## Facts

- Computer Associates International, Inc. (CA) licensed computer software to National Car Rental System, Inc. (National) for use on National’s hardware.
- The license agreement and incorporated order form limited use of the programs to “internal operations” and “processing of [National’s] own data.”
- National outsourced its data processing to Electronic Data Systems Corp. (EDS); an addendum permitted EDS to use CA’s programs to process National’s data.
- CA determined that National (directly or through EDS) used the programs to process data for third-party rental organizations, beyond the license’s scope-of-use limits.
- National filed a declaratory judgment action seeking a ruling that its third-party-related use did not breach the license or infringe copyright.
- CA counterclaimed for (1) breach of contract based on exceeding the contractual use limits and (2) copyright infringement; only the contract counterclaim was at issue on appeal.
- The district court granted National judgment on the pleadings, concluding the contract claim was preempted by the Copyright Act because it was equivalent to the copyright distribution right as the court construed the pleadings.
- CA appealed.

## Issues

1. Whether CA’s state-law breach-of-contract claim, based on National’s alleged use of licensed software to process third-party data in violation of a contractual use restriction, is preempted by 17 U.S.C. § 301 as “equivalent” to rights protected by copyright.

## Decision

- The Eighth Circuit reversed the judgment on the pleadings and remanded.
- The court held the district court misconstrued CA’s pleadings by treating them as alleging distribution of copies to third parties, rather than unauthorized use beyond a contractual scope-of-use limitation.
- Applying § 301’s “extra element” analysis, the court held the negotiated contractual restriction on use supplied an additional element that made the contract claim qualitatively different from a copyright infringement claim.
- Because the contract claim sought to enforce a bargained-for limitation on permissible use (processing only National’s data for internal operations), it was not preempted.

## Legal Principles

- Copyright Act § 301 preempts a state-law claim only if (1) the work falls within the subject matter of copyright and (2) the state-law right asserted is equivalent to one of the exclusive rights in 17 U.S.C. § 106.
- A state-law claim is not preempted when it requires proof of an “extra element” that changes the nature of the action so it is qualitatively different from a copyright infringement claim.
- A breach-of-contract claim based on a negotiated scope-of-use restriction in a software license can supply the requisite extra element because it enforces a voluntary promise defining permissible use, not merely the statutory right to control copying or distribution.
- On a Rule 12(c) motion, courts must accept the nonmovant’s pleaded facts as true and draw reasonable inferences in the nonmovant’s favor; a contract claim should not be recharacterized as a different right (such as distribution) without support in the pleadings.

## Conclusion

The Eighth Circuit held that a software licensor’s breach-of-contract claim enforcing a license’s scope-of-use limitation is not preempted by the Copyright Act where the claim rests on the licensee’s alleged violation of a bargained-for use restriction, rather than on conduct equivalent to the exclusive rights protected by copyright.


National Car Rental Sys., Inc. v. Comput. Assocs. Int'l, Inc., 991 F.2d 426 (8th Cir. 1993)