Beardmore v. Jacobsen

Summary judgment granted on all claims

Judge Harmon granted summary judgment for the defendant on each of the four claims asserted: common-law conversion, the Texas Theft Liability Act, trade-secret misappropriation, and copyright infringement. The opinion addresses, among other things, the tangibility requirement of Texas conversion doctrine, the merger exception recognized in Prewitt v. Branham, the pleading and proof required to establish a trade secret under Texas law, and the interaction between common-law and statutory theories in a mobile-application ownership dispute.

A dispute over ownership of a mobile application

The plaintiffs and the defendant discussed forming a limited liability company to develop and market the “Z.E.A.L. Rewards App” for iPhone. The parties exchanged draft organizational documents, a pitch deck, and technical materials. No LLC was formed and the deal did not close. The plaintiffs later sued in the Southern District of Texas, asserting ownership of the App and claims for conversion, violations of the Texas Theft Liability Act, trade-secret misappropriation, and copyright infringement.

After more than two years of litigation and discovery, the defendant moved for summary judgment on the entire case. The court granted the motion in a corrected opinion issued September 18, 2015.

Texas conversion requires tangible property, subject to a narrow merger exception

The opinion applies the settled Texas rule that conversion ordinarily reaches only tangible property. Texas recognizes a limited exception under Prewitt v. Branham, 643 S.W.2d 122 (Tex. 1982), for intangible rights “merged” with unique documents. Applying that framework to a claim asserting conversion of an iPhone application, the court examined which written materials in the record could plausibly satisfy the merger doctrine.

The court concluded that the pitch deck at issue had been voluntarily transferred by the plaintiff to the defendant, and that the record did not establish that the intangible rights asserted were “merged” with any unique document within the meaning of Prewitt. Summary judgment on the conversion claim followed.

TTLA claims fail without an underlying theft

The Texas Theft Liability Act, Tex. Civ. Prac. & Rem. Code §§ 134.001 – 134.005, creates a private civil cause of action for a person who sustains damages from conduct that constitutes theft under the Texas Penal Code. On the record before the court, the plaintiffs could not establish the predicate conduct required to support liability under the TTLA for the transfers at issue, and summary judgment was granted on that claim as well.

The plaintiff must first identify a trade secret

Applying Texas law — and noting in a footnote that common-law trade-secret misappropriation had been expressly displaced by the Texas Uniform Trade Secrets Act, Tex. Civ. Prac. & Rem. Code § 134A.002 — the court held that the plaintiffs had not identified any protectable trade secret in the materials transferred to the defendant. The court applied the traditional Texas six-factor test for the existence of a trade secret and found the plaintiffs' showing insufficient at summary judgment.

The opinion is a useful reference point for practitioners on the interaction between common-law and statutory trade-secret claims in the years immediately following TUTSA's adoption in Texas.

Conclusory pleading of infringement is insufficient

On the copyright claim, the court held that the plaintiffs' allegation that the defendant “caused the transfer and reproduction of the APP to unknown parties without the knowledge, consent, or permission of Plaintiffs” was conclusory and failed to state a claim of copyright infringement under 17 U.S.C. § 106.

Cited in later decisions on Texas conversion and trade-secret doctrine

Beardmore v. Jacobsen is cited in subsequent federal and state decisions applying Texas conversion doctrine and considering the reach of TUTSA displacement, as well as in decisions addressing related questions in other jurisdictions. Practitioners engaged in trade-secret, TTLA, or conversion-of-intangibles litigation in Texas continue to encounter the opinion in briefing and research on those doctrines.

Where the doctrine matters

The doctrines applied in Beardmore are recurring issues in a range of commercial disputes: departing-employee and customer-list cases; competitor start-ups; disputes among would-be joint venturers over materials exchanged in pre-formation negotiations; and litigation over software, mobile applications, and other information-technology assets. In each of those contexts, the interaction between common-law conversion, the TTLA, and TUTSA can substantially reshape the available theories and remedies.