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Micro Focus, Inc. v. Genesys Software Systems, Inc.

United States District Court, D. Massachusetts

July 21, 2015

MICRO FOCUS (US), INC. and MICRO FOCUS IP DEVELOPMENT LIMITED, Plaintiffs,
v.
GENESYS SOFTWARE SYSTEMS, INC., Defendant.

MEMORANDUM & ORDER

NATHANIEL M. GORTON, District Judge.

This case arises from an alleged breach of a software license agreement by defendant Genesys Software Systems, Inc. ("Genesys"), a company that develops payroll and human resources management software. Plaintiffs Micro Focus (US), Inc. and Micro Focus IP Development Limited (jointly "Micro Focus") allege that Genesys breached the End User License Agreement ("the EULA") governing the use of Micro Focus's proprietary software program Net Express. Genesys raises a counterclaim for a declaratory judgment that it has not infringed 1) any copyright or 2) any patent owned by Micro Focus.

Pending before the Court is Micro Focus's motion to dismiss that counterclaim. For the reasons that follow, the motion will be allowed.

I. Background and Procedural History

Micro Focus is the author and owner of Net Express, a software program consisting of a collection of "tools" for editing, compiling and debugging computer applications written in the programming language COBOL. Net Express allegedly translates source code written in COBOL into "executable, " stand-alone software applications embedded with Micro Focus software code.

Users of Net Express must accept the terms of the EULA which prohibits third-party use and deployment of the software program. A licensee agrees to use Net Express "solely for its own internal use and benefit, " subject to certain narrow exceptions. The EULA also requires a licensee to purchase support services for all licensed copies of Net Express if such service is purchased for any copy of the program. Licensees cannot pick and choose; it is either support services for all or for none.

Between July, 2000 and March, 2011, Genesys acquired licenses from Micro Focus for the use of Net Express to run its software application "Genesys Payroll." In October, 2014, Micro Focus filed a complaint alleging that, during that period, Genesys had breached the EULA by 1) impermissibly hosting services and permitting third party use of Micro Focus's software (Count I), 2) deploying the software in an unauthorized manner (Count II) and 3) failing to maintain required support services (Count III).

Genesys moved to dismiss the complaint in January, 2015 contending that 1) the claims for breach of contract in Counts I and II of the complaint are preempted by the Copyright Act and 2) plaintiffs failed to state a claim for copyright infringement. In April, 2015, this Court denied that motion to dismiss, concluding that Micro Focus's claims for breach of contract are 1) not preempted because they require an extra element beyond the required elements for stating a copyright infringement claim and 2) sufficiently stated because they allege the existence and breach of Genesys's contractual obligations to Micro Focus.

Genesys subsequently filed a counterclaim in April, 2015, seeking a declaratory judgment of 1) non-infringement of any copyright (Count I) and 2) non-infringement of any patent (Count II) owned by plaintiffs. Micro Focus moved to dismiss the counterclaim in May, 2015 for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.

II. Plaintiffs' Motion to Dismiss the Counterclaim

A. Legal Standard

The Declaratory Judgment Act ("the Act") provides that a federal court may "declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. ยง 2201(a). The Act does not provide an independent basis for federal jurisdiction, but rather is limited to cases of "actual controversy" that are justiciable under Article III of the United States Constitution. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (internal citations omitted). The party seeking a declaratory judgment bears the burden of demonstrating the existence of an actual controversy. See Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed. Cir. 2007), cert. denied, 553 U.S. 1014 (2008).

To satisfy the "actual controversy" requirement, the Court considers whether there is

a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the ...

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