National Car Rental Sys., Inc. v. Computer Assoc. Int'l, Inc., 991 F.2d 426 (8th Cir. 1993) (full-text).
Factual Background Edit
Computer Associates International, Inc. (CA) entered into an agreement with National Car Rental Systems (National) to process National's data on National's hardware. The agreement provided that National may use the licensed programs "only for the internal operations of Licensee and for the processing of its own data." When National later contracted with an independent computer services vendor, Electronic Data Systems Corporation (EDS), an addendum was added to the original agreement which provided that EDS could also use the licensed programs to process National's data.
CA subsequently determined that National had been using the programs to process the data of third parties, a clear violation of the license agreement. CA threatened to sue National if such use did not stop and National then brought a declaratory judgment action in district court. National admitted in its complaint that it had been using the licensed software in activities relating to third parties but requested a declaration that its use of the programs neither breached the license agreement nor infringed CA's copyright.
CA asserted two counterclaims. First, it claimed that National's use of the programs, either individually or through EDS, for the benefit of third parties, breached the license agreement. Second, it claimed that National infringed its copyright by making an unauthorized copy of the software. National moved for judgment on the pleadings under Rule 12(c), alleging that CA's first counterclaim was preempted under the Copyright Act.
District Court Proceedings Edit
The district court concluded that CA alleged a lease agreement between National and the third parties and this permitted National to use the software in exchange for payment. The district court concluded that this cause of action was "equivalent" to the exclusive copyright right of distribution of copies of the work, and held it was preempted.
Appellate Court Proceedings Edit
On appeal, the court first determined whether CA's first counterclaim, as pled, may reasonably be read only as a claim preempted by the Copyright Act. The court concluded that the district court erred in reading CA's pleadings to allege that National actually distributed a copy of the program to the third parties. Instead, the court found that CA's pleadings must be read to allege that National breached their contract by using the program itself, or through EDS, to process data for the third parties. Further, the court found that the alleged contractual restriction on National's use of the licensed programs constituted an extra element in addition to the copyright rights, making the cause of action qualitatively different from an action for copyright infringement. Thus, CA's cause of action was not equivalent to the exclusive rights under copyright because it had an extra element and therefore the district court erred in finding that the claim was preempted.