Someone please correct me if I'm wrong, but my understanding is this:
1) Genius does not hold a copyright on any of these lyrics
2) Genius licenses these lyrics, and that license is not an exclusive one.
3) Google does not hold a copyright on these lyrics
4) Google licenses these lyrics, and that license is not an exclusive one.
5) "Watermarking" lyrics is not enough to get a derivative work copyright
As both parties have non-exclusive licenses and neither own the copyright, I really don't see how Genius has any chance of winning this case. As best as I can tell, it would be perfectly legal for Google to purposefully and specifically copy the lyrics from Genius.
Edit: Reading through the filing, they seem to basically be suing them for violating their website's TOS and some 'unfair practices' laws local to California and New York. I am unsure of how legally binding TOS are for websites in general, and whether or not being able to view lyrics without ever viewing the TOS effects things, etc.