Secretary of Labor retains some ongoing authority over state plans. For example, the Secretary must “make a continuing evaluation of the manner in which each State having a plan . . . is carrying out such plan.” (29 U.S.C. § 667(f).)

(…) Finally, the federal OSH Act contains a broad savings clause: “Nothing in this chapter shall be construed to supersede or in any manner affect any workmen’s compensation law or to enlarge or diminish or affect in any other manner the common law or statutory rights, duties, or liabilities of employers and employees under any law with respect to injuries, diseases, or death of employees arising out of, or in the course of, employment” (29 U.S.C. § 653(b)(4).)

(…) The Department submitted a Cal/OSHA plan to the federal Secretary of Labor, and it was approved in May 1973. (29 C.F.R. § 1952.7(a) (2017).) The federal regulation provides: “(a) The California State plan received initial approval on May 1, 1973. (b) [federal] OSHA entered into an operational status agreement with California. (c) The plan covers all private sector employers and employees, with several notable exceptions, as well as State and Local government employers and employees, within the State. For current information on these exceptions and for additional details about the plan, please visit [a federal Department of Labor website].” (29 C.F.R. § 1952.7 (2017).)

(…) Here, there appears to be no dispute, however, that the Cal/OSHA standards, the violation of which was the basis for the district attorney’s UCL and FAL claims, were part of the approved California plan, nor does there appear to be any dispute that use of UCL and FAL claims by local prosecutors pursuing civil actions was not mentioned in the plan’s enforcement provisions. (See, e.g., Cal. Code Regs., tit. 8, § 344.50 [Division of Occupational Safety and Health compliance personnel conduct civil inspections and enforcement actions but lack authority to initiate criminal proceedings].)

“ ‘The supremacy clause of the United States Constitution establishes a constitutional choice-of-law rule, makes federal law paramount, and vests Congress with the power to preempt state law.’ Similarly, federal agencies, acting pursuant to authorization from Congress, can issue regulations that override state requirements. Preemption is foremost a question of congressional intent: did Congress, expressly or implicitly, seek to displace state law?” (Quesada v. Herb Thyme Farms, Inc. (2015) 62 Cal.4th 298, 307-308 (Quesada).)

The United States Supreme Court examined the preemptive effect of the federal OSH Act in Gade, supra, 505 U.S. 88. The high court’s plurality and concurring opinions offer helpful interpretive guidance, but as explained below, in Gade, there was no approved state plan, so the extent to which an approved state plan displaces federal authority was not at issue.

(…) Addressing the separate question whether preemption — still in the absence

of an approved state plan — reached state laws that directly regulated occupational safety and health but also were intended to protect public safety, the plurality concluded that the preemptive effect of the federal law extended to such “dual impact” state laws. (Gade, supra, 505 U.S. at pp. 104-105.)

“In sum, a state law requirement that directly, substantially, and specifically regulates occupational safety and health is an occupational safety and health standard within the meaning of the federal OSH Act. . . . If the State wishes to enact a dual impact law that regulates an occupational safety or health issue for which a federal standard is in effect, . . . the Act requires that the State submit a plan for the approval of the Secretary.” (Gade, supra, 505 U.S. at pp. 107-108).

We acknowledge that the Secretary of Labor has authority to approve modifications to a state’s plan (29 U.S.C. § 667(c)) and “shall . . . make a continuing evaluation of the manner in which each State having a plan . . . is carrying out such plan.” (Id., § 667(f).) Notwithstanding these provisions, the federal OSH Act as a whole does not suggest that the preempted field encompasses all means of enforcement not specifically included in the state’s approved plan.

The UCL concerns unfair competition, a term that “means and includes any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law].” (Bus. & Prof. Code, § 17200.) The purpose of the UCL “is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.) As we have said, “the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices.” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 371.)

The FAL, for its part, makes actionable “untrue or misleading” statements made to “induce the public to enter into any obligation” to purchase goods and services. (Bus. & Prof. Code, § 17500.) Actions to enforce the UCL or FAL, which may be brought by government officials and by individuals who have suffered injury in fact (Bus. & Prof. Code, § 17203), address the “overarching legislative concern . . . to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.” (Zhang, supra, 57 Cal.4th at p. 371.) And the remedies are “cumulative . . . to the remedies or penalties available under all other laws of this state.” (Bus. & Prof. Code, § 17205.)

(…) As noted above, under state law, these actions are not considered on their face to be a means of enforcing the underlying law. “ ‘By proscribing “any unlawful” business practice, “the UCL ‘borrows’ violations of other laws and treats them as unlawful practices” that the UCL makes independently actionable. ’ ” (Rose v. Bank of America, N.A. (2013) 57 Cal.4th 390, 396.) We have explained that “by borrowing requirements from other statutes, the UCL does not serve as a mere enforcement mechanism. It provides its own distinct and limited equitable remedies for unlawful business practices, using other laws only to define what is ‘unlawful.’ The UCL reflects the Legislature’s intent to discourage business practices that confer unfair advantages in the marketplace to the detriment of both consumers and law-abiding competitors.” (Id. at p. 397; see People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 783).

(…) To recall, “Obstacle preemption permits courts to strike state law that stands as ‘an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ It requires proof Congress had particular purposes and objectives in mind, a demonstration that leaving state law in place would compromise those objectives, and reason to discount the possibility the Congress that enacted the legislation was aware of the background tapestry of state law and content to let that law remain as it was.” (Quesada, supra, 62 Cal.4th at p. 312.)

(…) Under the circumstances, there is no “clear and manifest evidence” (Quesada, supra, 62 Cal.4th at p. 315) of a congressional intent to displace state authority over unfair competition and consumer claims that are premised on Cal/OSHA standards (p. 34).

(…) We conclude that the federal act does not preempt unfair competition and consumer protection claims based on workplace safety and health violations when, as in California, there is a state plan approved by the federal Secretary of Labor. The district attorney’s use of UCL and FAL causes of action does not encroach on a field fully occupied by federal law, nor does it stand as an obstacle to the accomplishment of the federal objective of ensuring a nationwide minimum standard of workplace protection. In addition, the federal act’s structure and language do not reflect a clear purpose of Congress to preempt such claims.

(Cal. S.C., Feb. 8, 2018, Solus Industrial Innovations, LLC v. Superior Court, S222314)

Protection de la santé et de la sécurité au travail, principe de préemption en faveur du droit fédéral, sauf pour les questions que ce droit ne règle pas et pour les questions réglées par un plan d'un état muni de l'approbation fédérale. L'exécution de ces plans est évaluée par le Secrétaire fédéral au Travail.

Le droit statutaire formel ou déduit de la Common law et s'appliquant à l'indemnisation des employés en cas d'incapacité, ou s'appliquant aux droits et obligations des employeurs et employés en cas de maladie, d'accident ou de décès professionnels, continue sans restriction de déployer ses effets, en sus des dispositions OSH fédérales.

L'Etat de Californie a soumis un tel plan, approuvé une première fois en mai 1973. Il s'applique à tous les employeurs et employés du secteur privé, sous réserve d'exceptions listées sur le site du Département fédéral du Travail.

En cas de violation des dispositions Cal/OSHA, le Procureur est compétent pour initier des procédures en concurrence déloyale et en publicité mensongère.

Les rapports entre le droit fédéral régissant les questions précitées et le droit des états s'examinent à la lumière de la "Supremacy clause". Savoir si le principe de préemption s'applique où non implique de déterminer l'intention du Congrès.

De manière générale, la préemption empêchera un acte étatique en matière de santé et de sécurité au travail de déployer ses effets si la question qu'il traite est déjà réglée par le droit fédéral. Dans une telle situation, l'état pourra faire approuver son plan, en vue de lever l'obstacle de la péremption.

En particulier, la législation fédérale ne suggère nullement que la préemption engloberait tous les moyens d'exécution mis en œuvre par les états et non inclus dans les plans approuvés. De la sorte, "l'action publique" menée par le Procureur, et basée sur la législation étatique contre la concurrence déloyale et sur les dispositions de Cal/OSHA, n'est pas barrée par le principe de préemption. Les mesures et sanctions permis par ce droit étatique de la concurrence déloyale sont cumulatives aux autres mesures et sanctions prévues ailleurs dans le droit de l'état.

P. v. Rinehart, S222620

Common law: Preemption: Preemption (obstacle preemption): Water law: Mining: Environmental regulations: Trust:

(…) obstacle preemption, the principle that a state may not adopt laws impairing the accomplishment and execution of the full purposes and objectives of Congress. (Hines v. Davidowitz (1941) 312 U.S. 52, 67; accord, Quesada v. Herb Thyme Farms, Inc. (2015) 62 Cal.4th 298, 312.)

In ascertaining whether preemption applies, congressional intent is the touchstone. (Quesada v. Herb Thyme Farms, Inc., supra, 62 Cal.4th at p. 318; see Wyeth v. Levine (2009) 555 U.S. 555, 565.) Obstacle preemption can play an important role in preventing states from creating, inadvertently or otherwise, functional impediments that materially constrain legitimate federal objectives. But it can also lead to the overzealous displacement of state law to a degree never contemplated by Congress. Accordingly, the threshold for establishing obstacle preemption is demanding: It requires proof Congress had particular purposes and objectives in mind, a demonstration that leaving state law in place would compromise those objectives, and reason to discount the possibility the Congress that enacted the legislation was aware of the background tapestry of state law and content to let that law remain as it was. (Quesada, at p. 312.).

The State of California‘s role in protecting the waters and the fish and wildlife within its borders is long-standing, predating even the federal laws upon which Rinehart relies. Under English common law, the sovereign held title to the navigable waters within a land‘s borders in trust for the benefit of the people. (National Audubon Society v. Superior Court (1983) 33 Cal.3d 419, 434.) Under this public trust doctrine, California became trustee of the state‘s waters, with responsibility for their oversight, from the beginning of statehood. (Ibid.) So too regarding the fish in the state‘s streams and lakes: The fish within our waters constitute the most important constituent of that species of property commonly designated as wild game, the general right and ownership of which is in the people of the state, as in England it was in the king; and the right and power to protect and preserve such property for the common use and benefit is one of the recognized prerogatives of the sovereign, coming to us from the common law, and preserved and expressly provided for by the statutes of this and every other state of the Union. (People v. Truckee Lumber Co. (1897) 116 Cal. 397, 399–400; see Stats. 1852, ch. 62, p. 135 [regulating to protect the state‘s salmon]; Geer v. Connecticut (1896) 161 U.S. 519, 528 [tracing the ancient roots of the recognized right of the States to control and regulate the common property in game], overruled on other grounds by Hughes v. Oklahoma (1979) 441 U.S. 322, 326; Cal. Const., art. I, § 25.)

Following the United States Supreme Court‘s lead, we traditionally have applied a strong presumption against preemption in areas where the state has a firmly established regulatory role. (Quesada v. Herb Thyme Farms, Inc., supra, 62 Cal.4th at pp. 312–313; City of Los Angeles v. County of Kern (2014) 59 Cal.4th 618, 631.) Rinehart contends no presumption should arise here because state law is being used to regulate conduct on federal land, where congressional power is plenary. (See U.S. Const., art. IV, § 3, cl. 2.) The People disagree, urging that because the challenged state laws involve subjects traditionally within the state‘s regulatory purview, preemption is disfavored even on federal land. In the circumstances of this case, we need not resolve this dispute, because the conclusion we would reach with or without the presumption is unchanged: Rinehart has not carried his burden of establishing congressional purposes and objectives that require California‘s environmental regulations be displaced.

(Cal. S.C., August 22, 2016, P. v. Rinehart,  S222620).

Préemption du droit fédéral : droit fédéral qui attribue des droits aux chercheurs de ressources naturelles v. droit étatique de l’environnement :

Notion d’ « obstacle preemption » : un état ne peut pas adopter des lois qui empêchent l’accomplissement et l’exécution des buts et des objectifs du Congrès fédéral.

L’intention du Congrès est déterminante pour savoir si la préemption fédérale s’applique dans un cas d’espèce. La notion d’ « obstacle preemption » peut jouer un rôle important en empêchant les états de mettre en place, soit par inadvertance soit autrement, des obstacles fonctionnels qui contraignent matériellement des objectifs fédéraux légitimes. Mais elle peut aussi conduire à une relégation du droit étatique qui n’avait jamais été contemplée par le Congrès. Par conséquent, le seuil permettant de retenir « obstacle preemption » est difficile à atteindre : sont exigées : la preuve que le Congrès avait à l’esprit des buts et des objectifs particuliers, la démonstration que ces objectifs seraient compromis en laissant la législation étatique en place, ainsi que de bonnes raisons de ne pas tenir compte de la possibilité que le Congrès était conscient du contenu du droit étatique et satisfait de le laisser tel quel.

Le rôle de l’état de Californie comme protecteur de ses eaux et de ses ressources naturelles est établi de longue date, il est même antérieur au droit fédéral sur lequel l’intimé base ses prétentions. Sous l’empire de la Common law anglaise, le souverain détenait le titre sur les eaux navigables incluses dans les frontières du pays, ce titre étant détenu sous forme de trust au bénéfice de la population. Selon cette doctrine de trust public, l’état de Californie est devenu le trustee des eaux comprises à l’intérieur des frontières de l’état, comprenant responsabilité pour leur sauvegarde, cela dès la naissance de l’état. Ainsi par exemple les droits et la propriété sur les ressources en poissons des eaux internes de Californie sont détenus en fin d’analyse par les citoyens de l’état, comme ils étaient détenus en Angleterre par le roi. Le droit et le pouvoir de protéger et préserver ce type de propriété pour l’usage et le bénéfice commun constituent l’une des prérogatives reconnues du souverain, en provenance de la Common law, droit expressément reconnu par les lois de l’état et par les lois des autres états de l’Union.

Dans le sillage des décisions de la Cour Suprême fédérale, la Cour Suprême de Californie a traditionnellement appliqué une forte présomption contre la préemption dans des domaines où l’état dispose de compétences fermement établies en matières de réglementations administratives.

En l’espèce, l’intimé n’est pas parvenu à prouver un but et des objectifs du Congrès fédéral qui imposeraient de ne pas tenir compte de la réglementation environnementale de l’état de Californie.