## Facts

- A telecommunications equipment manufacturer sold telephone switches that required proprietary operating software stored on microprocessor cards and licensed to customers under restrictions on use, copying, and transfer.
- A competitor designed expansion cards intended to operate in the manufacturer’s switches and, to achieve compatibility, obtained and used the manufacturer’s software and technical materials.
- The manufacturer alleged the competitor copied firmware and operating system code from the manufacturer’s cards and/or customer systems and improperly accessed protected materials through a customer.
- The manufacturer sued for copyright infringement, trade secret misappropriation, and Texas unfair competition by misappropriation.
- The competitor counterclaimed for monopolization/attempted monopolization under Sherman Act § 2 (asserting an “aftermarket” for switch expansion cards), plus Texas tortious interference and unfair competition.
- A jury found liability and awarded damages to both sides on different claims; the district court entered a net set-off judgment favoring the manufacturer, entered a permanent injunction, and granted judgment as a matter of law (JML) for the manufacturer on the antitrust claim.
- Both parties appealed.

## Issues

1. Whether the competitor presented legally sufficient evidence of a relevant market and anticompetitive conduct to support a Sherman Act § 2 claim premised on an “aftermarket” for expansion cards.
2. Whether the evidence was sufficient to support the jury’s finding of trade secret misappropriation and related relief.
3. Whether the manufacturer’s Texas “unfair competition by misappropriation” claim was preempted by the Copyright Act under 17 U.S.C. § 301.
4. Whether the manufacturer’s licensing/enforcement practices constituted copyright misuse and, if so, what effect misuse had on copyright-based injunctive relief.
5. Whether the evidence supported the competitor’s jury awards for tortious interference with prospective business relations and Texas unfair competition.

## Decision

- Affirmed JML for the manufacturer on the competitor’s Sherman Act § 2 claim; the antitrust verdict for the competitor could not stand.
- Affirmed the jury’s liability finding and damages award for the manufacturer on trade secret misappropriation.
- Affirmed the injunction only to the extent it rested on trade secret grounds.
- Reversed the copyright-based portions of the injunction because the manufacturer misused its copyrights.
- Held the manufacturer’s Texas unfair competition by misappropriation claim was preempted; reversed the denial of JML for the competitor and vacated all damages and equitable relief awarded on that state-law claim.
- Reversed the competitor’s damages awards for tortious interference and unfair competition for insufficient evidence.
- Remanded for recalculation/allocation of damages because the verdict did not itemize amounts by theory, preventing appellate adjustment after vacatur of the preempted claim.

## Legal Principles

- An aftermarket monopolization theory under Sherman Act § 2 requires legally sufficient proof of a properly defined relevant market and anticompetitive effects; where customers make informed, up-front equipment choices with awareness of aftermarket consequences and available alternatives, a distinct locked-in aftermarket may not be shown.
- Trade secret liability may be sustained when evidence supports that a competitor acquired and used confidential technical information or code through improper means or in violation of confidentiality restrictions and license limits.
- A state-law misappropriation/unfair competition claim is preempted by the Copyright Act when it seeks to vindicate rights equivalent to copyright (e.g., copying or exploitation of copyrighted software) without a qualitatively different “extra element.”
- Copyright misuse is a defense that limits enforcement when a copyright holder uses copyright and licensing restrictions to secure control beyond the copyright grant, including attempts to restrain competition in noncopyrighted products (such as hardware); misuse can bar or limit copyright-based injunctive relief.
- State-law tortious interference and unfair competition damages require proof of wrongful conduct and causation of specific lost business opportunities; verdicts lacking evidentiary support must be set aside.

## Conclusion

The Fifth Circuit rejected the competitor’s aftermarket monopolization theory, upheld trade-secret misappropriation liability and related injunctive relief, curtailed copyright-based injunctions due to copyright misuse, held the manufacturer’s Texas misappropriation-based unfair competition claim preempted, reversed the competitor’s state-law counterclaim awards for lack of proof, and remanded for damage reallocation consistent with those rulings.


Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999)