Genesys Software Systems, Inc. v. Comerica Bank is a 2013 order of the United States District Court for the Northern District of Texas in a dispute over how a bank used licensed pension benefits software. Genesys Software Systems alleged that Comerica used the program to provide services to third parties for a fee, which the licence did not permit. The court dismissed the breach of contract claim as preempted by the Copyright Act, declined to dismiss a trade secret misappropriation claim, and refused to enter judgment for Comerica on the pleadings.[1]
The order decides motions to dismiss, not the merits. The facts below are the plaintiff’s allegations as the court recounted them.
Background
Genesys executed a Program License Agreement with Manufacturers National Bank of Detroit, the predecessor of Comerica. The licence gave the bank, and so Comerica, a perpetual licence to use a specific program, the “Defined Benefit System”. The parties amended the agreement several times, most recently in 2002.[1]
In 2011 Comerica asked Genesys whether it was contractually permitted to sublicense the program to third parties. Genesys alleged that, as a result, it discovered that Comerica was using the program to provide services to third parties for a fee. It sued for copyright infringement, misappropriation of trade secrets and breach of contract.[1]
Comerica moved to dismiss, arguing that the copyright was not registered and that the state law claims were preempted. Genesys dismissed its first complaint without prejudice, obtained a registration certificate and refiled the same claims.[1]
The dispute
Genesys pleaded that Comerica was permitted to use the program only in accordance with the licence agreement as amended, and that the agreement did not allow Comerica to use it as a “service bureau offering” for third parties or to sublicense it for that purpose.[1]
Comerica argued that Genesys’s state law claims were preempted by the Copyright Act, and that the licence agreement, attached to the complaint, showed that Genesys had granted it the right to use the system. It also asked for costs and a stay under Federal Rule of Civil Procedure 41(d) because of the earlier dismissed complaint.[1]
Decision or outcome
Contract claim preempted
The court applied the Fifth Circuit’s “extra element” test. It did not decide whether the Copyright Act never preempts a contract claim, only whether it preempted this one, and held that it did. Genesys did not sue on any specific promise Comerica had made. It did not say that Comerica failed to pay under the licence or breached a specific obligation. It alleged that Comerica used the software in a way that exceeded the permission given, which the court called “a typical copyright infringement claim”.[1]
The court distinguished two decisions in which the contract expressly prohibited a particular use, because there the claim rested on a promise not to use the software in a certain way. Here Genesys did not point to any provision that prohibited Comerica’s use. The court dismissed the contract claim with prejudice.[1]
Trade secret claim not preempted
Genesys alleged that the program contained trade secrets, that Comerica obtained it through a relationship of trust and that Comerica allowed third parties to use it in a service bureau environment. Following the view of most courts, the court held that where a confidential relationship is alleged, a trade secret claim is not preempted, and declined to dismiss it.[1]
Judgment on the pleadings denied
Comerica pointed to a 1996 amendment under which Genesys granted the right to use a front-end component, GenLink for Windows, “for both internal and service bureau use with the currently licensed” Defined Benefits System, and to the 2002 definition of “System” that included GenLink. The court noted that the definition treated GenLink and the core system as separate things and that the phrase “service bureau use” appeared only in connection with GenLink. It was therefore not apparent from the pleadings that Genesys could not recover, and the court denied the motion.[1]
The court also denied Comerica’s motion for costs and a stay, finding that Genesys acted in good faith when it dismissed and refiled to register its copyright.[1]
Significance for software licensing and SAM practice
The order shows how a licence-scope dispute can be framed as copyright infringement instead of breach of contract when the licensor relies on the absence of permission rather than on a specific prohibition.[1] The Ninth Circuit’s decision in S.O.S., Inc. v. Payday, Inc., which the court cited, states the same rule that a licensee infringes if its use exceeds the scope of its licence.[1]
Points that licence records commonly need to capture, taken from the facts of the case:
- Use for third parties. The alleged breach was using internally licensed software to serve other organisations for a fee.[1]
- Amendment history. A right granted by a 1996 amendment for one module was contested for the core system, and the definitions in a later amendment kept the two apart.[1]
- Successor licensees. The licence was granted to a predecessor bank and carried over to Comerica.[1]
Lessons learned
- A licensee that serves third parties with licensed software may face a copyright claim. The court treated an allegation of use outside the scope of the permission given as a typical copyright infringement claim.[1]
- Pleading only that the licensee exceeded its permission can leave a contract claim open to preemption. The contract claim failed because Genesys pointed to no specific promise that Comerica broke.[1]
- Service bureau and third-party use rights should be recorded per component. The 1996 amendment granted service bureau use for a front-end component, and the court did not read it as extending to the core system.[1]
- Ask the licensor what the licence permits before offering the software as a service to others. According to the order, Comerica’s 2011 question about sublicensing is how Genesys came to allege the third-party use.[1]