Micro Focus (US), Inc. et al v. Genesys Software Systems, Inc.

Filing 33

Judge Nathaniel M. Gorton: MEMORANDUM & ORDER entered. the motion filed by Micro Focus (US), Inc. and Micro Focus IP Development Limited to dismiss both counts in the counterclaim by Genesys Software Systems, Inc. (Docket No. 31 ) is ALLOWED. (Danieli, Chris)

United States District Court
District of Massachusetts
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Plaintiffs,
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v.
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GENESYS SOFTWARE SYSTEMS, INC., )
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Defendant.
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MICRO FOCUS (US), INC. and
MICRO FOCUS IP DEVELOPMENT
LIMITED,

Civil Action No.
14-14049-NMG

MEMORANDUM & ORDER
GORTON, J.
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.
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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
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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
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of any interested party seeking such declaration.” 28 U.S.C. §
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 issuance of a declaratory
judgment.
MedImmune, 549 U.S. at 127 (internal citations omitted).
Establishing a justiciable controversy requires a contextspecific inquiry based on the totality of the circumstances. Id.
Moreover, the Act confers on the Court “unique and substantial
discretion” in determining whether and when to entertain a
counterclaim for declaratory judgment. See Wilton v. Seven Falls
Co., 515 U.S. 277, 286 (1995).

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B.

Application

Genesys asserts that the counterclaim of non-infringement
presents an actual controversy to support federal jurisdiction.
According to Genesys, if Micro Focus is the author and owner of
the Net Express software as it alleges, then Micro Focus’s
proprietary rights under the EULA must be based upon either the
Copyright Act or the Patent Act.

Genesys therefore contends

that, by alleging a breach of the EULA, Micro Focus is
essentially asserting claims of patent or copyright
infringement.
Genesys relies, in part, on the recent ruling by the United
States Supreme Court in MedImmune, in which the Court held that
a declaratory judgment does not require an actual violation of
the law to present a justiciable controversy. See 549 U.S. at
137.

In that case, a patent licensee sought a declaratory

judgment as to whether a certain patent was invalid or
unenforceable before the licensee had even breached the relevant
licensing agreement. Id.

Because, in this case, Micro Focus has

already alleged that defendant violated the EULA, Genesys
contends that there is a justiciable dispute here.
The holding in MedImmune is, however, inapposite to the
factual circumstances in this case.

In MedImmune, prior to

seeking declaratory relief, the licensee received a letter from
the patent holder stating a “clear threat” to enforce specific
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patent rights if the patentee failed to make royalty payments
under the parties’ license agreement. Id. at 122.

The Court

found that such correspondence demonstrated the parties’
“adverse legal interests” in a justiciable infringement dispute.
See id. at 127, 137; see also Sony Elecs., Inc. v. Guardian
Media Techs., Ltd., 497 F.3d 1271, 1286 (Fed. Cir. 2007) (noting
that the parties’ substantial correspondence, including
“detailed infringement analyses,” supported the existence of an
actual controversy).
In contrast, here Genesys proffers no facts to indicate
that Micro Focus has raised, or even threatened to raise, a
patent or copyright infringement claim with respect to the Net
Express software. See MedImmune, 549 U.S. at 121-22.

Rather,

Genesys concedes that Micro Focus has never asserted patent or
copyright ownership of the software. See Applera Corp. v.
Michigan Diagnostics, LLC, 594 F. Supp. 2d. 150, 160 (D. Mass
2009) (dismissing declaratory judgment claim for lack of a
justiciable controversy where patent holder “did not make any
specific allegations of infringement”); Sandoz Inc. v. Amgen
Inc., 773 F.3d 1274, 1280 (Fed. Cir. 2014) (affirming dismissal
of declaratory judgment action where complaint “sa[id] nothing
about the specific patent claims”).
Genesys therefore fails to establish that any infringement
dispute between the parties is “of sufficient immediacy and
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reality” to warrant a declaratory judgment. See MedImmune, 549
U.S. at 127 (internal citations omitted).

Instead, Micro Focus

maintains that it purposefully “styled the controversy” as a
breach of contract, rather than a copyright claim.

Moreover,

this Court has determined that plaintiffs’ claims for breach of
contract are “qualitatively different from,” and not governed
by, copyright infringement claims. Micro Focus (US), Inc. v.
Genesys Software Sys., Inc., 14-14049-NMG, 2015 WL 1523606, *3
(D. Mass. Apr. 3, 2015) (internal citations omitted).

Thus,

Genesys’s counterclaim is effectively requesting “an opinion
advising what the law would be upon a hypothetical” infringement
claim by Micro Focus. See MedImmune, 589 U.S. at 127 (internal
citations omitted); see also U.S. Liability Ins. Co. v. Selman,
70 F.3d 684, 694 n.9 (1st Cir. 1995) (noting that “courts have
no obligation to answer hypothetical questions”); Applera, 594
F. Supp. 2d. at 160 (dismissing declaratory judgment action that
essentially sought an advisory opinion against a patent holder
who “may never sue” for infringement) (emphasis in original).
The motion to dismiss Genesys’s counterclaim will therefore
be allowed.

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ORDER
For the foregoing reasons, the motion filed by Micro Focus
(US), Inc. and Micro Focus IP Development Limited to dismiss
both counts in the counterclaim by Genesys Software Systems,
Inc. (Docket No. 31) is ALLOWED.
So ordered.
/s/ Nathaniel M. Gorton _____
Nathaniel M. Gorton
United States District Judge

Dated July 21, 2015

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