MPAY Inc. v. Erie Custom Computer
970 F.3d 1010
8th Cir.2020Background
- MPAY (formerly MATTPAY) licensed payroll-processing software and entered into a Software Development and License Agreement with OnePoint, which contemplated Phase One (MPAY-led development) and Phase Two (OnePoint assumes development and may hire independent developers).
- The Agreement required MPAY to supply OnePoint with complete source code in Phase Two; source code is alleged trade secret and copyrighted material.
- A Letter Agreement clarified that OnePoint could grant contractors access to the source code but set certain pre-disclosure restrictions; a later Mediated Settlement Agreement (effective Feb 5, 2008) extinguished most obligations arising from the Development Agreement.
- MPAY alleges OnePoint (through manager Kevin Clayton) copied and distributed source code to certain OnePoint members and that some members sublicensed MPAY software to third parties in violation of the Member Control Agreement; MPAY sued for copyright infringement and trade-secret misappropriation and sought a preliminary injunction.
- The district court denied the preliminary injunction, concluding OnePoint was authorized to disclose source code to independent developers; the Eighth Circuit affirmed that ruling as to the source-code claims but vacated and remanded for the district court to address the separate sublicensing claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether OnePoint was authorized to copy/disclose MPAY's source code, defeating copyright and trade-secret claims | MPAY: OnePoint and the disclosed parties were not authorized; copying/disclosure = infringement and misappropriation | Appellees: Agreement authorized Phase Two development and hiring independent developers, which necessarily permits providing source code | Court: Agreement and Letter Agreement show Phase Two authorization to provide source code to independent developers; MPAY not likely to succeed on these claims |
| Whether MPAY is entitled to a presumption of irreparable harm or otherwise showed irreparable harm | MPAY: Prima facie infringement warrants presumption; disclosure causes irreversible harm to goodwill and trade secrets | Appellees: MPAY failed to show prima facie infringement; harms speculative or quantifiable (money damages) | Court: No presumption applies because no prima facie showing; MPAY's evidence of irreparable harm was speculative or compensable, so no irreparable harm shown |
| Balance of equities and public interest for granting injunction against source-code use | MPAY: Injunction needed to prevent further unauthorized use | Appellees: Injunction would significantly harm their businesses that rely on the software; public interest favors enforcing contract rights | Court: Equities and public interest favor defendants; injunction would harm defendants and would interfere with contract rights |
| Whether certain members improperly sublicensed MPAY software in violation of the Member Control Agreement | MPAY: Erie and Payroll World sublicensed to a third party lacking required majority ownership/control, breaching the Agreement | Appellees: (Not resolved on appeal below) | Court: District court did not address this; appellate court vacated in part and remanded for district court to consider the sublicensing claim in the first instance |
Key Cases Cited
- Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109 (8th Cir. 1981) (framework for preliminary injunction factors)
- Home Instead, Inc. v. Florance, 721 F.3d 494 (8th Cir. 2013) (likelihood of success is the most significant preliminary-injunction factor)
- Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7 (2008) (clarified preliminary-injunction standard and undermined automatic irreparable-harm presumption)
- eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (equitable principles required for injunctive relief; affected presumption of irreparable harm)
- Pinkham v. Sara Lee Corp., 983 F.2d 824 (8th Cir. 1992) (elements of copyright-infringement claim)
- Jorgensen v. Epic/Sony Records, 351 F.3d 46 (2d Cir. 2003) (copyright-infringement proof requires ownership and unauthorized copying)
- Babcock & Wilcox Co. v. Areva NP, Inc., 788 S.E.2d 237 (Va. 2016) (no trade-secret misappropriation where acquisition was expressly authorized by contract)