Intellectual Property
Cases
Visusoft Ltd -v- Harris & Anor
[2009] IEHC 543
JUDGMENT of Mr Justice Roderick Murphy delivered 27th day of November, 2009.
This is a dispute as to the copyright in a computer programme and software developed by the first named defendant (Mr. Harris) prior to, during and subsequent to this 15 month employment with the plaintiff.
The two paramount elements of resolution of this dispute are the Copyright Act and the agreements entered into by Mr. Harris, the first named defendant with the plaintiff.
There is no dispute that a computer programme is defined in s. 2 of the Copyright and Related Rights Act 2000 as a programme which is original in that it is the authors own intellectual creation and includes any design materials used for the preparation of the programme.
Section 32 (2) provides that the copyright in a work is infringed by a person who without the licence of the copyright owner undertakes, or authorises another to undertake, any of the Acts restricted by copyright, that is to say to copy the work or make it available to the public or to adapt the work as provided in subsection (1).
Subsection 3 of that section is particularly relevant. It provides that:
“References to the undertaking of an act restricted by the copyright in a work shall relate to the work as a whole or to any substantial part of the work and to whether the part of the act is taken directly or indirectly.” (Emphasis added.)
It is not disputed that the copyright owner is Visusoft, the plaintiff. The dispute centres around whether there has been an unauthorised copying of a substantial part of the work which was undertaken by the first named defendant while in the employment of the plaintiff.
The second critical element is the set of agreements made between the plaintiff and Mr. Harris on 11th and 18th May 2005 and the letter of termination of 10th March 2006.
There is a distinction between the general trade knowledge of an ex-employee and the specific knowledge in relation to trade secrets or know-how. In Printers and Finishers Ltd. v. Holloway and Others [1964] 3 All E.R. 731, Cross J. was prepared to grant an injunction against a former employee from using written materials of his employers. He was not prepared to extend the jurisdiction of the courts to restrain the ex-employee from putting at the disposal of his new employers his personal skills which necessarily incorporated his memory of particular features of the former employer’s plant. This was followed in the judgment of O’Neill L.J. in Faccenda Chicken Ltd. v. Fowler [1987] Ch. 117 at 135/136.
This is the general principle which is, of course, subject to the property right in written work of an employer which may be the subject of copyright.
It is clear that information, until reduced in writing or other material form cannot be susceptible of copyright protection. To this extent there is no copyright in ideas. Once the information has been expressed as a work, elaboration of the various elements of information may amount to a part of an original work. Copyright will subsist in its original work. (See Rees and Chalton, Database Law, Jordans, 1998 at p. 7 and Laddie, Prescott and Victoria, The Modern Law of Copyright and Designs, 2nd Ed., Butterworths, 1995.)
The question arises as to whether elaboration of information or ideas which is alleged have been borrowed constitutes a substantial part of the copyright work as a whole. The approach adopted by Jacob J. in Ibcos Computers Ltd. v. Barclays Mercantile Highland Finance Ltd. [1994] FSR 275 at 289 is as follows:
“Logically … the claim in copyright calls to be tested in the following order:
(1) What are the work or works in which the plaintiff claims copyright?
(2) Is such work original?
(3) Was there copying from the work?
(4) If there was copying, has a substantial part of that work been reproduced?
The work in which the plaintiff (Mr. Harris) claims copyright is Risc 7 which was developed by Mr. Harris for ARH Software Ltd., the second named defendant, after Mr. Harris terminated his involvement with the plaintiff on 10th March, 2006. The plaintiff (Visusoft) says that a copy of Datapos which was developed by Mr. Harris for Visusoft, was retained by him and marketed as Risc 7.
The next question is whether such work is original. That is in dispute. Visusoft acknowledges and the defendants assert that the work is based on Risc 5, an earlier version of Risc 7, which was developed by Mr. Harris from about 2001. Both parties agree that from the beginning of 2005 Mr. Harris developed the plaintiff’s Datapos system by adapting and developing Risc 5. What is in dispute is the incremental development during the fifteen months Mr. Harris was employed by Visusoft. The originality in that incremental development is governed by the agreements between Mr. Harris and Visusoft.
The Court finds that there was no transfer of the intellectual property in Risc 5 to Visusoft. Accordingly, the issue is only in relation to the fifteen month incremental development.
Visusoft asserted that Catherine McLoughlin, Paul Curran and a third programmer had worked on the development together with Mr. Harris. It was unclear, since neither Mr. McLoughlin nor Mr. Curran gave evidence, as to what contribution was made and when such contribution was made before the termination of Mr. Harris’s contract with Visusoft on 10th March, 2006. Mr. Harris appeared to have worked extensively on Datapos from January 2005 to that date. The others may indeed have worked during the latter part of that period and subsequently but this does not seem to the Court to affect the issue of the originality of Risc 5 or of the development of Risc 7 after 10th March, 2006. What is in issue is the originality of the incremental development of Datapos which, it is agreed, is the property of Visusoft. In that regard the agreements are critical.
The third test propounded by Jacob J. is whether there was copying by Mr. Harris of the development of Risc 5 into Datapos. Almost the entirety of this lengthy hearing was devoted to the technical examination and analysis of the 2007 version of Risc 7 and the 2007 version of Datapos.
Elements of Risc 5 were, understandably, found in Datapos though, as Risc 5 was not examined this was not quantified. References to Risc 6 appear to be a reference to Datapos though, as explained by Mr. Arkins, the then managing director of Visusoft, it was not desirable to use the name Risc given that some dispute still existed as to whether it was owned by Mr. Harris or the company for which he worked at the time.
There was some indication by Mr. O’Duffy, an expert called by Mr. Harris, that he had found elements of Risc 7 in the Datapos programme. There was evidence of varying degrees of copying of Datapos 2006 into Risc 7. While the defendants’ expert Mr. Halpin, Mr. Le Breton and Mr. O’Duffy did not believe this to be substantial, they did find some degree of copying. What was clear was that Risc 7 was not just a copy of Datapos as claimed.
In direct examination Mr. Arkins, the managing director of Visusoft, had maintained that Datapos developed by Mr. Harris was identical to Risc 7 which was later marketed by him. In cross-examination he agreed that there were some differences which corresponded with the evidence of each of the experts. It was a degree of difference that was critical.
Mr. Arkins evidence was that Visusoft had purchased these and existing Risc product from Mr. Harris when it was put to him in cross-examination that software not developed by Mr. Harris with Visusoft was not the property of Visusoft. The Court does not accept that evidence as the written agreements do not refer to any transfer of Mr. Harris’s rights in any existing product. The Courts interpret these agreements contra proferentem and note that Mr. Harris was not legally advised in relation thereto. This issue is of critical importance in the overall assessment of the case.
The Changes to the Software Agreement of 11th May 2005 may have presupposed a previous agreement but no evidence was given as to the terms, date or scope of such agreement. There was no evidence of an oral agreement. It was clear that Mr. Harris’s role as development director did not, at first, encompass the development of his (or of his previous employers risk product) as a Visusoft product.
That agreement between the parties and the evidence and, indeed, the averment of Mr. Arkins was that all software developed by Mr. Harris since 17th May, 2004, including the entire Datapos system, was beneficially owned by Visusoft. This does not, accordingly, include Risc 5. There is no evidence of any agreement by Visusoft to purchase the Risc product. Indeed the acknowledgment that the change of name was to avoid difficulties as to others having a claim seems an admission that Visusoft did not own the rights to Risc 5. However, there was no evidence before the Court that anyone other than Mr. Harris owned Risc 5.
It is further clear that clause 6 of that agreement of 11th May, 2005 referred to software developed since 17th May, 2004 which was to be delivered by 30th June, 2005 and in respect of which Mr. Harris would receive a shareholding in Visusoft. This, implicitly acknowledged that the work already undertaken by Mr. Harris had been substantial.
The letter of 10th March, 2006 from Mr. Arkins to Mr. Harris purported to be in full and final settlement of all Mr. Harris’s claim against Visusoft. This included implicitly any right he had to shares in Visusoft.
Mr. Harris’s letter of 20th March confirming that he had removed all copies of source code and components from his computers and from any other media onto which he may have made copies was followed by a statement that:
“I no longer hold any copies of source code and components whatsoever.”
Mr. Harris confirmed that he was fully aware of his obligations and assured Visusoft that he would honour that obligation.
That should have been the end of the matter. Had Mr. Harris developed Risc 7 from the Risc product extant as of 17th May, 2004 or later when he began full time work with Datapos and had so developed Risc 7 without reference to the Datapos product it is unlikely that Visusoft could have succeeded in proceeding against him.
However in his own admission, Mr. Harris did retain a version of Datapos which he deleted in panic. Moreover it would appear that his files were deleted, either by remote access or by Mr. Harris’s use of SDelete, so there is no evidence as to whether the source code of Datapos was retained.
On the balance of probabilities and on the express evidence, including the evidence of Mr. Harris’s own experts it seems to the Court that Mr. Harris had access to the source code of Datapos. It also seems probable that this source code had developed, through Mr. Harris and others endeavours, beyond the source code of Risc.
It is significant that when Mr. Harris became aware that he retained a version of Datapos he did not disclose that fact to Visusoft and was, accordingly, in breach of his obligation. The deletion by Mr. Harris occurred after litigation had commenced.
While there may have been a possibility of hacking or remote access of his computer as proposed by Mr. McCormack who gave evidence on Mr. Harris’ behalf, the preponderance of the evidence, which, on the balance of probabilities the Court must accept, is that external access was unlikely. Even if this were not so, there is no evidence and only conjecture that access was made by or on behalf of Visusoft.
The Court accepts Mr. Arkins evidence that Visusoft had no interest in removing evidence that would support Visusoft’s case in his view.
Geoffrey Keating, managing director of Input Systems Ltd., business counting systems developer who had previously worked with Mr. Harris, examined Risc 7 and Datapos. Mr. Harris objected to his giving evidence because of their working together previously. Mr. Keating found three elements in Delphi language which he described as graphical user interface, databases and source code, to be similar, and in some cases, identical. The degree of similarity he believed was 90 to 95%. If both had been developed separately there would be no such similarity.
He found that many files had the same name. Mr. Keating’s report referred in detail to barcode functionality and the calculation of marginal price.
Mr. Keating examined the most up-to-date version of Risc 7 (including source code) and compared it with the Datapos software. As a result of his examination he was certain that the software in Risc 7 was, in computer terms, almost identical to the Datapos software. While there were cosmetic changes to the appearance of a screen, given the absolutely identical lines of programming which he found in so many areas of the source code, it was a matter of certainty that one was copied from the other. He believed that Risc 7 was not an updated version of Risc 5 with which he was familiar. The Court, in the light of the other expert evidence cannot accept such a high degree of similarity.
Mr. Keating believed that Mr. Harris’s assertion regarding the deletion or removal of software from his computer by way of external hacking was for a variety of technical reasons not plausible and, in some respects, technically possible. He believed that the claim that 17 months of the work of the defendants had been erased was inconsistent with the dates of file modification and the up-to-date version including changes made up to 27th July, 2008. The Court agrees with this conclusion.
Mr. Colm Murphy, technical director of Espion Ltd., which dealt with information security and forensic analysis prepared a draft report on 23rd September, 2008 and swore two affidavits in respect of his analysis.
The report based on forensic analysis of the alleged hacking incident and a second on the defendants’ computers for any reference to Datapos, found a complete copy of the Datapos software programme and source code and a significant number of other related Datapos files in a directory called “advprog”. This was found on the defendants’ main server computer ARHServer 1. This directory had been deleted in the normal manner on or after 21st March, 2008.
There was no evidence on the hard disc that it had been subject to a hacking incident. Espion had concluded that there was no evidence to support Mr. Harris’s claim that additional accounts had been created and deleted. The secure deletion was most likely performed by someone in physical possession of the computer disc. The computer was running “Windows firewall” and the most recent security batches and updates from Microsoft reducing the possibility of a hacking incident were installed. The computer was configured to disallow remote desktop connection.
Espion examined four additional computers. Two were used by Mr. Harris for software development identified as Robdev 1 and Robdev 3. There were also two laptop computers identified as Dell 1 and IBM Thinkpad. A Datapos directory on Robdev 1 was deleted on 19th August 2008 in a manner consistent with the SDelete tool which had been installed some minutes earlier.
Mr. Murphy’s firm performed a source code valuation of key files of both software programmes of Datapos and Risc 7. His evidence was that source code gives a software programme its uniqueness. He concluded that there was a large number of similarities between the products. They shared a common directory structure. Variable and form names were similar to the TEST.MENU and TEST.MNU files. The source code directories contained 50 out of 300 files with identical names. The file and uFrmVIEWINVOICE.pas could not have been created without access to the Datapos version.
The source code in Risc 7 was created in such a way that it was based largely on that of Datapos and could not have been created independently. If one were to re-write a story without reference to the published book there would be substantial differences. The report could not give any explanation for the significant number of identical lines of source code other than outright plagiarism.
Mr. Harris cross-examined Mr. Murphy on the extent of shared code and the reference to Datapos in Risc 7. Mr. Murphy agreed that there was reference to Risc 6 in Datapos but no reference to Risc 7. Risc 6 was in the source code but was not in the executable code.
When queried on the common use of naming conventions resulting in similarities Mr. Murphy said that did not explain similar codes. Mr. Murphy agreed that many codes were generated by a computer compiler. Mr. Murphy agreed that it is possible to hack into a computer but disagreed that that was so in this case as there was no trace of hacking.
The Court acknowledges the thoroughness of Mr. Murphy’s analysis.
Mr. O’Duffy, giving evidence on behalf of Mr. Harris, found that the shared code was 8% relative to the size of Risc 7. It was not a copy. He believed that Mr. Colm Murphy’s analysis gave no importance or role to the code analysed while Mr. Halpin’s analysis was more holistic. He was not an expert in the approach of Mr. Murphy. The 25 files with common ancestry had little functionality but, while he could not say how significant it would be if they were deleted, he would be concerned if they were absent.
The greatest degree of copying was of the Datapos version of 2006. Mr. Murphy had analysed the 2008 version which had additional programmes which were common. The Court notes that Visusoft had access to Risc 7 in 2008 when Mr. Noel Aherne acquired a copy from BW, a common customer of Mr. Harris and Visusoft but this does not prove that Datapos had copied from Risc 7. However Mr. Duffy was not shown the team coherence report nor had he seen the development work for Risc 7. Mr. Harris had no independent records of different drafts of the programme. The Court observes that this hindered the investigation of all experts in assessing the development of Risc 5 through Risc 7.
He said that neither he nor Mr. Halpin had found it impossible for Datapos to be a copy of Risc 7. This assertion falls short of positive evidence.
The memorandum of Mr. Harris of 24th September, 2004 was significant. It refers to Datapos having been developed over the previous two years, that is at a time when Mr. Harris had not been working for Visusoft. Notwithstanding, Mr. Harris referred to what he had developed as Datapos possibly because he wanted to distinguish it from work he had undertaken for a former employer or, alternatively, because he had already begun to develop Risc 7 for Visusoft or that he had transferred his interest in Risc 5 or Risc 7 to the plaintiff. There is no evidence of that alternative. There is no agreement as to the transfer of either.
The Court finds that Mr. Harris did retain and copy elements of the work he had done for Visusoft.
This leads to a consideration of the fifth test: that of substantiality. The question arises as to whether that work constitutes a substantial part of Datapos as a whole.
Section 32 (3) of the Copyright and Related Rights Act 2000 referred to an act restricted by the copyright in a work as relating to the work as a whole or to any substantial part of the work.
Substantial part is not defined by the Act and is, accordingly, a matter of fact (Ledbroke v. William Hill [1964] 1 W.L.R. 273 per Evershed L.J.) Hadson L.J. observed in that case that:
“Substantiality depends on quality not quantity as is illustrated by the case of Hawkes & Sons (London) v. Paramount Film Services Ltd. [1934] Ch. 593.”
Substance, from the Latin substantia, to stand under would seem to refer to substratum, being, essence, material property. A substantial part is therefore, in a strict sense, an essential part.
The Shorter English Dictionary on Historical Principle (1973 edition, reset with corrections, 1987) gives the first three meanings as:
1. Essential nature, essence
2. Philosophically, a being that subsists by itself: a separate or distinct thing
3. That which underlies phenomena: the permanent substratum of things.
The Court has heard the evidence of the experts which range from that of Mr. Keating that Risc 7 contain 90 – 95% of Datapos to Mr. O’Duffy’s estimate of 8%.
Mr. Murphy and Mr. Halpin coming from different approaches and making different assumptions have concluded that there is a more significant degree of copying.
Pumfrey J. in Cantor Fitzgerald International v. Tradition (U.K.) Ltd. [2000] RPC 95 has reviewed the authorities. He held that generally, a work is a single entity which cannot be divided into parts. It is necessary to look at the substantiality of the skill and labour expended on that which is taken (para. 76). There is no doubt that Mr. Harris did use his skill and labour for a period of some fifteen months in developing Datapos. There are also elements of Datapos in Risc 7 on his own experts’ evidence. Accordingly, the skill and labour expended on that which was taken becomes the property of the plaintiff if it is a substantial part of Risc 7.
While every part of a computer programme might be essential to its performance the Court held in Cantor Fitzgerald that it was simplistic to regard every part, however small, as a “substantial part” of the programme (para. 74-75).
Pumfrey J. said that as far as English law was concerned the correct approach to substantiality was straightforward:
“It is the function of copyright to protect the relevant skill and labour expanded by the author on the work. I say relevant skill and labour because (for example) a purely literary contribution is not relevant skill and labour so far as an artistic copyright is concerned, the latter being concerned purely with visual impressions.”
I have no doubt that the plaintiff is entitled to protect the relevant skill and labour expanded by Mr. Harris on their behalf. However while there is clear evidence of elements of Datapos in Risc 7 I am not satisfied that, given that codes can be generated by computer, that there are common ancestry files, given in particular, the further elaboration by Mr. Harris from March 2006 to the launch of Risc 7 in January 2007, and to the evidence of the customers of the defendants that the elements of Datapos in Risc 7 constitute a substantial part of Risc 7 either in the dictionary meaning or in the case law. The elaboration appears to be more a function of the commonality of Datapos and Risc 5. The substratum of Risc 7 is more Risc than Datapos.
However this does not end the matter. Mr. Harris retained a copy of Datapos and, probably, the source code of Datapos. In Cantor Fitzgerald the loading of the whole of the plaintiff’s source code into the defendant’s computer was in itself an infringement of copyright (para. 10). In the present case Mr. Harris had the copy of Datapos and its source code while working with Visusoft.
Nonetheless, Mr. Harris is clearly in breach of the agreements of 11th and 18th May, 2005 and more appositely, the undertaking given in his letter of 10th March, 2006.
He is, accordingly, in breach of contract. The Court will hear the parties regarding the issue of damages which arise from the breach of agreement.
Koger Inc. & Anor -v- O’Donnell & Ors
[2010] IEHC 350
Judgment by: Feeney J.
Status of Judgment: Approved
Neutral Citation Number: [2010] IEHC 350
THE HIGH COURT
2008 4333 P
BETWEEN
KOGER INC. AND KOGER (DUBLIN) LIMITED
PLAINTIFFS
AND
JAMES O’DONNELL, ROGER WOOLMAN, DAVID GROSS, HWM FINANCIAL SOLUTIONS LIMITED
DEFENDANTS
Judgment of Mr. Justice Feeney delivered on the 8th day of October, 2010.
1. These proceedings were commenced by the two plaintiff companies by plenary summons dated the 28th May, 2008. The proceedings were brought against three individuals, James O’Donnell (also known as Seamus O’Donnell), Roger Woolman and David Gross named as first, second and third named defendants and the fourth named defendant was a company which had been set up by those three persons, namely, HWM Financial Solutions Limited, hereinafter known as HWM. In the proceedings the two plaintiffs claimed that the defendants had been in breach of copyright and breach of confidence. It was claimed that the defendants and each of them had infringed the copyright of the first named plaintiff in a computer software program known as NTAS and the related program known as E*TAS. The plaintiffs claimed that the defendants had infringed the plaintiffs’ copyright and that the plaintiffs were entitled to injunctive relief restraining the defendants from infringing the plaintiffs’ copyright in the plaintiffs’ two software products. There was a claim for damages or, at the plaintiffs’ option, an account of the profits of the defendants and each of them in respect of copyright infringement and the plaintiffs also claimed relief in respect of an allegation of breach of confidence and/or abuse of confidential information and/or trade secrets by the defendants and each of them. There was also a claim for damages for conspiracy, it being alleged that the defendants and each of them had conspired to breach confidence and/or abuse the confidential information of the plaintiffs and each of them. The plaintiffs also claimed aggravated or exemplary damages and damages against the first, second and third named defendants for breach of contract, breach of fiduciary duty and damages for breach of duties of loyalty and fidelity. There was a separate claim against the first named defendant for damages for inducing or procuring breach of contract and against the fourth named defendant for damages for wrongful interference with the economic interests of the plaintiffs or either of them together with a claim of damages for inducing or procuring breach of contract. The plaintiffs also claimed ancillary relief in the form of injunctive and declaratory relief as set out in the statement of claim.
2. The first named plaintiff was incorporated on the 6th April, 1995 in New Jersey, U.S.A. and has its head office at 12, Route 17, North Paramus, New Jersey. The second named plaintiff is the wholly owned subsidiary of the first named plaintiff and was incorporated in this jurisdiction on the 4th day of January, 2002.
3. The first named plaintiff herein after known as “Koger” was jointly founded by George Sipko in 1995. George Sipko remains the managing director of Koger and he is also a director and shareholder of the second named plaintiff Koger (Dublin) Limited herein after called “Koger (Dublin)”. The chief operating officer of Koger is Rastislav Sipko herein after known as “Ras Sipko”. He is also a director of the second named plaintiff.
4. George Sipko jointly founded, together with Paul Piringer the first named plaintiff. Those two persons developed and designed back office software for fund administrators, fund managers and fund advisers. The plaintiffs developed a proprietary software product called NTAS. NTAS was an acronym for New Transfer Agency System. The software product was developed for customers in the fund administration industry. The product was developed throughout 1996 and into 1997 and the product was launched in 1997. Thereafter the software product known as NTAS was continuously updated and revised. George Sipko claims that NTAS was developed using software he had designed in 1994 known as KIT or “Koger Inherited Technology”. George Sipko claimed he had written KIT as an “empty cybernetical system” and that software had allowed Koger to build the information management system that became NTAS. In evidence, a number of witnesses, particularly James O’Donnell, questioned whether KIT ever existed and claimed that, notwithstanding he had worked with NTAS for a number of years, he had no knowledge of what KIT is. George Sipko gave evidence that KIT was still in use in NTAS and contained in the library KIC.pbl. The evidence to the Court was that Koger offer KIT for sale on its website. George Sipko stated that the offer was made in error and that KIT cannot be purchased and is available “in the development of NTAS”. He stated that it is used in approximately 15% of NTAS functions and its algorithms are used over the entire NTAS. KIT was never produced to the Court and it appears that it is some form of framework. The NTAS software product provided back office software for fund administrators, fund managers and fund advisers and in particular the NTAS program provided an information technology system and software program to facilitate the processing, storing and categorisation of business data. The NTAS product was successful and Koger became the industry leader in the provision of back office software for fund administrators, fund managers and fund advisers. NTAS is used in the fund administration industry in a number of countries and had established itself as market leader to the extent that by 2006 it had over 50% market share in the relevant market.
5. In the pleadings the plaintiffs claim that the NTAS product is a work protected by copyright under the Copyright and Related Rights Act 2000 and it is pleaded that NTAS has a number of key features which include the following:
(a) it facilitates the calculation of complex incentive fees;
(b) it does not require a dedicated IT department to run, support or maintain the software;
(c) it has multi-currency and multi-language capabilities; and
(d) it has flexible configurations to allow satisfaction of clients specific requirements.
The plaintiffs also developed another product in or around the year 2002. That product was E*TAS which was an acronym from Electronic Transfer Agency system. That product was a software product which complimented the NTAS product by enabling the ultimate customer to retrieve online information provided by fund administrators. The plaintiffs also claim that the E*TAS product is protected by copyright and is the property of the plaintiffs. The plaintiffs claimed that Koger created its E*TAS system in the twelve month period leading up to its launch in 2005. E*TAS is claimed to be a system which is designed as a three tier web application for investors, fund managers, fund advisers and other related parties promoting on-line communication, reporting and trading. The plaintiffs claim that the E*TAS system is unique due to the fact that it is fully integrated with the back office systems which permits of complete vertical transparency between the back office transfer agency system and the web front end.
6. To assist in the development and promotion of the NTAS product the first named plaintiff opened a Dublin office in 1998. That office was established to develop the market in Europe for NTAS and to service that market and to deal with issues which arose in Europe. Ultimately the first named plaintiff incorporated the second named plaintiff on the 4th January, 2002. The second named plaintiff is a wholly owned subsidiary of the first named plaintiff and the first named plaintiff holds 99% of the shares in the second named plaintiff, the remaining 1% being owned by George Sipko, the co-founder and managing director of the first named plaintiff.
7. During the process of developing NTAS in the period from the end of 1995 to June of 1997, one of the first clients of the first named plaintiff was Swiss Bank and Trust (Cayman Islands) Limited (now UBS (Cayman Islands) Limited) herein after called “Swiss Bank”. In the period covering the years 1995 into 1998 the first named defendant, James O’Donnell, worked for Swiss Bank in the Cayman Islands and was directly involved with the first named plaintiff. James O’Donnell when working for Swiss Bank was directly involved in the procurement and testing of the NTAS system for his employer. In June of 1997 Swiss Bank procured, by agreement, the use of the NTAS system and became the first named plaintiff’s then largest client. During that period James O’Donnell came into contact and worked with the two co-founders of Koger, George Sipko and Paul Piringer. At that stage Paul Piringer was a director of Koger and joint owner with George Sipko of that company. In 1999 Paul Piringer sold his 50% interest in the first named plaintiff to George Sipko.
8. James O’Donnell left his employment with Swiss Bank in Cayman Islands in 1998 and returned to Europe. By that stage Koger had opened an office in Dublin and James O’Donnell was engaged by Koger to act as a consultant. It was envisaged that James O’Donnell would endeavour to grow the Koger business in Europe and would identify the type of design features that clients would seek to have incorporated in the NTAS system and would provide support and service to customers in Europe and other locations. From 1998 up until the incorporation of the second named plaintiff, James O’Donnell worked as a consultant for Koger. Shortly after the incorporation of Koger (Dublin) at the start of 2002, James O’Donnell became an employee of Koger (Dublin). I will later deal in this judgment with the employment contracts of the first two named plaintiffs. James O’Donnell remained employed by Koger (Dublin) up until the 30th April, 2006 and was, in effect, during the years of his employment the senior person employed by the company and was responsible for the running of the Dublin office. I will deal with the circumstances and evidence relating to James O’Donnell’s departure from Koger (Dublin) later in this judgment.
9. Roger Woolman, the second named defendant, had worked with James O’Donnell at Swiss Bank in the Cayman Islands. David Gross, the third named plaintiff, also worked in the Cayman Islands at that time but for a different bank. All three plaintiffs knew one and other. The first named plaintiff, James O’Donnell, is a chartered accountant as were the second and third named defendants. As the business of Koger grew the amount of work required to be done out of the Ireland office increased. In 1999 Roger Woolman had returned from the Cayman Islands and was approached by James O’Donnell to work as a consultant for Koger. Roger Woolman initially refused the offer to work as a consultant for Koger and commenced his own business as a professional photographer in 2000. To supplement his income from photography Roger Woolman provided services for Koger as and from February 2001. Those services were provided on a self-employed basis and Roger Woolman carried out part-time accountancy work for Koger. Roger Woolman’s point of contact within Koger was James O’Donnell and Roger Woolman gave evidence that the principal task that he carried out during his consultancy was to help the plaintiffs’ clients reconcile incentive fee calculations back to the NTAS product and to produce reports. At the time that the second named plaintiff was established in 2002, Roger Woolman was working as a part-time consultant providing accountancy work for Koger. The evidence was that the incorporation of the second named plaintiff Koger (Dublin) would be facilitated if there was an Irish resident director and Roger Woolman volunteered to become a director of that company. His evidence was that he volunteered on a temporary basis envisaging that he would be a director from January 2002 to the end of the year. At the start of 2003 James O’Donnell became a director and Roger Woolman resigned. After his resignation Roger Woolman continued to provide services for Koger (Dublin) until the middle of 2003. At that time there was a gap in Roger Woolman working for the company as he had moved from Dublin to Waterford. In the middle of 2004 Roger Woolman re-commenced providing consultancy services and continued to do so for Koger (Dublin) up until September 2006. The evidence was that Roger Woolman ceased to provide services on the 13th September, 2006 and offered his notice to the second named plaintiff which was declined. In the days following that refusal Roger Woolman handed over the company laptop that he used to the second named plaintiff.
10. The third named plaintiff moved to Ireland in 2000. By that stage Koger had expanded its business and had entered into contracts for the supply of its software to a number of significant companies operating in offshore funds. That business or industry was experiencing growth at that time. After he came to Ireland, David Gross was approached by James O’Donnell with a view to David Gross working for Koger due to his experience of offshore accounting and fund administration. That was at a time when plans were evolving for a full-time Irish base with an Irish company. David Gross joined the first named plaintiff in April 2001 working as a senior analyst and remained an employee until November 2004. His employment transferred from the first named plaintiff to the second named plaintiff after its incorporation. That transfer took place in November 2002. David Gross’ evidence was that in late 2003 he was contacted by the head of Deutsche Bank’s fund administration business who was setting up a new consultancy business and was looking for an experienced consultant. David Gross decided to avail of the opportunity and joined Carne Global Financial Services in March 2004. The plaintiffs suggest that David Gross remained working as a senior analyst up until November 2004 but that dispute is of no real relevance as it is undisputed that by the end of 2004 David Gross had ceased to work for either of the plaintiffs.
11. The Dublin office performed the role of expanding business and cultivating clients and providing services to such clients. The Dublin office not only sought new contracts but also developed and tested the functionality of the systems provided by the plaintiffs and offered support to the clients and facilitated them in having their requirements fulfilled. The Dublin office acted as the channel through which clients identified their business requirements and indicated additional or extra features that were required by them from the NTAS software system. Clients would indicate to the Dublin office their requirements and also any technical faults or glitches that had occurred. Having identified those matters, the Dublin office would then communicate such information to the plaintiffs’ Slovakian office which had been set up in 2001.
12. Both George Sipko and Paul Piringer were born and brought up in Slovakia and after NTAS had been developed they began to use technically expert persons in Slovakia to assist with technical and programming work. Marian Klco is an expert computer programmer with a detailed knowledge and experience of how to create, develop, refine and correct software code such as NTAS. Marian Klco came to Koger in New Jersey in September 1998. Marian Klco’s evidence is that when he worked for Koger from September 1999 to March 2006, he was the driving force behind the redesign of the NTAS code. He also claims that during that period a significant amount of the features in the NTAS code were developed by him working for Koger. In 1999 Marian Klco returned to Slovakia and resigned from Koger. There is a dispute in evidence as to what occurred at the time. Even though Marian Klco offered his resignation it is clear that he continued to work as a consultant for Koger after returning to Slovakia in 1999. Thereafter he continued to work on the development and adaptation of the NTAS code. From 2001 Koger operated an office in Kosice in Slovakia and employed a number of programmers in that office. After the departure of Paul Piringer, George Sipko directed and controlled Koger and he used his connections with Slovakia to identify experts who could provide technical services for the first named plaintiff. After the establishment of the separate Dublin office Koger operated on the basis that the Dublin office identified the requirements and support needed by the clients and provided the specifications which the clients required which then could be prepared by developers working for Koger. The developers in Kosice received those specifications and requests from the Dublin office but were under the direction of George Sipko who was in the USA. This led to a certain tension between Dublin and New Jersey as the Dublin office were dealing directly with the clients and identifying the modifications and specifications needed by the clients whilst the New Jersey office directed and controlled the developers in Kosice. The business model was identified in the evidence of David Gross where he stated that during the period after the Dublin office had been set up that it was for the business analysts in Dublin to specify the requirements to the developers in Slovakia. Those developers would then produce new scripts and PowerBuilder objects which ultimately would be sent to New Jersey where George Sipko would include them in a PowerBuilder library ‘GTEST’. After those new scripts and PowerBuilder objects had been tested they would be included in the relevant application library. The evidence established that the input in relation to the design and development process came though Dublin and the actual development work was carried out in Slovakia. The developers in Slovakia were under the direction of George Sipko and this created a situation as identified by Marian Klco, who was an independent contractor, that problems arose as the requests and specifications were coming from the Dublin office but the developers were under the direction of George Sipko. That resulted in a situation where George Sipko who had little or no input into the design or the development process would often direct how the developers carried out their work or whether or not such items should be included in the PowerBuilder library ‘GTEST’.
13. One of the senior personnel in the Kosice office was Jana Potocnakova. She commenced working for Koger in August 2001. She described in her evidence how the business operated. By the time she arrived in August 2001 NTAS was already in existence and a number of clients were using the NTAS software product. The persons in Kosice worked on enhancements and new functionalities. These were identified and requested by the clients and the specifications for new functionality came to Kosice from the Dublin office. She identified that the specifications which came to Slovakia from the Dublin office were always clear and after they had carried out the necessary work to comply with the specifications it was sent to George Sipko in New Jersey where he would direct how the proposed enhancements and/or additional functionalities were to be implemented. Jana Potocnakova in her evidence identified that George Sipko’s directions were usually technical changes and that they sometimes made no sense and that his requests were erratic and in her view counter-productive. One of the unusual features in the manner in which the plaintiffs operated was that George Sipko communicated with the Slovakian office by means of what he described as “his daily notes”. These daily notes were publicly available to all the employees and any personal comments made to or about a particular employee were seen by all. Given the contents of George Sipko’s daily notes and the personal and offensive nature of some of the contents, this process had a serious effect on the morale and working environment in Slovakia.
14. Some of the other features of George Sipko’s style of management will be dealt with later in this judgment and there will be a more detailed account of some of the contents of the daily notes.
15. Marian Klco continued to work as an independent contractor providing programming services to the plaintiffs until the 2nd March, 2006 which was the expiration date of his month’s notice. Marian Klco’s evidence was that at that time his wife had got an offer of a part-time job which was better paid than his full-time job and that from March 2006 he decided to take paternity leave for a number of months. In 2005 Jana Potocnakova was the person who was responsible in the Kosice office for co-ordinating NTAS programming work among the software developers. She gave evidence of occasions when George Sipko endeavoured to browbeat and bully her by asserting that she could be fired at any moment and that her contract could be terminated immediately. She gave evidence that the situation had become so intimidating that by October of 2005 she had decided to leave her employment with Koger and that she started to look for a new job. In the last months of 2005 she had a number of interviews and contacted recruitment agencies. She obtained a position in Siemens Plc in Kosice in Slovakia and sent an e-mail to George Sipko on the 9th February, 2006 indicating her resignation as and from the end of February and stating that she would stay until the end of the month and that she would be joining Siemens on the 1st March, 2006. On the following day George Sipko directed her to depart immediately. She commenced work with Siemens on the 1st March, 2006 and worked with them until she resigned in September 2006.
16. The first three defendants together with Marian Klco and Jana Potocnakova and other former employees of the plaintiffs were involved in the creation and establishment of the fourth named defendant, HWM. The plaintiffs have sued the defendants for breach of copyright and breach of confidence in relation to the transfer agency system developed and evolved by the defendants known as ManTra. The plaintiffs claim that they have expended considerable time, money and mental labour in developing their NTAS software over a number of years and that it has become a highly successful commercial product. Over and above the claim for breach of copyright and breach of confidence, the plaintiffs claim that the personal defendants are all former employees or consultants of the plaintiffs and that they left the plaintiffs at various dates during the course of 2006 and, within a remarkably short space of time released onto the market a software program known as ManTra which is a rival product to NTAS. In the outline submissions at the commencement of the hearing the plaintiffs stated:
“It is the plaintiffs’ case, in short, that the defendants did so (i.e. develop and release the rival ManTra product) as a result of breach of confidence and infringement of the copyright held by the plaintiffs in the NTAS program, in particular, in its source code and design materials”.
As stated in the plaintiffs’ outline closing written submissions, the plaintiffs’ claim is:
“At its heart a simple case. The plaintiffs built up a very successful and financially rewarding business over many years based on their NTAS transfer agency software. The plaintiffs expended considerable time, money and mental labour in developing their NTAS software over a long number of years. It is a very successful commercial product with a leading share of the market. The personal defendants are former senior employees or consultants of the plaintiffs. They left the plaintiffs at various dates during the course of 2006 and, within an unfeasibly short space of time, released onto the market their rival agency transfer system ManTra (though the fourth named defendant company ‘HWM’). …. It is the plaintiffs’ case that the defendants set about systematically ‘taking out’ the plaintiffs’ key developer and business analyst personnel with a view to hijacking the plaintiffs’ business and seeking to have ManTra replace NTAS as the leading software solution for transfer agencies in the fund administration market.”
It is the plaintiffs’ unambiguous case that from October 2005 or at the latest from December 2005 that the first three named defendants and other former employees and consultants of the plaintiffs conspired together to set up a rival and competing company and to use unlawful means including breach of contract, breach of confidence and breach of their duties to the plaintiffs to facilitate the establishment and development of a competing product. The plaintiffs claim that the defendants acted in a covert manner and put in place a business plan which was already devised and in place from no later than December 2005 and that all steps taken by the three defendants and their associates thereafter were taken with a view to furthering such conspiracy. The plaintiffs further claim that the narrative account given by the defendants and their associates of their post-December 2005 actions in their statements and oral evidence amounts to false and untruthful evidence and that each of the first three defendants and a number of other witnesses conspired to mislead the Court by giving false evidence. That claim is made over and above the claim for breach of copyright.
17. A key issue for the Court to address is the question of whether or not the three personal defendants and their associates were truthful in their evidence. Counsel for the plaintiffs recognised that it was central to the determination of this case as to whether or not the Court found the evidence of the first three defendants and their associates to be truthful or not. The credibility of those witnesses is central in deciding the plaintiffs’ claim.
18. The Court has had the benefit of seeing and hearing each of the three personal defendants and also the evidence of the witnesses who assisted those three persons in the establishment of HWM and in developing the ManTra product and the source code contained within ManTra. Having had that opportunity and having considered the technical evidence adduced by parties, the Court is satisfied that each of the three named personal defendants and their associates, in particular Marian Klco and Jana Potocnakova, are truthful and reliable witnesses. The Court is satisfied that the accounts that each of those witnesses gave in relation to their actions concerning the development of ManTra was coherent, accurate and credible. Each account given by those witnesses as to the manner and mode of the development of ManTra and the establishment of HWM was not only credible but also was cogent and consistent. The evidence of those witnesses stands in sharp contrast with the evidence of George Sipko and Ras Sipko. Both those witnesses demonstrated a willingness to provide misleading and unreliable evidence. They were evasive and unreliable in their evidence. Where there is a conflict in evidence between the first three named defendants, Marian Klco and Jana Potocnakova’s evidence on the one part and the evidence of George Sipko and Ras Sipko on the other part, the Court favours the accounts given by and on behalf of the defendants. I will return to this matter later in this judgment.
19. The plenary summons was issued on the 28th May, 2008 and the statement of claim was delivered on the 25th June, 2008. The central claim which the plaintiffs made was that the defendants had committed a breach of copyright and a breach of confidence in the plaintiffs’ software programs NTAS and E*TAS. That plea was set out at paragraph 21 of the statement of claim which claimed that the defendants had used copyright material of the plaintiffs in the development and design of the fourth named defendant’s ManTra product. Particulars were set out of 51 examples of the similarities in functionality between the plaintiffs’ NTAS and E*TAS products and the fourth named defendant’s ManTra product. Particulars were raised arising out of the statement of claim in a notice of particulars dated the 7th July, 2008 and that was replied to on the 15th July, 2008. At paragraph 15 of the notice the defendants sought particulars of the alleged infringement of copyright including particulars of the copyright material which it was alleged that the defendants had used. That request for particulars was responded to in paragraph 15 of the replies which stated that “the particulars requested are matters which are within the defendants’ knowledge and matters in respect of which the plaintiffs will provide further particulars on completion of discovery and/or interrogatories”. The plaintiffs went on to state:
“Without prejudice to the foregoing, the plaintiffs’ plea that the defendants have infringed the copyright in the E*TAS and NTAS products by copying and/or making available and/or adapting the said works contrary to s. 37 of the 2002 Act and, in relation to the database rights, by extracting and re-utilising a substantial part of the contents of the said databases contrary to s. 324 of the 2000 Act.”
On the 29th July, 2008 the defendants put in their defence denying all claims made by the plaintiffs including an express denial that there had been any use of confidential information or copyright material and in paragraph 16 of the defence it was pleaded as follows:
“(a) It is not disputed that the fourth defendant has launched a product, ManTra, which competes with NTAS and E*TAS, however it is denied that the NTAS and E*TAS products are the only rivals to ManTra, there being a range of other products competing with NTAS or E*TAS in part or whole in the market, and it is further denied that ManTra possesses all the features of NTAS or E*TAS (and vice versa) so as to be completely substitutable products;
(b) It is denied that the ManTra product was launched in November 2006 and it is pleaded that the true position in respect of the development of this product is as follows:-
(i) after the first defendant served the period of his notice and left the business of the second plaintiff on 30th April, 2006 the first defendant in the course of September and October 2006 engaged software programmers to carry out the development of the product, on behalf of the fourth defendant, which subsequently was named ManTra and such development commenced in October 2006;
(ii) the product was independently developed without improper recourse to any other products in the relevant industry;
(iii) the first commercial release of the object code for the ManTra product was in the course of April 2007 for use in local or wide area office networks only;
(iv) the second commercial release of an enhanced version of the object code of ManTra was released in October 2007, which release was the first to include the internet browser version of ManTra.”
By that paragraph in their defence the defendants set out what was to remain the core element of their defence. It was admitted that the fourth named defendant’s product was in competition with the plaintiffs’ products but it was contended on behalf of the defendants that their product was independently developed without improper recourse to any other products in the relevant industry.
20. On the 28th July, 2008 the Court directed the parties to exchange correspondence in relation to an expert analysis of the plaintiffs’ and the fourth named defendant’s software. On the 16th June, 2008, an order was made admitting the proceedings to the Commercial List pursuant to Order 63A, rule 4(2) of the Rules of the Superior Courts 1986 as amended. The order of the 28th July, 2008 has not been perfected but there is no issue but that there was a direction to the parties to exchange correspondence in relation to an expert analysis of the products and that is what occurred. Following the delivery of the defence the defendants raised a further notice of particulars dated the 5th September, 2008 and that was replied to on the 22nd September, 2008. In the meantime on the 8th September, 2008 the plaintiffs had delivered a reply to the defendants’ defence and in paragraph 7 of that reply there was a response to the plea raised by the defendants in relation to the development of the ManTra product which was set out at paragraph 16 of the defence. The plea in the defence was expressly denied. On the 3rd October, 2008 the plaintiffs’ solicitors raised a notice for particulars and that was replied to on the 10th November, 2008. The plaintiffs sought in paragraph 7 of that notice full particulars arising out of paragraph 16(b) of the defence. In paragraph 7 of the reply the defendants’ solicitors contended that such particulars were not appropriate and were a matter of evidence and could be dealt with at the trial of the action. The plaintiffs’ solicitors sought further particulars relating to the plea at paragraph 16(b) of the defence by notice dated the 18th December, 2008 and that was replied to on the 17th April, 2009 and the reply stated, inter alia,:
“For the sake of clarity, paragraph 16(b)(i) of the defence states that ‘after the first defendant served the period of his notice and left the business of the second plaintiff on 30th April, 2006 the first defendant in the course of September and October 2006 engaged software programmers to carry out the development of the product, on behalf of the fourth defendant, which subsequently was named ManTra and such development commenced in October 2006’. Paragraphs 19(j) of the defence states the Slovakian individuals named in paragraph 23 of the statement of claim were not employees of the fourth defendant and, rather, were ‘contractors providing consultancy services to a Slovakian company that supplies programming and other services to various non-parties and to the fourth defendant’. The latter paragraph 19(j) clarifies the position in relation to individuals which the plaintiffs claim, at paragraph 23 of the statement of claim, were employees or contractors of the second named plaintiff and which it is alleged the first named defendant ‘set about soliciting … to join the fourth named defendant’.
ManTra was developed by the fourth defendant, with additional programming services provided by that Slovakian contractor company. The Slovakian company engaged to provide additional contracted software programming services is KONTAKT, s.r.o. The identity of individual employees of the fourth defendant and the nature of their employment is not a matter for particulars.”
21. Following the order of the Court made on the 28th July, 2008 correspondence was exchanged between the parties and the parties’ experts met on the 6th January, 2009. Christopher Dickson and Darran Thomas attended the meeting on behalf of the defendants and Harry Goddard and Michael Turner attended on behalf of the plaintiffs. Following that meeting correspondence was exchanged between the solicitors which related to the extent of the documents to be disclosed and the terms of reference for an expert review by the experts for both parties. The terms of reference were agreed and incorporated in a confidentiality agreement signed by the parties and the experts. Attached to that confidentiality agreement were the terms of reference for the experts’ review which set out three questions to be addressed by the experts and also set out on a further page the material which the experts should have access to for the purpose of the expert review. Those terms of reference and the details concerning the material to which the experts were to have access were agreed following the experts’ meeting and the subsequent correspondence between the solicitors. Both parties proceeded on the basis that the terms of reference for the experts’ review were as agreed and as set out in the appendix to the confidentiality agreement signed by all relevant persons.
22. The terms of reference for the expert review set out three questions to be addressed by the experts. Those three questions were, namely:
“1. Does the defendants’ ManTra product contain source code that appears to be copied from the plaintiffs’ NTAS product and, if so, are these copied elements substantial in nature?
2. Do the change history records This is agreed to change history records for ManTra from October 2006 to October 2007 insofar as they exist. (including the speed and manner in which such changes were implemented by reference to the programming techniques employed and number of programmers engaged) support a conclusion that the defendants’ ManTra product was substantially copied from the defendants’ NTAS product?
3. Does the defendants’ ManTra product copy in a substantial way any functional elements and/or look and feel specific to the plaintiffs’ NTAS product that are capable of protection under the Copyright and Related Rights Act, 2000?”
Question 1 expressly required the experts to address whether the defendants’ ManTra product contained source code that appeared to be copied from the plaintiffs’ NTAS product and question 2 also required the experts to address whether or not a conclusion could be arrived at that the defendants’ ManTra product was substantially copied from the defendants’ NTAS product. As part of the process leading to that agreement the parties had made a pre-investigation presentation of their products to the experts on the 30th January, 2009, which presentation was attended by a representative from both of the solicitors’ firms. The experts for each side then prepared their reports which were exchanged over the following months. On the 20th April, 2009 the Court had made an order that the parties exchange expert reports on the 1st May, 2009, that date having been agreed between the parties. After the exchange of expert reports the defendants’ solicitors delivered an additional report from Darran Thomas dated the 15th May, 2009 which sought to reply or respond to the preliminary reports of the plaintiffs’ experts, Harry Goddard and Michael Turner. On the 28th May, 2009 at a directions hearing before the Court the parties agreed and the Court directed that the experts for the parties should meet and reduce to writing areas of agreement and areas in dispute. Following that order, the experts met on the 12th June, 2009 and a joint memorandum of that meeting of the same date was prepared and signed by each of the four experts who attended the meeting. A few days before the joint meeting and the preparation of the joint memorandum, the plaintiffs had provided up-dated particulars of the plaintiffs’ claim. The document is undated but it was served on the 8th June, 2009. In the second part of paragraph 1, it was stated:
“The plaintiffs’ solicitors have written to the defendants’ solicitors today confirming that, subject to certain qualifications, the plaintiffs do not intend to pursue their claim in respect of E*TAS.”
In fact, no claim was pursued in respect of E*TAS and that was acknowledged by counsel on behalf of the plaintiffs during the opening of the case. No explanation or reason for the abandonment of that claim was identified and it is clear that as and from the date of the updated particulars that the plaintiffs’ only complaints related to the defendants’ alleged misuse of the NTAS design, source code and data base. It was stated in paragraph 4 of those particulars that in developing NTAS the plaintiffs “also used free licensed code which is available in the public domain”. The particulars went on to state that in many instances that public domain code was customised by the plaintiffs for use within NTAS and that such customised code is also proprietary to the plaintiffs. In paragraph 6 the particulars identified the fact that the plaintiffs’ experts “have identified specific instances of literal source code copying of the NTAS product in the ManTra product” and further stated “that while some of the source code which was literally copied might originally have been in the public domain, it was not accepted that the defendants in fact sourced this code in the public domain”. It was also pleaded in paragraph 6(e) that there was evidence that the defendants took steps to conceal the fact that they copied and used in an unauthorised manner the plaintiffs’ NTAS product in developing their ManTra product. In paragraph 8 the plaintiffs claimed that it was their experts’ opinion that the apparent pace of development of ManTra was quite extraordinary and is inconsistent with starting the product development from scratch without the benefit of access to the plaintiffs’ proprietary source code and data based structure. Paragraph 8 of the particulars went on to state:
“The plaintiffs’ experts are presently of the view that it is not credible that the defendants’ product was produced in the timescale alleged without the benefit of unauthorised access to the plaintiffs’ proprietary source code and database structure.”
The plaintiffs continued to claim that there was literal copying of the NTAS source code within ManTra. This is apparent from the précis of evidence of the plaintiffs’ expert, Harry Goddard, dated the 15th September, 2009 where he stated at paragraph 12 his conclusion in response to the three questions, addressed to the experts as set out in the terms of reference for the experts’ review. They were as follows:
“(a) Based on the review that I have undertaken, I am of the opinion that the defendants’ ManTra product contains source code from the plaintiffs’ NTAS product. There is also evidence to suggest that HMW had access to the NTAS database structure and source code during the development of ManTra. The copied elements are substantial in that there are code fragments that are specific to NTAS in ManTra, even if these code fragments are few in number. Further there is evidence of the systematic migration of the NTAS database structure to the ManTra database structure that is difficult to ignore.”
That statement made by Harry Goddard was confirmed by him in his direct evidence where he adopted the contents of his précis of evidence as his evidence in chief. Michael Turner also gave evidence in relation to his conclusions concerning question 1 of the questions to be addressed to the experts. He did so at paragraph 10 of his précis of evidence where he stated as follows:
“The defendants’ ManTra product contains literal source code similarities that are so distinctive that they are consistent with copying, either from NTAS or from a common third party. In the circumstances of the case it appears likely that they have been copied from the plaintiffs’ NTAS product. There is evidence that the defendants’ ManTra development team had access to NTAS during the design and development of ManTra. There are relatively few literal source code similarities, but their nature is compelling. The pattern of evidence in this case is consistent with wholesale copying, at least of the NTAS database structure, if not all NTAS. In reality I believe it is easier to copy the development documentation of an entire software solution than to copy specific parts. On that basis, I believe that the copied elements are substantial.”
23. In the outline submissions made on behalf of the plaintiffs made at the start of the case and as set out in writing in a document dated the 30th September, 2009, the plaintiffs continued to contend that the defendants’ ManTra product contained source code that was copied from the plaintiffs’ NTAS product and that the copied elements were substantial. At paragraphs 26 and 27 of the written outline submissions the plaintiffs reiterated Harry Goddard’s expert view that the copied elements were substantial and that there was evidence of a systematic migration of the NTAS database structure to the ManTra database structure that was difficult to ignore and also relied on their other expert, Michael Turner, and his conclusion that the pattern of evidence in this case is consistent with wholesale copying, at least of the NTAS database structure, if not all of NTAS. Even though the claim in literal copying remained as of the opening of this case there was a different emphasis in the case as put forward in the plaintiffs’ submission. In paragraph 19 of the submissions, the plaintiffs contended:
“The facts of this case are a paradigm example of abuse of confidence/copyright infringement in relation to commercial secrets in a software business. It is the plaintiffs’ case, in short, that the defendants developed the ManTra software by ‘reverse engineering’ the plaintiffs’ NTAS software. It is the plaintiffs’ case that the defendants have sought to ‘springboard’ into a very specialised market, service by technically complex software solutions, through the unauthorised copying and reliance upon the plaintiffs’ software.”
24. As the plaintiffs’ case was presented to the Court it became apparent that the plaintiffs no longer sought to rely on a claim based upon literal copying notwithstanding having claimed that such copying was substantial.
25. On day 22 at the commencement of his cross-examination, Harry Goddard was asked about question 1 in the terms of reference for the experts’ review. He was referred to his first report and to the statement he had made therein in relation to literal copying. In response, Harry Goddard stated: (Transcript 22 – answer to question 143).
“… I didn’t approach this exercise on the basis of literal copying. I never really held the view that there was a literal copying issue at the heart of this case. I did identify source code, some of which I suggested was also in the public domain. Some which I didn’t identify as being in the public domain but on that being presented to me, I would agree is also available in the public domain. And some which I think we, when I say ‘we’, we the experts as a group of four agreed were fragments of code that were specific to NTAS that was not identified within ManTra.”
When expressly questioned by the Court as to whether or not Harry Goddard’s initial view was that there was literal copying present, Harry Goddard responded by stating that he did not believe that there was literal copying to any extent. By day 22 Michael Turner had also given evidence on behalf of the plaintiff. He had stated in reply to a question in cross-examination (Transcript 16, question 351) in answering the question “Do you think it is still a possibility, in this case that there was wholesale copying of the NTAS source code?” he replied “I think unlikely”. He was then questioned as to whether the common code found within NTAS and ManTra came from a third party source and he indicated that he did not know and that whilst the defendants’ experts had identified a number of potential sources, he had not looked at those sources. Michael Turner had previously expressed the view that in the circumstances of the case it appeared that code was likely to have been copied by the defendants from the NTAS product and when questioned (Transcript 16, question 359) by the Court as to whether he would have used the word likely if he had known the information about the common code emanating from identifiable third party sources, he accepted that he would not have used the word likely. Due to the evolving nature of the plaintiffs’ claim and the apparent abandonment of any claim based upon literal copying and also given the more limited and confined nature of the claims as outlined in the plaintiffs’ evidence, the Court required the plaintiffs to deliver a clear and final statement in relation to the precise nature of the claims with which they were proceeding. A direction to that effect was given on day 25 so that the Court could clearly understand the extent of the case which was then being made by the plaintiffs. The Court directed that an amended and definitive statement of claim be delivered by the plaintiffs. That requirement was identified at the close of the plaintiffs’ evidence. The plaintiffs duly delivered a document entitled “Plaintiffs’ statement of case dated the 5th February, 2010”. A copy of that document is annexed to this judgment. It is the claims contained in that statement of case which this Court must address. Other claims which were previously contended for by the plaintiffs were effectively abandoned by the service of that statement of case. The Court will deal with the manner in which the plaintiffs have pursued this claim later in this judgment, insofar as it is relevant, but for the purposes of determining the issues which remain outstanding between the parties it is agreed by all that the Court must address the matters raised in the plaintiffs’ statement of case dated the 5th February, 2010.
26. The plaintiffs’ statement of case of 5th February, 2010 can be broken down into four separate parts. In paragraph 1 the plaintiffs assert ownership of the copyright in the NTAS product including the source code database structure (including table names and column names and the relationship structure between them) and SQL creation scripts. The plaintiffs claim that their NTAS product is not only protected by copyright under statute but also that its constituent elements constitute confidential information. The second portion of the plaintiffs’ case is to be found in paragraphs 2 – 5 of the statement of case which make the claim that the defendants took a copy of the NTAS product and used that unauthorised copy as a functional and/or design specification for the development of ManTra. The plaintiffs claim that but for such access ManTra could not have been developed as quickly as it was or to such a high quality. In paragraph 3 of the statement of case the plaintiffs identify in 22 lettered paragraphs from letter (a) to letter (v) particulars in support of the claim that the defendants took a copy of the NTAS product and used that unauthorised copy. Paragraphs 4 and 5 raise claims of breach of copyright and misuse of confidential information based upon the pleas contained at paragraphs 2 and 3 of the statement of case. The third portion of the plaintiffs’ statement of case is found in paragraph 6 in which it is claimed that the first and second named defendants acted in breach of their contracts with the plaintiffs and in breach of their fiduciary duty to the plaintiffs. The fourth element of the plaintiffs’ claim is contained in paragraph 7 which repeats a claim to the reliefs sought in the original statement of claim.
27. The Court will deal with each of the particulars identified in the lettered sub-paragraphs of paragraph 3 of the statement of case later in this judgment but prior to doing so it is appropriate to look at the manner in which the plaintiffs have conducted this case and in which their witnesses have given evidence and also at the claim made on behalf of the plaintiffs that the majority of the defendant witnesses conspired together to mislead the Court. In addressing these matters it is necessary for the Court to consider the evidence which was led in relation to the manner and circumstances in which the personal defendants and other former employees departed from the plaintiffs and also the evidence led concerning the development of ManTra.
28. The manner in which the plaintiffs have prosecuted their claims demonstrates a willingness to alter and vary such claims without explanation. They have proceeded to drop a significant element of their claim, in abandoning the claim based upon E*TAS, without any explanation. Similarly, they have been prepared to persist with claims, such as the claim of literal copying in a material respect notwithstanding that their experts either did not believe that there was such literal copying or had not made the effort or been requested to ascertain and confirm that the common source code identified in the two products emanated from common third party sources. It was not until the very end of the plaintiffs’ case that there was an acknowledgement that the plaintiffs were not pursuing a claim for literal copying. A more troubling matter arose in evidence when it became apparent that the plaintiffs were prepared to plead and swear directly contradictory accounts in respect of the same set of facts in separate cases in different jurisdictions. That was indicative of an approach whereby the plaintiffs were prepared to use a set of facts in such a manner as to manipulate them for present advantage without regard to the real truth. The first named plaintiff, Koger, together with Ras Sipko and George Sipko were part of a number of defendants sued by Robert Sipko in proceedings in the U.S.A. Robert Sipko is the son of George Sipko and the brother of Ras Sipko and he brought proceedings in the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. BER-C-393-07. Copies of the documentation within those proceedings was available to the Court and in the trial brief submitted on behalf of Koger and Ras Sipko and George Sipko and the other defendants in that case dated the 11th December, 2008, it was claimed (in page 6) as follows:
“Robert (Sipko) effectually orchestrated a mass exodus of more than fifteen employees of the Koger Entities, vis-à-vis, his disparagement of the corporate defendants and George’s operation thereof, which undermined George’s authority and made employees question Koger’s management.”
It was also claimed on page 26 of the same document that Robert Sipko’s conduct precipitated the departure of James O’Donnell, the managing director of the Koger (Dublin) office and at least 15 other Kogeremployees to create HWM Financial Services. On page 27 of the same document it was claimed that but for Robert’s disparagement of George and the Koger Entities and resulting breach of his fiduciary duty to the corporate defendants, O’Donnell and the others would not have left the employ of Koger. That claim is at complete variance with the claim pursued by the plaintiffs in this case. They claim that by October 2005 or December 2005 at the latest, James O’Donnell and the other personal defendants were conspiring together to set up HWM for their own benefit and purposes. Such claim is entirely at variance with the claim asserted in the U.S.A. proceedings that it was Robert’s actions which precipitated James O’Donnell to depart and that but for Robert’s actions neither James O’Donnell or the other personal defendants in these proceedings nor the other employees of Koger who departed would have left Koger. When George Sipko was cross-examined on this apparent inconsistency between the case made to the New Jersey Court and the claim made by him and as set out in his statement within the Irish proceedings, George Sipko stated that he did not have a good recollection of the relevant testimony in the U.S.A. proceedings. (Transcript 19, question 341). When further questioned on this matter (Transcript 21, question 63), George Sipko said in response to the suggestion that he had no honest belief of the truth of what had been claimed within the U.S.A. proceedings, he stated:
“Robert, I believe, was not involved in the decision of the people who have parted from Koger.”
George Sipko was then questioned as to the basis for the assertion in the American proceedings that Robert’s lifestyle had caused the HWM people to leave Koger and that such claim was without truth and George Sipko responded: “I really do not have any answer to that”. George Sipko sought to rely on a suggestion that the claim within the U.S.A. proceedings was made by his lawyers and that it was written by the lawyers and was not his style. The Court is satisfied that his claim to be unaware of the nature of the claim made within the U.S.A. proceedings is untrue. The evidence of George Sipko and other witnesses convincingly established to the Court that he operated Koger in such a manner as to be fully aware of day to day details of the company and to be involved in all significant decisions within the companies. The attempt by George Sipko to distance himself from the inconsistency between the case being made in the U.S.A., and the case being made in these proceedings, by seeking to rely on a claim that such inconsistency arose from the actions of the lawyers unbeknownst to him, is an explanation which this Court does not accept. The Court is satisfied that George Sipko knew that a different and inconsistent case was being made in two different jurisdictions in relation to the same set of facts. This is further demonstrated by the fact that within the brief submitted on behalf of George Sipko, Ras Sipko, Koger and the other defendants in the U.S.A. proceedings to the Superior Court of New Jersey Appellant Division in a document dated the 14th January, 2010, it was asserted that an e-mail sent by Robert to James O’Donnell “only served to undermine the operations of Koger, and indeed contributed to a mass exodus of Kogeremployees in late 2005/2006”. (See page 27 of the brief to the appellant Court.) By January 2010 George Sipko had already given direct evidence and confirmed his précis of evidence and Ras Sipko had given extensive evidence concerning the departure of James O’Donnell and had completed his evidence. George Sipko was unable to provide any credible explanation as to why Koger had made a different case in U.S.A. proceedings and these proceedings. The Court is satisfied that in relation to this matter George Sipko and Koger demonstrated that they were prepared and willing to make entirely inconsistent cases in different jurisdictions. The inconsistent case that it was Robert Sipko’s actions which participated the departure of employees from Koger was not only made within the original U.S. proceedings but was repeated in the brief submitted in the appeal in January 2010 when George Sipko was giving oral evidence to this Court. The Court is satisfied that the correct explanation for the inconsistency is not any error or oversight on the part of the American lawyers or a lack of awareness of such inconsistencies on the part of George Sipko but rather that George Sipko was prepared and willing to put up entirely contradictory accounts in different jurisdictions in the hope of advancing his claims within each individual jurisdiction without regard to the truth.
29. In 2007 Koger Inc. brought proceedings in New Jersey against James O’Donnell and other persons. Those proceedings were ultimately dismissed on the basis of forum non conveniens. (Civil Action No. 07-3091 United States District Court District of New Jersey). Within those proceedings Ras Sipko on the 7th September, 2007 certified the truth of a written statement made and signed by him. Within those proceedings Koger had exhibited two contracts said to have been entered into by James O’Donnell with Koger Inc. Ras Sipko certified within those proceedings that the averments made by him were true and that if any of the foregoing statements made by him were wilfully false that he was subject to punishment and signed that certification dating it the 7th September, 2007. In paragraph 6 of that document Ras Sipko certified:
“As of April 1, 2004 O’Donnell was working for Koger in accordance with the terms of a contract entered into between O’Donnell and Koger’s wholly owned subsidiary, Koger (Dublin) Limited (“KogerDublin”) (the “O’Donnell employment agreement”). A true and correct copy of the O’Donnell employment agreement is attached hereto as “exhibit A”.
Exhibit A contains an employment agreement dated the 1st April, 2004 between Koger (Dublin) Ltd. and James O’Donnell signed on page 5 by James O’Donnell and attached thereto is a document headed “Independent Contractor Intellectual Property Agreement between Koger Inc. and James O’Donnell”, signed by James O’Donnell but undated. Those two documents were exhibited together as Exhibit A and it was apparent that it was being asserted that on the 1st April, 2004 James O’Donnell had signed the two documents which formed Exhibit A. The true position, which became apparent from the evidence to this Court, was that the document entitled “Independent Contractor Intellectual Property Agreement” had been agreed and signed a number of years prior to the 1st April, 2004 and that the date appearing on the original document in handwriting on the foot of page 3 of the 12-21-2000 had been removed in the document submitted to the U.S.A.. Court as had been the three single line fax heading contained on each of the three pages indicating a date of December 21, 2000, 5.44pm and 5.45pm together with the name of the party who sent the fax in Cayman together with a fax number. The fact that the American Court had been provided with a document where the dates had been removed had the clear potential to mislead the American Court. This matter was raised in cross-examination with Ras Sipko (Transcript 13, page 114 onwards) and he was handed the original of the two contracts including the contract headed “Independent Contractor Intellectual Property Agreement” with the date of the 21st December, 2000 and a second contract in the American format without the fax headings or a date and he was asked to explain why the document submitted to the American Court had been altered by the deletion of dates from the original. After requesting a break to study the documents Ras Sipko proffered an explanation to the Court that the disappearance of the dates might be explained by the fact that the contract might have been entered into in triplicate so that there could be three documents, one retained by the person who made the contract, and the other two retained by the company. Ras Sipko had accepted that the document which James O’Donnell had and the one which he found in the Koger offices in Dublin both had the date thereon. The Court did not receive any credible explanation for the apparent removal of the handwritten date or the fax headings including dates in the document submitted to the American Court. The purpose of submitting that document without dates together with the contract document of the 1st April, 2004 was acknowledged by Ras Sipko as being to suggest to the American Court that the two documents formed one agreement. Concerning this matter the Court is satisfied that the most likely explanation is that the document dated the 21st December, 2000 was deliberately altered for the purposes of assisting in creating the false impression that the two documents attached were made at the one time and therefore formed part of the one agreement. This was an illustration of the willingness of Koger and Ras Sipko to use information in a selective and misleading manner to support an argument being made to a court. The Court does not accept Ras Sipko’s explanation that if he was intent on wrongdoing he would not have made available the original dated document in discovery. The fact is that within the U.S. proceedings and within these proceedings in support of the plaintiffs’ application to enter this case into the Commercial List and within Ras Sipko’s précis of evidence he relied on and exhibited the undated contract and it was only as a result of the deletions being identified and raised in cross-examination that the true position was established to the Court.
30. The approach of Ras Sipko to litigation was further demonstrated during his cross-examination on Day 12. He was cross-examined in relation to a statement contained in paragraph 18 of his précis of evidence concerning what had occurred on the 6th September, 2004. On that date a senior Koger consultant, Marek Polak, and two other members of his team departed the company “within seconds of each other”. Ras Sipko stated in his précis of evidence that we, that is Koger, immediately launched proceedings against them in the Superior Court of New Jersey and obtained injunctions against them and the trial of the action is still pending. In cross-examination on Day 12 Ras Sipko confirmed that the claims made in that case were breach of contract, breach of non-competition clauses and claims in respect of intellectual property and trade secrets. Having been cross-examined as to what evidence Koger had to support the claims, he responded (at question 337) that they (Koger) did not have any prima facie evidence that Mr. Polak or either of the other two defendants had committed any wrong. He justified bringing the proceedings, without any prima facie evidence, on the pattern of behaviour which was suggestive of wrongdoing and that he considered it proper to institute proceedings making such claims without any prima facie evidence. In re-examination (Transcript 14, page 116) Ras Sipko sought to resile from the position he had stated in cross-examination. He sought to rely on the fact that Koger had obtained advice from his U.S. lawyers to institute proceedings. What is clear from the evidence is that Ras Sipko and Koger were prepared to sue former employees on the basis of a suspicion and without any prima facie evidence. The evidence is that neither Ras Sipko nor Koger had any prima facie evidence and were relying on a suggested suspicious pattern of behaviour. Irrespective of such advice as might have been received from the U.S. lawyers the evidence on this matter demonstrates a willingness on the part of Ras Sipko and Koger to institute proceedings against former employees, based upon suspicions, and at a time when the company had no real hard factual evidence to support a claim. That approach was further demonstrated by the fact that as Ras Sipko stated in evidence, that Koger immediately sued the three former employees upon their departure without any actions being taken by those persons in furtherance of the alleged illegal acts. That approach had a real parallel and resemblance to many steps taken by Koger in these proceedings.
31. The approach to litigation and the methods which Koger and Ras Sipko are prepared to use in prosecuting civil proceedings was further demonstrated in the evidence which Ras Sipko gave on day 13. Under cross-examination Ras Sipko stated that Koger intended to sue three former employees of that company, namely Eric Ivancak, Peter Hisem and Peter Kralovansky on the basis that their three names appeared in an early version of the HWM business plan. He indicated that Koger had recently taken a decision to include those three persons within the U.S.A. proceedings. When asked by the Court did he think those three persons were part of HWM’s efforts to set up their business and take it away from Koger, Ras Sipko replied (question 359) “Exactly. If it proves true, the discovery will be more extensive process. If it proves that it is not the case, then we have always the option to drop the proceedings against various people.” That statement is illustrative of an overall approach which Koger demonstrated through George Sipko and Ras Sipko of a willingness to sue former employees with little or no known facts to support such proceedings and thereby place pressure on former employees and also to try and create a situation where such employees would have to establish that they were not involved in any illegal or unauthorised actions. The manner in which this case is being litigated is consistent with that approach whereby the plaintiffs have shown a willingness to make extensive and general assertions against the defendants and seek to have those parties disprove such matters. The plaintiffs have also demonstrated a desire to seek further discovery when the discovery which has been obtained does not establish the claim already made by Koger. In effect, the overall approach to litigation demonstrated by Koger is that in relation to former employees the onus is on them to prove that they have done nothing wrong and that Koger can and will sue those parties to see whether or not discovery might produce the documentation necessary to prove Koger’s case and if the original discovery does not achieve that end, then further and additional discovery will be sought.
32. The Court has already identified the fact that the claim based upon literal copying was persisted with by the plaintiffs after they should have been aware that there was no real basis for same. The plaintiffs made an application for further and better discovery before the Court in July 2009 leading to an order of the 31st July, 2009 and a judgment of that date of Mr. Justice Kelly. In that judgment Mr. Justice Kelly had regard to the fact that the plaintiffs’ lawyers as part of the application had pointed to the fact that their experts had identified prima facie breach of confidence and copyright infringement and take the view that the technical documentation must be made known to the plaintiffs in order to enable them to complete their task and properly prepare for trial. If the full position had been disclosed to the Court, then the Court would have been aware of the fact that the main expert of the plaintiffs who was dealing with literal copying was of the view, as he stated on day 23, that this was never a case about literal copying. Yet the claim in literal copying was persisted with by the plaintiffs until Harry Goddard acknowledged the fact that the case had never been one about literal copying. After Day 23 that position was acknowledged for the first time in the amended statement of the case wherein no claim for literal copying was made. Such approach is again consistent with a willingness on the part of the plaintiffs to make claims without any firm or real basis or to persist with those claims until constrained to abandon them. In persisting with such claims, the plaintiffs can pursue applications for additional discovery with the hope of establishing some wrong by a defendant or defendants. The changing nature of the plaintiffs’ claim outlined in the earlier paragraphs of this judgment is demonstrative of a plaintiff or plaintiffs willing to make wide and damaging allegations and to drop or alter those allegations if the necessary evidence does not turn up.
33. George Sipko and Ras Sipko were the two witnesses called for the plaintiffs who gave evidence in relation to factual matters. The other witnesses called by the plaintiffs were expert witnesses. There are a number of factual matters in dispute in the case, some of them central to the Court’s determination. At the very centre of the factual dispute is whether or not the personal defendants together with others were involved in a conspiracy. That is described in the presentation of the case on behalf of the plaintiffs as the business conspiracy case. The plaintiffs claim that their case establishes facts that demonstrate clear and contemporaneous evidence of the conspiracy to take over the plaintiffs’ business, solicit employees and clients and potential clients and to misuse the clients’ information. The plaintiffs identify who they claim are the key players in the alleged conspiracy. Each of those persons gave evidence to the Court. The extent of the dispute between the parties on this issue is demonstrated in the closing submissions made on behalf of the defendants in response to the allegation of a so-called business conspiracy. In those submissions it is asserted that each of the persons involved in the design and production of the fourth named defendant’s ManTra product categorically testified on oath that there was no access to, or use of, a copy of NTAS in the design of ManTra and each of those witnesses also gave evidence that they were not involved in any conspiracy. In considering this conflict and addressing the central issue as to whether or not there was a business conspiracy, the Court has had the benefit of hearing the evidence of George Sipko and Ras Sipko and the alleged conspirators and of observing those persons give evidence and considering their evidence in the light of the other evidence available to the Court including the expert evidence and contemporaneous documents. That has enabled this Court to arrive at a clear and unambiguous finding that the evidence called on behalf of the defendants is to be preferred. In arriving at this view the Court has considered the evidence of the various witnesses by reference to the testimony of the experts which is hereinafter dealt with and has also had regard to contemporaneous documentation with a view to considering whether the evidence given by the various witnesses, is consistent and accurate. In carrying out that process the Court has arrived at the conclusion that neither the evidence of George Sipko or Ras Sipko is scrupulous nor is it complete or credible.
34. In a number of areas of their evidence, George Sipko and Ras Sipko demonstrated that they were less than complete or reliable and they showed a willingness to be evasive and inaccurate to such an extent and with sufficient regularity as to vitiate their credibility. This was demonstrated in a number of areas of their evidence which are hereinafter set out.
35. These areas include the following:
(a) The already identified actions of George and Ras Sipko that allowed and permitted the use of mutually inconsistent arguments to be made to this Court and to the Court in the U.S.A. That willingness continued as late as January 2010 when a claim inconsistent with the case made on behalf of the plaintiffs in this jurisdiction was propounded in the appeal documentation submitted on behalf of the first named plaintiff and George Sipko and Ras Sipko in the U.S.A. appeal in the case brought by Robert Sipko. The Court is satisfied that this demonstrates a willingness on the part of the plaintiff company through George Sipko and Ras Sipko to manipulate facts with a view to seeking an advantage within litigation irrespective of the true factual position.
(b) The already identified issue of the use in evidence of a contract document entered into between the first named plaintiff and the first named defendant which had been altered or tampered to create a misleading impression. The Court is satisfied that Ras Sipko failed to provide any credible explanation as to how he came to use such a document. The knowing use of an altered or tampered document in Court proceedings illustrates not only a lack of candour but also a willingness to seek to mislead a Court.
(c) The manner in which George Sipko dealt with his knowledge of his son Robert’s e-mail of the 8th February, 2006 to James O’Donnell, the first named defendant and how that e-mail was used within the U.S.A. proceedings was another area of evidence which was relevant in relation to frankness. The Court is satisfied that in relation to this matter George Sipko demonstrated an evasiveness and a lack of regard for the full truth.
(d) The manner in which Ras Sipko portrayed the departure of James O’Donnell, within the U.S.A. proceedings and the dealings between the company and James O’Donnell in the period from March to May 2006 was partial at best. In Ras Sipko’s evidence (Transcript 13, pages 57 to 63) he failed to properly or adequately address this matter. The claim made to the U.S.A. Court that James O’Donnell acted in an unprofessional manner is inconsistent with the facts adduced to this Court and Ras Sipko provided no proper explanation. (See Transcript 13, pages 61 to 66).
(e) The Court is satisfied that George Sipko failed and refused to acknowledge his true position within the company in his attempt to suggest that decisions relating to the firing of employees, particularly in Slovakia, were decisions made and taken by the local management. The weight of evidence clearly demonstrated that George Sipko exercised effective and absolute control of the company in Slovakia. The evidence available to the Court concerning his actions made that clear. One area of the evidence which illustrated this is the manner in which Martin Madej was sacked by the first named plaintiff on the 18th October, 2005. The Court accepts Martin Madej’s evidence that on that date he was at home when the manager telephoned him to say that he had been fired, after five years, without any reason being identified. George Sipko in his evidence sought to suggest that the sacking was decided upon by the then manager in Slovakia, Mr. Focko. The Court did not find this evidence credible particularly given the contrived nature of the suggested reason for the sacking. The sacking took place in the middle of October and George Sipko swore in evidence that the reason was that Martin Madej had abused the protocols that the company had in place in relation to the use of the internet in that he had used it to watch tennis whilst at work on the company’s computer. George Sipko in his evidence swore to the Court that when he was in Kosice in mid-October 2006 he received a call from the manager who informed him of this abuse of protocol by Martin Madej which led to the manager taking the decision to dismiss. The matters which are suggested to have been identified must have occurred over three months prior to that date as the suggested viewing was of the Wimbledon tennis tournament which takes place in June and early July. The suggestion made by George Sipko in his evidence that, when Mr. Focko told him about what Martin Madej had done, the only thing he could do was agree with him and that therefore it was Mr. Focko who decided to sack Martin Madej, is implausible and the Court finds this claim to be incredible. The Court is satisfied that Martin Madej was not informed as to why he was to be fired and the suggestion that the reason related to the misuse of the internet some three months previously lacks any credibility. The Court is satisfied that a proper consideration of the evidence on this matter demonstrates that the local manager was in effect acting on the directions and instructions of George Sipko and that George Sipko’s attempt to persuade the Court otherwise is not to be believed. Marian Klco’s evidence on the firing of employees and George Sipko’s attempt to stand behind “Koger Management” as being the party who made such decisions and the failure of George Sipko to identify the persons in management who made such decisions when asked to do so (see précis evidence paragraph 39) further reinforces the Court in its belief that the real decision maker on issues of firing was George Sipko. The evidence to the Court demonstrated that the position of George Sipko, as the effective owner of Koger, and his domineering personality was such that decisions to fire were his and not those of Koger management. George Sipko acted in a manner which demonstrated that he believed he had the power to fire as he threatened both James O’Donnell and Jana Potocnakova that he would do so.
(f) The Court is satisfied that the evidence given by Ras Sipko which criticised James O’Donnell for making inadequate arrangements prior to his departure from Koger (Dublin) and the way in which he portrayed that matter to the U.S. Court did not amount to a true or proper account of what actually occurred nor was it consistent with the full facts. The evidence established that prior to his departure James O’Donnell had expressly offered to assist in training someone else how to deal with the accounts, salaries and expenses and with the PAYE and VAT returns. The evidence established that this offer was made and that the plaintiffs chose not to take up such offer. (Transcript 13, page 74). Yet Ras Sipko sought to portray James O’Donnell as having made inadequate arrangements and having behaved in an unprofessional manner. The Court is satisfied that the evidence of Ras Sipko on this matter was partial and failed to have regard to the full and true facts.
(g) Evidence was led by Ras Sipko in an attempt to suggest that James O’Donnell had altered Roger Woolman’s contract in March/April 2006 to facilitate his departure from his contractual obligations with the second named plaintiff. It was contended that Roger Woolman’s contract had been altered as part of the conspiracy and to facilitate him working for the fourth named defendant at a later date. In giving that evidence Ras Sipko failed to identify or refer to express advice which the second named plaintiff had received from their auditors, KPMG. In cross-examination an e-mail from KPMG dated the 27th March, 2006 identified a coherent and logical explanation for the alteration in Roger Woolman’s contract. The alterations in the contract which James O’Donnell supervised were as a direct result of the auditors’ advice. The advices given by Sharon Byrne from KPMG were for the purpose of protecting the financial interests of the second named plaintiff and the implementation of those advices was for the benefit of the company. In relation to this matter, as with a number of other events, because of the coincidence of dates Ras Sipko sought to propound a theory of deliberate dishonesty notwithstanding that the contemporaneous documentation demonstrated the true reason for what had occurred. In the light of the contemporaneous documentation the Court is satisfied that the claim propounded by Ras Sipko that the alteration to Roger Woolman’s contract was part of a conspiracy is without foundation and in putting forward that claim without reference to the contemporaneous documents Ras Sipko was providing evidence which had the clear capacity to mislead the Court.
(h) The accounts given in evidence by George Sipko and Ras Sipko concerning their dealings with James O’Donnell in the period from October 2005 to April 2006 which purported to support a claim that James O’Donnell was during that period already certain that he would depart from the second named plaintiff and was participating in a conspiracy to hide his true intentions is neither consistent with the overall evidence to the Court nor with the contemporaneous documentation. The evidence established that during that period James O’Donnell carried out a number of significant actions for the benefit of the second named plaintiff including the completion of a major contract with a third party company and staying on for a period so as to complete the accounts. James O’Donnell also sought proposals as to alterations in the second named plaintiff’s organisation and his remuneration which might have led to him reconsidering his resignation. George Sipko and Ras Sipko’s evidence in relation to their dealings with James O’Donnell was less than full. No proper or adequate explanation was given by either George Sipko or Ras Sipko as to why they failed to comply with their own proposal that a firm offer to James O’Donnell would be made by the 15th April, 2006 as stated in the e-mail of the 20th March, 2006. Also the evidence which they gave in relation to the identification of the terms of a potential offer to be made to James O’Donnell lacked credibility. The Court is satisfied that the manner in which the plaintiff companies, George Sipko and Ras Sipko dealt with James O’Donnell after he had been threatened with dismissal in mid-October 2005 up to the date of James O’Donnell’s departure at the end of April 2006 provides the true explanation for James O’Donnell’s departure rather than an alleged conspiracy. The evidence established that in October 2005 James O’Donnell was threatened with dismissal when a threat was made not only to fire him but also all senior staff in Slovakia. The date which was identified for the dismissal was the 15th December, 2005 which was the date upon which the annual bonus for employees was normally announced. The evidence also established that on the 7th February, 2006, James O’Donnell submitted his notice of resignation and that after that notice was submitted, George Sipko was in contact with James O’Donnell and requested him to continue to work out his notice and that George Sipko would try and find ways of resolving the matter. On that basis James O’Donnell agreed to work his resignation notice. Thereafter the evidence established that the initial response from George Sipko was not to address any of the matters raised by James O’Donnell in his detailed e-mail but rather to offer him a free holiday in Alaska or Hawaii. The evidence also established that by e-mail on the 20th March, 2006 George Sipko stated to James O’Donnell that as the issues which were being raised were complex, that the company would make a decision on the 15th April, 2006 and that by that date a decision one way or the other would be made. Immediately prior to that date, on the 13th April, 2006, George Sipko sent an e-mail to James O’Donnell indicating that all James O’Donnell’s future business trips or visits had to be approved by the U.S.A. office in advance and that any amounts intended to be charged to the plaintiffs’ clients had to be pre-approved by the U.S.A. office before they were quoted to a customer. It was suggested in evidence on behalf of the plaintiffs that this was a reiteration of existing practices but the Court did not find that evidence credible and the timing of the e-mail some two days before the date which the plaintiffs had identified for putting an offer to James O’Donnell undermined the credibility of that evidence. On the following day, the 14th April, 2006, George Sipko sent an e-mail to James O’Donnell inviting him to a meeting to be held in New Jersey on the 8th May, 2006. There was no reference in that e-mail as to why the plaintiffs’ own appointed deadline of the 15th April, 2006 was being ignored. The response to that e-mail by James O’Donnell of the 20th April, 2006 demonstrated his concern for the second named plaintiff company’s interests given the uncertain position in which he had been placed and identified real matters of relevance which would have to be addressed if he were to depart. The Court is satisfied that having considered the contemporaneous documents and heard the evidence of the persons involved that the Court should accept James O’Donnell’s evidence. That evidence establishes that on the 27th April, 2006 when James O’Donnell was in contact with George Sipko that it was evident that George Sipko had not given any time to considering James O’Donnell’s proposals and it was against that background that James O’Donnell ceased his employment with the second named plaintiff on the 30th April, 2006. In accepting as true the evidence of James O’Donnell that the telephone call of the 27th April, 2006 between him and George Sipko made it clear that George Sipko had given no time to considering James O’Donnell’s proposal, it follows that George Sipko’s evidence to the contrary is not to be believed. Having considered the entire evidence in relation to the circumstances of the departure of James O’Donnell from the second named plaintiff, the Court is satisfied that the account given by James O’Donnell is credible and coherent and that the Court can rely on that account and that the claims put forward by George Sipko and Ras Sipko which suggested that James O’Donnell was lingering in the company to further a conspiracy are unfounded.
(i) The evidence led in relation to the first named plaintiff’s manner and method of dealing with a former employee, Mikulas Klasovsky, indicated a willingness on the part of the first named plaintiff to adopt inappropriate and threatening behaviour towards former employees. Evidence was led that the service of proceedings on the former employee took place by means of documents addressed to the former employee’s parents and in particular his mother, and those documents included a religious Easter greeting card wherein inappropriate abusive and threatening statements were made to the former employee’s mother and father. Ras Sipko gave evidence that he was unaware of the method of service or of the Easter card. However given the other evidence available to the Court which demonstrated the manner in which employees were treated by the first named plaintiff in Slovakia, the Court does not find that evidence credible and is satisfied that the incident identified in evidence was a further illustration of an employer that was prepared to pressurise employees and former employees in a bullying and abusive manner.
(j) The evidence which was led to the Court which demonstrated that Ras Sipko was prepared to make an accusation in the U.S.A. proceedings against James O’Donnell that he was evading U.S.A. proceedings without having checked the true position. Evidence was led to this Court that the factual position was that papers were sent by attorneys acting for the plaintiffs to a so-called central authority in Ireland for service and that that authority returned the documents indicating that they were not the party to serve the proceedings. That occurred without James O’Donnell’s knowledge and thereafter the proceedings were served though Irish solicitors in the normal manner and James O’Donnell in no way sought to evade the service of proceedings. This item of evidence demonstrated a willingness on the part of the plaintiffs to make a potentially damaging allegation against a former employee without checking or verifying the truth of the position.
(k) From an overall consideration of the evidence led in relation to George Sipko’s earlier life, the Court is satisfied that George Sipko in evidence was less than complete or frank in his account relating to his military service. George Sipko endeavoured in his evidence to portray his military service as being an instance of him being sent to a labour camp when it was apparent on cross-examination that such categorisation was not consistent with the facts. Matters were raised in cross-examination concerning a suggestion that George Sipko had an involvement with the Czechoslovakian security service and a statement was made in the evidence of Paul Piringer in support of that allegation. However, given the nature of the documentation which was sought to be relied upon, and the fact that such involvement was denied and the fact that Paul Piringer did not give oral evidence, the Court is unable to form any view in relation to this matter and has disregarded all evidence concerning this allegation.
(l) George Sipko gave evidence that the NTAS design was achieved using KIT or otherwise “Koger Inherited Technology” which was a code or framework which George Sipko claimed to have designed and written in 1994. However, the evidence which was available to the Court in the testimony of Marian Klco was that even though George Sipko referred to his Koger Inherited Technology that when he was asked to present it or to explain it he was evasive. Marian Klco gave evidence that KIT never existed (see précis of evidence paragraph 55). He was not cross-examined on this belief, nor was KIT produced. The Court accepts Marian Klco’s evidence that even though he worked for seven yeas on NTAS, that he never saw any use of KIT. That evidence of Marian Klco was supported by the evidence of Paul Piringer. Paul Piringer provided a précis of oral evidence and that précis was admitted in evidence by agreement and he was not subject to cross-examination. In his statement Paul Piringer stated that KIT never existed as described by George Sipko. The evidence also established that even though KIT was referred to on the first named plaintiff’s website as being for sale, it was not in fact for sale. Nor was any credible or coherent evidence led as to what it contained. On balance the Court is satisfied that the reference in evidence by George Sipko to KIT and to the related technology, namely KIC “Koger Inherited Compiler”, alleged to have been created in 1995, even if they did exist, exaggerated the importance of those technologies. The evidence established that any use of those technologies was historical and its very existence was far from obvious to developers working on NTAS at later dates.
(m) The plaintiffs’ casual approach to their obligation of providing a Court with not only true information but also the full relevant information is demonstrated by the evidence that the Court heard in relation to the nomination of the company known as Capsicum as a proposed independent expert in the U.S.A. proceedings in New Jersey. The first named plaintiff’s lawyers nominated to the U.S. Court as an independent expert on source code the firm of Capsicum. Ras Sipko acknowledged in evidence that the purpose of nominating Capsicum was for the purpose of conducting a source code review and at the time that Capsicum were nominated they had already been retained by Koger Inc., the first named plaintiff, to act as experts for the plaintiffs for the purpose of reviewing the laptops of James O’Donnell, Roger Woolman and Marian Klco. That fact was not disclosed to the U.S.A. Court and Ras Sipko in his evidence expressed the view that in nominating Capsicum as an independent agent when Capsicum were already assisting the first named plaintiff in relation to these proceedings did not represent a conflict of interest or an interest which should be disclosed. The Court does not accept that evidence and this item is a further illustration of the plaintiffs’ and George Sipko’s and Ras Sipko’s willingness to view facts and to present facts in a partisan manner.
(n) There was a factual dispute in evidence as to whether or not George Sipko had made a death threat to Marian Klco. Marian Klco gave evidence that when he sought to resign in 1999 George Sipko had threatened to kill him and the whole of his family if he did not continue to work for him. Marian Klco gave evidence that George Sipko stated that he had contacts in the East, which Marian Klco took to mean the Eastern Bloc underworld, and that it would cost George Sipko just a few thousand dollars to order the assassination of Marian Klco and his family in Slovakia. Marian Klco also stated that George Sipko went on to state that it was a good investment to kill him and that if he did not work for him, he would not let him work for the competition. This was denied in evidence by George Sipko. Having had the opportunity of hearing the evidence of those two witnesses and seeing them give their evidence, the Court is satisfied that Marian Klco is to be believed in relation to this threat. When this matter was raised in cross-examination (Transcript 19, page 35) and when George Sipko was asked why did he think that Marian Klco was making such a serious allegation against him, he responded by stating “It would be very good if Mr. Klco would answer this question because this is absolute … …. In other countries for such a false allegation he might be losing his head”. That answer is of assistance to the Court in arriving at its conclusion that Marian Klco’s version as to the death threat is to be believed but is by no means the decisive factor in arriving at such a conclusion. What is decisive is that the Court has had the opportunity of seeing the witnesses and considering their evidence which has enabled the Court to conclude that Marian Klco’s evidence is to be preferred as being credible. The Court is further supported in its finding on this matter by the conduct and behaviour of George Sipko in the manner he controlled Koger and treated its employees.
36. The approach of the plaintiffs and of George Sipko and Ras Sipko to the requirement to provide the Court with a full and truthful account of what occurred and not to mislead or misrepresent matters to the Court is illustrated by the examples given in the above paragraphs. They are not the entirety of the matters upon which the Court has relied but are illustrative of the matters which the Court has taken into account. The Court also had regard to the matter, which has been dealt with above, that is the persistence with a claim of breach of copyright based upon literal copying at a stage when that claim was no longer capable of being propounded and when the Court should have been straightforwardly told that such claim was abandoned. In paragraph 25 of the plaintiffs’ outline legal submissions dated the 30th September, 2009, it was stated in relation to question 3 of the questions addressed to the joint experts that “Given the strength of the plaintiffs’ case in literal copying/adaptation, this element of the case is no longer as central to the issues for determination”. The claim in literal copying continued to be propounded throughout the presentation of the plaintiffs’ evidence and it was only on Day 22 that Harry Goddard stated to the Court in response to the question (Transcript 22, question 144) “What exactly was your initial position in relation to literal copying?” to which the answer was given “I did not believe that there was literal copying to any extent”. That position should have been disclosed to the Court and for it to be withheld until an acknowledgement was obtained in cross-examination on Day 22 is demonstrative of a failure to be fully frank with the Court. The continued use of an allegation of literal copying to support further applications of discovery is also illustrative of the plaintiffs being less than straightforward with the Court. For the avoidance of any doubt the Court should say that it is apparent that the acknowledgement by Harry Goddard on Day 22 arose only when he was cross-examined on that matter and that there is no indication that there was any knowledge on the part of the plaintiffs’ solicitors or counsel as to Harry Goddard’s lack of belief in literal copying up until he acknowledged same in Court. Immediately following that acknowledgement an amended statement of claim was delivered which abandoned the claim in literal copying. It has been argued on behalf of the plaintiffs that such admission could only be made at a late stage due to continued investigations and the timetable that was in place. However, it is clear from Harry Goddard’s answer that his belief that there was no literal copying to any extent was his initial position which would have dated from the time of his first report and certainly should have been manifest to him from the date upon which he became aware of the contents of the defendants’ experts’ reports which identified that any common code to be found in NTAS and ManTra had its origin in openly available third party sources.
37. Central to the plaintiffs’ claim that there was the so-called business conspiracy is that key parties conspired together in the period from October 2005 and thereafter to take over or hijack the plaintiffs’ business. The plaintiffs identify the persons who they claim were the key players in the conspiracy and it is claimed on behalf of the plaintiffs that the reason that they left their employment with the plaintiffs was to progress the conspiracy. It is therefore appropriate as an initial step in considering this matter to identify the circumstances in which those alleged key players departed from their employment and/or contracts with the first and/or second named plaintiffs.
38. From 1999 the first named plaintiff was effectively operated and run by George Sipko. The manner in which he conducted the business is relevant to the consideration of how and why employees and contractors ceased to work for Koger. The evidence establishes that the manner in which the business was conducted derived from George Sipko’s character. It is the plaintiffs’ contention, in their closing submissions, that “it is undoubtedly the case that a fair reading of the evidence is that George Sipko had shortcomings as a manager and was not a good personal communicator for reasons which might fairly be attributed to personality, language and cultural issues. … It is respectfully submitted that there is no doubting George Sipko’s integrity”. On the evidence that categorisation of George Sipko’s actions as a manager and as a personal communicator is benign. There was direct and persuasive evidence before the Court that George Sipko conducted the plaintiffs’ business in an abusive and dictatorial manner designed to humiliate, bully and threaten employees and contractors. The Court does not accept that the manner in which George Sipko carried out the business can be explained on the basis of language or cultural differences. Indeed, some of the actions of George Sipko and the procedures which he put in place appear to have the very intention of intimidating persons who worked for him. The Court heard a number of witnesses from Slovakia and has also considered their précis of evidence. There was a common and convincing theme, throughout such evidence which was to the effect that employees and contractors were subject to personal abuse, arbitrary action and a feeling of insecurity in relation to their continued employment. The Court heard those witnesses and is satisfied that their evidence is truthful and accurate. The nature of that evidence can be summed up in the words of Marian Klco when he stated:
“The most abused were Kosice employees and employees in the N.J. office (New Jersey). They were permanently held in insecurity and it was simply impossible to mask how extremely stressed they were. The most abused person was Jana Potocnakova who was the most hardworking person in the Kosice office.”
As part of the management procedures which George Sipko put in place, he arranged to communicate with the employees and contractors in Slovakia by means of daily written instructions or notes. Those instructions were not directed to individual persons but were received and seen by all employees and contractors in Slovakia. That continued to be the position until 2007. Even though on many occasions what was being communicated by George Sipko was of a personal nature, it was communicated in the daily notes and was seen by all. This resulted in the contents being known by everybody and any instance of admonishment, abuse or threat directed to one person would be seen by everybody. This process must inevitably have had the capacity to seriously undermine the morale of the persons working in Slovakia and the evidence given to the Court to that effect was both credible and compelling. The capacity of such a system to bully and intimidate employees and contractors can be seen by reference to a small number of examples taken from those available. The content and tone contained in such daily notes can be gleaned from such examples. The daily notes included the following:
(i) “Peter, (to Peter Focko the Manager) find out who did it and deduct 50% from the November salary as a fine for the above destroyable code.”
(ii) “Programming discipline can’t be accomplish without having idea about the business. Less programmer understand the business more subqueries is generating to accomplish his infinite ideas which are ending here in States to asking to create such a SERVER … doesn’t exist. I agree only that this ‘garbage syntax’ should be capture during a compilation.”
(iii) “… If I find ‘destroy’ in source code by tomorrow night – last day with KOGER.”
(iv) “The person who did it has no idea what he is doing.”
(v) “Jana, I told you million times what we need and will not repeat any more to you – this is last time.”
(vi) “The code is so purely (poorly) done, that doesn’t satisfy even minimum requirements so I need your input and input of technology officer. For now, I am putting on a pending position any type of payment towards Mr. Martin Madej. I mentioned to him personally the above several times years ago. … Until he will not show ability to produce professional job no task could be assigned to him. It is only a matter of time that such code will destroy all KOGER business.”
(vii) “Jana, put on hold Nov. salary for an employee who did it well/ we can’t pay for it.”
When cross-examined in relation to the daily notes, George Sipko indicated that when he had stated in the notes that if he “found destroy in the source code by tomorrow night – last day in Koger”, that he was not threatening anyone and that he had a right to make a decision and to issue instructions. The clear evidence of the employees and contractors of Koger was that the daily notes when issued in such a public manner had the effect of intimidating the persons who worked for the plaintiffs. When dealing with a text in the daily notes which read “Peter, find out who did it and deduct 50% from November salary as a fine”, George Sipko in evidence tried to justify such a statement by stating that it was an instruction for management and the manager decides. (See Transcript 20, page 46). This is a further illustration of George Sipko endeavouring to distance himself from his own actions when it was apparent from the overall evidence that George Sipko was the person who had the absolute power to fire employees and contractors and to dictate terms of employment. When George Sipko was cross-examined in relation to the daily note where he stated that he was putting on pending any type of payment towards Martin Madej, he dealt with it in the following manner: (Transcript 20, page 80),
“Question: “It was just a threat on the daily notes that all employees could see at the time, is that right? Do you think it is humiliating for an employee to see that kind of threat made to them in writing in front of their fellow employees?”
Answer: “It is a reality for him.”
The Court is satisfied that the manner in which George Sipko used the daily notes created an atmosphere which led to the employees and contractors feeling insecure and bullied. The difficult and volatile personality of George Sipko is further revealed in the evidence of Paul Piringer (paragraphs 8 and 9 of his précis) who is a witness who worked closely with George Sipko and who is not involved with the defendants.
39. The Court has already outlined the evidence which it heard in relation to the sacking of Martin Madej. The Court is satisfied that the evidence establishes that the reality of the situation was that George Sipko summarily fired Martin Madej after five years service without giving him any reason. That sacking was a further illustration of the stratagem that George Sipko adopted to pressurise his Slovakian employees and contractors. In the years prior to 2005 the employees’ earnings stagnated and effectively reduced because the salary was designated in U.S. Dollars and the alteration in the exchange rate with the Slovak currency resulted in a fall in real terms. The evidence which the Court heard was that a salary increase was brought in under a particular scheme. That scheme required the employees to repay a substantial portion of such increase if they left their employment with Koger within a period of five years. George Sipko endeavoured to describe this as a savings plan but the reality is that the money was not invested in savings but was paid directly, in effect as part of the salary or wage packet to the employees. Then if an employee left he or she would be obliged to repay the so-called employer contribution to Koger. This resulted in Martin Madej having to repay US$2,400 to Koger when he was summarily dismissed. George Sipko endeavoured to categorise this payment as a savings plan but the reality was that it created a situation where if employees departed within five years they were obliged to repay Kogerpart of what they had received in their wage packet. (See Transcript 14, pages 92 – 100). Not only did employees have to repay sums to Koger but the evidence also established that if employees failed to make such repayment, they were sued in Slovakia in the Civil Courts. The approach taken by Koger to salary increases whereby they were introduced in a manner which would result in employees being placed in a position that they would be obliged to repay a substantial portion of such increases if they left within a five year period and the willingness of the company to sue to enforce such arrangements provided this Court with further evidence as to the management style and working environment of the plaintiff companies as operated by George Sipko.
40. The impact of George Sipko’s management style on the employees and contractors was significantly reduced during the twelve month period up to the autumn of 2005. This was as a result of George Sipko being absent due to his wife’s illness. The evidence was that during this absence the relations between the Dublin office and the Slovakian office were excellent and that none of the difficulties which arose from George Sipko’s management style were present. When George Sipko returned to a full-time involvement in the plaintiff companies in the autumn of 2005, there was almost an immediate series of events leading to the destabilisation and the undermining of the plaintiff companies. In mid-October 2005 George Sipko threatened to dismiss James O’Donnell. James O’Donnell was a key and well paid employee of the company central to the company’s relationship with its clients. On the day following George Sipko’s threat to dismiss James O’Donnell, he went to Slovakia and summarily dismissed Martin Madej. The Court also heard evidence that towards the end of 2005, Jana Potocnakova, who was the person responsible for co-ordinating the NTAS programming work amongst software developers in Slovakia, received a series of phone calls from George Sipko blaming her for certain problems. In her evidence she stated that at the end of 2005 George Sipko during his phone calls “started to blame me, that I had learned nothing during my work for the first named plaintiff and that I was damaging them”. He repeated many times that I could be fired any moment and that my contract could be terminated immediately. She went on to state “In October 2005 when I had come to work during the night George Sipko called from Dublin and he screamed the whole time”. He screamed “I’m king, I have power, I have money, I don’t need Seamus, I don’t need Marian, I don’t need you”. I had to stay in the office the whole night and I prepared something that was never used. When that evidence was put to George Sipko in cross-examination (Transcript 20, page 64) he said that he did not recall it. The Court is satisfied that Jana Potocnakova’s evidence of what occurred in mid-October 2005 is an accurate account and consistent with other evidence available to the Court. Jana Potocnakova gave evidence that the incident in mid-October 2005 was the moment when she decided to leave Koger and start to look for a new job and the Court is satisfied that that evidence is truthful.
41. The Court also heard evidence from Ivan Mesarc who was a former employee of Koger. He stated that George Sipko fired people for no apparent reason and that for that reason staff felt threatened. He also gave evidence that he had seen on a number of occasions Jana Potocnkakova cry as a result of the content of a phone conversations between her and George Sipko. Martin Mesarc gave evidence that in June 2006 he arranged for a two week family holiday in Egypt and that he sent a message to the office informing them that he was taking a vacation. His evidence was that he was told he had to stay at work or otherwise he would be fired and that he decided to leave on his vacation and when he returned to work he was told that he had been fired. Martin Mesarc gave evidence in which he confirmed his précis of evidence and he was not cross-examined on those matters. George Sipko in evidence endeavoured to suggest that that decision to fire Martin Mesarc was taken by local management and once again the Court does not accept that evidence as it is inconsistent with the overall thrust of the evidence which demonstrates that George Sipko was in complete command and was the person who decided who would be fired. A further illustration of George Sipko’s approach to the firing of employees and contractors is what happened to Mr. Focko who was a manager in Slovakia. He had commenced in July 2005 and was fired on the 14th February, 2006. The evidence from George Sipko was that the reason he was fired was that he would not undergo a course of education. In this instance George Sipko accepted that he was responsible for the decision to fire Mr. Focko, as he was a manager. However, the Court is satisfied that the true position is that Mr. Focko’s dismissal was just another illustration of George Sipko’s control over who was or was not fired. The evidence given by George Sipko in relation to the reason to fire Mr. Focko (Transcript 19, page 86) being based upon Mr. Focko’s failure to undergo a course of education was lacking in credibility and the evidence before the Court was to the effect that Mr. Focko’s sacking was another example of George Sipko acting in an arbitrary and dictatorial manner in relation to the firing of employees and contractors.
42. It is in the light of the evidence relating to the employment and business methods of the plaintiff companies and, in particular, of George Sipko that the Court must consider the circumstances of and reasons for the departure of various employees and, in particular, those persons identified by the plaintiffs as key participants in the alleged business conspiracy. There was evidence before the Court that a number of employees and contractors entirely unrelated to the defendants or any of them departed from their employment with the first named plaintiff or ceased to be contractors for the first named plaintiff either as a result of being sacked or resigning. The evidence established that the prevailing atmosphere and morale within Koger was such that there was an inevitable turnover in staff and contractors and that employees and contractors were afraid that they would be fired and operated in circumstances where they were uncertain as to their future with Koger.
43. The plaintiffs claim that the evidence establishes that the defendants conspired to take over the plaintiffs’ business. As part of that conspiracy it is alleged that the personal defendants or some person acting on their behalf, took a copy of the NTAS product and then used that product as a functional and/or design specification for developing ManTra. The plaintiffs allege that from October, or at the very latest December 2005, a decision had already been taken by the main participants in the conspiracy to leave their employment with the plaintiffs and that part of that conspiracy was a plan “to take out” the key Koger staff and to use those persons in developing ManTra. Koger claims that there was a sudden departure of key employees from the start of 2006 and that such departures were as a result of the defendants’ conspiracy. The principal parties to that alleged conspiracy gave evidence to the Court and each and every one of them denied that there was such a conspiracy and provided an account as to the circumstances and reasons as to why they left their employment with the plaintiffs or ceased to work for them as a contractor. It is therefore necessary for the Court to consider the evidence relating to the departure of the persons who are suggested as the key participants in the conspiracy. In considering the evidence relating to this matter, the Court must have regard to the evidence hereinbefore set out concerning the business approach of George Sipko and the working environment within the Kogercompanies. The Court has already indicated that it is satisfied that these were such as to create considerable uncertainty and apprehension among employees and contractors as to their future or continued employment. That is a factor which the Court must take into account in considering the explanations provided and the reasons given by persons who departed from Koger and Koger(Dublin).
44. In their submissions the plaintiffs claim that the chronology in relation to the steps taken in furtherance of the business conspiracy commenced in October 2005. The chronology starts with a claim by the plaintiffs that James O’Donnell resolved, in October 2005, following, what is described in the plaintiffs’ submissions, as his row with George Sipko to leave Koger and to set up a rival business. There is conflicting evidence as to what occurred in October 2005 when George Sipko and James O’Donnell met in the Dublin office of Koger (Dublin). George Sipko stated in evidence that several problems had arisen in relation to the operation of the Kogerbusinesses and that one of the problems was that James O’Donnell was not following George Sipko’s “decisions and instructions”, in particular, relating to equalisation algorithms and methods. George Sipko’s evidence in relation to that meeting is that he informed James O’Donnell that he had two options, the first being that James O’Donnell follow George Sipko’s instructions and his decisions and that if he did not agree to do that, the second option was that he could leave the firm immediately. George Sipko went on to give evidence that in response to those two options James O’Donnell promised to follow George Sipko’s instructions and decisions and that they parted on good terms. George Sipko also gave evidence that at that meeting he did not give any intimation of any intention or desire to fire all the senior staff from the Kosice office including Marian Klco. (see George Sipko’s evidence in chief, (Transcript 19 pages 25 – 28). James O’Donnell gave evidence that at the meeting in October 2005, that took place on or about the 13th of that month, George Sipko commenced the meeting by stating that he was going to fire James O’Donnell and all the senior staff from the Kosice office including Marian Klco on the 15th December, 2005 and that it would be his decision and that he would tell James O’Donnell of the results of his decision at that time. There is a conflict in evidence between the two persons who were present at the October meeting and the Court favours the account given by James O’Donnell. The Court found James O’Donnell to be a more credible witness and his account that George Sipko threatened dismissal as and from the 15th December, 2005 is consistent with the evidence available to the Court concerning the management style and approach of George Sipko. In any event, it is clear, even on George Sipko’s own account of that meeting that James O’Donnell was at risk of losing his employment with the second named plaintiff if he did not follow the instructions and decisions of George Sipko. There can be little doubt but that as and from the meeting of October 2005 James O’Donnell must have been apprehensive as to his continued employment with Koger (Dublin). The Court accepts James O’Donnell’s evidence that following that meeting he was left in a position that he might be without a job and that even if he did not lose his job in December, he might do so at some future date and would, therefore, have to think about what he would do if he left Koger (Dublin). The claim made by the plaintiffs that the business conspiracy by the defendants to take over the plaintiffs’ business commenced in October 2005 disregards the fact that following the meeting in October 2005, James O’Donnell had been placed in a position, by George Sipko, that he was uncertain as to his continued employment by Koger (Dublin). It is against that background that any preliminary or tentative steps taken by James O’Donnell towards setting up his own business must be viewed. James O’Donnell’s apprehension as to his future prospects must also be viewed in the light of the fact that on the following day Martin Madej was summarily dismissed after five years employment. The Court has already found that the evidence supports Martin Madej having been dismissed for no stated reason and that such dismissal was effectively directed and controlled by George Sipko. The Court is satisfied that a true understanding of the steps taken by James O’Donnell subsequent to October 2005, which ultimately led to the formation of the fourth named defendant, is that they were as a consequence of George Sipko’s threat to James O’Donnell’s future employment rather than as a result of putting in place a conspiracy.
45. The evidence establishes that in December 2005 James O’Donnell and Roger Woolman registered the domain name www.hmwps.com and www.hwmsolutions.com. Whilst the plaintiffs seek to rely on the registration by Roger Woolman as being evidence of part of conspiracy, the Court is satisfied that, in fact, it merely illustrates that very tentative and provisional steps were being taken in the event that at some future date a decision was taken by James O’Donnell and Roger Woolman to set up their own business. The other steps identified in the chronology, prepared by the plaintiffs, as evidence of the “furtherance of conspiracy”, in December 2005 are that Jana Potocnakova informed James O’Donnell and Dylan O’Brien that she was leaving Koger and that Marian Klco was using a PB10 folder and PowerDesigner 11. I will return later to the circumstances giving rise to Jana Potocnakova’s decision to depart from her employment with the first named plaintiff but the evidence makes it is clear that her departure was not as a result of any agreement or pre-existing conspiracy but rather directly as a result of George Sipko’s own actions. The Court accepts Jana Potocnakova’s evidence as to what caused her to leave and seek alternative employment. The Court also accepts her evidence when she stated that such decision was not based upon any pre-existing conspiracy. The fact that she informed colleagues that she intended to depart is of no particular relevance and given the manner in which she had been treated by George Sipko, it is in no way surprising that she would seek to share her future plans with members of the company whom she trusted. The claim that the use by Marian Klco of a PB folder and PowerDesigner 11 as of December 2005 is evidence of pre-existing business conspiracy has no basis. That finding is reinforced by the evidence which was available to the Court as to how ManTra was, in fact, developed and the evidence of the date and circumstances in which decisions were taken concerning what approach would be used in developing ManTra (this will be dealt with later in this judgment). The Court accepts the evidence given by James O’Donnell that the registration of the domain names in December 2005 arose in circumstances where during a conversation between himself and Roger Woolman, he had informed him of the difficulties that he was experiencing in Koger and that it was agreed that if the situation in Koger should deteriorate and James O’Donnell was obliged to leave, that the two of them might consider working together to create another business. The Court accepts James O’Donnell’s evidence that in registering the domain names and coming up with the word ManTra that they were taking tentative or preliminary steps which would assist in the creation of a separate business in the event that a decision was taken at some future date to set up such a business. Given that the Court is satisfied that James O’Donnell’s account as to the circumstances in which the domain names were registered and the name ManTra identified is truthful it follows that those steps were not part of a pre-existing conspiracy but were rather tentative and preliminary steps to put in place a contingency in the event that a future decision was taken to set up a separate business. Such steps as the plaintiffs identify as part of the conspiracy as of December 2005 are inconsistent with a pre-existing decision to set up a competing business but are rather consistent with James O’Donnell’s account of tentative and preliminary steps being taken to enable a business to be set up at some future date if a decision to do so was made. James O’Donnell gave evidence that by the end of 2005 no decision had been taken by him to go out on his own or to create a competing product or business and the Court accepts the truth of that evidence.
46. The plaintiffs claim that one of the steps taken in furtherance of the business conspiracy in January 2006 was the discussion between Roger Woolman and James O’Donnell leading to a legal opinion being sought on the 18th January, 2006 from solicitors, Baker & McKenzie, as to the enforceability of non-solicitation clauses in contracts of employment by the first named plaintiffs’ employees and contractors. That step is indicative of the fact that James O’Donnell and Roger Woolman continued to put in place certain preliminary or embryonic steps in the event that a decision was taken to set up a separate company or competing product at some future date. The Court is satisfied that the evidence establishes that by the end of January 2006 certain embryonic or preparatory steps had been taken which would assist in the setting up of a separate company or a competing business but that such steps were of a preliminary nature taken in circumstances where a future decision might be taken to set up such a business or to create such a product. The fact that such steps were preliminary and tentative rather than part of a conspiracy is shown by the fact that the legal opinion was not sought on any urgent basis and was not, in fact, obtained until 31st March, 2006. Such steps as were taken were done in circumstances where there was uncertainty as to the future employment of James O’Donnell and where both he and Roger Woolman were well aware of dissatisfaction within the plaintiff companies and of a potential reservoir of experts who would, in all likelihood, be prepared to work for such company if it were to be set up. It was also the case that there were good relations between the employees in Slovakia and Ireland and that therefore if James O’Donnell were to set up a competing company, such employees might well be willing to work for such company rather than to continue their employment with the plaintiffs. This flowed from the uncertainty of continued employment with the plaintiffs and the management style and working environment experienced by employees and contractors. At that time James O’Donnell and a number of the employees in Slovakia would have been well aware of certain technical or functional shortcomings in the NTAS product which could be addressed during the creation of a separate and distinct competing product. The technical evidence which was available to the Court demonstrated that the manner in which NTAS had been altered and amended over the years would have been likely to make it unwieldy and subject to problems and created a situation where it was expensive to amend and customise.
47. As part of the business conspiracy claim, the plaintiffs rely on the fact that Marian Klco gave in his notice on 2nd February, 2006 and on the 9th February, 2006 Jana Potocnakova gave in her notice. As is hereinafter set out the Court is satisfied that both those decisions were not based upon any pre-existing agreement or conspiracy but arose from separate and distinct matters personal to them and in both cases the decisions were significantly contributed to by the business style of George Sipko and the working environment in Slovakia. The Court accepts the evidence given by James O’Donnell (Transcript 25. question 134) that he did not encourage anybody to leave Koger’s employment or to terminate their contractual relationship with Koger. In accepting that evidence the Court relies not only on the view that it has formed in relation to the truthfulness of James O’Donnell’s evidence but also on the fact that such evidence is supported by the testimony of other persons who left Koger. The explanations given by those persons as to the reasons and circumstances for their departures confirm that such departures were in no way related to any actions taken by James O’Donnell or as part of a pre-existing business conspiracy.
48. By the start of February 2006 the situation within the plaintiff companies was unsettled. The Court is satisfied that this was not as a result of any steps taken in furtherance of a conspiracy but was as a result of the manner in which George Sipko was operating the companies and the working environment present within those companies. George Sipko was seeking to impose his directions and instructions and this was causing real problems for the persons working in Ireland and Slovakia. Matters came to a head for James O’Donnell on the 7th February, 2006 when he determined to give his notice to George Sipko and to terminate his employment. He did so in a detailed e-mail of the 7th February, 2006 and included in that e-mail was the following statement:
“I have just returned from a trip to Kosice, where I found morale to be very low indeed. The people there are extremely distressed at the current situation. Since your return from your extended absence last year, the individuals are very upset and unhappy with the constant shouting on phone calls, the abuse in daily notes and e-mails and entirely being dictated to and ignored. They try very hard to accommodate your requests but they always have to second guess what it is you really want and so there is a possibility they get it different to your requirements. There has been a complete inability to listen to these people over the last six months. Instead they are constantly under threat of dismissal and unfair deductions from their salaries. Koger is no longer the only employer in Kosice and many are being attracted by other positions in other companies in Kosice. We have already lost a number of talented people because of this recently. What is really sad is that these people really do want to do a great job and build interesting and useful things and have the ability to do so. They are very competent people and are smart and also express concerns when it appears requested functionality may compromise the database. They should be listened to and rewarded well.”
That account of the situation within the plaintiff companies, particularly in Slovakia, and the working environment is fully supported by the evidence heard by this Court. It explains why persons had left their employment with Koger and that document written in February 2006 is consistent with the evidence available to the Court as to why people had left Koger. The plaintiffs claim that James O’Donnell’s e-mail of the 7th February, 2006 was part of his conspiracy to encourage persons to leave Koger. That was expressly denied in evidence by James O’Donnell and the Court accepts that evidence and is satisfied that the reason for the departure of key employees was not as part of a conspiracy but was in response to the uncertainty concerning future employment and the working environment created by George Sipko’s management style. The Court is satisfied that the e-mail of the 7th February, 2006 was not written as part of a conspiracy or to mask such a conspiracy but was written in an attempt to identify the real and actual problems which existed within the plaintiff companies as of that date and to provide an explanation as to why James O’Donnell had concluded that he should give a month’s notice of his resignation. In the e-mail he indicated that he would continue to support Koger and to deal with any open issues during the one month notice period and that that month period would allow Koger to recruit another head of the Dublin office. The evidence is that during the period after the 7th February, 2006 up to the end of April 2006, whilst James O’Donnell remained employed by Koger that he continued to carry out his duties in a professional manner with integrity. Once that e-mail of the 7th February, 2006 was sent it was apparent that James O’Donnell would be leaving his employment with the second named plaintiff and that he would have to take steps to deal with the issue as to what he proposed to do with the rest of his career. James O’Donnell stated in evidence, and the Court accepts such evidence, that he wanted to stay in the same business as he was well known in the investment funds community. The steps taken by him after that date must be viewed in that light.
49. From February 2006 Roger Woolman and David Gross carried out a limited amount of work in preparing for the establishment of a potential independent business to create a product to compete with NTAS. Certain legal and financial implications were considered by Roger Woolman. In March of 2006 Roger Woolman was involved in the preparation of a preliminary and non-detailed business plan for a potential new company. The first copy of that tentative business plan is dated the 29th May, 2006 but an earlier version had previously existed as there is reference in the first copy to persons being employed as of March 2006. Those named persons included persons working for Koger and that fact is demonstrative of the aspirational and general nature of the business plan. The preliminary nature of the project is also demonstrated by the fact that no steps whatsoever had been taken to create, design or manufacture a product and the sourcing of funds had yet to take place.
50. In his e-mail of 7th February, 2006 James O’Donnell concluded by indicating that he did not really want to resign from Koger (Dublin) but that for the sake of the organisation as a whole he felt that he really had to do so and that he could not continue as he was unhappy. He went on to state that he held no personal grudge against George Sipko or his family and that his decision was based on professional reasons. If the plaintiffs’ case in relation to there being a business conspiracy was well founded it would mean that those sentiments as expressed in that e-mail were entirely insincere and false. The Court has had the opportunity of seeing James O’Donnell give evidence and of considering his evidence and it is satisfied that such contention is unfounded. The description contained in the e-mail of the 7th February, 2006 as to the then morale within Koger is entirely consistent with the case now made by the defendants. It describes the working environment in Koger in terms similar to that established in evidence before this Court. Following receipt of James O’Donnell’s e-mail, a telephone conversation took place that evening between James O’Donnell and George Sipko. It is common case that George Sipko’s response, during that telephone conversation, was conciliatory and that he indicated that he would try and address the difficulties which had been identified in the e-mail. George Sipko indicated in evidence that he found it difficult to believe that James O’Donnell would resign and that he viewed it as his task to make an agreement, if it was possible, with James O’Donnell so that he would not leave the company. What is clear is that in the telephone conversation George Sipko indicated that he would try and find ways to resolve the issues which had been identified by James O’Donnell. There was no immediate written response from George Sipko and the only reply in writing came from his son, Robert Sipko. In particular, there was no response to the description of the working environment in Slovakia notwithstanding the stark and bald terms in which that had been described. The plaintiffs now make the case that James O’Donnell’s visit to Kosice in Slovakia commencing on the 30th January, 2006 and extending until the 3rd February, 2006 was in fact part of the defendants’ business conspiracy. That was reiterated in George Sipko’s evidence when he stated (Transcript 20, question 64 – 66) that James O’Donnell’s trip had contributed to the destabilisation in the location of Kosice and that he had also utilised the trip as part of a plan to establish a different competing business. On the evidence heard by this Court there is no basis for that contention. The Court has already stated that the description of the working environment in Kosice contained in the e-mail of 7th February, 2006 is consistent with the evidence heard by the Court: that it was not caused or contributed to by the actions of James O’Donnell but arose from George Sipko’s management style and the working environment.
51. George Sipko’s son, Robert, replied to James O’Donnell’s e-mail on the 8th February, 2006. The evidence established that both Robert Sipko and Ras Sipko had listened in on the conversation between James O’Donnell and their father, George Sipko on the previous day. At that time Robert Sipko was the chief technology officer of the first named plaintiff. After that date difficulties arose between Robert Sipko and his father and twin brother, Ras Sipko, resulting in a court dispute which is being litigated in the U.S.A. There is no evidence that George Sipko or Ras Sipko were aware of Robert Sipko’s written response at the time it was sent but George Sipko indicated in evidence that in March or April of that year he would have been aware of the e-mail from Robert Sipko of the 8th February, 2006. It is also clear that George Sipko came into possession of a copy of the e-mail sometime after it was sent as it was used by him in the proceedings brought by Robert Sipko to support his contention that it was Robert Sipko’s actions which had destabilised the plaintiff companies. It was expressly relied upon by George Sipko in support of an argument that Robert Sipko had endeavoured to take over the company and had been disloyal. In Robert Sipko’s e-mail he expressed the view that having listened in on the conversation between James O’Donnell and his father, that he believed that James O’Donnell’s comments concerning the companies were very justified and that he too had grown frustrated over the changes of the past several months. It was also stated by Robert Sipko that James O’Donnell would appreciate George Sipko’s personality and that for the most part that personality can be filtered but that others within the company who do not know him as well as James O’Donnell were in fear of him and might not understand George Sipko from time to time or most of the time. It is clear from Robert Sipko’s e-mail that the conversation which he had heard between James O’Donnell and George Sipko had included the identification of what was considered by James O’Donnell to be serious and significant problems within the Koger companies. That is consistent with the evidence of James O’Donnell and is supportive of a finding that the problems within the plaintiff companies were real and genuine and were not caused or created by James O’Donnell or by the implementation of any conspiracy. It is also the case that when George Sipko obtained a copy of Robert Sipko’s e-mail endorsing James O’Donnell’s comments concerning the plaintiff companies as being justified, that George Sipko’s response was to use that e-mail in support of an argument, within the U.S. proceedings, that Robert was trying to take over the company and was disloyal.
52. After the 8th February, 2006 James O’Donnell proceeded to work out his resignation period or notice. A situation had been reached where it was understood of all parties that George Sipko would endeavour to address the matters raised by James O’Donnell with a view to ascertaining whether or not James O’Donnell might be prepared to remain on working for the second named plaintiff. George Sipko was proceeding on the basis that he considered it unlikely that James O’Donnell would leave whilst the evidence demonstrates that James O’Donnell believed that it was highly likely that his employment with the second named plaintiff was coming to an end. James O’Donnell continued to work for the second named plaintiff and there was no response from George Sipko in relation to the issues which had been raised in the e-mail and telephone conversation. The first reply from George Sipko came over five weeks later on the 15th March, 2006. In that, none of the problems which had been identified by James O’Donnell were addressed and George Sipko indicated that he would like to assign James O’Donnell to a more challenging job, which was unidentified, and making an offer to send James O’Donnell on a two week holiday to either Alaska or Hawaii. That e-mail was responded to by James O’Donnell in an e-mail which is undated but appears to have been sent on the 17th March, 2006. In that e-mail James O’Donnell thanked George Sipko for his generous offer of a holiday and indicated that he believed that it had been offered with good intention but that he felt that he had to decline the offer of a paid holiday as under the circumstances prevailing James O’Donnell was of the belief that it would be very insincere for him to accept such an offer. James O’Donnell’s e-mail response consisted of some five and half pages and once again reiterated and spelt out James O’Donnell’s opinion of there being significant problems within the plaintiff companies. On the final page of that e-mail James O’Donnell stated that he had been giving his position and his notice considerable thought and that he would really like to continue in the participation of the success of Koger but that his thinking was “that certain radical changes were required which would redress long-term imbalances in the organisation”. He went on to state that George Sipko might very well be unhappy about some of James O’Donnell’s ideas and concepts as described in that e-mail and that if that was so, “then it truly is time for us to now part company”. The e-mail concluded by stating that Koger (Dublin) were having a client to Dublin on the 23rd/24th March and that James O’Donnell felt that for the sake of everybody involved it was necessary to clear up the situation which had been identified in his e-mails one way or the other as James O’Donnell did not feel that “it would be appropriate for me to provide services to Koger outside of a contract after the end of March and that I will have to advise the staff in Dublin accordingly as it is simply not fair on them that they did not know of the current situation”. The situation referred to was the fact that James O’Donnell had tendered his resignation. That e-mail did elicit a response from George Sipko and on the 20th March, 2006 he sent an e-mail to James O’Donnell stating that James O’Donnell’s e-mail had addressed various and complex issues which would need some time for consideration and that a decision one way or the other would be made no later than the 15th April, 2006. That deadline was identified by George Sipko and was chosen by him.
53. The e-mail response by George Sipko offering James O’Donnell a trip to Alaska or Hawaii which did not deal with the issues which had been raised had the effect of confirming James O’Donnell’s belief that he would be ending his employment with the second named plaintiff. James O’Donnell stated in evidence that he considered the offer somewhat laughable and he had basically informed George Sipko that he would be leaving once the company audit was finished. Two days prior to the deadline proposed by George Sipko, he sent an e-mail to James O’Donnell indicating that all future business trips carried out by James O’Donnell would have to be approved in the U.S. office in advance and that also any amounts which James O’Donnell intended to charge clients had to be pre-approved in the same manner. The evidence is that that e-mail arrived out of the blue as there had been no dispute in relation to either business trips or charges. When the deadline passed without a response and given the e-mail of the 13th April, 2006 in relation to travel expenses and charges, a stage had been reached when it was clear that James O’Donnell’s departure from the second named plaintiff was inevitable. On Friday the 14th April, 2006 George Sipko sent an e-mail requesting James O’Donnell to attend a meeting in New Jersey on the 8th May, 2006. James O’Donnell responded by e-mail on the 20th April, 2006 indicating that he had been hoping that the issues between them would have been brought to a conclusion by the specified date of the 15th April, 2006, as had been promised by George Sipko, and also detailing company matters which would have to be dealt with in the forthcoming weeks in the light of his imminent departure. James O’Donnell made a number of attempts to contact George Sipko by telephone and e-mail and on the 27th April, 2006 George Sipko phoned James O’Donnell. It is James O’Donnell’s evidence that it was apparent from that telephone conversation that George Sipko had not given any real consideration of James O’Donnell’s complaints or proposals. The Court is satisfied that that evidence is truthful as it was apparent from George Sipko’s evidence that he had at no time identified any figure for a financial payment or inducement which might have encouraged James O’Donnell to remain on with the second named plaintiff. James O’Donnell ceased working with Koger (Dublin) Limited on the 30th April, 2006, returning his laptop to the company safe and locking the safe and providing his personal assistant with the safe and office keys. On the 2nd May, 2006 James O’Donnell sent an e-mail to George Sipko confirming that he had ceased providing any services for Koger (Dublin) Limited with effect from the 30th April, 2006.
54. The previous paragraphs have outlined the circumstances leading up to James O’Donnell’s departure from Koger (Dublin) Limited. The departure was not precipitous and an opportunity was given to George Sipko to identify proposals to deal with problems that James O’Donnell had outlined. George Sipko did not make any response and by the date of the departure matters had progressed no further than a suggested meeting in the U.S.A. at the end of the first week of May, 2006. In the period of just over seven weeks from the date when James O’Donnell gave his notice to his actual departure, the evidence to the Court is that James O’Donnell assisted in the orderly management of the company, took steps to ensure that there would be persons available to carry out work previously carried out by him, ensured that the audit would be completed and offered to assist his replacement. The Court is satisfied he did not prolong his employment with Koger (Dublin) for the purpose of assisting in furthering a business conspiracy. The circumstances of James O’Donnell’s departure as outlined above provide a context to that departure. From that evidence it is apparent that the departure was to a substantial extent precipitated and caused by the actions and inactions of George Sipko. As of the date of James O’Donnell’s departure at the end of April 2006, the evolution of what was to become HMW was such that it was no more than an embryonic concept in respect of which a small number of tentative preparatory steps had been taken. Those steps were taken outside James O’Donnell’s employment and HWM had by the 30th April no real existence as it had neither staff, premises nor had the development of any potential product commenced. The Court is satisfied that the manner and mode of James O’Donnell’s departure from Koger (Dublin) is inconsistent with there having been any conspiracy in place. By the date of the 30th April, 2006 the state of progress in the development of a separate company, such as HWM, was so insubstantial as to be inconsistent with there having been a pre-existing conspiracy to develop such a company from the end of the previous year.
55. David Gross is also identified by the plaintiffs as one of the parties to the alleged business conspiracy. He was a former employee of Koger (Dublin) and had prior to his employment by that company been a consultant with Koger. He first carried out consultancy work for Koger in April 2001 and after Koger (Dublin) was established provided consultancy work for that company before becoming its employee in November 2002. David Gross gave evidence that in late 2003 he was contacted by the global head of Deutsche Banks fund administration business who was setting up a consultancy business and who requested him to join the new business. David Gross decided to leave Koger (Dublin) and joined Carne Global Financial Services in March 2004. The position, therefore, is that as of December 2005 David Gross was free to put in place and carry out the tentative and preliminary steps which eventually led to the setting up of an independent company. He was present at a meeting in January 2006 with James O’Donnell and Roger Woolman where the possibility of a future company was considered. David Gross gave evidence that at that stage the existence of a future company was still speculative and that there were many questions remaining. The Court accepts that that is a true statement and consistent with the facts and with the state of development or rather lack of development of the concept at that point in time. David Gross said in answer to a question in cross-examination that the state of development of what was to become HWM as of January/February 2006 was that it was very speculative at that point and that it was 50/50 whether it would go any further than a coffee table meeting (see Transcript 31, question 225). The Court is satisfied that that characterisation of the stage of development of what was to become HWM is accurate and truthful and consistent with the evidence and documentation available to the Court. David Gross’s evidence is compatible with the evidence of James O’Donnell in that he stated that he was uncertain as to whether James O’Donnell would leave Koger (Dublin) and that whilst there might have been a domain name and “ideas from some persons sitting around a coffee table”, “there was no real business at that point in time and it only came together after James O’Donnell left Koger”.
56. A further person identified by the plaintiffs as being a participant in the business conspiracy is Roger Woolman. Roger Woolman first provided consultancy services for Koger in late 1999. In 2000 Roger Woolman commenced a business as a professional photographer specialising in the music industry and, to supplement his income from that business, he sought and obtained flexible part-time accounting work on a self-employed basis commencing with Koger in February 2001. When Koger (Dublin) was established he volunteered to become a director to facilitate its establishment and was a director for the period from January to December 2002. After the establishment of Koger (Dublin), Roger Woolman provided services to that company until the middle of 2003 when he moved to live in Waterford. Even though he continued to reside in Waterford he re-commenced providing consultancy part-time accountancy services for Koger (Dublin) in mid-2004 and continued to do so up until the middle of September 2006. There is an issue in relation to the type and nature of the contract that Roger Woolman had with Koger (Dublin) and I will return to that later in this judgment. It is, however, clear that from the date of the incorporation of Koger (Dublin) that Roger Woolman was never in their full-time employment and when he was working for that company he was working as a part-time consultant. Roger Woolman’s evidence (Transcript 32, question 235) was that he was free to offer services to multiple clients and that that is what he had been doing over the years and that he remained in that position after the amendments to his contract in the spring of 2006. Roger Woolman was part of the initial group involved in the preliminary discussions over the possibility of setting up a company and developing a product to compete with NTAS. Roger Woolman had registered the domain names hereinbefore referred to in December 2005 and in January 2006 he set about obtaining legal advice in relation to the issue as to whether former employees of either of the plaintiffs, and in particular the first named plaintiff, would be restricted from working for any future company that might be established which would be in competition with Koger. In February/March 2006 Roger Woolman commenced to work on a preliminary business plan which he identified in evidence as being of a pro-forma type and based upon a template from a business plan for another company. In the early stages the plan was theoretical as no decisions had been made and there were no premises, product or employees. This is confirmed by the evidence of Roger Woolman. The first business plan in draft form which was available to the Court is one of the 29th May, 2006 which was based upon earlier drafts. It is apparent from an examination of that document there had been some development from the earlier drafts, in that the names of potential employees were now included in the draft, as were basic costings and staff numbers. From an examination of the document it is clear that the project still remained at a basic stage and it was not until May of 2006 that Roger Woolman started to look at actual numbers and figures for the business plan in any detail. The proposed company at that stage had neither investment, premises, a product nor had the development of the product commenced. The issue as to whether Roger Woolman was free to carry out that work is raised by the plaintiffs and will be dealt with when the Court deals with the issue of his contract.
57. A further participant in the alleged business conspiracy was identified as Marian Klco. Marian Klco gave evidence to the Court and it was manifest that he is a highly experienced and able computer programmer. As hereinbefore set out, Marian Klco first worked for Koger in New Jersey in October 1998 and thereafter returned to Slovakia where he worked as an independent contractor for Koger. Marian Klco gave evidence that the working atmosphere both in Koger in New Jersey and in the Slovak offices was “very unwelcome”. Marian Klco was an essential and important part of the Koger company as he was the most experienced and senior programmer. It is claimed that he is part of the business conspiracy orchestrated by James O’Donnell and that his departure from his employment as an independent contractor with Koger was precipitated by James O’Donnell. Marian Klco gave evidence as to the circumstances of his departure and swore that when he decided to leave Koger, having handed in a one month notice on the 2nd February, 2006, he did so for many personal reasons. It is also clear from his evidence that the working conditions within Koger were, in his view, difficult and unpleasant and that he was also aware that Jana Potocnakova was intending to leave the company. She would have been a significant point of contact for Marian Klco and her departure would have further impacted on his capacity to work with Koger. Marian Klco stated that by the end of 2005 he found that his employment by Koger had left him confused and tired and being required to carry out a considerable amount of work including working many weekends and working to the extent that he had only had about three weeks vacation during his seven years working with Koger. At that point his wife received an offer of a part-time job which was better paid than his job and his mother was unwell and he determined to resign. Marian Klco gave evidence (Transcript 26, questions 535 and 536) that he left for many personal reasons, one of the most significant being that his mother was seriously injured and his need to be with her and there were other factors like his wife getting a better paid job and the fact that he did not want to spend another year working twelve to sixteen hours a day, weekends, no vacations and that he simply had enough. He confirmed in evidence that he was not induced to leave Koger by James O’Donnell and that he had no discussion with James O’Donnell in relation to his intention to leave Koger before he informed Koger of such intention in February 2006. The Court is satisfied that that is truthful evidence. The Court has already referred, earlier in this judgment, to its finding that Marian Klco’s evidence in relation to being threatened by George Sipko is to be preferred as opposed to George Sipko’s denial in respect of that matter. That incident was part of the conduct which Marian Klco gave evidence about concerning the approach and management style of George Sipko. He identified that George Sipko threatened everybody within his employment and threatened to fire all management (see Transcript 27, question 277). Marian Klco was cross-examined in relation to the circumstances of his departure, it being suggested that he was in some way induced to terminate his contact with Koger by James O’Donnell. Marian Klco responded indicating that he did not discuss his intention to depart with James O’Donnell but merely informed James O’Donnell that he was leaving. The Court is satisfied that that account is a truthful account and that Marian Klco’s departure from working for Koger was neither induced nor encouraged by James O’Donnell but was as a result of an independent decision taken for personal reasons. In those circumstances such departure could not form part of the alleged business conspiracy.
58. A further person who is alleged to have been part of the business conspiracy is Jana Potocnakova. She worked for Koger from August 2001 as an NTAS programmer based in Kosice. The Court has already dealt with the circumstances leading up to her departure earlier in this judgment. She gave evidence that by the end of 2005 the circumstances within the Kosice office were very difficult and that she was receiving telephone calls from George Sipko which were abusive and threatening and that he had repeated on many occasions that she could be fired at any moment and her contract could be terminated immediately. She described, in particular, one incident in October 2005 when she had come into work during the night and George Sipko had called from Dublin and had screamed at her for a protracted period. She stated that George Sipko screamed “I’m king, I have power, I have money, I don’t need Seamus (i.e. James O’Donnell), I don’t need Marian, I don’t need you”. She stated that she had to stay in the office all night and that after that occasion she decided to leave Koger and started to look for a new job and contacted recruitment agencies. The Court is satisfied that Jana Potocnakova’s evidence in relation to the manner in which she was treated is truthful and accurate and is consistent with accounts given by other witnesses as to the abusive nature of phone calls made by George Sipko. It is clear from Jana Potocnakova’s evidence that following October 2005 she visited a personnel agency and had started to view advertisements on the internet with the intention of obtaining an alternative job. She confirmed that there was no suggestion made that she might work for James O’Donnell at any future stage until after she had left Koger (see Transcript 29, question 64). The Court accepts that that evidence is truthful. Jana Potocnakova stated that it was after she was told to immediately leave Koger on the 9th February, 2006 that she received a call from James O’Donnell. She stated that the telephone call was to express his support for her and he told her that if there would be some opportunity to work together in the future he would like to work with her again. The Court accepts that that is an accurate account of what occurred as it is consistent with the embryonic stage of development of the company which led to HWM. The evidence also is that on the 9th February, 2006, the day before the telephone call with James O’Donnell, that Jana Potocnakova handed in her notice as she had obtained an alternative job in Siemens PSE in Kosice in Slovakia to commence on the 1st March, 2006. The Court is satisfied that there is no basis for the claim that Jana Potocnakova was in any way induced to leave her employment with Koger by James O’Donnell but that the true position is that the decision to do so was as a result of the manner in which she had been treated by George Sipko. The fact that she went out and sought and obtained alternative employment in Slovakia and that that was in place before she gave her notice further confirms the Court in its view that her account is truthful. Jana Potocnakova, in fact, worked for Siemens for a number of months before she commenced to work as a contractor for the fourth named defendant in September 2006. During the period of her employment with Siemens in June of 2006, she attended a planning meeting. That meeting was at the very commencement of the ManTra product where the persons present discussed the initial concepts and ideas for ManTra. The June 2006 meeting which took place in a secluded location in Slovakia was a preliminary discussion as to the nature of a product that might compete with NTAS and Jana Potocnakova accepted in cross-examination that the meeting could be described as a meeting brain-storming the idea of a new business venture (see Transcript 29 question 134). As is apparent from the foregoing, the position is that the Court is satisfied that Jana Potocnakova left her employment with Koger for reasons that were entirely unconnected with James O’Donnell or any potential future business venture but rather was as a result of the manner in which she had been treated by George Sipko and her desire to cease being employed by Koger. It follows that there is no basis for any suggestion that the departure of Jana Potocnakova was part of a business conspiracy.
59. Another former employee of Koger who subsequently worked for HWM was Ivan Mesarc. The Court has already indicated the circumstances of his departure. In June 2006 he had arranged a two week holiday with his family in Egypt and when he informed Koger that he was taking a vacation he was told that he had to stay at work or otherwise he would be fired. Notwithstanding that threat he decided to go on his vacation as he had already paid for the holiday and when he returned he was told that he had been fired. The Court accepts that as an accurate account of the circumstances of Ivan Mesarc’s departure from his employment with Koger. His evidence also is that in July and August of 2006 he was looking for a new job and had interviews with a number of companies and that in October 2006 he commenced work as a self-employed contractor for a company providing services to HWM. On the basis of that evidence there is no ground to support any claim that Ivan Mesarc’s subsequent employment by a firm providing services for HWM could form any part of the alleged business conspiracy. Similarly, the circumstances of Martin Madej’s departure from Koger which is described above, namely, that he was fired without notice on the 18th October, 2005, leads to the conclusion that his departure from Koger could in no way be linked to any business conspiracy. Even though he ultimately was to work for a company providing services to HWM, that only arose after he had had a period of employment from the 15th November, 2005 working for Siemens as a computer programmer. He represents one of a number of former Koger staff who were available to be employed by HWM or to carry out services for them. They were available because they had either been fired or had independently chosen to cease their employment with Koger. The fact that these persons subsequently worked on the development of the ManTra product and thereafter continued to provide services for a company working for HWM does not, on the facts of this case, in any way support a claim for a business conspiracy. Their availability arose in circumstances entirely independent of any steps taken by James O’Donnell or any of the other promoters of HWM. It was obvious that James O’Donnell was aware of these persons and of their expertise but the fact that they were available to work for HWM was not as a result of any inducement or conspiracy but as a result of other factors. The Court is satisfied that there is in each and every instance a credible and coherent explanation for their departure from Koger independent of HWM or any of its promoters. This position also applies to Mikulas Klasovsky. The evidence establishes that as of October 2006 the development of HWM had progressed to the extent that a product was in development, premises had been obtained and some finance was in place. That enabled HWM to offer employment to persons who either worked for or formerly worked for the plaintiff companies. This is what occurred in relation to Alex Gissing who gave evidence and confirmed his précis of evidence. He worked for Koger (Dublin) for a number of years and after HWM was sufficiently established to be in a position to employ persons was approached by James O’Donnell in October 2006. He decided to resign from Koger and did so on good terms and thereafter commenced to work for HWM on the 7th November, 2006.
60. The one former employee of the second named plaintiff who is in a different position from the other former employees is Dylan O’Brien. This is because the dates and circumstances of his first involvement with HWM were at a time when he was employed by the second named plaintiff. Dylan O’Brien is currently the operations manager of HWM and has worked for that company since the 16th November, 2006. Dylan O’Brien joined Koger(Dublin) as a business analyst in April 2003 having qualified from university in economics and having spent several years working in the recruitment industry as a recruitment consultant and having spent a year teaching English. In Koger his work included testing software and also client support and he reported directly to James O’Donnell. Dylan O’Brien gave evidence to the Court and stated that his affiliation was with James O’Donnell as he had worked with him for a number of years. It was against that background that when Dylan O’Brien became aware of the project to establish HWM in or around the time when James O’Donnell left his employment with Koger (Dublin), that he accepted an offer to work with James O’Donnell. The evidence establishes that it was proposed that the first involvement of Dylan O’Brien with the HWM project would be to attend the brain-storming meeting in Slovakia at the start of June, 2006. There is no evidence of Dylan O’Brien being involved in the HWM project prior to that date. Due to his decision to attend the meeting at the start of June 2006, Dylan O’Brien resigned from his employment with Koger (Dublin) on the 30th May, 2006. He then went on holiday and he used that holiday to attend the HWM meeting in Slovakia at the start of June 2006. At that time he was still an employee of Koger (Dublin) and even though he had resigned he had not worked out his notice period and was on holiday from his employment. In those circumstances, Dylan O’Brien had placed himself in a problematic and difficult position as he continued to owe obligations to his employer. The evidence shows that at the time Dylan O’Brien travelled to the brain-storming meeting in Slovakia that it was his intention to resign from Koger(Dublin) but attending that meeting whilst still employed created the potential for a real conflict of interest. The Court does not have to directly address this issue as there is no claim in person against Dylan O’Brien. This matter is further complicated by the fact that upon his return to Koger (Dublin), after the meeting in Slovakia, Dylan O’Brien was offered an improved package and an enhanced position within Koger (Dublin) and accepted that position. He remained working with Koger (Dublin) for a number of months ultimately resigning in October 2006. Dylan O’Brien gave evidence to the effect that when he had decided to resign for the second time that he then informed James O’Donnell of his decision and of his desire to join HWM and it was agreed that he would do so and he did so from the 16th November, 2006. Dylan O’Brien was cross-examined in relation to his loyalties and clearly in the period from the start of June 2006 up to his final departure from Koger (Dublin) there is an issue in relation to a potential conflict of interest or split loyalty. However, there is no evidence available to indicate that any material, documentation or information was in any way transmitted to HWM or its promoters and the fact that it was Dylan O’Brien who informed James O’Donnell of his second resignation is indicative of that being the true state of affairs. After Dylan O’Brien had accepted the enhanced salary and position in June 2006, there is no evidence that HWM or its promoters had any contact with him until he resigned for a second time.
61. The meeting in Slovakia at the start of June 2006 was the first meeting at which the potential product of HWM was considered. It lasted a number of days and the Court has had the benefit not only of oral evidence as to what occurred at that meeting but also has had the opportunity of considering photographs of the flip charts that were used and generated at that meeting. It is quite clear from the evidence and the contents of the flip charts that the potential product of HWM was at an embryonic stage and that the discussions were conceptual and exploratory. There is no indication that that meeting had any access to the NTAS product even though it is manifest that a number of the persons attending the meeting had detailed knowledge of the NTAS product, having worked with it and developed it over a number of years. Such knowledge of the NTAS product as was required to enable a competing product to be developed was known by a number of persons at the meeting from their own knowledge and without the need for any access to the NTAS product. The contents of the flip charts identify areas of discussion. Those charts and the evidence of the persons attending the meeting leads the Court to conclude that the NTAS product was not used nor was it required to be used at that meeting. The presence of Dylan O’Brien who had a potential conflict of interest is not a matter of any great relevance in relation to the early conceptual design and approach to the ManTra product. It is clear from the flip charts and the testimony of the other persons present at the meeting that it was the design concept and makeup of a potential product which was under consideration. Dylan O’Brien was neither a computer programmer nor a software designer. He was a tester and, therefore, given the content of the meeting he could have some input into the discussions. However, he gave evidence that during the first two or three days of the meeting he had no input whatsoever. Dylan O’Brien categorises his involvement in that meeting in his evidence (Transcript 32, question 525) as being effectively zero from an input point of view. The Court accepts that evidence as there were trained and experienced persons present, other than Dylan O’Brien, well capable of dealing with an early design concept. The position, therefore, is that even though there is an issue in relation to a conflict of interest on the part of Dylan O’Brien, there is no claim against him in person nor is there any evidence that the fourth named defendant or its promoters gained any real benefit from his attendance at the meeting in Slovakia at the start of June 2006.
62. The central contention of the plaintiffs’ case as set out in the amended plaintiffs’ statement of case is that the defendants had access to and use of an unauthorised copy of NTAS and that thereby the defendants were able to develop the fourth named defendants’ ManTra product and release it onto the market at an earlier date and to a higher quality. The Court must therefore consider the evidence which is available to it in relation to the development of ManTra and the speed and manner in which it was developed. The first and significant point is that consideration of all the evidence and documents available to the Court does not provide any direct evidence showing that the defendants had a copy of NTAS available to them including during the period of the development of the ManTra product from October 2006 to March 2007. Examination of the evidence and documents in relation to ManTra does not demonstrate the evidence of the presence of NTAS specific files nor actual disc copies of NTAS nor logs showing that NTAS software was copied nor screenshots showing that NTAS was in use by the defendants. The plaintiffs seek to rely on indirect evidence which is categorised by the defendants in their closing submissions as a claimed “deductive inference”. Specifically, the plaintiffs claim that this arises from the speed of the development of ManTra. On the balance of probabilities the Court is satisfied that the inference that the plaintiffs invite the Court to make is a false and erroneous inference. The Court’s finding on this matter is based in part upon the categorical and absolute denial by each of the persons involved in the development of ManTra that they had any access to a copy of NTAS. The Court is satisfied that the evidence given by these witnesses was both credible and coherent and represents a true account of what occurred. In arriving at its view that there was no access by the defendants to a copy of NTAS, the Court has been reinforced in that finding by the evidence which is available to it in relation to the development of ManTra.
63. The evidence led by the plaintiffs to support a claim that ManTra was developed in an excessively short time period and to a quality that could not have been achieved other than by access to a copy of NTAS is based upon flawed deduction and reasoning. In particular, the deductive inference which the plaintiffs ask the Court to make makes no real or proper allowance for the knowledge, experience and expertise of the individual defendants and the persons working with them in the development of ManTra. The evidence establishes that those persons had the exact and precise expertise, training, information and knowledge necessary to enable them to develop the ManTra product. An examination of the ManTra product does not, on the face of it, indicate or manifest how or in what manner that product would have benefited in its development from access to NTAS. The products are fundamentally different in design. The Court will return to this matter later in its judgment. It is also the case that an examination of ManTra, given its fundamental differences from NTAS, established that ManTra is not an adaptation of NTAS either for the purpose of the Copyright and Related Rights Act 2000 or otherwise.
64. The evidence establishes that it was at the meeting in Slovakia at the start of June 2006 that the development of ManTra commenced. Present at that meeting were James O’Donnell, Marian Klco, Jana Potocnakova, Martin Madej and Dylan O’Brien. The Court has heard evidence from each of those witnesses and has also had access to photograph copies of a number of flip charts that were used at that meeting. Those flip charts identified features which it was proposed might be present in a transfer agency system to be developed. Copies of the flip charts survived as a result of Marian Klco taking photographs of same for his own use. Those photographs have been of considerable assistance as they demonstrate and confirm the oral evidence as to the embryonic status of development and confirm the categorisation of that meeting as a brain-storming session. The persons present at that meeting had considerable and diverse knowledge and expertise of transfer agency systems. James O’Donnell had long experience of the agency transfer business and he had extensive contact with clients and was fully cognisant of the requirements of potential clients or users of such a system. Marian Klco had worked as a professional software developer since 1994 with experience in PowerBuilder and Sybase ASA. He was not only an expert professional developer but he also had a detailed knowledge of the NTAS product and of the uses which clients required of that system and he had worked from September 1998 to March 2006 as the lead programmer on the NTAS product. In his evidence to Court Marian Klco demonstrated an excellent knowledge of and expertise in computer program development. Martin Madej had worked as a software programmer on the NTAS product for Koger from 2000 until he was dismissed on the 15th October, 2005. Jana Potocnakova had worked in a senior role in the development of the NTAS product and had been the person who had dealt with the day to day issues of bringing together the requirements of the clients and matching those with the technical expertise necessary to satisfy such requirements. In considering the nature and speed of the development of ManTra, neither the plaintiffs nor their experts gave any real or sufficient allowance for the knowledge, experience and expertise of the persons developing ManTra. Between them these persons had a detailed and comprehensive knowledge of transfer agency systems and the requirements of clients and potential clients using such systems and the mastery and know how of computer programming and the development of software using PowerBuilder and SQL based database management systems. To a large extent this arose from their work experience with Koger where they had acquired a detailed knowledge of NTAS including its strengths and weaknesses. This knowledge would have been available without the need for any copy of NTAS due to their thorough involvement with the NTAS product. There was also a failure on the part of the plaintiffs’ witnesses and their experts to make any sufficient allowance for the manner in which the persons developing ManTra were able to carry out their work. The people involved in the development were free to work in a constructive, co-operative and dynamic environment in contrast to the environment within Koger. The persons developing ManTra were in open, direct and constant contact with one and other. Having heard those persons give evidence the Court is satisfied that they had a good working relationship and a real ambition to succeed in the development of the ManTra product. The manner in which the persons who developed ManTra were able to proceed enabled them to develop the product in a truly agile environment where there was little or no bureaucratic requirement and where the necessity for documentation was limited and where the knowledge as to the requirements and business needs of potential clients was well known. This resulted in a situation where there was no need for detailed specifications or written directions.
65. It was part of the plaintiffs’ case that the defendants used NTAS as a visual, functional specification when designing ManTra. This claim was not particularised and the plaintiffs, including their expert, Harry Goddard, were unable to identify any specific part of ManTra which demonstrated a manifestation or a trace of the suggested design by reference. It is also the case that the architecture of the PowerBuilder code in NTAS is fundamentally different from that of ManTra. The expert evidence available to the Court is that once a particular applications architecture is established then it is difficult to convert it to another architecture, particularly in circumstances where the two architectures are fundamentally different. Whilst it was alleged on behalf of the plaintiffs that the structures are similar, the evidence of the defendants and their experts identified appreciable differences. In the database structure the entities table in ManTra fulfils the function of up to eight tables in NTAS. When compared, the NTAS and the ManTra database structures contained substantive differences. It is also the case that such similarity between the two products as is present is entirely to be expected as the two products were designed and produced for use in the same business and with the same requirements. The appreciable difference between the two products is further demonstrated by the fact that the structure of the data access code is different in the two products. It is also implemented using two different platforms and the two approaches to data access are different. The ManTra product uses SQL stored procedures while in NTAS it is contained in PowerBuilder code. In those circumstances it is difficult to see how the ManTra data access code could have been derived from that contained in NTAS. The evidence in Court established that the user interfaces of the two products are dissimilar. There is a certain visual resemblance in that both are Windows applications but other than for that the interfaces are unalike. An examination of the two products also demonstrates that in the main areas of meaningful functionality the functions were implemented in different ways. This is demonstrated by the fact that the ManTra World-Check solution was less complicated and generic than that of NTAS and by the fact that the ManTra solution for fee calculation was more generic than that of NTAS and that the ManTra solution for integration used Microsoft Integration Services whilst the corresponding NTAS solution used a proprietary design known as GRID.
66. The one true area of similarity between the two products is in the requirements that they meet. Given that they are addressing the same business this is inescapable. The plaintiffs contended that this demonstrated that NTAS had been used as a functional specification for ManTra. However, that contention disregards the fact that the persons developing ManTra possessed of their own knowledge a detailed and extensive awareness of such requirements and how to meet them. The plaintiffs failed to demonstrate to the Court how the persons developing ManTra would have needed to use a copy of NTAS to remind them of such requirements or how to implement them. The Court also has regard to the evidence of Joan Kehoe who is the founder and chief executive officer of a company known as Quintillion which is a licensed fund administration services provider and who has used both NTAS and ManTra. She gave evidence that ManTra contains a number of features which are not within NTAS. It is against the above background as to the design and function of the two products that the plaintiffs are, in effect, forced to limit their complaint to a claim that ManTra was developed in an excessively rapid timeframe and that the defendants must have designed ManTra by reference to NTAS. They also contended, insofar as it could be argued, that there were no specific instances to confirm that the design of ManTra arose by reference to NTAS and that such lack of incidences arose from the fact that the defendants concealed such evidence. Having considered this the Court is satisfied that the evidence establishes that ManTra was not developed within a timeframe or to a design quality which required access to NTAS nor was ManTra designed by reference to NTAS. Indeed, as pointed out elsewhere in this judgment, access to a copy of NTAS would not have been of any real help to the persons developing ManTra. It would therefore follow that the lack of evidence showing that ManTra was designed by reference to NTAS is not caused by concealment but rather to the fact that ManTra was not designed by reference to NTAS. The Court is satisfied that the weight of evidence demonstrates that ManTra was developed at a speed and to a quality which arose from the abilities, expertise and knowledge of the persons developing the product and from skilful and informed design choices.
67. The evidence of James O’Donnell as to what took place at the June 2006 meeting was that the purpose of that meeting was to discuss a business proposition and to outline, in the light of what the market was doing, what might be built or created which was different and obviously better than the existing products and, in particular, the plaintiffs’ product. He stated that the purpose of that meeting was “Really to start to put thoughts as to the architecture and technology and database design functionality of the system, but more so to ensure that these guys would wish to join me, effectively and collaborate with me” (Transcript 25, question 208). The copies of the flip charts which survive from that meeting show that the discussions included the major areas of the design system and the germinal thoughts in relation to a database design. Those copies are entirely consistent with the individual oral evidence of the persons who were present at that meeting and the evidence of those persons looked at in the round is both coherent and logical. The witnesses confirmed in evidence, which the Court accepts, that the design concepts and data structure discussed at that meeting was not generated by reference to NTAS. The evidence establishes that there was no further significant development of the ManTra product in the months following June 2006 meeting until the meeting in October of that year. In the intervening months there had been progress in relation to the business plan, the circulation of that plan and the raising of limited finance. By October 2006 HWM had progressed to the extent that there was certain finance in place and some persons were employed. It was then possible to arrange a trip to Kosice in Slovakia in October 2006 so that a discussion could take place to identify the main components of a new system that HWM proposed to build.
68. In the first week of October 2006 there was a meeting of approximately a week’s duration held in Kosice to discuss the development of the ManTra product. That meeting was attended by James O’Donnell, Roger Woolman, Marian Klco, Jana Potocnakova, Martin Madej and Ivan Mesarc. In advance of that meeting an agenda was prepared by James O’Donnell. One of the matters to consider was the choice of the technology platform. James O’Donnell described that meeting in the following terms (Transcript 26, question 423):
“We then, when I got finance, arranged a trip to Kosice in October and we started to discuss the main components of the system we wanted to build. Effectively as a milestone for that week we said, well, we should get at least the core tables for the database put together. We essentially said, okay, we needed to break it down into the counterparties that were all going to be associated with transactions which ultimately became the entities. We then needed to have tables that associated investment itself which was any specific rule for the class and any specific rule for the accounting question as essentially a separate layer. Then we had a set of discussions as to what the models of performance fees we would be trying to accommodate in the system which evolved into a discussion as to the database design for valuations or navs, using the name at that point in time. Then we had a separate section of discussion as to what the type of processes we would be recording in ManTra, from essentially commitments down to orders to trades and so on. So each of those four distinct areas has corresponding tables behind them and essentially the counterparties, we use a table entities and as I say we were aware of the sort of structures we needed to cover and using NTAS language there was fund group, counterparties we had to track, there was portfolios, there was legal entities, there was series groups, there was fund IDs, there was holders, there was holders accounts and there would be related parties. These are essentially all of the contacts, all of the counterparties within any transaction, but of course there is also structures in there.
Now, in case there is any conflict here, each of those tables exists separately in the NTAS system. The nature of the relationships exists as a function of the business. So in essence we were able to say, well, we can put all of the common elements of each of those relationships into one table and we’ll call it entities and we will be able to create relations between the parent and child for each of those and track those on the entities tables.”
That description is compatible with the evidence from the other witnesses who were present at that meeting. That evidence demonstrates the early stage of development of ManTra at that point in time and it establishes the framework and design decisions upon which ManTra was created.
69. An issue which was raised in the cross-examination of Marian Klco by the plaintiffs related to the decision to use PowerBuilder and Microsoft SQL at that meeting. It was suggested that the agenda for the October 2006 meeting did not identify the issue of a choice of technology platform but rather confirmed one which had already been made. In support of this contention the plaintiffs relied upon the fact that in July 2006 Marian Klco had created a stripped down version of PowerBuilder base foundation classes and the plaintiffs argued that this demonstrated that a decision to use PowerBuilder had already been made and that the work done by Marian Klco in creating the stripped down version in July 2006 established such claim. Marian Klco gave evidence as to the circumstances in which he came to create the stripped down version of PowerBuilder base foundation and the Court accepts that evidence as being true. The Court is supported in that finding by the fact that James O’Donnell was in correspondence, on or about the 10th October, 2006, with an external company in respect of the use of Java for the production of ManTra. There is also an express reference to the potential use of Java as a platform to be used for ManTra in the agenda for the October meeting. There would be no logic in referring to Java if a decision to use an alternative platform had already been made. In those circumstances the Court is satisfied that as of the commencement of the October meeting no decision had been taken as to the platform and that it was as a result of the discussions at the meeting that the defendants proceeded to create ManTra’s source code using PowerBuilder and Microsoft SQL.
70. Arising out of the October 2006 meeting, Jana Potocnakova recorded the structure for 28 database tables and they were moved into a PowerDesigner file called PDM (Physical Data Model) folder from a CDM (Conceptual Data Model) folder on the 12th October, 2006. The evidence establishes that each of those 28 tables have subsequent modification dates and in their present state, that is the state in which they are available to the Court, carry table names such as “currencies”, “countries”, “languages”, and “addresses”. When it was put to Harry Goddard, an expert on behalf of the plaintiffs, (Transcript 17, question 46 onwards):
Did he accept that every one of these tables has been altered and did he dispute Mr. Thomas’s statement that 3,074 changes took place between October and the 12th May, 2007 in relation to the database?
He replied that he had not counted them but that there was a lot of them.
71. Part of the plaintiffs’ case of an alleged use of an unauthorised copy of NTAS is based upon the claim that the NTAS copy served as a reminder to the defendants of what functions it was necessary to implement and to include in their program. The evidence demonstrates to the Court that the individual defendants and the persons working with them would not have required any real assistance to remind them as to what functions were necessary to implement. This arose from the fact that those persons had extensive pre-existing knowledge of NTAS and of the hedge fund or transfer agency business. It is clear that the functional requirements are relatively basic and straightforward to any person who was expert and knowledgeable of the transfer agency or hedge fund business. A number of the persons developing ManTra had long and detailed exposure to the NTAS system and would inevitably have come to know the functions which that system provided. The NTAS system was widely used by third parties and had been promoted by means of a demonstration CD. There was disputed evidence as to whether or not the demonstration CD was secured. However, what is clear is that the persons developing ManTra had been involved in the development and implementation of NTAS for a number of years. In NTAS, details of the database structure are in a number of instances displayed to the users of the program. In fact, to avail of certain features in NTAS, the user must understand the database structure. The evidence was that exposing a database structure in this manner is unusual but the fact is that the Koger NTAS product had been developed in this way which had the inevitable consequence that persons frequently using NTAS would have become familiar with the NTAS database structure. It is also the case that the database structure used in NTAS represents well known terms, concepts and relationships. The evidence to the Court was that the terms, concepts and relationships contained in the NTAS database structure are commonly understood in the field of hedge funds and transfer agency systems. An independent expert producing database structures for these businesses would be required to produce similar data models. This flows from the fact that the database structure is merely a depiction of widely understood business concepts and relationships using common business terms. It is also the case that significant aspects of the NTAS system had been made public by the plaintiffs at different times and the plaintiffs’ website carried screen shots of NTAS in operation for a number of years. The present Koger website includes information about features of NTAS. It is also the case that publications, such as the Barrington Report which was produced in evidence, have details in relation to the functionality contained in NTAS.
72. The Court is satisfied that on balance the evidence supports a conclusion that the experience and knowledge of the persons developing ManTra was such that they were well capable of generating the 28 database tables incorporated into their data model on the 12th October, 2006 from memory and pre-existing knowledge without any requirement to use a copy of NTAS.
73. The plaintiffs contend that an NTAS copy must have been used as a reminder to the defendants of what functions to implement. Given the amount of information in the public domain, the experience and knowledge of the persons developing ManTra and their knowledge of the hedge fund or transfer agency business, this does not necessarily follow. Indeed, given the differences between NTAS and ManTra and the fact that the NTAS user interface is different from ManTra’s, access to NTAS during the development of ManTra could even have been counterproductive. This follows from the fact that since the NTAS user interface is different from ManTra that even similar functions would tend to look distinct and work in a different manner. Therefore, if a person developing ManTra was using NTAS as a reference there would be a need to translate between the two and that would tend to slow down the process of development and to create a situation where confusion could arise.
74. The defendants gave evidence of how they developed ManTra. It was suggested to them in cross-examination and through the expert evidence called on behalf of the plaintiffs that there were two main areas where copying had occurred, namely World-Check interface and fee calculations. The defendants’ evidence in relation to the development of the World-Check interface in ManTra was that the design began with a format similar to that used in NTAS. The defendants’ design involved a generic two table solution designed to work not just with World-Check files but with any similar files from other third party providers. However, during the design process the defendants identified a preferred approach and ultimately used a simpler design which would work only with World-Check files. The case made by the plaintiffs is that the initial ManTra design for World-Check is so similar to the NTAS design that the defendants must have taken that design from a copy of NTAS. However, that argument fails to have regard to the knowledge and experience which the ManTra developers had of the NTAS system and the World-Check interface. That knowledge and experience was such that the defendants’ evidence that they could replicate the NTAS design for World-Check from their own memory of previously implementing it in NTAS is credible. Persons with a high level of proficiency in a particular area exposed over a long period of time to working with software will inevitably acquire a detailed knowledge of the structure and algorithms in use. That is knowledge which would be built up over a period of time and would be retained by the persons. Recall would not require the use of a copy of NTAS. The plaintiffs and their experts also point to the similarities in the column names used in the World-Check interfaces in ManTra and NTAS. It is suggested that this is evidence that the ManTra design or format was copied from NTAS. The evidence to the Court, however, demonstrated that the common column names come from the data file provided by World-Check. The similarities in column names therefore emanates from a common source rather than from the use of NTAS. Indeed, this claim as pursued by the plaintiffs was a further illustration of a willingness on their part to search far and wide for any similarities and if there were such similarities to claim that such was proof of copying rather than consider potential alternative explanations when they were readily available as in this case, namely that the similar column names emerged from the use of the same source.
75. A second significant area which the plaintiffs claim demonstrates an instance of copying relates to fee calculations. However, a consideration of how fee calculations are dealt with within NTAS and ManTra demonstrates that they are implemented in an entirely different manner. It is quite clear that fee calculations would be a central and integral part of any transfer agency system or system being used within the hedge fund industry. The defendants’ design within ManTra for equalisation fee calculation uses a different approach from NTAS. Within NTAS, each equalisation method had its own piece of code and this results in a situation that when it is necessary to add a new calculation method then a new program code must be written. The persons who developed ManTra would have been well aware of that design approach and of the problems and expense that it caused when it came to adding a new calculation method. In ManTra different fee calculation methods are implemented in a single piece of code. Its behaviour is controlled by configuration parameters that the user enters. That approach makes it possible for a person using ManTra to define new equalisation fee methods without the need for any additional code, thereby removing the necessity of writing any new program code. The Court is satisfied that the implementations as to fee calculations are so different within NTAS and ManTra that there is no basis for the claim that the ManTra fee calculations method emanated from access to an NTAS copy. It is the case that the ManTra design contains implemented fee calculation methods, such as formulae, which NTAS also implemented, however, the methods used amount to principles and are in the public domain and therefore would not be present as a result of copying and would not be protected by copyright.
76. In their submissions the plaintiffs identify as the first building block of their technical case the allegation of the implausible development velocity of ManTra. In this they particularly rely on the report of their expert, Harry Goddard, which is exhibit HD7 in the papers before the Court. It is claimed that that report demonstrates that the defendants’ case in relation to the development velocity does not stack up. After the October 2006 meeting, the defendants’ development team met over a two week period in early November 2006. The technical experts who had embarked on creating ManTra were present and in direct and continuous contact with one and other. Harry Goddard in his report conducted an analysis from the documents which were available which led him to the conclusion that, given the quality of the ManTra product and the development and design of the source code, both of which he rated very highly, and having examined the materials, as design artefacts, he came to the conclusion that the pace of development was extraordinary. He expressed the view (Transcript 23, question 104) that the pace of development was extraordinary for a small group of people and that the data in front of him would suggest that with no design, in a period of some months two or three people built about 80% of the application. A difficulty which arises in relation to Harry Goddard’s consideration of this matter and his expert opinion thereon is that he was relying on the data material and documents which were available when the evidence establishes that a considerable proportion of the design and source code development took place without the generation of data, material or documents. In limiting his consideration of development velocity to such documents, records and data as were available Harry Goddard failed to consider the full picture. This is illustrated in the cross-examination of Harry Goddard (Transcript 24, question 148). In commenting on the suggestion that the data indicated a lack of real activity from the 1st November to the 17th November, 2006, which included the two week period where the defendants’ experts had met together for the purposes of developing ManTra, Harry Goddard explained his assertion in relation to there being a lack of development activity by stating that he was specifically commenting in relation to e-mail activity and design discussions. He commented on there appearing to be radio silence during that period and that separately there is activity in the PDM file. The evidence establishes that what was in fact occurring during the first two weeks of November 2006 was that the development was taking place in an agile manner with all the developers being in the one location and directly communicating with one and other. That fact explains the absence of e-mail activity and the so-called radio silence and illustrates the frailty of the approach adopted by Harry Goddard in limiting his consideration to documents, records and data and paying no regard to what was actually occurring or the evidence in relation to same.
Harry Goddard in his evidence questioned as to how the defendants could have produced ManTra to such a high quality within such a short timeframe. His conclusion was that this was explained on the basis that the persons developing ManTra had access to and use of an unauthorised copy of NTAS. In considering this issue the Court has had the benefit of hearing in evidence the persons who actually developed ManTra and, in particular, the central figure of Marian Klco. The evidence available to the Court from James O’Donnell, Marian Klco and the other persons who participated in the development of ManTra identified a dynamic environment where the participants had direct and meaningful contact with one another. This was in contrast to the situation that existed in Koger which was described by Marian Klco in his evidence (Transcript 27, question 257) in the following terms: “In Koger it was simple: one day I was working on a task next day the person disappear and nobody know what happen. So that it was like working always with a brand new team”. The evidence identified that when ManTra was being developed, it was done by a small highly experienced and able group who had the correct mix of skills in all the relevant areas and were working in an environment where there was a clear demarcation of responsibilities. The group of people included persons experienced in business analysis and who had a wide ranging pre-existing knowledge of the hedge fund transfer accounting business. The Court is satisfied, having had the opportunity of observing those persons give evidence that they formed a team which was capable and experienced and had knowledge of a technology similar to that used in the development of ManTra, namely PowerBuilder with an SQL based relational database. The persons working on the development were well aware that the financial wellbeing of HWM was dependent upon an early completion of its product. Due to the background of the developers, those persons had a detailed and intuitive understanding of what was required and from their extensive experience within Koger would have developed an appreciation of what would and would not work. Also in addressing the argument concerning development velocity, a proper consideration of the evidence must appreciate that ManTra started out with a well thought out database structure and using a suitable development framework, namely, BFC foundation classes. The ManTra developers also used the appropriate technologies to support design and development, that is PowerDesigner which is a database design tool, version control software, SharePoint collaboration software, etc. The project of creating a new product for general use meant that there was an absence of demands created by any contractual relationship with a client. If there had been such a contractual relationship there would have been detailed specifications but in this instance the persons working on the development were aware of what was required from their own knowledge and could work, as demonstrated in their evidence, without the need of written specifications. The Court is satisfied that the evidence establishes that the persons developing ManTra made proper use of a suitable agile methodology without the constraints which would be imposed by the need to specify contracts contractually and of having to sign off on designs. It was also the case that the evidence established that the appropriate use of PowerBuilder DataWindows and particularly dynamic DataWindows as a software development platform enabled the developers to capitalise on the advantages of the agile development. The evidence also established that the developers made good use of object orientated design practices to assist in guiding development and to maximise code re-use. In the light of the above, when one takes into account the evidence of what was actually done and one does not limit the consideration of the evidence to the material and information found in documents and data, the Court is satisfied that the development velocity of ManTra is not such that such speed was implausible. This conclusion is also supported by the findings made by this Court, later in the judgment, in relation to the individual allegations set forth at paragraph 3 of the plaintiffs’ statement of case.
77. The development of the ManTra source code proceeded after the November 2006 meeting and the source code which had been completed up to the 19th December, 2006 was placed in a QVCSE source control folder. That source control folder is a separate folder used by QVCSE which centrally stores and tracks changes to source code in development and it was labelled PB10. PB10 is shorthand for source code that was developed using PowerBuilder Version 10. Later, on the 20th February, 2007, the source control which was then located in the PB10 folder was re-located to a new source folder called PB10.5, that is to say PowerBuilder Version 10.5. The evidence available to the Court identified that there were 1,943 changes made by five different persons assisting in the development of ManTra over the two month period from the 19th December, 2006 to the 20th February, 2007. Development continued after the 20th February, 2007 and by early April 2007 the first version of the ManTra product was available for a controlled release. That first version of ManTra was made available to a firm known as Quintillion who tested the product for evaluation purposes. Work continued on developing ManTra and expanding the scope of its applications and a second version was available for release in October 2007.
78. The limited nature of the ultimate claim pursued by the plaintiffs based upon alleged unauthorised access and use of the NTAS code is identified in the answers given by Harry Goddard, the plaintiffs’ expert, to the Court on Day 24 (See Transcript 24, questions 187 to 189). Harry Goddard stated that it was his view that given enough time that the persons creating ManTra could have created the product that they did and that “the dichotomy” that he struggled with was the amount of time available to them to complete the product and the material which was available to him to enable him to review the development velocity. Harry Goddard stated (question 189):
“There is no doubt that with enough time that the organisation, the individuals in question could have created the product that they had based on the contents in their head and their expertise, they clearly have very deep expertise across the team.”
Harry Goddard concluded that the speed of development was such that the persons developing ManTra had to have access to and use of NTAS. However, the Court was provided with no clear or convincing evidence as to how the availability or use of a copy of NTAS would have improved the quality of ManTra. The evidence was that as regards source code size, ManTra is only one eight of the size of NTAS. The number of distinct main database tables in ManTra is somewhat less than 100 since the main data tables are replicated for the purposes of auditing and others exist only to provide primary key values. That evidence established that whilst ManTra is not an insignificant application, it does not have a particularly large codebase. The evidence about the nature of the functionality in ManTra is that a majority of the functions are routine “CRUD” data operations, that is (create, retrieve, update and delete). Given that the defendants had a prior well designed data model and a strong development framework, the design of these functions is not particularly complex. The evidence was that only a small percentage of the functions in ManTra have complex functionality, in particular, fee calculation, World-Check interface and integration functions. It is the design of these functions which would have been more time-consuming but the persons developing ManTra had the benefit of prior exposure to working with those functions and the knowledge as to what did and did not work.
79. The appreciable differences not only in the size and design as between ManTra and NTAS, but also in architecture (the PowerBuilder code in NTAS is quite different from that in ManTra), results in it being difficult to discern how and in what manner the availability or use of a copy of NTAS would have improved the quality of ManTra. The differences in the software architecture between NTAS and ManTra include the fact that ManTra makes extensive use of inheritance while NTAS does not. In the expert testimony available to the Court, Harry Goddard sought to minimise the significance of inheritance but the evidence of Marian Klco correctly identified that the proper use of inheritance can reduce programming time, minimise the cost of change and produce more reliable code. A significant difference between the two products, as identified in evidence is that NTAS was developed at least initially using cut and paste code replication. That provided the benefit that where there is existing code that a new function could be added relatively quickly. That was how NTAS operated as it had existing code and there was regular client demand for additional or new functions. However, that approach creates significant difficulties in operating and servicing the code in the event that a problem appears. ManTra was designed on a different basis. ManTra has a framework which consists of foundation classes to guide development and provide structure and this results in a position that much of the work required to create a new function is already in place. It is also the case that within the ManTra code the business logic is encapsulated in SQL stored procedures, thereby allowing independent testing and modification. In NTAS the business logic is intertwined with the user interface logic in PowerBuilder code and therefore cannot be modified and tested independently. ManTra was developed at a much later date than NTAS and in a situation where the persons developing the product had a detailed pre-existing knowledge of the development platform and the industry for which the product was being developed. That resulted in the developers of ManTra being able to use an architecture which provided advantages for ManTra over NTAS and had the result of making the development of ManTra both easier, quicker and less error prone. The evidence also established that the persons developing the ManTra product were aware and had worked with and were familiar with NTAS and therefore were aware of its architectural deficiencies. That resulted in those persons creating ManTra in a different and more efficient way. The desire and indeed the effective requirement of designing ManTra in a different manner to ensure that it would not repeat the architectural flaws within NTAS makes it difficult to see how access or use of NTAS would assist in such process and is supportive of the testimony which is given by the persons who developed ManTra that they did not have access to nor did they use NTAS. The Court has already indicated that it accepts that evidence.
80. The Court has already commented on the fact that the experts who gave evidence on behalf of the plaintiffs have to a significant extent limited their consideration to the documentation or data available. That approach created an unbalanced judgment and such distortion is one of the factors that the Court has taken into account in preferring the expert evidence led on behalf of the defendants. The Court has also had regard to the fact that none of the experts who gave evidence on behalf of the plaintiffs had any appreciable first hand experience of working with PowerBuilder. This placed the plaintiffs’ experts in a difficult position in that they had a real and appreciable difficulty in addressing specific technical issues to do with development such as the impact of the BFC library on the ManTra development. It also resulted in a situation where the features which are incorporated within PowerBuilder which have the consequences of saving time during development, such as DataWindows, could not be fully or adequately addressed by the plaintiffs’ experts. The evidence available to the Court was that PowerBuilder incorporates the time-saving feature DataWindows and that that was used by the defendants.
81. In considering the experts’ testimonies, the Court has also had regard to the extremely limited scope of Michael Turner’s evidence. There is no doubt but that Michael Turner is an expert forensic practitioner in the area of computer and data examination and that he identified forensic deficiencies in the discovered material. However, his consideration was limited to identifying those deficiencies and his evidence made it clear that even when alternative source information was available which would deal, either in whole or in part, with such deficiencies, he did not consider such alternative sources of information. This was particularly so in relation to the Metadata. The Court also found the plaintiffs’ evidence in relation to literal copying of the NTAS database to be both incomplete and ill-considered. Michael Turner did not consider alternative sources of information even when those sources of information were identified and in the area of literal copying his view was not supported by Harry Goddard.
82. The Court has already pointed out that Harry Goddard had little experience of PowerBuilder and no first hand programming experience and was reliant upon the assistance of persons within his firm who had used PowerBuilder. It was also apparent from his reports and evidence that his predominant experience was of situations where there was the requirement of contractual client supplier relationships. This resulted in a situation where he failed to adequately address the true benefits of the form of agile development practised by the ManTra developers. The type of contractual work which he had experienced is far removed from the type of development which took place when ManTra was created. This was highlighted in the area of his evidence where he expressed his opinion on the level of documentation that he would have expected to exist. The level of documentation which he indicated he expected to exist would have arisen from a contract client/supplier relationship where there would be written specifications and express client demands. That was not the situation when ManTra was being developed as it was created in a situation where there was no contractual client relationship. A number of persons within the ManTra team, in particular, James O’Donnell, were fully cognisant of the requirements of the hedge fund transfer agency business and therefore could identify the specifications which were effectively required during the discussions between the developers at the concept stage removing the necessity for any extensive written specifications. This frailty in Harry Goddard’s approach was all the more significant as he was dependent in arriving at his opinion as to access and use of NTAS on the lack of documentation or data. The lack of documentation to the extent that he expected was an important factor in his opinion and that opinion is significantly undermined by his lack of experience of or regard to the form of agile development practised by the defendants.
83. The Court in favouring the expert testimony of the defendants’ experts has taken into account the evidence in relation to key design artefacts. Harry Goddard in his evidence discounted the importance as design artefacts of the BFC library and the ManTra database structure whilst the evidence which was available to the Court, and which the Court accepts, is that both of those formed a strong design framework for ManTra and, in effect, provided much of its architecture. Having considered the factual evidence and the expert evidence tendered by both the plaintiffs and the defendants, the Court comes to the conclusion that the defendants’ account of the development of ManTra is consistent, logical and coherent. The type of agile development identified by the defendants and the background expertise and abilities of the persons developing ManTra was such that the Court is satisfied that ManTra could and was developed within the timeframe involved and to the high standard which it achieved without access to or use of NTAS.
84. The Court shall now deal with the individual particulars set forth at paragraph 3 of the plaintiffs’ statement of case insofar as they have not been dealt with earlier in this judgment.
85. The first particular identified by the plaintiffs in support of their claims as set out in the particulars at paragraph 3(a) is a claim that there was the presence of NTAS specific variable names in ManTra. In evidence to the Court this particular was pursued on the basis of the presence of NTAS specific column names in ManTra rather than variable names. The evidence identified instances of variable names appearing in both NTAS and ManTra only in the common code (namely, f_parse_to_array, etc.) and there was no dispute that those variable names were in the public domain and could not be evidence of copying from NTAS to ManTra. The prime instance relied upon by the plaintiffs of an NTAS column name appearing in ManTra was in the function “of_pla_export”. In support of this claim the plaintiffs argued that the evidence established that the defendants admitted to an undoubted breach of confidence and breach of copyright by the misuse of the Quintillion NTAS database for the purpose of developing ManTra routines. Marian Klco acknowledged in evidence that this function was written by him to export data from ManTra to NTAS. Marian Klco gave evidence for the reason that that function was written and also the manner in which it was written. His evidence was that in writing that function he referred to the IMPORTQ file which contained data provided by Quintillion for importing into ManTra (see Transcript 28, question 530 onwards). Marian Klco’s account of the circumstances and reason for the creation and writing of the function of_pla_export is both credible and logical. The plaintiffs cross-examined on the basis that the creation and use of that function meant that it was necessary to access the NTAS database. This was expressly dealt with by Marian Klco (Transcript 28, question 537) where he stated that such access was not necessary for him and that he developed the function by reference only to the IMPORTQ file. In accepting that evidence it follows that there is nothing suspicious in the presence of the NTAS column names in the ManTra code. This conclusion is supported by the evidence of Joan Kehoe of Quintillion who gave evidence that it was in fact Quintillion who carried out the testing. It follows that the presence of the IMPORTQ function does not evidence access to a copy of the NTAS application. Whilst in theory the defendants potentially had full access to the NTAS database structure, table and column names, etc., at that time, the evidence the Court heard was that only Jana Potocnakova actually accessed the NTAS database. The evidence was that she took the data from the NTAS database to make the IMPORTQ file for subsequent loading into ManTra (see Transcript 29, question 12). Marian Klco’s evidence was that he used the IMPORTQ file for reference when he created the of_pla_export function (see Transcript 28, question 540). There was evidence supporting these accounts in that the NTAS database was a Sybase database and so could not have been opened by the instance of Microsoft SQL Server being used by the ManTra developers. That is the reason for an intermediate file to be created in Microsoft SQL Server format (the IMPORTQ file). The Court accepts the evidence of Jana Potocnakova and Marian Klco on these matters. There were other examples of similarities in the column names appearing in NTAS and ManTra such as ERISA, VALOREN and NAV. Those column names represent industry standard terms and the Court is satisfied that the use of such names provides no evidence of copying as it is to be expected that such industry standard terms would appear in both NTAS and ManTra. The plaintiffs, through the evidence of Harry Goddard, stressed the similarity within NTAS and ManTra in the ERISA register reports within the two products. Harry Goddard identified common columns within the two products that produce data for the ERISA register reports. Harry Goddard identified thirteen columns out of forty nine, representing some 27% that matched between the GROUP BY clauses in NTAS and ManTra. However, the evidence was that the ERISA register reports were dealing with legislation in the USA relating to pension investments. The legislation on which the reports were being prepared within ManTra and NTAS was identical which inevitably led to an overlap in content. Since the two reports have similar purposes and are dealing with identical legislation the fact that there was thirteen similar columns out of forty nine is not unexpected and the Court is satisfied that such similarity does not amount to any evidence of copying.
86. The second particular relied upon by the plaintiffs is their claim that there was replication of errors in the NTAS product within ManTra (including per share, ERISA, Hi-Lo and Lo-Hi functionality). George Sipko’s evidence was that several features were implemented incorrectly within the NTAS system and that those incorrect implementations were replicated within ManTra. It was claimed that that demonstrated that ManTra had been copied from NTAS. The features highlighted in evidence were the ERISA functionality, consolidation processing and fee calculations (per share, Hi-Lo and Lo-Hi). David Gross gave evidence in relation to this claim (Transcript 31, question 191) and disputed the claim that features were implemented incorrectly and gave evidence that there were no functionality errors contained within NTAS which were replicated in ManTra and that all features within ManTra were properly implemented. Both James O’Donnell and David Gross gave evidence of the specific reasons for the manner in which each of the features in issue had been implemented. Both those witnesses are business analysts with extensive experience of the requirements within the hedge fund transfer agency business and the Court is satisfied that the evidence which those two witnesses gave in relation to their claim that the features in issue had been properly implemented was both credible and informed. The background and experience of James O’Donnell and David Gross in relation to the requirements of the fund transfer agency business is more detailed and extensive than that of George Sipko and the Court is satisfied that their evidence is to be preferred over George Sipko’s opinion. The evidence failed to demonstrate that there were functionality errors replicated within ManTra of the nature claimed by George Sipko and the Court accepts the evidence that the features in issue were properly implemented. In any event, even if there were replication of errors in the NTAS product within ManTra, that would not demonstrate access to or use of an unauthorised copy. The persons who developed ManTra had a deep comprehensive knowledge of how matters were implemented within NTAS and a replication of those features within ManTra is not unexpected and is not evidence of copying.
87. The third particular relied upon by the plaintiffs is a claim that the replication in ManTra of business logic and relationship structures found in the NTAS database is evidence of access to and use of an unauthorised copy of NTAS. Firstly, as in a number of other areas, it is to be expected that business logic and relationships should be similar in NTAS and ManTra given their common purpose. The replication of certain business logic and relationship structures is all but inevitable given the common purpose for which both systems were developed. No definition was provided as to the term “business logic” but it appears that the term is used in this case to mean program code devoted to the implementation of business rules, algorithms and constraints. An example of this business logic would be the program code which is used to calculate performance fees. However, an examination of the evidence demonstrates that it was acknowledged that ManTra implements business logic in a different way from NTAS. In ManTra the business logic code is written primarily in SQL and held in stored procedures in the database whilst in NTAS the business logic code is written in PowerBuilder code and held in the NTAS application. Due to the different way in which the two applications implement business logic, there is no reality in the suggestion that one implementation could be a literal copy of the other or that there could have been some automated translation from one to the other. Therefore, it would appear that the plaintiffs’ claim under this heading relates to a claim that similarities in the business rules, algorithms and constraints are represented in the respective products’ implementations and not to the implementation (code) itself. In considering this head of claim it is necessary to appreciate that business rules, algorithms and constraints are aspects of the business world which a software designer must endeavour to encapsulate in code. In effect, it is inescapable that similar business rules, algorithms and constraints will be implemented in NTAS and ManTra since both products are intended for use in the same segment of the business world. The business rules, algorithms and constraints required to be used would be well known to any business analyst who was well versed in hedge fund transfer accounting. In the absence of a computer software program the fund manager would be obliged to implement those matters using manual processes. The Court therefore does not accept the plaintiffs’ argument that the implementation of similar business rules, algorithms and constraints is in any way supportive of a claim that the defendants had access to or copied NTAS. The second portion of the third particular is a claim that there is a replication of the NTAS relationship structures to be found in the ManTra databases. The only evidence adduced by the plaintiffs in support of this claim was a chart created by George Sipko and produced by him in evidence which was in the form of a side by side diagram. The diagrams created and produced by George Sipko were of very limited use in demonstrating or supporting a claim of the replication of relationships. This is because it transpired that in answer to questions raised by the Court appointed independent expert, Dr. McGinnes, that what the tables showed on the NTAS side of the chart was the foreign key relationships but only those where George Sipko had found a match in ManTra and vice-versa. The two diagrams were prepared on the basis that where an apparently similar foreign key relationship existed between apparently similar tables in NTAS and ManTra, they were shown in George Sipko’s chart. In answer to Dr. McGinnes, George Sipko acknowledged that on the ManTra side of the chart foreign key relationships were omitted due to the fact that they did not match relationships in NTAS. The effect of preparing the chart on such basis resulted in a chart being produced in evidence which had the capacity to be not only incomplete but potentially misleading (see Transcript 22, question 105 onwards). The diagram selectively showed only a small number of tables and relationships which were apparently similar, taken out of a much larger number in the two databases. The defendants also gave credible evidence that the tables and relationships which were shown in the diagram were not all equivalent and that some had been misinterpreted by George Sipko. In any event, since both products were intended for use in the same business sector, it would follow that there would be significant similarities in the relationships between core tables in both databases. This follows from the fact that the relationships reflect the business relationships which actually exist in the real world. An example of this is the relationship which links an account and the owner of an account. The corresponding database relationship might stipulate, for example, that each account can be owned by one and only one account owner. When implemented, relationships become constraints implicit in the database structure. Any such constraint exists first in the business world and a database merely represents it using a suitable data structure. Although there is some leeway in the manner of representation, the person designing a database cannot deviate to any appreciable extent from the pre-existing business relationships and is bound to reflect those pre-existing relationships in the database structures. It follows that the Court is satisfied that any rationally designed database seeking to represent the real hedge fund transfer account business would tend to have similar structures to other databases operating in the same business including the relationships. The Court is therefore satisfied that insofar as there are similar relationships appearing in NTAS and ManTra databases, that that is not demonstrative of evidence of copying.
88. The fourth particular provided by the plaintiffs in support of their case is the alleged replication in ManTra of some 90/95% of the functionality of the NTAS product. As pointed out above, both products are targeted at the same business area and it follows that each will have to address the functions which hedge fund managers most require and find most useful. It is also the case that the plaintiffs failed to identify a clear basis for arriving at the purported figure of 90/95%. Neither George Sipko , nor Ras Sipko provided a definition of the plaintiffs’ use of the word functionality. Insofar as the Court can identify the plaintiffs’ case, it appears that the plaintiffs are claiming that there is a 90/95% overlap in the list of requirements which both products claim to address. However, the fact that two products address a given requirement and that there is a significant overlap is of little or no benefit to the plaintiffs in support of their claim. The fact that both products address the same requirements says nothing about how extensively those requirements are addressed. The evidence was that the plaintiffs’ NTAS product is a more feature rich product than ManTra. This, to a large extent, flows from the fact that it is a more mature product. The more feature rich nature of NTAS was evidenced from the various screen prints produced in evidence. If, as is the case herein, NTAS has more features, yet addresses much of the same requirements as ManTra, this can only arise if NTAS addresses some or all of the requirements in a substantially more comprehensive manner than ManTra. It follows that a claimed figure of 90/95% replication of functionality would not in any way be a reliable guide as to the extent of common functionality.
The evidence was that the technical architecture of the design of both ManTra and NTAS is different (see evidence of Harry Goddard, Transcript 22, question 322). The limited nature of the plaintiffs’ claim under this heading was demonstrated by Harry Goddard’s answer in cross-examination (Transcript 23, question 298) when he acknowledged that in his view NTAS was used as a visual reference point and it had not involved a function by function reference point. Harry Goddard went on to state (Transcript 23, question 301):
“I think I have said that I don’t see there being any niche functionality, or functionality of a level of complexity that exists in NTAS and was copied across into ManTra. I’m not particularly aware of there being any such complexity that exists in either system that would, that could not have been created from scratch.”
The limited nature of the plaintiffs’ ultimate claim against the defendants is further illustrated in another part of Harry Goddard’s evidence. His evidence was that the functional similarities between ManTra and NTAS were not relevant to his belief that NTAS was used as a visual reference point. Harry Goddard’s evidence was to the effect that the use of NTAS by those developing ManTra was as a reference which they could share among themselves to facilitate discussion around the design (see Transcript 22, question 325). Paul Rooney, an expert witness called by the defendants, who has experience of working for fund administration companies for some twelve years gave evidence that there were many points of divergence, at a detailed level, between the functionalities provided in the two products. This divergence was apparent even in circumstances where the two products were claiming to meet essentially the same requirements at a “headline” level. Paul Rooney also gave evidence that there was functionality within ManTra which is not in NTAS and that much of the overlapping functionality is industry standard and is to be found in rival products. It was also his evidence that NTAS had not been used as a visual reference in the creation of ManTra as in his opinion it would not have been necessary. The Court is satisfied that any overlap in functionality which is to be found in the two products is not indicative of copying or of design by reference but is rather an overlap that is to be expected in two products which are both aimed at the hedge fund transfer accounting business. This overlap is demonstrated by the evidence of Joan Kehoe, of Quintillion, who is a person involved in the fund administration business and has used both NTAS and ManTra. Having used both products and based upon her experience within the business, she stated (Transcript 33, question 14):
“I would visually think they look quite different to use. The core functionality, as is with any investment or servicing system, is pretty standard. You hold the registration information, you hold the financial information and you produce data from it.”
The Court is satisfied that the alleged replication in ManTra of a large percentage of the functionality in NTAS does not support the plaintiffs’ claim of copying and is not indicative of copying or design by reference.
89. The fifth particular relied upon by the plaintiffs at sub-paragraph (e) in support of the claim of access to and the use of an unauthorised copy of NTAS is based upon a claim that:
“The fact that detailed knowledge of the NTAS database structure (including table names, column names and relationships) was required to enable the Defendants develop the “IMPORT2.SQL” script, which script could only be developed and/or tested by way of access to the NTAS product and which could only run by reference to the NTAS product (or a copy of the database thereof).”
The evidence to the Court was that the defendants were given access to Quintillion’s NTAS database for the purpose of extracting data for loading into ManTra. There is nothing necessarily untoward about such access being provided by a third party company. Such access would be necessary if that company was changing from one database system to another. The evidence to the Court was that the script IMPORT2.SQL was developed for the purpose of extracting Quintillion’s data from NTAS so that it could be incorporated into ManTra. Jana Potocnakova’s evidence was that she was the person who created IMPORT2.SQL and that she first loaded the data into an SQL Server database called IMPORTQ, so that it could be transferred using IMPORT2.SQL to the ManTra database. IMPORTQ was not a replica of the NTAS database and it held only the data that was required for loading into ManTra in an intermediate form. Database structures such as relationships were not explicitly included but appear to have been implicitly present in the data itself. Evidence was given by Jana Potocnakova as to the steps which she took in relation to the transfer of data from NTAS to ManTra and those steps appear to be consistent with industry practice implemented at the time of transfer from one system to another. Jana Potocnakova’s evidence was supported by the evidence of Joan Kehoe of Quintillion who gave evidence that the defendants were not given access to Quintillion’s copy of NTAS but were given access to the database. That evidence was further supported by the evidence of John Dixon, an expert witness, who gave evidence that IMPORT2.SQL could not have opened a database file in Sybase format and therefore could not have opened a copy of the NTAS database because NTAS works with Sybase not with SQL Server. The Court accepts that evidence and it is apparent from such evidence that the defendants were given access to the NTAS database at a late stage in the ManTra development but such access was for routine data transfer purposes. Even if any knowledge was gained at that point in time, and there is no evidence to support same, such knowledge would have been of little or no use in the design and the development of ManTra as it is common case that the transfer within the Quintillion system took place around March/April 2007. By that date ManTra was at test stage. The evidence does not support the claim that the defendants were given access, at any point in time, to a copy of the NTAS product. The date upon which such access is claimed is so late in the development of ManTra that it could have had no benefit in the design of the ManTra application. This was acknowledged by Harry Goddard in evidence when he stated that in terms of the design of the application, access to the NTAS database at that point in time would have been of no advantage (see Transcript 24, questions 72 and 74). The furthest that Harry Goddard went in evidence in relation to this head of claim was the possibility that access to the NTAS database, as suggested by him, could perhaps been of benefit to the defendants, at that point in time, in order to facilitate testing. The Court has already indicated that it accepts Jana Potocnakova’s and Marian Klco’s evidence as to the limited use of the NTAS database which was to create the IMPORTQ file. It follows that the Court is satisfied that it was not used in the manner suggested by Harry Goddard.
90. The sixth particular provided by the plaintiffs in support of their claim was that:
“The defendants’ development of the ‘of_pla_export’ file and its subsequent modification required reference to and reliance upon the NTAS database structure (including database table and column names).”
The code in question within ManTra contained reference to certain table names and column names found in the NTAS database. Marian Klco gave evidence that the function of the “of_pla_export” was written by him for the purpose of exporting data from ManTra to NTAS. Marian Klco’s evidence of how and why that code was written was both plausible and consistent. In his précis of evidence, Marian Klco gave evidence as to the circumstances in which this function was written and its purpose and the Court accepts that evidence. The evidence is that the code was not used nor indeed could it have been used for any other purpose than to export third party data from ManTra to NTAS. The evidence also was that the code was disabled, that is commented out, at an earlier stage, and that fact is consistent with Marian Klco’s explanation that James O’Donnell asked him to stop working on it as soon as he became aware of its existence. It is also the case that Harry Goddard’s evidence was that Marian Klco’s statement as to the functionality of the code as contained in his précis of evidence and the description given therein as to the use to which the code was put was consistent (see Transcript 22, question 236). The Court is satisfied that in relation to the sixth particular that there is no evidence to sustain the claim that the development of the “of_pla_export” file in any way supports the allegation of illegal access or use of an unauthorised copy of NTAS by the defendants.
91. The seventh particular relied upon by the plaintiffs relates to the e-mail communication between the developers and designers of ManTra and the claim that they made detailed and specific reference to NTAS specific variables. The Court has already dealt with the claim relating to design by reference earlier in this judgment. The design by reference claim was articulated by Harry Goddard in his evidence in answer to a question by the Court concerning the fact that, given that there was a different technical design between the two products, and that the technical architecture of the design of both ManTra and NTAS was different, what use could have been made by persons developing ManTra of NTAS. Harry Goddard stated (Transcript 22, question 325):
“I think if you were going to try to break NTAS down into its constituent parts and then rebuild it into ManTra, that would take a lot of time and it would be a lot of unnecessary effort. I think that if you said, I’m going to use that as a point of reference which I am going to share with others and use that to facilitate the discussion around the design, well then I think it could be of some use.”
He went on to state (Transcript 22, question 327) that NTAS could have been used as “a sort of visual function and specification, if you will, in some respects”. In support of this approach, Harry Goddard relied upon e-mails that had been produced in Court. He concluded that NTAS was used as an aide memoir or visual reference for the detail requirements of ManTra. The e-mails identified by Harry Goddard were e-mails exchanged between David Gross and Jana Potocnakova concerning the implementation of the integration of data supplied by WorldCheck in the ManTra system and an e-mail from Jana Potocnakova to James O’Donnell of the 21st November, 2006 and an e-mail of the 16th October, 2006 from James O’Donnell to Jana Potocnakova. Those e-mails were available to the Court. The plaintiffs place reliance upon the fact that in the e-mails referred to NTAS provided a reference point for the designers and NTAS terminology was used. Having considered the e-mails and the evidence, the Court is satisfied that the references to NTAS terminology does not demonstrate or establish that the persons developing ManTra had a copy of NTAS or were referring to a copy of NTAS but rather demonstrates that the persons designing and developing ManTra were intimately familiar with NTAS. That familiarity was of such duration and extent that the persons were able to communicate with one and other using NTAS terms when discussing the design of ManTra. The Court accepts the evidence that the persons who designed and developed ManTra did not have a copy of NTAS nor were they referring to a copy. The background, training, education and experience of each of the persons involved in the design and development of ManTra was such that they had a shared knowledge of the NTAS architecture and functionality and that knowledge would have provided them with a common conceptual language. There is no evidence to indicate that such knowledge required the presence or use of a copy of NTAS and the Court is satisfied that the defendants and their witnesses gave truthful evidence when they stated that such knowledge as they carried in relation to NTAS was as a result of their experience, training and use of NTAS over an extended period of time. Because of the common exposure to NTAS and the shared knowledge of its architecture and functionality, the persons developing ManTra had the capacity, and the evidence establishes that they did, to communicate with one and other using a common conceptual language which they had acquired from working with NTAS. This issue was addressed by Harry Goddard (Transcript 22, question 292) when dealing with the use of NTAS specific table names or terms in the development of ManTra when he stated:
“There is an element of starting with what you know but also there is a potential element of starting with what you may have access to.”
The Court is satisfied that the evidence establishes that the true explanation for the use of NTAS specific table names and terms in the development of ManTra is that such names and terms were well known to the persons developing ManTra and represented a common conceptual language and that their use was not as a result of any use of or access to an unauthorised copy of NTAS.
92. The eighth particular is a claim that the e-mails and other design materials created by the developers and/or designers of ManTra demonstrate that the NTAS product was used as a reference point for the design, functional specification and development of ManTra. The Court has already dealt with the issue of design by reference both earlier in this judgment and in the preceding paragraph. The Court is satisfied that the balance of the evidence available to it demonstrates that, given the technical architecture and design differences present in ManTra as opposed to NTAS, and given the evidence from the defendants and their witnesses as to their experience, knowledge and actual work methods, that the significant reference point in the design of ManTra was the defendants’ own knowledge and experience. Insofar as NTAS was a reference point, the evidence establishes that any reference point in relation to design, function and specification within NTAS emanated from the knowledge and experience of the persons developing ManTra and not from access or use of an unauthorised copy of NTAS. The Court has already indicated that it accepts the evidence of each and every one of the persons who developed ManTra when they informed the Court that they did not use or have access to a copy of NTAS. There was no evidence of the presence of NTAS specific files nor evidence of actual disk copies of NTAS nor was there evidence of logs showing that NTAS software was copied, nor were there screenshots showing that NTAS was in use by the defendants at a certain date. The plaintiffs in this case relied upon indirect evidence which they claim collectively establishes that the defendants had a copy of NTAS and the Court is satisfied that based upon the evidence available to the Court and the experience and knowledge of the persons developing ManTra that such inference or interpretation has not been established and that the weight of evidence is to the effect that ManTra was developed by the defendants without access to or use of a copy of NTAS.
93. The ninth particular identified by the plaintiffs relates to the “deletion of the first version of ManTra (version BP10) at the time it was deleted, in August 2007 (following a direction by a US judge in the US proceedings between the parties dealing with similar infringement issues that the source code of ManTra be made available for expert examination on behalf of the plaintiffs). This particular was relied on in the plaintiffs’ written submissions under the heading of the alleged systematic removal of and failure to preserve vital evidence in relation to ManTra’s development. The plaintiffs claim that one of the most significant aspects in this case was the extraordinary absence of PowerBuilder or SQL Server script code in the entire period from October 2006 up to February 2007 and what was categorised as the extraordinary deletion of the entire range of materials that would have evidenced the initial content of the PowerBuilder and Microsoft SQL Server code for all iterations of ManTra up to February 2007. The defendants deleted the contents of the PB10 folder. Marian Klco gave evidence as to how and in what circumstances he deleted the contents of the PB10 folder. He stated that he deleted the contents in February 2007 and not in August 2007 as contended for by the plaintiffs. If the Court was to accept Marian Klco’s evidence, and it does, what was deleted by him in August 2007 was a remaining empty folder. Marian Klco’s evidence was that he deleted the folder contents in February 2007 because there was a configuration problem in QVCS (Version Control System) for the PB10 folder. His evidence was that he deleted the folder contents using the Windows file system rather than using QVCS. The plaintiffs contend that this evidence is extraordinary and is not to be believed and claimed that deleting a folder from Version Control in this manner is not best practice and therefore provides support for the claim they make in relation to the systematic removal and failure to preserve vital evidence. Even if such deletion was in contravention of best practice, on the evidence available to the Court it did not create any real or significant risk to the defendants. There was no real risk to the defendants in deleting the PB10 folder and its contents, given that the contents had been upgraded to the PB105 and subsequent versions of the ManTra code. Marian Klco’s evidence was that the PB10 version of ManTra was limited to the BFC Foundation Classes and a few windows. That evidence is consistent with the other evidence led by the defendants concerning the development timeline of ManTra. It is also the case that because the PB10 version was not used for any client release of ManTra that there was no particular reason to keep it and in those circumstances the Court is persuaded that such deletion cannot be deemed extraordinary and the Court is satisfied that the evidence given by Marian Klco as to the circumstances and reason for the deletion is both credible and consistent.
Harry Goddard gave evidence on the deletion of PB10 (Transcript 22, question 347):
“… It is my experience certainly that while it is one thing for developers to delete sections of code that they are no longer using, I have yet to find developers that would delete entire projects for fear that there might be some nugget in there that at some stage in the future they may want to refer to and find that they have in fact lost it forever.”
The changes in code which were no longer available because of the deletion would have included changes which were carried out some time ago and as most problems with program code tend to be identified relatively quickly, particularly during rapid development and at the early stages of development, the older change history is less useful. The Court was therefore not surprised by Marian Klco’s evidence that he did not see a major risk in losing the change history at that stage. The plaintiffs contend that the deletion of PB10 was deliberate and had the effect of intentionally hindering the plaintiffs in advancing their case. The evidence to the Court provided by Marian Klco identified that the inheritance structure (of the BFC Foundation Classes) dictates the architecture of ManTra strongly. To that extent, no large transformation in the code structure would have been possible prior to the surviving version. That evidence is logical and it follows that the contents of the PB10 should be predictable in that it would be a smaller and less well developed version of the PB105 code. That evidence, which the Court accepts, undermines the plaintiffs’ contention that the contents of the PB10 code would have provided assistance to the plaintiffs in support of their claim that the contents of PB10 were derived from NTAS. As the inheritance structure of the BFC Foundation Classes and the ManTra database structure together dictate the architecture of ManTra to a significant extent, it follows that no large transformation in the code structure would have been possible prior to the surviving version. The contents of the PB10 folder can then be predicted to some extent from the PB105 version. The Court is satisfied that the deletion of the PB10 files/folder was not done in a malicious or systematic manner nor was it done with the intention of hindering the plaintiffs in the presentation of their case. Rather the Court is satisfied that Marian Klco’s explanation as to the circumstances of the deletion is both credible and consistent with the other evidence and that the PB10 folder would have contained only an earlier version of the code that survives rather than evidence of transformation from NTAS.
93. The tenth particular pleaded by the plaintiffs in support of their claims relates to the alleged failures by the developers of ManTra to keep backups of ManTra as it was being developed, contrary to standard development procedure. The evidence to the Court was that the persons who developed ManTra did keep a backup but that the backups were not retained permanently. If they had been, a considerable amount of the speculation which was placed before the Court would have been capable of being dealt with conclusively. However, the fact that backups were not retained indefinitely must be considered in the light of the evidence that the Court heard as to the circumstances in which ManTra was developed and the requirement for it to be done with dispatch. The reason for the limited backup retained by the defendants is set out in the evidence of Marian Klco in cross-examination where he stated (Transcript 27, question 665):
“… but this is disaster recovery backup. We do backup of our product when we compound and release, then we just make the branch and version control system. But at that point on starting company we didn’t have clients, we didn’t have anything, we just need to build something as quickly as possible. So we didn’t do any maintenance like this, there was no point to do it.”
Later in his evidence he stated (Transcript 27, question 842):
“… I do backups when necessary normally but, as I say, they are overwritten after a period of time. So I have just disaster recovery backup.”
The plaintiffs contended that the permanent retention of backups is standard development procedure. The Court appreciates that evidence in so far as it relates to large organisations with existing clients but the situation identified in evidence by the defendants illustrates a different type of organisation. The Court is satisfied that the developers who gave evidence on behalf of the defendants were truthful in their description of the manner and circumstances in which the development was carried out. There was financial pressure to complete the development as quickly as possible and in those circumstances the procedures which evolved were the minimum procedures required to protect the integrity of the development process. In the initial stages the ManTra development team operated in an informal manner and did not follow what could be described as industry best practice. The Court is satisfied that there was no intention to deliberately conceal any material by the defendants in their failure to keep source code backups indefinitely and that the explanation which was proffered in evidence that backups were kept for disaster recovery purposes only is both credible and consistent. The Court is therefore satisfied that the failure on the part of the defendants to retain ManTra development backups indefinitely does not lead to any conclusion that such failure was an attempt to hide the true development process and such failure does not lead the Court to form any adverse conclusion against the defendants.
94. The eleventh particular pleaded by the plaintiffs relates to the alleged creation of twenty eight tables which is said to be an entire database design file of unaccounted for origin, comprising hundreds of columns and a complex relationship structure “readymade” for ManTra on 12th October, 2008, which largely replicated the function and relationship structure of equivalent tables and columns in the NTAS product. The date 2008 contained in the particulars is a typographical error and should read 2006. As apparent from the earlier part of this judgment the Court is not satisfied that the structure for ManTra largely replicated the structure of equivalent tables and columns in NTAS. The Court heard evidence in relation to the origin of the initial twenty eight table ManTra data model and has held that credible and consistent evidence was given by the persons present at the development meeting in October 2006. That evidence established that one of the main matters under consideration at the meeting was the preparation and completion of a draft data model for ManTra. The persons present were true experts and this was acknowledged by Harry Goddard, the expert called on behalf of the plaintiffs, when he stated in relation to the development of the twenty eight tables, as follows (Transcript 24, question 189):
“There is no doubt that with enough time that the organisation, the individuals in question could have created the product that they had based on the contents in their head and their expertise, they clearly have very deep expertise across the team.”
The modelling exercise carried out by the defendants in October 2006 is a recognised approach and practice within the IT industry and the Court is satisfied that it is entirely plausible that such a modelling exercise could produce a model consisting of twenty eight core tables, each with 5 – 15 columns. The Court accepts the evidence of the defendants’ witnesses in relation to how and in what manner they produced the twenty eight tables and is satisfied that there was a sufficient period of time available to enable them to do so. Insofar as the plaintiffs contend that some of the NTAS database structure was physically copied and modified to create the Mantra database structure, the Court does not accept that contention. Whilst it is theoretical possible that that could have been done given that the NTAS database structure contained hundreds of tables and thousands of columns, the time involved in deconstructing the NTAS database structure would be considerably greater than the time necessary to create the model from scratch. The Court accepts the evidence of the persons who developed ManTra that they developed the model from scratch. The persons who developed ManTra stated in evidence that the initial twenty eight table model as of October 2006 was merely a first cut design and was subject thereafter to considerable additions and modifications. Insofar as the plaintiffs relied upon the evidence of Darren Thomas as to the time estimate required for the development of the ManTra data model, that time estimate was based upon the time involved in the design and construction of the finished database of April 2007 and by that date the database contained several hundred tables and thousands of columns. In those circumstances the Court received no assistance from Darren Thomas’s evidence in relation to his estimate of the time involved and the Court is satisfied that the evidence given by the persons actually involved in the development, given their expertise and knowledge, is true. The defendants gave evidence as to the circumstances of the development meeting. There was evidence as to the tool used to prepare the data model which was PowerDesigner. The persons present at the meeting covered all the areas required for the development of a data model and it was apparent to the Court from having had the opportunity of hearing their evidence that they could communicate both effectively and on technical matters in the English language. The Court is satisfied that the evidence given by those persons was both truthful and consistent and that arising from that evidence the Court is satisfied that there was no need or requirement for a copy of NTAS or the NTAS database to be used.
95. The twelfth particular provided by the plaintiffs relates to the alleged absence of any material evidencing the genesis or development of the tables, columns and relationship structures referred to in the previous particular. The Court heard evidence from the persons involved in the development of the ManTra data model that they identified that what was produced was a relatively simple twenty eight table model. Once that was produced it was entered into PowerDesigner to create a physical data model for SQL Server. Once that was done the twenty eight table model formed the basis for a process of data modelling spanning several months, which ultimately resulted in the development of a much larger and more complex database design for ManTra Version One. The defendants’ evidence was that they progressed straight to a physical model and that the CDM file existed only because it was produced as an interim step, and that what occurred was that the first PDM file that was produced was saved as a Sybase design but needed to be saved as a SQL Server design. This was done by first saving the Sybase PDM file as a CDM file. Since the CDM file was therefore of no interest to the defendants, as it did not contain a conceptual data model, it was not retained. The court finds this evidence credible and consistent. The data models discovered are to be found in the PDM files and the lack of any CDM file being discovered has a rational explanation. In arriving at the conclusion that the defendants are to be believed in relation to this matter the Court has not only relied upon its judgment in relation to the truthfulness of the defendants’ witnesses but has also taken into account the fact that the first version of the ManTra data model (“PDM file”) contains date stamps which can be used to reconstruct the bones of the model as it appeared in its earliest form. That must be subject to the caveat that some names may have changed and some elements may have been removed. To reconstruct the model in such a way is a relatively simple task enabling the shape and starting point for the ManTra database to be identified. The plaintiffs in their presentation of evidence placed considerable emphasis on the fact that they could not reconstruct a version of the initial model which was one hundred per cent accurate and that such a model was not capable of being retrieved due to subsequent modifications. It is true that it is not possible to recreate the initial model to one hundred per cent accuracy but there is sufficient material available which enables a reconstruction which establishes the shape and starting point or gist of the earliest model. The Court accepts the evidence led in relation to such capacity and the evidence of the persons who developed ManTra that such process results in the identification of the genesis or development of the tables, columns and relationship structures in the earliest manner and is consistent with the evidence given by the defendants’ witnesses.
The plaintiffs rely upon the lack of evidence of genesis of the ManTra data model. The plaintiffs’ argument in relation to the lack of early material is circular. The plaintiffs contend that the first PDM represents not the start of the ManTra database design, but the end point of a process by which the NTAS data model was transformed into the twenty eight table model for ManTra. It is suggested that since there is no evidence that any such process took place, that the absence of such evidence is itself evidence and that the defendants must be concealing earlier stage data models in order to conceal the transformation process which was used. The Court is satisfied that the absence of evidence of something, in this case the transformation process, would be significant only if there was evidence that such transformation process had in fact taken place. There is no evidence of same and the Court is satisfied that the evidence given by the persons who developed the model was both truthful and accurate. The Court, therefore, does not accept the plaintiffs’ contention that the absence of material is to be taken as evidence of mala fides on the part of the defendants. The Court accepts the evidence that such material did not exist and that therefore its absence is of no significance.
96. The thirteenth particular alleged by the plaintiffs relates to the alleged absence of the CDM file or files relating to the development of ManTra and/or the defendants’ failure to discover same. If the CDM file had been available then a considerable amount of Court time would have been saved which was taken up in speculation as to its contents. If the file had been present such speculation would have been unnecessary. However, the Court is satisfied that it has been shown and established to the Court that it is unlikely that the contents of the CDM file would be appreciably different from the twenty eight table model which formed the first version of the ManTra physical data models. They were discovered. As pointed out in the previous paragraphs the Court is satisfied that the gist of the earliest model can be recovered identifying the genesis or development of the tables, columns and relationship structures. The plaintiffs contended that the absence of the CDM file is supportive of their case and is evidence of mala fides on the part of the defendants in endeavouring to cover or hide the fact that ManTra was a re-engineered version of a subset of the NTAS database. The persons who developed ManTra gave evidence and stated that the existence of the CDM file is an insignificant by-product of saving the developers’ PowerDesigner physical data model as a SQL Server model at their October 2006 meeting. The Court is satisfied that the defendants’ account in relation to this is both consistent and credible. Jana Potocnakova and James O’Donnell gave a detailed and convincing explanation as to how this occurred and the Court accepts that evidence. That evidence is supported by the fact that the Court is satisfied that if the defendant developers had reworked the NTAS database to create the ManTra structure that that re-engineering, to create the initial twenty eight table data model, would have been both more difficult and time consuming than creating the model from scratch. This conclusion is further supported by the fact that it was clear from the evidence that there were many weaknesses as well as strengths in the NTAS data model and since the persons developing ManTra would have been aware of those weaknesses and strengths, due to their work with and on the NTAS data model, it would have been both quicker and better for those persons to create a new and better data model from scratch without having the need to refer to a copy of NTAS. In relation to the express claim relied upon by the plaintiffs that the defendants failed to discover the CDM file, the Court is satisfied that the evidence given by Jana Potocnakova in relation to this matter is both credible and consistent. Her evidence was that the file was transitory and that there was no need to keep it. The Court accepts that evidence. The method of development of ManTra, as established in evidence, is that the database structure evolved to become many times the size of the initial model. The Court accepts that evidence and in those circumstances there would have been no reason or requirement for the ManTra developers to have kept the early version.
97. The fourteenth particular relied upon by the plaintiffs relates to the alleged bulk introduction of 25% of “right first time” pre-prepared code by way of stored procedures on 1st February, 2007 and a further 24% of such code during February 2007. The plaintiffs contend that the introduction of “right first time” code in the percentages claimed supports a claim that the defendant developers were concealing the actual or real development timeline for the stored procedures. This claim is made notwithstanding that the plaintiffs provide no explanation as to what development process the defendants might wish to conceal. The bulk introduction of stored procedures demonstrates to the Court that the defendants were developing stored procedures in the months leading up to February 2007 and that is consistent with the defendants’ evidence in relation to the timeline for the development of ManTra in the period from October 2006 to April 2007. There is no obvious reason put forward by the plaintiffs or identified in evidence to require the development of stored procedures for any given function until the relevant database tables have been designed and created. Stored procedures refer directly to the data in the tables and perform operations on the data. It follows that stored procedure development is only required once the database structure has reached a reasonable level of maturity. The evidence provided by the defendants in relation to the development was that such reasonable level of maturity would not have been present until the end of 2006 or the start of 2007. The Court accepts the defendants’ evidence in relation to the development process and that evidence is entirely consistent with the fact that stored procedure development would not have started until late 2006 and would have continued for the rest of the development period.
Inherent within the plaintiffs’ contention as outlined in this particular is that the defendants in some way translated business logic from NTAS PowerBuilder code into business logic in ManTra SQL code. However, the evidence available to the Court satisfies the Court that such argument is implausible given the nature of the stored procedures. The majority of stored procedures inevitably relate to routine data access procedures whose logic can be deduced from the ManTra database structure. Jana Potocnakova gave evidence that the procedures developed up to the end of February 2007 were concerned mainly with routine “CRUD” data operations (Create, Retrieve, Update and Delete). The task of creating or writing procedures such as those from scratch is relatively straightforward and there would be no need to refer to NTAS equivalent code and to do so might indeed cause a time delay. In the minority of stored procedures where more complex business logic required to be implemented, the Court is satisfied that the NTAS implementation would be of little potential benefit. This follows from the fact that the ManTra architecture and design are significantly different and hence the algorithms would also be different. The evidence established the different architecture and design which lead to a situation where the implementation of the same process required by a client will have to be done in two entirely different manners. This is illustrated in relation to equalisation fees which are implemented in the two products with different languages, different functional requirements and different algorithms. This fact again demonstrates the credibility of the defendants’ witnesses in relation to how and in what manner ManTra was developed and the implausible nature of the plaintiffs’ contention that the defendants used the business logic within NTAS in the creation of the business logic in ManTra. Also, as identified in this judgment, the ManTra developers had a good knowledge of the business logic that needed to be implemented and would not need to consult a copy of NTAS.
The persons who developed ManTra gave evidence in relation to why 25% of the stored procedures were not introduced until the 1st February, 2007. Marian Klco stated that it was at that time that Version Control was introduced and that prior to that time, stored procedures were held in locations such as the SQL Server data base which were not subject to Version Control. The evidence was that although stored procedure development had started in 2006, that its initial results became visible only once Version Control was introduced in February 2007. The Court accepts that evidence as both credible and consistent and it provides a perfectly innocent explanation as to the bulk introduction of stored procedures. In making the argument in relation to this matter, the plaintiffs’ expert witness, Harry Goddard, relied on an e-mail dated 16th October, 2006 from James O’Donnell to Jana Potocnakova. Harry Goddard interpreted that e-mail as meaning that stored procedures already existed. The Court believes that such interpretation is incorrect and that the evidence given as to the introduction of stored procedures following the introduction of Version Control in February 2007, given by the defendants’ witnesses, is truthful.
98. The fifteenth particular alleged by the plaintiffs relates to the alleged absence of any material evidencing the genesis, design or development of the database code, specifically the business logic of the first release of the product. Part of the case argued on behalf of the plaintiffs was based upon a claim that there was a lack of design material or audit trail for the development of the stored procedures. The majority of the stored procedures would have been routine data access procedures which would require minimal design. Both their purpose and logic would have been obvious to any experienced developer. This particular, therefore, must primarily be directed at the lack of written specification for the more complex procedures. Harry Goddard highlighted the lack of formal design documentation which he suggested should have been present. The Court has already commented on the manner in which the defendants developed ManTra. The defendants dealt with the alleged lack of written specifications in evidence by highlighting the agile collaborative manner in which they developed ManTra. The more formal or bureaucratic method which one would expect to find if one was dealing with a contract with a well established company or if a non-agile methodology was being used would be that there would be written specifications, testing requirements and other documentation. However, in this case the persons developing the product were working for themselves and were in direct and constant contact and were all experienced in the area in which the development was being carried out. This enabled each of the developers to have a good understanding of the requirements leading to a situation where there was a minimal requirement for formal design documents. The Court has already indicated that it accepts the evidence of the defendants’ witnesses in relation to how the ManTra product was developed and is satisfied that the lack of formal design documents is explained by the truly agile collaborative manner in which ManTra was developed. By avoiding the production of written design documentation and specifications, the defendants were able to expedite the development of ManTra. The cost of that expedition was that the defendants did not have the insurance provided by detailed written specifications and documentation but the evidence establishes that is how the defendants chose to develop ManTra. There was a dispute in evidence as to the extent of the design documentation which was provided by the defendants. The plaintiffs’ experts claimed that a minimal amount of such material was discovered whilst the defendants, through the evidence of James O’Donnell, claimed that considerable documentation was provided. As the case progressed it became apparent that a significant number of documents had been provided by the defendants and the plaintiffs agreed that a quantity of material had been provided but it would appear that neither Harry Goddard nor Michael Turner had examined all of the documentation in detail. This situation appears to have arisen from the fact that the plaintiffs were expecting to encounter more formal design documentation and written specifications and do not appear to have taken any, or any sufficient regard, to the informal nature of the development of ManTra and the fact that it was developed in an agile collaborative manner using PowerBuilder. The lack of consideration by the plaintiffs of available material was illustrated by the plaintiffs’ experts’ failure to consider the photographs of the flipcharts which were available from the June 2006 meeting which provided the genesis of the ManTra product. Those photographs demonstrated the approach which was taken by the defendants’ developers and the lack of consideration of those photographs or their contents by the plaintiffs’ experts is indicative of the plaintiffs’ misunderstanding of the nature of the defendants’ development process and led to the perpetuation of a claim based upon an alleged lack or absence of material or evidence when, in fact, such material was available, albeit that the material was in a different format and less extensive than envisaged due to the methods followed by the defendants’ developers. The Court does not draw any adverse conclusions as a result of the amount or nature of the material provided by the defendants and is satisfied that it is consistent with the oral evidence given by the defendants’ witnesses, as to how ManTra was in fact developed.
99. The sixteenth particular pleaded by the plaintiffs relates to the alleged lack of evidence of refactoring of source code which would be compatible with the alleged agile development of ManTra in the period October 2006 to March 2007. In this instance the term “refactoring” refers to modifications made to a program’s structure during the agile development. Modifications become necessary because agile methods do not allow for advance requirement specifications and design. In agile development, a developer works closely with a client to build software without much advance knowledge of requirements. In normal circumstances, a typical agile developer is already cognisant of a client’s initial priorities and the client would have a general knowledge of the requirements but would not have a technical or intricate knowledge. This results in the requirements emerging and crystallising during the development process. This leads to additional enhanced and new requirements being discovered during the agile development process and it is at that stage that refactoring becomes necessary. In agile development there is less advance design done than in traditional development, so it is possible that incremental development will eventually result in unwieldy program structures. Refactoring can also occur when a developer decides that a given part of the program code could be rewritten in a better way either to be more efficient, logical, reusable or easier to understand.
The plaintiffs contend that there is insufficient evidence of such refactoring in the records of the development of ManTra. However, the evidence available to the Court shows that the experts who analysed the QVCSE logs and produced statistics demonstrated a consistent pattern of modification with many thousand of changes made over the course of several months. Analysis carried out by the plaintiffs identified that about 21% of the two hundred and fifty nine ManTra scripts required high or medium levels of change. The plaintiffs sought to characterise that percentage as evidence that an excessive amount of the ManTra code was right first time. The Court does not accept that contention for a number of reasons. The fact that 79% of the scripts required only low levels of change is of itself uncontroversial and is consistent with industry experience. What was referred to as the 80/20 rule was raised in evidence before the Court by the Court’s own independent expert, which is a rule of thumb in software development where experience has indicated that 20% of the tasks require 80% of the effort. The figure of 21% of ManTra scripts requiring high or medium levels of change would be consistent with that experience and also where a large proportion of the stored procedures dealt with routine data access and were, therefore, relatively uncomplicated. Secondly, the plaintiffs and their experts failed to have any sufficient regard to the makeup of the team developing ManTra. Not only were the individual members experienced, knowledgeable and well-trained but they knew the particular area in which the development was being carried out in a detailed manner and they had a capacity to communicate effectively and directly with one and other. This resulted in the situation occurring that the effective clients in the ManTra agile development process were HWM’s business analysts and those persons knew their requirements intimately and in advance. That reduced the necessity for such persons to change their minds or to make a mistake about their requirements. The Court is satisfied that Marian Klco, the lead developer, was technically highly expert and had an impressive insight into the requirements. He arrived at the start of the Mantra development in a position where he had an excellent understanding of how best to structure the proposed program based upon his long experience with meeting similar requirements whilst working for Koger and developing NTAS almost amounting in effect to 20/20 hindsight in advance. The other developers had similar attributes and the group of persons carrying out the agile development were all experienced and none were unfamiliar with the necessary requirements. It was also the case that the evidence established that the ManTra development was constrained by the BFC library and the database Schema, both of which had been precisely formulated by expert designers in advance. ManTra was limited to a two-tier physical architecture (client-server), which prevented the implementation of a separate middleware layer and therefore there was no separate business object model. Harry Goddard gave evidence that he believed that there was a prior design for ManTra which he had not seen but this belief appears to have disregarded the importance of the BFC library and the database structure which together provided that design especially given the absence of a middle tier or business object model. The evidence also established that the testing of the ManTra product was done by the business analysts who knew the business requirements inside out. It was also crucial to the speed of development that those business analysts had sufficient technical know-how to carry out tests in a speedy and effective manner and the ability to use an informal process with less documentation and overheads than would be required in a more formal testing process. The evidence also established that the development process adopted by the defendants meant that problems which arose could be rectified in a speedy manner often taking place during telephone conversations. In the light of the factors identified concerning the nature and ability of the team which developed ManTra, the Court is satisfied that the extent and nature of the evidence of refactoring is commensurate with the circumstances prevailing at the time that ManTra was developed and by whom it was developed.
100. The seventeenth particular is that based upon particulars ten to sixteen inclusive taken together and individually it is claimed that such particulars provide evidence that an unauthorised copy of NTAS was being used as a reference point for the design, functional specification and the development of ManTra. For the reasons which the Court has set forth in the previous paragraphs, the Court does not accept that argument. The matters relied upon by the plaintiffs do not establish that a copy of NTAS was used as a reference in the design or development of ManTra. The Court is satisfied that such access was not required and from the evidence adduced before the Court, the Court has failed to identify any significant advantage which the defendants would have gained from such access. The Court is also satisfied based upon its conclusion on the credibility of the defendants’ witnesses that the evidence which those witnesses gave that they did not use or have such access is true.
101. The eighteenth particular pleaded by the plaintiffs relies upon the alleged absence of valid metadata in relation to the development of ManTra and the supplied design materials. Under this heading the plaintiffs appear to be referring to the file system metadata, such as date stamps, which were overwritten. It does not appear as if the plaintiffs are referring to application metadata since that was present and largely intact. The essence of the plaintiffs’ allegation under this heading is that the defendants intentionally altered the metadata and that the purpose of such alternation was to hide or cover the true development dates for the early versions of ManTra. 102. This was expressly pleaded in the nineteenth particular by the plaintiffs where it was alleged that the defendants made efforts to shield ManTra and its design materials from objective scrutiny. The Court will deal with particulars eighteen and nineteen within this section of the judgment. In relation to the alteration of the metadata it is true that dates were overwritten. The plaintiffs contend that this was done deliberately. That claim was denied by the persons involved in the actual development of ManTra. The Court accepts that evidence and is satisfied that the alterations which occurred were accidental and not intentional. More significantly, the Court is satisfied that any alternations cannot have been for the purpose of shielding ManTra, as alleged by the plaintiffs or hiding the true development dates. This is because the Court is satisfied that the ManTra code was developed in the time period identified by the defendants’ witnesses and in the manner described by them. The evidence from the persons involved in the development of ManTra concerning the development timeline was inherently logical and was also consistent with other evidence such as date stamps. The timeline identified by those witnesses was logical in that the development of each part of ManTra would have been dependent upon other parts of ManTra. No ManTra development could have been done until a decision had been made on the development platforms. The evidence established that various platforms were considered including Sybase, Oracle and SQL Server for the database and Java and PowerBuilder for the front end of ManTra. The evidence established that it was in October 2006 that a decision was made by the defendants to use an SQL Server and PowerBuilder. A database could not be created until an initial data model had been developed and the defendants’ evidence was that that was produced as a result of the October 2006 meeting. Thereafter there was credible and cogent evidence of the incremental development of the database structure. The stored procedures could not be developed and tested until the relevant database tables were in place and again the evidence from the defendants was that that occurred from late 2006 onwards and that by the 1st February, 2007, approximately 25% of the eventual number of stored procedures had been created. It is also the case that the PowerBuilder code could not be developed until an appropriate framework (BFC) had been created and at least some of the stored procedures were present and again the defendants’ evidence is that this occurred mainly in the first few months of 2007. Even though the earliest versions of ManTra PowerBuilder code were not discovered (PB10) there is evidence of incremental development of PowerBuilder code from December 2006 onwards. Only the BFC framework was independent of any other part of ManTra and the defendants say it was created during the middle part of 2006. The timeline as to the development of ManTra which could be gleaned from the evidence of the defendants’ witnesses was consistent with the documentation which was available and was inherently logical. It was consistent with other evidence such as date stamps. All that evidence confirms the Court in its conclusion that ManTra was developed in the manner and timeframe as identified in the defendants’ evidence. Indeed, that evidence is of such inherent consistency that the Court is satisfied that the ManTra code could not have been developed over a substantially different period from what was described by the defendants in their evidence. If the defendants had followed a different timetable, merely overwriting some file system metadata would have been insufficient to conceal the true timetable. It would have been necessary to alter the application metadata and other evidence such as e-mail and SharePoint records to make it appear that the above timetable had been followed. Such scenario is implausible and there is no evidence to suggest that it was done and the only conclusion which the Court can make is that the defendants’ evidence as to the development timeline of ManTra is true.
The use by the ManTra development team of the BFC library assisted the defendants in creating ManTra in a short timeframe. The BFC library and its use dictated to a large extent the structure of subsequent ManTra PowerBuilder code and saved the developers time and reduced the need for testing. Marian Klco gave evidence that he developed the BFC library during the middle part of 2006 independently from the ManTra development. The Court accepts that evidence and such evidence is consistent with the timeline identified above. The plaintiffs contended that Marian Klco’s development of the BFC library was not done independent of the ManTra development but that was expressly denied by Marian Klco and the Court accepts that denial.
The plaintiffs also raised a number of other issues in relation to a claim that the defendants endeavoured to shield ManTra from objective scrutiny. The first matter under this heading is the suggested failure to agree on the appointment of an independent expert before the commencement of this case. Consideration of the correspondence relating to this matter is inconclusive and demonstrates a complete failure of a meeting of minds and a manifest lack of trust. Secondly, the plaintiffs contend that the defendants failed to provide the correct discovery materials for expert review. No application for further discovery was pursued by the plaintiffs even though as the case developed, including during the trial, the plaintiffs suggested that more and more documents might have been relevant. However, this disregards the fact that the joint expert terms of reference and the materials to which the experts were to have access were agreed. Those materials were to a very significant extent provided. The agreed terms of reference did not stipulate the exact form in which the ManTra code was to be provided. Michael Turner gave evidence that he had stated his requirements in writing, to his side, and notwithstanding that it is clear that the terms of reference as agreed between the parties did not include Michael Turner’s stated requirements. In those circumstances the Court is satisfied that there is no basis for entertaining the plaintiffs’ subsequent complaints given the agreement that was reached in relation to the documentation and materials that were to be provided to the experts instructed by both sides. The plaintiffs also contended that the defendants should have followed the procedure of taking forensic copies of their code during development. Again this would have been of assistance given the manner in which this case evolved but the Court heard no evidence to suggest that such a procedure would be routine or expected. What did occur was that the defendants in developing ManTra used a version control system which is a process routinely followed by developers. Having considered the entirety of the evidence, the Court is satisfied that the defendants did not deliberately or intentionally take steps to shield ManTra or its design materials from objective scrutiny and that there is valid metadata available in relation to the development of ManTra entirely consistent with the defendants’ evidence as to the manner and speed of its development.
103. The twentieth particular relates to an allegation that ManTra was developed at an extraordinary pace. For the reasons outlined earlier in this judgment the Court is satisfied that there is no basis for that allegation and that the evidence available to the Court establishes that ManTra was developed independent of NTAS and without the use or access to NTAS over the time period identified in the defendants’ witnesses’ and in the manner identified by them. The Court also is satisfied that the evidence of George Sipko in relation to the pace of development of ManTra is of no real value to the Court. This stems from the fact that it is his experience with NTAS which would have informed and influenced his understanding as to the speed of development. NTAS did not use agile methodology but followed a more traditional documentation based method. NTAS was a mature product which was modified continuously over a ten year period and started with a poor architecture which was originally created by a developer who was inexperienced in PowerBuilder. It was a product which could not easily be replaced or improved once it was developed. The manner in which NTAS was improved or altered was likely to have been hampered by the lack of use of a more modern and up to date development support such as PowerDesigner. It is also the case that the working environment within NTAS was such that due to management interference and an atmosphere of fear and distrust that the speed of work was significantly hampered. This was likely to have been exacerbated by language difficulties. This would have led to Geoge Sipko having an unrealistic view as to the time involved in the development and improvement of software. Koger was a well financed established company which could afford the cost of an inefficient software process whereas HWM were not and required the efficiencies that resulted from a highly trained and committed staff. Neither George Sipko nor his experts appeared to understand the effect which the defendants’ very different software process had on development productivity and this led to unsupportable assumptions being propounded by the plaintiffs in relation to the defendants’ software development productivity. For the reasons outlined in this judgment the Court is satisfied that Mantra was not developed at an extraordinary pace but that its development productivity was consistent with the ability and talent of the developers and the software processes adopted by the defendants.
104. The twenty first particular relied upon by the plaintiffs is the alleged lack of the range, type and quality of design materials that would be compatible with the alleged agile development of ManTra in the period October 2006 to March 2007. The Court is satisfied that there is no basis for this allegation as the evidence established that the defendants chose and used an agile process for the development of ManTra. That decision had the consequent effect of avoiding the need for documentation and significantly reduced the amount of documentation that was produced from what would arise from a more traditional software development. Throughout the case the plaintiffs have raised issues in relation to the extent of the documentation without having recognised the true consequences of the use of an agile development process by the plaintiffs. In a traditional development process documentation is the main vehicle of communication between the persons participating in the project. That process also requires an identified written step by step approach fully documented and the typical documentation would include detailed project plans, extensive requirement specifications, architecture and design documents, program specifications, test plans, cases and results and implementation plans. In this case the defendants chose and used an agile development process and did so in circumstances where the persons participating in the development had the real expertise and technical knowledge to fully operate such a process. That minimised the need for documentation and the evidence established that there was direct collaboration and communication between the developers, that the business analysts participating in the development effectively acted as the client, and that the developers proceeded with the development incrementally, thereby removing the necessity to document each stage of the process. The evidence established that the agile development process adopted and followed by the defendants in this case effectively included an outline project plan, a statement of requirement priorities but not requirement specifications, revision of the requirements and priorities as the development proceeded and a system architecture which in this instance was contained within the system framework itself. The defendants also provided cogent and consistent evidence of how they tested the application. The clear and credible evidence from the defendants was that they chose to use agile development methods and the evidence which they adduce supported that claim in that they identified and confirmed the use of practices necessary in a true agile method such as direct collaboration between the developer and the client. As identified above, the effective clients in this case were the business analysts working as part of the defendants’ development team and this removed the necessity for any contractual relationship between the developer and the client. The evidence established that the agile development process followed by the defendants included the fact that the project plan and requirements prioritisation could be dealt with in a direct contact format using e-mail, telephone and face to face contact and person to person conversation rather than requiring documentation.
The evidence of Jana Potocnakova established that she acted as the “hub” in the development process directing requests and forwarding information from the analysts to the developers. That evidence was both credible and consistent with the other evidence adduced by the defendants and, significantly, the Court heard the evidence from Marian Klco who is the person who created the significant and technically difficult portions of ManTra. The Court is satisfied from considering his evidence that Marian Klco had the ability to carry out that work with little or no requirement for program specifications, thereby significantly reducing any requirement for documentation. The Court is satisfied that the material and documentation produced by the defendants including the design materials were compatible with the agile development of ManTra as actually carried out by the defendants and that there is no basis for the plaintiffs’ claim that the defendants failed to produce such material or that there is a lack of material. As already indicated, the informal design materials produced by the defendants include the outline project plans stating milestones which was the plan agreed at the October 2006 meeting which was confirmed in subsequent e-mails and SharePoint postings which were available in documentary form. There was no need, within the agile process, to produce a formal project plan document as there was no external client and there was therefore no reason to communicate with that client. The materials also included requirement priorities which were agreed between the persons participating in the development of ManTra at the June and October 2006 meetings. Those requirements were confirmed in subsequent e-mails and SharePoint postings. The documentation also included the system architecture and Marian Klco gave evidence of a comprehensive and self- documenting architecture in the form of the BFC class library. That together with the well designed ManTra data model and use of stored procedures to implement business logic provided a system architecture for ManTra. Harry Goddard in his evidence failed to have any sufficient regard for the presence of the BFC library as a primary architectural component and instead sought to identify a middleware style object model. However, the evidence in this case established that there was no need for such a level of complexity in the ManTra design as ManTra was limited to a two-tier physical architecture which prevented the implementation of middleware proper. This was explained in the evidence of James O’Donnell when he stated that the compromise solution implemented by the defendants was to implement a virtual third tier in the form of stored procedures in the SQL Server database and that evidence was both credible and consistent with the other evidence adduced by the defendants. The documentation produced by the defendants also identified documents relating to the platform choices and the reasons for making such choices, that is, the decision to use PowerBuilder and SQL Server rather than Java, Sybase or Oracle.
The plaintiffs lay considerable emphasis, in the presentation of their case, on the alleged absence of test documentation. The evidence established that the ManTra code and database structure were of high quality. The evidence also established that the defendants adopted working practices so that the application which they were creating was easily accessible to all persons participating in the project, regardless of location. That, together with the excellent knowledge of the business analysts and good communications, facilitated an agile approach to testing and removed the necessity for documentation. The plaintiffs commented that there was a lack of documents such as requirement specifications, design documents, program specifications and test plans. However, those documents would be more typically associated with non-agile development and the plaintiffs in seeking such documentation failed to recognise the true nature of development being carried out by the defendants. The Court is satisfied that the evidence establishes that there was no lack of range, type or quality of design materials compatible with the agile development of ManTra as pursued by the defendants. The material which was produced was consistent with the evidence given by the defendants as to the actual method followed by them and the plaintiffs’ complaint in relation to the lack of documentation is without basis.
105. The twenty second and final particular relied upon by the plaintiffs is an allegation that despite the deletion of much of the history of the evolution of the source code, evidence remains which indicates a migration from the NTAS database structure to the ManTra database. It is common case that the defendants deleted the first and earliest source code folder that is PB10. The Court heard evidence in relation to this matter and the Court is satisfied that that folder must inevitably have held little of significance because it represented the very early stage in the development of the PowerBuilder code for ManTra. The Court accepts the defendants’ evidence in relation to this matter and that evidence is corroborated by a number of other items of evidence including the dates of the PDM file and the stored procedures. The plaintiffs contend that the defendants deleted “much of the history” of the evolution of the source code. That would only be the case if the source code had gone through a substantial transformation from NTAS to ManTra in or before the PB10 version. The plaintiffs contend that such substantial transformation actually took place despite there being a complete lack of evidence to support such contention. The Court does not accept nor is there evidence to support an allegation that the PB10 folder was deleted to conceal such a substantial transformation. That is so because the Court is satisfied that there was no such substantial transformation from NTAS to ManTra in or before the PB10 version. The Court has already dealt with the deletion of the PB10 file and has indicated that it accepts the evidence of Marian Klco in relation to the date and circumstances of deletion.
As part of this particular the plaintiffs claim that evidence remains which indicates migration from the NTAS database structure to the ManTra database. The evidence which the Court has heard does not support that contention. The earliest data model available for ManTra, the twenty eight table model in the first PDM file, is consistent with early stage data modelling ab initio. The Court heard no evidence of any model derived from NTAS being transformed or migrated to create the twenty eight table model. The Court is further satisfied that there is no practical reality in relation to the claim that the initial twenty eight table model might have been generated in such a manner. The NTAS database structure contained hundreds of tables and relationships and it would have been both time consuming and pointless to endeavour to reduce that structure to twenty eight core tables. The Court is satisfied that it would be more practical, efficient and quicker to model the core twenty eight tables from scratch. That was the defendants’ evidence and the Court accepts that evidence as credible.
The plaintiffs also sought to rely on certain Sybase SQL statements within ManTra as evidence of migration from NTAS to ManTra. The evidence to the Court was that the code in question is designed to retrieve the structure of any Sybase database and the plaintiffs therefore suggest that this could have been used to programmatically extract the structure of the Sybase NTAS database in order to create a SQL Server copy as the basis for ManTra’s database structure. However, the plaintiffs led no evidence to show that that actually occurred. Marian Klco gave evidence providing an explanation for the existence of the code in question and the Court is satisfied that that evidence is credible.
A further issue raised by the plaintiffs in support of a claim of evidence of migration was the use in ManTra of certain table and column names which are the same as those in NTAS and the subsequent replacement of some of those terms with non-NTAS equivalents. The Court does not accept the plaintiffs’ contention that the use of terms and their subsequent replacement is evidence of migration from the NTAS database structure. The terms in question were common knowledge to the persons developing ManTra and it was perfectly logical for those persons to use such terms. They had long experience of using such terms and they each knew the precise meaning of each individual term. The defendants gave evidence as to the reason for adopting alternative terms which was to make the terms more up to date, understandable and appropriate. The term “TRI” was replaced by “Audit”. The term “NAV” was replaced by “Valuations” and the term “Exrate” became “Fxrate”. The defendants’ explanation in relation to the reasons and circumstances for the use of alternative terms was entirely credible. The plaintiffs’ expert witness, Harry Goddard, endeavoured to suggest that the defendants re-naming of tables and columns was an indication of an attempt to cover up the fact that they were copying NTAS. However, as was apparent from the evidence of the defendants, the reason for the re-naming was to provide more understandable, appropriate and up to date terminology. Such approach is entirely consistent with the iterative development that takes place during data modelling and within agile projects. The Court is satisfied that there is nothing suspicious about such re-naming and in fact it can be considered a form of refactoring. The inconsistency of Harry Goddard’s criticism is illustrated by this in that he complained that such re-naming was an indication of copying whilst simultaneously claiming that evidence of refactoring was absent. The Court accepts the defendants’ explanation in relation to the replacement of NTAS terms and that such replacement had nothing to do with any attempt to cover up the copying of NTAS as such copying had not occurred.
A further matter raised by the plaintiffs in relation to this particular was that the plaintiffs identified NTAS column names in ManTra code which had been commented out. Some of those NTAS column names had also been altered. The plaintiffs contended that the alteration was evidence of migration from the NTAS database design to the ManTra database design. The plaintiffs’ expert questioned why the defendants would have edited code which was commented out and claimed that such conduct was indicative of copying. Marian Klco gave evidence in relation to this matter. It is standard practice to desire to re-name variables during development but PowerBuilder which was being used by the defendants’ developers lacked refactoring tools to allow variable names to be easily altered. Marian Klco explained in evidence how that problem was dealt with which was by the use of global replacement (find and replace). This had the effect of changing every occurrence of a given variable name, in both live and commented out code. The resulting alteration of variable names is therefore no ground for suspicion and the Court accepts the evidence of Marian Klco in relation to this matter.
106. In the plaintiffs’ written submissions they reiterated their opening legal submissions and stated that:
“The plaintiffs’ case is ultimately fact dependent: did the defendants in developing ManTra and launching their rival business use without authorisation confidential and proprietary information of the plaintiffs, including confidential and proprietary information relating to the source code and database structure of NTAS? …. It is respectfully submitted that the answer to that question is indeed yes.”
Having considered the entirety of the evidence in relation to the claim under paragraph 2 of the plaintiffs’ statement of case and each of the individual particulars relied on as set forth in paragraph 3, the Court is satisfied that the defendants in developing ManTra did not use any copy of NTAS either as a functional and/or design specification for developing ManTra. The Court is satisfied that there is no evidence that the defendants had access to or used an unauthorised copy or any copy of NTAS. For completeness sake it is also the case that the evidence satisfies the Court that the defendants were able to develop ManTra and release it onto the market as a result of the defendants’ own independent work and that such development and date of release was in no way dependent, as alleged, on access to and use of an unauthorised copy of NTAS. The plaintiffs have recognised that their case is ultimately fact dependent and on the facts of this case the Court is satisfied that the plaintiffs have failed to establish a case against the defendants to support their claim.
107. Paragraph 4 of the plaintiffs’ statement of case claims:
“The making of the unauthorised copy of NTAS constitutes an infringement of the plaintiffs’ copyright under the 2000 Act. Further, the use of the unauthorised copy of NTAS as described in the development of ManTra constitutes the adaptation of the NTAS product within the meaning of s. 37 of the 2000 Act thereby infringing the plaintiffs’ copyright in the NTAS product.”
The Court has already determined that the defendants did not have access to or the use of an unauthorised copy of NTAS. Therefore, the claim under this heading fails. However, for completeness sake it is appropriate to deal with the matter raised within that plea as to whether or not ManTra constitutes an adaptation of the NTAS product. Section 2 of the Copyright and Related Rights Act 2000 (the 2000 Act) defines literary work in the following terms, namely:
“‘Literary work’ means a work, including a computer program, but does not include a dramatic or musical work or an original database, which is written, spoken or sung.”
Database is defined in the same section as follows:
“‘Database’ means a collection of independent works, data or other materials, arranged in a systematic or methodical way and individually accessible by any means but excludes computer programs used in the making or operation of a database.”
Section 17(2) of the 2000 Act provides that:
“Copyright subsists, in accordance with this Act, in –
(a) original literary, dramatic, musical or artistic works,
(b) …
(c) …
(d) original databases.”
Chapter 4 of the 2000 Act deals with the rights of copyright owners and s. 37 identifies acts restricted by copyright in a work. Section 37(1) provides:
“(1) Subject to the exceptions specified in Chapter 6 and to any provisions relating to licensing in this Part, the owner of the copyright in a work has the exclusive right to undertake or authorise others to undertake all or any of the following acts, namely:
(a) to copy the work;
(b) to make available to the public the work;
(c) to make an adaptation of the work or to undertake either of the acts referred to in paragraph (a) or (b) in relation to an adaptation,
and those acts shall be known and in this Act referred to as “acts restricted by copyright”.
(2) The copyright in a work is infringed by a person who without the license of the copyright owner undertakes, or authorises another to undertake, any of the acts restricted by copyright.
(3) References to the undertaking of an act restricted by the copyright in a work shall relate to the work as a whole or to any substantial part of the work and to whether the act is undertaken directly or indirectly.”
The plaintiffs have claimed in this case that ManTra constitutes an adaptation of the NTAS product within the meaning of s. 37 of the 2000 Act. The evidence does not support a claim that ManTra is an adaptation of NTAS. As identified earlier in this judgment, the architecture of the code in NTAS is different from that of ManTra and once an application’s architecture is established, it is difficult to convert it to another architecture particularly in circumstances where the two architectures are fundamentally different. There are significant differences in the database structures and the structure of the data access code is different in NTAS and ManTra. It is also implemented using two different platforms which require different algorithmic approaches, that is to say, SQL stored procedures in ManTra and PowerBuilder code in NTAS. There was also no evidence led to the Court to indicate that any specific part of ManTra could be identified as having telltale traces of the alleged design by reference to NTAS. Section 43(2)(d) of the 2000 Act expressly deals with the term “adaptation” as referred to in s. 37(1)(c) and sub-paragraph (d) of s. 43(2) deals with a computer program in the following terms:
“A computer program, includes a translation, arrangement or other alteration of the computer program.”
The evidence which the Court heard fails to demonstrate that the ManTra code could be said to be an adaptation, translation, arrangement or other alteration of NTAS. The plaintiffs failed to adduce any evidence of the process of the transformation from NTAS to ManTra and whilst ManTra does contain some ideas or principles from NTAS, such contents do not amount to an adaptation and do not amount to any breach of the 2000 Act.
There is no issue but that the first named plaintiff, Koger, owns the copyright in the NTAS product excluding the components of that product authorised by or supplied by third parties. However, the plaintiffs have failed to establish that the defendants had access to or use of NTAS in the development of ManTra. Nor have they established that ManTra is an adaptation of NTAS under the 2000 Act. The plaintiffs have therefore failed to establish any breach of copyright.
In considering whether or not there was a breach of copyright in the NTAS product, the Court has considered that matter and applied the definition and approach to source code identified in the judgment of Laddie J. in Psychometric Services Ltd. v. Merant International Ltd. [2002] F.S.R. 8 at p. 147 and his explanation as to what a source code is (at p. 152):
“A computer functions in response to a set of electronic signals supplied to it. The software is the combination of data and instructions which controls the computer. The software which directly controls a computer is written in a language which computers understand but which is incomprehensible to humans. It is said to be a low-level language. …
However, computer programs are, in large part, written by or under the control of humans. The authors, that is to say the computer programmers, have to understand what they are doing in order to refine any software and to correct any defects in it. A computer programmer must be able to understand the program, appreciate which parts control which functions and so on. For these reasons the software will be created in a form known as source code. It is a high-level language which is comprehensible to humans (or at least a group of suitably trained ones).”
In considering the issue as to whether or not there was a breach of copyright and arriving at the conclusion that there has not been such a breach, the Court has followed the approach to the alleged breach of copyright in computer software identified by Mr. Justice Jacob in Ibcos Computers Ltd. and Another v. Barclays Mercantile Highland Finance Ltd. and Others [1994] F.S.R. 275. That case considered a claim for copyright infringement in computer software under the U.K. Copyright, Designs and Patents Act 1988. In his judgment, Jacob J. identified four questions which require to be addressed in determining whether or not there was a breach of copyright, namely:
(1) What are the work or works in which the plaintiff claims copyright?
(2) Is each such work “original”?
(3) Was there copying from that work?
(4) If there was copying, has a substantial part of that work been reproduced?
In applying that test to the facts of this case, the Court is satisfied that the first named plaintiff, Koger, owns the copyright in NTAS and that subject to the proviso in relation to the exclusion of components within NTAS authorised by or supplied by third parties, that such work is original. The evidence which the Court has heard has led the Court to the determination that the defendants have not copied NTAS and that therefore there has not been a breach of copyright. It therefore follows that the issue as to whether a substantial part of the work of NTAS has been reproduced in ManTra does not arise.
In considering the question of whether or not there was copying of the NTAS software, the Court has applied and the test identified by Jacob J. in the Ibcos case where he identified the approach to take in relation to the issue as to whether or not there was copying in the following terms, namely(at pp. 296 and 297):
“For infringement there must be copying. Whether there was or not is a question of fact. To prove copying the plaintiff can normally do no more than point to bits of his work and the defendant’s work which are the same and prove an opportunity of access to his work. If the resemblance is sufficiently great then the court will draw an inference of copying. It may then be possible for the defendant to rebut the inference – to explain the similarities in some other way. For instance he may be able to show both parties derived the similar bits from some third party or material in the public domain. Or he may be able to show that the similarity arises out of a functional necessity – that anyone doing this particular job would be likely to come up with similar bits. So much is common ground between the parties. The concept of sufficient similarities shifting the onus onto the defendant to prove non-copying is well recognised in copyright law.”
In determining that there has been no copying by the defendants, the Court has heard evidence that where there is identical text within the two products that such text emanates from third party material readily available in the public domain. It follows that that material is of no benefit to the plaintiffs, in relation to their claim for breach of copyright. It is also the case, as is apparent from the earlier part of this judgment, that such limited similarities as arise between ManTra and NTAS arise out of a functional necessity. In addressing that functional necessity the persons developing ManTra did so using their own expertise and knowledge and did not do so by the use of a copy or access to NTAS. The product or code within ManTra was as a result of independent design.
In considering the issue of whether or not there was breach of contract the Court has applied the principle contended for by the plaintiffs, as identified in the judgment of Pumfrey J. in Cantor Fitzgerald International v. Tradition (U.K.) Ltd. [2000] RPC 95 and, in particular, the portion of his judgment which identifies that:
“… the ‘architecture’ of a computer program is capable of protection if a substantial part of that programmer’s skill, labour and judgment went into it. In this context, ‘architecture’ is a vague and ambiguous term. It may be used to refer to the overall structure of the system at a very high level of abstraction.” (see p. 134).
The evidence in this case established that the defendants worked out, separately and independently, relying on their own personal knowledge and expertise an independently developed product whose architecture was so different as to bear no real resemblance to NTAS. The defendants in this case did not borrow a substantial amount of the skill or labour expended by the plaintiffs and embedded in NTAS but rather relied on their own knowledge and experience. In considering the evidence the Court is satisfied that when one has regard to the knowledge and expertise of the persons developing ManTra that ManTra was developed by those persons using their own skill and experience and not as a result of any misuse of NTAS.
108. Paragraph five of the plaintiffs’ statement of case pleaded a further and alternative claim to the effect that the use of the NTAS product constitutes a misuse of confidential information and ManTra consists of the fruits of such misuse. That plea is based upon a claim that the defendants used the NTAS product. The Court has already concluded that the defendants did not have access to or use of an unauthorised copy of NTAS during the development of ManTra. The right to prevent the misuse of confidential information and to grant relief for breach of confidence was set out by Costello J. in House of Spring Gardens Ltd. v. Point Blank Ltd. [1984] I.R. 611. That case identified a number of steps which were necessary for a party to succeed in a claim for breach of confidence. Firstly, the Court must decide whether there existed from the relationship between the parties an obligation of confidence regarding the information which had been imparted and then to decide whether the information which was communicated could properly be regarded as confidential. Once the Court was satisfied that it had been established that an obligation of confidence existed and that the information was confidential, then the Court proceeded on the basis that the person to whom it was given had a duty to act in good faith which meant that that person must use the information for the purpose for which it was imparted to him and could not use it to the detriment of the informant. In arriving at that decision, Costello J. had relied in part on the judgment of Lord Greene, M.R. in Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. [1948] R.P.C. 203. In that case it had been held that if a defendant was proved to have used confidential information, directly or indirectly, obtained from a plaintiff, without the consent, express or implied, of the plaintiff, he would be guilty of an infringement of the plaintiff’s rights. Information communicated by the plaintiffs to their then employees during the course of their employment would have the clear intention, irrespective of any express provision in a contract of employment, to be categorised as confidential information placing on the party receiving that information, such as an employee, an obligation of confidence regarding that information. It would however have to be confidential information and the person receiving it must use that information. In this case the plaintiffs allege that former employees used confidential information by making a copy of NTAS and by having access to such copy and using such unauthorised copy as they were developing ManTra. The plaintiffs have failed to establish such use in evidence and have failed to identify any confidential information which was used by the defendants in and about the development of ManTra. What has been established in evidence is that former employees of the plaintiffs had accumulated a body of knowledge during their employment which was used in and about the independent development of ManTra. The plaintiffs have failed to identify the use or misuse of any identifiable trade secrets. No claim is made that the defendants used or applied skill, expertise know-how and general knowledge gained during the course of their employment. Indeed, such a claim could not succeed. There is clear authority for the fact that protection cannot legitimately be claimed in respect of skill, expertise, know-how and general knowledge acquired by an employee as part of his job during the course of his employment, even though it might equip him as a competitor of his employer. As stated by Mummry L.J. in the judgment of the Court of Appeal in FSS Travel and Leisure Systems Ltd. v. Johnson [1999] FSR 505, dealing with the issue of confidential information and contracts of employment relating to a computer program, one of the well settled legal propositions affecting restrictive covenants in an employment contract include (p. 512):
“(4) Protection cannot be legitimately claimed in respect of the skill, experience, know-how and general knowledge acquired by an employee as part of his job during his employment, even though that will equip him as a competitor, or potential employee of a competitor, of the employer.”
That judgment identified that the critical question to consider was whether the employer had trade secrets which could be fairly regarded as his property, as distinct from the skill, experience, know-how and general knowledge which can fairly be regarded as the property of the employee to use without restraint for his own benefit or in the services of a competitor. In considering that distinction, a court must examine all the evidence relating to the nature of the employment, the character of the information, the restrictions imposed or its dissemination, the extent of use in the public domain and the damage likely to be caused by its use and disclosure in competition to the employer. On the facts of this case the plaintiffs have failed to identify the misuse of particular trade secrets which can be fairly regarded as their property. Lack of precision in pleading by the plaintiffs, and the absence of solid evidence in proof of any trade secrets, results in this Court being satisfied that there has been no breach of confidential information or any misuse of information protected by a contract of employment by any of the defendants. The plaintiffs have expressly relied on a claim that their NTAS product was copied and was then accessed and used by the defendants in the development of ManTra. Having examined closely the evidence relating to this matter, the Court is satisfied that such unauthorised taking of a copy did not occur and that there was no unauthorised use or access by the defendants. It is clear that the plaintiffs’ claim in relation to breach of confidence is fact dependent and as contended for at paragraph 397 of the plaintiffs’ closing submissions, it was claimed:
“It is respectfully submitted that, in accessing and/or taking away and relying upon the plaintiffs’ source code and database structure and using it to develop the ManTra product, the defendants committed a clear breach of confidence to the detriment of the plaintiffs, such as to make out all the elements of the cause of action in both equity and contract.”
The Court is satisfied that the plaintiffs have failed to establish such claimed access or use and have failed to establish the taking away and relying upon the plaintiffs’ source code and database structure by the defendants and in those circumstances the plaintiffs’ claim in breach of confidence cannot succeed.
109. The sixth and final paragraph in the plaintiffs’ statement of case raises the claim that in addition to breach of copyright and breach of confidence claims, that the plaintiffs also claim that the first and second named defendants, that is, James O’Donnell and Robert Woolman, acted in breach of their contracts with the plaintiffs and also were in breach of their fiduciary duties to the plaintiffs. Particulars of such breaches are set out and five separately identified paragraphs and are relied upon by the plaintiffs.
A claim for breach of contract is made against James O’Donnell and Roger Woolman. It is necessary to identify the evidence which the Court heard in relation to those two persons’ contracts of employment. The plaintiffs contend that a non-solicitation clause contained in the contract between Koger, the first named plaintiff, and James O’Donnell, the first named defendant, remained in force and formed part of James O’Donnell’s employment terms up to the date of his departure on the 30th April, 2006. Clause 7 of the agreement of 21st December 2000 between James O’Donnell and Koger provided contract terms and conditions which contained a non-solicitation clause which prohibited James O’Donnell from directly or indirectly soliciting or attempting to offer any service, product or other application which is the same as or similar to the services, products or other applications offered or in the process of being developed by the company within the last year prior to termination of his contract with any company or any company customers for a period of one year after the termination of his contract with the company. There was also a term within clause 7 prohibiting, for a period of one year after the termination of his contract with the company, James O’Donnell from soliciting or attempting to solicit any employee or consultant of the company where such employee or consultant had rendered services to the company at any time within the six months immediately preceding the termination of James O’Donnell’s contract. There was a conflict of evidence in relation to what was the contractual relationship between James O’Donnell and the plaintiffs. James O’Donnell gave evidence of direct and completed negotiations between him and George Sipko regarding the exclusion of post-termination, non-compete and non-solicitation obligations from his contracts with both Koger and Koger (Dublin). A non-solicitation clause was included in the contract of 21st December 2000 and that was common case. That contract was with Koger as Koger (Dublin) had not yet been incorporated. James O’Donnell gave evidence that his position changed when he became an employee of Koger (Dublin) and he signed his first contract with that company by a contract of 1st November 2002. He thereafter signed a number of contracts and James O’Donnell’s evidence was that, in relation to the non-solicitation clause that had been contained in the 2000 contract with Koger, that he had a discussion in relation to that matter with George Sipko and it was agreed that the non-solicitation clause and non-competition term of the earlier contract could be excluded (see Transcript 25, questions 49-56). James O’Donnell’s evidence was that following discussions between himself and George Sipko that it was agreed that the non-competition and non-solicitation elements of the 2000 contract could be removed and it was on that basis that he signed the contract with Koger (Dublin). George Sipko stated that he had no knowledge of such conversation and the plaintiffs sought to rely on a claim that the non-solicitation clause within the December 2000 agreement between Koger and James O’Donnell remained in force. There was a straightforward conflict on this matter and the Court is satisfied that the evidence of James O’Donnell is both truthful and reliable in relation to this matter and is to be preferred from that of George Sipko. This follows not only from the Court’s considered view as to the relative credibility of those two persons, but also from the fact that the actual contract signed by James O’Donnell dated the 1st November, 2002 with Koger (Dublin) contains no non-solicitation competition clause and further, expressly provides that that agreement was in substitution for all previous contracts of service between the company and the employee, if any, which shall be deemed to have been terminated by mutual consent as and from the date on which this agreement commences. That contractual position was mirrored in the later contracts of the 1st January, 2003 and in the contract of the 1st April, 2004. Therefore, the Court is in the position that not only does it find the evidence of James O’Donnell more credible in relation to this matter but that the available documentation is entirely consistent with his evidence. It follows that the Court is satisfied that the contract of employment which James O’Donnell had with the second named plaintiff as of the date of his departure did not include any non-solicitation/competition clause nor any express term in restraint of trade. James O’Donnell was not employed by the first defendant, Koger, as of that date and his only contract was with Koger (Dublin). James O’Donnell therefore did not owe any post-termination non-solicitation or anti-competition obligations to Koger (Dublin). The plaintiffs have failed to identify a legal basis for their contention that James O’Donnell was under a non-solicitation obligation to either Koger or Koger (Dublin) following the termination of his employment on the 30th April, 2006. It is also the case that the plaintiffs have entirely failed to particularise such claim and have failed to identify any customers of the plaintiffs which it is alleged that James O’Donnell solicited or any former employees or consultants of the plaintiffs that it is alleged that James O’Donnell solicited or any evidence as to how such obligations, if they existed, were in fact breached.
110. The second defendant in respect of which a claim is made in relation to breach of a contract of employment is Roger Woolman. The plaintiffs claim in relation to Roger Woolman that he is a former employee and managing director of the second plaintiff and that he commenced employment with the first plaintiff on the 2nd October, 2000 as a business analyst and that he transferred to work for the second plaintiff in August 2003 where he worked as a consultant between August 2003 and October 2006. It is claimed that he was managing director of the second named plaintiff in January to December 2002 and that his last consultancy agreement was entered into with the second plaintiff on the 1st January, 2006 and that that contained obligations of confidentiality and non-solicitation in identical terms to those which it is claimed applied to James O’Donnell. The plaintiffs also claim that as part of the so-called business conspiracy plan that James O’Donnell and Roger Woolman backdated amendments to his 2005 and 2006 contracts to clear the way for him to work for HMW whilst continuing to work for the plaintiffs and inherent within that argument is a claim that any removal of an obligation of confidentiality or non-solicitation would be unenforceable and that Roger Woolman remained bound by his alleged earlier agreement. The evidence available to the Court from Roger Woolman and as confirmed by the documents is that the only non-solicitation obligation contained in any contract was, contained in the contract entered into between Koger and Roger Woolman. No contract between Roger Woolman and Koger (Dublin) ever contained a non-solicitation clause. The evidence established that in 2003 Roger Woolman ceased to provide consultancy services for the plaintiffs and that he did not provide any services for approximately one year and recommenced a contractual relationship with the second named plaintiff in April 2004. In 2005 and 2006 the evidence established that Roger Woolman was working as an independent part-time consultant for Koger (Dublin). The Court is unable to identify any basis upon which it can be contended that the agreements that Roger Woolman entered into with Koger prior to ceasing to provide any services for either of the plaintiffs in 2003 could be binding on him after he recommenced to provide services in April 2004. New contracts were entered into thereafter and the terms of those contracts do not contain a non-solicitation/competition clause or a restraint of trade clause. In 2005 and 2006 the evidence established that Roger Woolman was working as a part-time consultant for Koger (Dublin). Insofar as there is a dispute as to the circumstances concerning the altered contract of 2005/2006 that is dealt with earlier in this judgment and the Court has already indicated that it is satisfied that that contract and the terms therein set out were at the behest of Koger (Dublin’s) auditors and not as a result of any conspiracy between James O’Donnell and Roger Woolman. It is also the case that the terms of the 2006 contract entered into between Roger Woolman and Koger (Dublin) correctly identified the nature of the contractual services which Roger Woolman was providing for Koger (Dublin). The letter of the 27th March, 2006 from Karen Maher, associate director within KPMG, the auditors of Koger (Dublin) stated on its third page:
“As you are aware, the Revenue focus on the distinctions between employment and self-employed income (consultancy income). As the company is obliged to offer PAYE on all employment income, it is important that the company be satisfied that this income is correctly classified as consultancy income and under a contract for services and therefore PAYE/PRSI need not be operated. I attach an appendix with further details. This area can be complex, if you would like to discuss this further, please do not hesitate.”
Following receipt of that advice the evidence was that Roger Woolman signed a contract dated 1st January, 2006 with Koger (Dublin) which made it clear that he was self-employed and that contract was consistent with the information contained in the appendix attached to the KPMG letter. The contract expressly provided that there were no restrictions of trade and that the contractor, namely Roger Woolman, may provide similar services to other third parties. The agreement which Roger Woolman had with Koger (Dublin) did not have a non-solicitation clause nor a restraint of trade clause and expressly provided that he was free to provide similar services to other third parties. The Court is satisfied that there is no legal basis for the plaintiffs’ contention that Roger Woolman had a contractual obligation which contained a non-solicitation clause and/or a restraint of trade clause during 2005 or 2006 and there is no basis for the plaintiffs’ claim that Roger Woolman was in breach of contract with the plaintiffs.
111. In paragraph six of the plaintiffs’ statement of case, it is alleged that James O’Donnell and Roger Woolman were in breach of their fiduciary duties to the plaintiffs. In paragraph 403 of the plaintiffs’ written submissions it was contended that such breach arose from the fact that James O’Donnell and Roger Woolman had clear duties as directors of the second named plaintiff to act at all times bona fide in the interests of the company. It was also contended that such duties to act in the best interests of the second named plaintiff would also embrace the duty to act in the best interests of the Koger Group, given the relationship between the two. The evidence which the Court heard was that Roger Woolman had been a director of Koger (Dublin) from the date of its incorporation but that he ceased to be a director from December 2002. The Court also heard evidence that James O’Donnell was a director of Koger (Dublin) but that as of the 30th April, 2006 he resigned his employment with Koger (Dublin) and also resigned as a director. The documentation which is available to the Court from the Companies Registration Office records confirms that evidence. The evidence was that neither James O’Donnell nor Roger Woolman were ever directors of Koger. The plaintiffs contend that the actions of James O’Donnell and Roger Woolman involved a flagrant violation of the fundamental rule of “no conflict” “no profit” and that they were bound by such rules to the two plaintiff companies. The plaintiffs claim that James O’Donnell and Roger Woolman involved themselves in flagrant violation of that fundamental rule and it is claimed that they participated in the defendants’ plan to hijack the plaintiffs’ business which it is claimed is evidenced by the material set out in five numbered paragraphs in paragraph 6(b) of the plaintiffs’ statement of case.
The evidence is that Roger Woolman was not a director of Koger (Dublin) from the end of 2002 and that any argument based upon his obligation as a director would cease as from that date. James O’Donnell remained a director up until the date of the termination of his employment. The Court has already analysed in detail the claim which the plaintiffs have put forward in relation to an alleged business conspiracy. The Court has already identified its conclusions on the defendants’ business activities from February 2006 and the conduct of James O’Donnell up to the date of his departure from Koger (Dublin) on the 30th April, 2006. The Court is satisfied that the business plan in existence prior to his date of departure was no more than an aspirational document of no real substance. There is no evidence that James O’Donnell prepared or assisted in the preparation of the initial draft during his working hours with Koger (Dublin). It is also the case that the business plan was in draft format and had not been circulated and that there was no breach of a “no conflict” “no profit” rule. After his departure on the 30th April, 2006 James O’Donnell was entitled to be involved with the preparation and completion of the business plan of the fourth named defendant and such involvement was not a breach of any obligation which he owed to either of the plaintiffs. Roger Woolman’s involvement with the business plans of the fourth named defendant did not represent any breach of any obligation which he owed to the plaintiffs and the plaintiffs have failed to identify any obligation that he owed to either of the plaintiffs during 2006 which would have prohibited him from such involvement. The second particular relied upon by the plaintiffs in relation to the claim that the defendants planned to hijack the plaintiffs’ business relates to communications between the defendants and the plaintiffs’ employees and/or contractors directed at hijacking the plaintiffs’ business. The evidence established that the defendants sought to develop a product which could compete with the plaintiffs’ product. The plaintiffs have failed to identify any communications between the defendants and the plaintiffs’ employees or contractors which were impermissible or in breach of any obligations that either James O’Donnell or Roger Woolman owed to either of the plaintiffs. The individual complaints in relation to business conspiracy have been dealt with earlier in this judgment. Particulars three and four in paragraphs 6(b) relate to complaints concerning alleged approaches and presentations to clients and prospective clients of the plaintiffs including IBT and Caledonian and the timing thereof by the defendants and the alleged solicitation by the defendants of clients and prospective clients of the plaintiffs. These complaints are not particularised but it is apparent from the submissions of the plaintiffs that the complaint is in relation to IBT and Caledonian. This claim is based upon the contention that Dylan O’Brien provided inside information to the defendants about presentations that Koger (Dublin) were due to make to those companies. The evidence established that neither of those companies were in fact clients of the plaintiffs but that the plaintiffs were seeking to have those companies become clients. James O’Donnell and Dylan O’Brien both gave evidence expressly denying that any information was shared in relation to either of those companies or any information of that type. James O’Donnell gave evidence that he made contact with the managing director of Caledonian who was a long-time friend early in November 2006 with a view to visiting him when James O’Donnell was to be in the Cayman Islands in November 2006. That account was not disputed. The Court accepts James O’Donnell’s evidence in relation to same. James O’Donnell’s presentation took place in the Cayman Islands to Caledonian in relation to the business which that company operated in that location whilst the plaintiffs’ presentation to Caledonian took place in Dublin. The Court is satisfied that James O’Donnell’s evidence in relation to the circumstances as to how he came to meet with Caledonian is truthful and based on that evidence there is no basis for any complaint by the plaintiffs concerning such meeting. In relation to IBT, James O’Donnell gave evidence (Transcript 32, question 282 onwards) that it was IBT who contacted him in September 2006 seeking his expertise in relation to equalisation accounting. That evidence was supported by contemporaneous e-mails produced to the Court. James O’Donnell went on to state in evidence that whilst providing that service for IBT, they informed him that they were in the market for a new transfer agency system and they provided him with an opportunity to make a presentation on behalf of the fourth named defendant. The Court accepts that account and it follows that no complaint can be made by the plaintiffs in relation to the dealing between the defendants and IBT and that such dealings can in no way support any of the claims made by the plaintiffs nor were either of the two contracts, in respect of which complaint was made, a result of any information from Dylan O’Brien.
The final particular contained in paragraph 6(b) of the plaintiffs’ statement of case related to the suggested unauthorised copying and use by the defendants of the proprietary content of the plaintiffs’ license agreements and employment contracts. No relief is claimed arising out of such alleged misuse, nor were any submissions made of such alleged misuse. There is no relief claimed from such alleged misuse nor has either of the plaintiffs led any evidence of any alleged loss or damage occurring to either of them arising from such alleged misuse. The plaintiffs have no claim under this heading.
112. In the light of the above findings the Court is satisfied that the plaintiffs have failed to establish an entitlement to any of the reliefs sought in their claims against the defendants or any of them. The plaintiffs’ claims are dismissed.
Koger Inc v O’Donnell
THE HIGH COURT
COMMERCIAL
[2008 No. 4333P]
BETWEEN
KOGER INC AND KOGER (DUBLIN) LIMITED
PLAINTIFFS
AND
JAMES O’DONNELL, ROGER WOOLMAN, DAVID GROSS AND HWM FINANCIAL SOLUTIONS LIMITED
DEFENDANTS
PLAINTIFFS’ STATEMENT OF CASE
1. The Plaintiffs own the copyright in the NTAS product which consists of source code, data base structure (including table names and column names and the relationship structure between them) and SQL creation scripts (the “NTAS product”). The NTAS product and its constituent elements constitute a work which is protected by copyright under the Copyright and Related Rights Act, 2000 (the “2000 Act”). Further, the NTAS product and its constituent elements constitute confidential information.
2. In breach of copyright and/or in breach of confidence, the Defendants took a copy of the NTAS product, (the “unauthorised copy of NTAS”) and used the unauthorised copy of NTAS as a functional and/or design specification for developing ManTra. But for their access to and use of the unauthorised copy of NTAS, the Defendants could not have developed ManTra and released it onto the market as quickly as they did and to such a high quality.
3. The Plaintiffs rely on the following particulars in support of the claims at paragraph 2:
(a) The presence of NTAS-specific variable names in ManTra;
(b) The replication of errors in the NTAS product within ManTra (including per share, ERISA, Hi-Lo and Lo-Hi functionality);
(c) The replication in ManTra of business logic and relationship structures found in the NTAS database;
(d) The replication in ManTra of some 90-95% of the functionality of the NTAS product;
(e) The fact that detailed knowledge of the NTAS database structure (including table names, column names and relationships) was required to enable the Defendants develop the “IMPORT2.SQL” script, which script could only be developed and/or tested by way of access to the NTAS product and which could only run by reference to the NTAS product (or a copy of the database thereof);
(f) The Defendants’ development of the “of_pla_export” file and its subsequent modification required reference to and reliance upon the NTAS database structure (including database table and column names);
(g) Email communication between the developers and designers of ManTra make detailed and specific reference to NTAS-specific variables;
(h) Emails and other design materials created by the developers and/or designers of ManTra demonstrate that the NTAS product was used as a reference point for the design, functional specification and development of ManTra;
(i) The deletion of the first version of ManTra (version PB10) at the time it was deleted, in August 2007 (following a direction by a US Judge in US proceedings between the parties dealing with similar infringement issues that the source code of ManTra be made available for expert examination on behalf of the Plaintiffs);
(j) The failure of the developers of ManTra to keep backups of ManTra as it was being developed contrary to standard development procedure;
(k) The alleged creation of 28 tables, an entire database design file of unaccounted for origin, comprising hundreds of columns and a complex relationship structure ‘ready made’ for ManTra on 12 October 2008, which largely replicated the function and relationship structure of equivalent tables and columns in the NTAS product;
(l) The absence of any material evidencing the genesis or development of the tables, columns and relationship structures referred to at (j) above;
(m) The absence of the CDM file or files relating to the development of ManTra and/or the Defendants’ failure to discover same;
(n) The bulk introduction of 25% of ‘right first time’ pre-prepared code by way of stored procedures on 1 February 2007 and a further 24% of such code during February 2007;
(o) The absence of any material evidencing the genesis, design or development of the database code, specifically the business logic for the first release of the product;
(p) The lack of “re-factoring” of source code which would be compatible with the alleged agile development of ManTra in the period October 2006 to March 2007;
(q) Items (i) to (p) above individually and collectively evidence that the unauthorised copy of NTAS was being used as a reference point for the design, functional specification and development of ManTra;
(r) The absence of valid meta-data in relation to the development of ManTra and the supplied design materials;
(s) The Defendants’ efforts to shield ManTra and its design materials from objective scrutiny;
(t) The extraordinary pace of development of ManTra;
(u) The lack of the range, type and quality of design materials that would be compatible with the alleged agile development of ManTra in the period October 2006 to March 2007;
(v) The fact that, despite the deletion of much of the history of the evolution of the source code, evidence remains which indicates a migration from the NTAS database structure to the ManTra database.
4. The making of the unauthorised copy of NTAS constitutes an infringement of the Plaintiffs’ copyright under the 2000 Act. Further, the use of the unauthorised copy of NTAS as described in the development of ManTra constitutes the adaptation of the NTAS product within the meaning of Section 37 of the 2000 Act thereby infringing the Plaintiffs’ copyright in the NTAS product.
5. Further and in the alternative, the said use of the NTAS product constitutes a misuse of confidential information and ManTra consists of the fruits of such misuse.
6. In addition to its case in breach of copyright and in breach of confidence, the Plaintiffs claim that the first and second Defendants acted in breach of their contracts with the Plaintiffs, and also in breach of their fiduciary duties to the Plaintiffs.
PARTICULARS
(a) The particulars set out above in relation to breach of copyright and breach of confidence are relied on in this regard.
(b) Their participation in the Defendants’ plan to hijack the Plaintiffs’ business as evidenced, inter alia, by:
(i) The timing and contents of the Defendants’ business plans dated February 2006, 19 May 2006, 20 June 2006, 4 July 2006, 11 August 2006 and 18 September 2006;
(ii) Communications between the Defendants and the Plaintiffs’ employees and/or contractors directed at hijacking the Plaintiffs’ business;
(iii) The approaches and presentations to clients and prospective clients of the Plaintiffs, including IBT and Caledonian and the timing thereof;
(iv) The solicitation by the Defendants of clients and prospective clients of the Plaintiffs;
(v) The unauthorised copying and use by the Defendants of the proprietary content of the Plaintiffs’ licence agreements and employment contracts.
(7) The Plaintiffs claim injunctive relief and such other relief as may be appropriate to the above breaches as set out in the prayer for relief in the Statement of Claim.
Beta Computers (Europe) Ltd v. Adobe Systems (Europe) Ltd
Struan J A Robertson [1]
struan.robertson@virgin.net
Contents
Abstract
1. Introduction
2. The Facts of the Case
3. The Arguments
4. The Result
5. Analysis of the Decision
6. Shrink-Wrap Licenses-English and US Law
7. Conclusion
Bibliography
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Abstract
Software companies often enclose a licence of terms with their software, known as a shrink-wrap licence. In December 1995 the case of Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd provided the UK with its first judicial opportunity to consider the validity of shrink-wrap licences. Prior to this case, such licences were thought to be unenforceable. However, the Scottish Court of Session ruled otherwise. It also held that the contract for supply was concluded only when the shrink-wrap terms had been seen and accepted by the purchaser. This article considers the case in detail and suggests flaws in the judicial reasoning. The positions under English and US law are observed. Alternative means of protection for the software company are also considered.
Keywords: Shrink-wrap licences; Copyright; Software; Intellectual Property; Jus quaesitum tertio ; English Law; United States Law.
This is a Case Note published on 30 June 1998.
Citation: Robertson S J A, ‘The Validity of Shrink-Wrap Licences in Scots Law Beta Computers (Europe) Ltd v. Adobe Systems (Europe) Ltd’, Case Note, 1998 (2) The Journal of Information, Law and Technology (JILT). . New citation as at 1/1/04: .
1. Introduction
Computer software can be sold in different ways. Bespoke (tailor made) software is expensive and usually involves a direct and detailed contract between the author and the end user. An increasingly popular means of sale is for the purchaser to download the software from the Internet and pay for it on-line. However, mass-produced, ‘off the shelf’ software is most commonly sold by mail order. The average purchaser, eager to try his or her new program, invariably tears off the cellophane to get inside the box containing the disks or CD-ROM, without a second thought for the piece of paper between the box and the cellophane. This piece of paper is the shrink-wrap licence. This article explores the legal significance of that missing second thought.
Shrink-wrap licences are licence agreements which state that acceptance on the part of the user of the terms of the agreement is indicated by opening the shrink-wrap packaging or other packaging of the software, by use of the software, or by some other specified procedure. There is no signature by the licensee. The purposes of shrink-wrap licences include restricting the use of the software, declaring the governing jurisdiction, disclaiming legal warranties and limiting the availability of monetary damages. In fact, they are the most common means by which software companies attempt to limit their potential liability. It follows that the validity or otherwise of the licences is of great significance to both the software companies and the users.
There are different types of shrink-wrap licence. A ‘box-top’ licence is visible beneath the wrapping on the box. An ‘envelope licence’ is printed on the outside of a sealed envelope containing the licence. A ‘referral licence’ has a sticker over the disk or CD-ROM box that states, ‘Do not open this before reading the licence attached.’ The vast majority of shrink-wrap licences are not available for inspection prior to purchase. The validity of such licences is the subject of this article.
A computer program is protected by copyright because it constitutes a literary work under the Copyright Designs and Patents Act 1988.[2] From a purchaser’s point of view, unless there is some agreement with the owner of the intellectual property in the program, it is almost impossible to use software without infringing the copyright. This is because, in order to load and run a program, the program has to be copied from its permanent storage medium, into the computer. Legitimate use of software therefore depends on having the permission of the owner of the copyright. The shrink-wrap licence purports to preserve the owner’s rights whilst enabling the software to be used.
Until recently, the legal significance of such licences was considered precarious at best (Stone, 1996 et al ), although the practice was widespread among software companies. The reason for doubting the validity or enforceability is that the supply generally occurs before the purchaser has the opportunity to consider the terms of the licence. Depending on the type of licence, it may or may not be possible to view the licence terms before the box is opened. The focus of this article is a case which did not investigate this distinction. What will be considered are two broader concepts. First, whether it is legally justifiable to hold the purchaser to licence terms which only come to his or her attention after the apparent point of sale; and second, whether the software company can rely on its licence in a contract between two other parties.
Prior to 1996 the software company was thought to be unable to rely on contract law to enforce the conditions of the licence. However, the case of Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [3] has apparently changed this position for Scotland. This case, in the Outer House of the Court of Session, was the UK’s first judicial consideration of shrink-wrap licences. What follows is a detailed study of the case. The arguments put forward by each party will be described and the deciding judgement by Lord Penrose will be considered.
It will be argued that, notwithstanding the desirability or otherwise of shrink-wrap licences, the relevant law did not exist to justify the findings of the Court. The position in Scotland will be summarily contrasted with the positions in English and United States law.
2. The Facts of the Case
Adobe placed a telephone order with Beta Computers for the supply of Informix software to upgrade their existing software. Informix produce information management software. The software was a standard ‘off the shelf’ upgrade identified by both parties when the order was placed. Beta obtained the software package and delivered it to Adobe. The terms and conditions of sale were not discussed. When the software was delivered it was packaged in such a way as to show that the software was subject to a strict end user licence and that the package contained ‘End User Licence Conditions’ under the name of Informix. The packaging was shrink-wrapped. Visiblebeneath the wrapping were the words ‘Opening the Informix S.I. software package indicates your acceptance of these terms and conditions.’
Adobe never opened the packaging and decided to return the software after delivery without payment. The reasons for rejection were not investigated in the case. There may have been unfavourable conditions in the licence, or Adobe may simply have had a change of mind. Beta refused to take back the software and sued for the price.
3. The Arguments
Beta contended that there was an unconditional and unqualified order for identified software. This order was made on the telephone and Adobe purchased it ‘blind’ so far as any terms and conditions of contract were concerned. Beta met the order and claimed that Adobe should pay the contract price. Beta was of the view that the shrink-wrap conditions, produced by Informix, were irrelevant because the contract had been made prior to Adobe seeing them. Beta had no concern with the interests of Informix, the software company and owner of the intellectual property in the software.
Adobe said the contract was less simple. While Beta was content to treat it as a sale of goods, Adobe considered it a sale of software, which should be treated differently. The software was supplied on disks. The disks themselves had little value; it was the program contained on them which mattered. Adobe pointed out that the program could not be used without the permission of the copyright owner, since the use would be an infringement of the copyright. The reason for this was the need to ‘copy’ the program, inherent in the use of software, as explained above. The use would therefore need to be licensed by the owner of the copyright, making the licence an essential ingredient in the transaction. Both parties agreed that it was standard practice in transactions for packaged software for the owner of the copyright, invariably the software company, to fulfil this by including end user conditions. The purchase was of the software and the licence to use the software. Adobe argued that the conditions of use stipulated that opening the package bound the purchaser to the conditions. The conditions advertised the right of the purchaser to reject the software if not prepared to accept them. If one rejected the package, there was no concluded agreement. Accordingly, Adobe submitted that ‘acceptance of the licence conditions was a condition suspensive of agreement.'[4]
Adobe accepted that the licence conditions were created by Informix but averred that, if Beta imposed them on Adobe, they would become Beta’s conditions for the purposes of the contract. If Beta was held to be supplying only the physical medium without seeking to impose the conditions, the transaction would result in Adobe having unrestricted use of the software. This might cause some concern in the industry. Accordingly, implication of a condition suspensive of agreement was necessary to give the contract business efficacy. However, if no condition was implied and the contract had been entered into unconditionally, then delivery of the product with previously undisclosed conditions was not a proper performance of the contract. Again, Adobe must be allowed to reject the software.
4. The Result
Lord Penrose was of the opinion that both parties had analysed the transaction incorrectly. He said that the first step should be to identify what the customer sought to have supplied by the dealer. He found that the subject of the contract was a complex product comprising the medium and the manifestation within it or on it of the intellectual property of Informix, the author of the software. Lord Penrose decided that there was only one contract and that it was not simply a sale of goods contract. He saw the product as one which absorbed the intellectual property of the author or software company. He also recognised a conferred right of access to that material which, generally and in the absence of a consent derived from the owner, is owned by the author or software company to the exclusion of all third parties.
He found this consistent with the legislative policy of the Copyright, Designs and Patents Act 1988. He reviewed the various sections of the Act which he regarded as relevant to computer programs. Lord Penrose was of the opinion that the scheme of the Act made impossible the legitimate supply of the medium with the facility to access the program material recorded on it independently of the authority of the owner of the copyright, however obtained, for the use of the program material. Such consent must be by licence conferred from the acquisition of the software. That must be derived from the owner of the intellectual property or someone authorised by the owner to confer rights of use on third party purchasers. He believed that in the present dispute, it was an essential feature of an effective transaction that the supplier undertakes to make available to the purchaser both the medium and the right of access and use.
The circumstances were such that the supply was intended to be made in pursuance of an order without discussion of any terms and conditions of supply, but with both parties being aware of the practice of software companies of seeking to impose end user conditions qualifying the purchaser’s right of exploitation of the software. Both parties accepted that it was standard practice for software companies to include end user conditions in packaged software. Seeing the transaction as a supply contract, Lord Penrose recognised a choice of two possible solutions.
First, to deny any contractual role to the conditions when they appeared on delivery on the packaged software. Lord Penrose stated,
‘In my opinion it is not possible to hold that there is a new contract between author and end user which comes into existence at the point of delivery with acceptance occurring on unwrapping the product.’
He reasoned that, if there was such a contract, the supplier’s contractual obligations with the purchaser would be left untouched by the new contract and the supplier would have already performed his contractual obligations and become entitled to the price independently of any new arrangements involving the software company and the end user. Thus Lord Penrose specifically rejected the existence of a contract between the purchaser and Informix. He believed that if the conditions were ignored, the position of the owner of the intellectual property could be undermined in the assertion of control over the extent of permitted use of that property if the attempt at imposing the conditions were ineffective.
The second choice would be to hold that the conditions form part of the contract between the supplier and the end user. This risks exposing the supplier to rejection of the supply upon the end user deciding, on seeing that there were conditions, that he was not prepared to be bound by them. However, on this alternative the supplier is likely to have infringed the author’s copyright by making an unconditional supply. Lord Penrose considered this risk for the supplier as insignificant. He believed that the industry as a whole, in the efficient and sensible management of transactions, required that effect should be given to the conditions.
Thus Lord Penrose rejected the existence of a separate contract between the purchaser and Informix. He said that this case was concerned with ‘the arranging of that essential aspect of the parties’ contractual relationship which is intended to define the conditions for use of the intellectual property reflected in the program material.’ He went on to say:
‘It appears to me to be consonant with a proper view of parties’ commercial relationships that there should not be consensus in idem until there are produced and accepted by parties to the contract those conditions stipulated by the owner of the software for its use. That point could not come earlier in this case than the stage at which the supplier, deriving the material from the owner, tendered to the purchaser an expression of those conditions which the purchaser might accept or reject before becoming bound to the contract. On this ground alone, it is my opinion that the pursuers’ case is irrelevant and falls to be dismissed.'[5]
Lord Penrose said that such a contract would be consistent with Scots law. The software company’s conditions would apply to the end user by way of the doctrine of jus quaesitum tertio . By the operation of this doctrine, Scots law allows two parties to confer an enforceable right upon a third party who is not a party to the contract. In the present case, the supplier and purchaser were parties contracting for the supply of something which was owned by and was in the control of a third party. The agreement that the supply should be subject to the protection of the third party’s interests on such terms as he may stipulate seemed acceptable to Lord Penrose. If Adobe had accepted the licence terms, Informix would be entitled to enforce the conditions in its favour directly against Adobe.
In summary, the Court held that consensus in idem did not exist until the licence terms had been offered to and accepted by the purchaser. If the purchaser had accepted the licence terms these terms could have been enforced by Informix by a jus quaesitum tertio . Adobe rejected the software without opening the wrapping. The Court did not enforce the shrink-wrap conditions against Adobe because the wrapping had not been removed. If the wrapping were opened and the software used then, on Lord Penrose’s reasoning, the terms of the licence would have been incorporated into the contract between the supplier and the end user.
5. Analysis of the Decision
Lord Penrose reasoned that the licence terms had to be given effect in order for the contract to work. The present writer agrees with Smith ( 1996 ) et al in arguing that this is incorrect. The Court believed that in a software contract, the purchaser had to have the right to use the software. However, Lord Penrose went on to suggest that an unconditional contract would not give the purchaser any such rights. As Smith observes, the flaw in this argument is that, ‘when an object, in which intellectual property resides, is sold it is quite clear that the sale of the object does not affect the intellectual property in it.’ The peculiarity of software is that the program contained on a disk cannot be used without infringing the copyright in the program. This fact seems to have persuaded Lord Penrose that the author’s licence conditions must form part of the contract, otherwise the purchaser could not use the software. Lord Penrose implies that when a copyrighted article is sold the contract is incomplete until licence terms are agreed. However, a contract is complete when it is made and there are no express licence terms unless these are incorporated when drafting the contract.
Section 50C of the Copyright, Designs and Patents Act 1988, inserted by the Copyright (Computer Programs) Regulations 1992, implements in the UK the provisions of Article 5(1) of the European Directive on Computer Programs 1991. The directive is effectively a right to use a program. It states that, in the absence of contractual provisions, a lawful acquirer of a computer program has the right to copy or adapt it when such reproduction is necessary for the use of the program in accordance with its intended purpose. It is both surprising and unfortunate that Article 5(1) and Section 50C were omitted from the court’s consideration.
Relying on Section 50C, it would not have been necessary to conclude that the conditions of Informix were incorporated in the contract between supplier and purchaser in order for the purchaser to use the software. There is a statutory right of use for the purchaser. The contract was concluded on the telephone. If Informix had wished to impose its licence terms on Adobe it should have instructed Beta to refer to those conditions when making the telephone call.
The doctrine of jus quaesitum tertio was used to hold that any terms in the licence which were intended to benefit Informix could have been enforced by Informix against Adobe if the licence terms had been accepted. Acceptance would be demonstrated by opening the wrapping. The type of licence in this case appears to have been the box-top type by which the licence terms are visible without the need to open the wrapping. It is submitted that enforceability is contingent on the finding that such a licence forms part of the contract. This article considers that in the circumstances of this case, the licence did not form part of the contract. If the licence were not part of the contract the doctrine could not apply. The licence would be merely an unenforceable set of guidelines.
If the contract between Beta and Adobe had referred to and specifically included the licence terms, they would indeed be enforceable by Informix by operation of the jus quaesitum tertio . The Scottish Courts have shown a reluctance to recognise a right in favour of a third party unless that is the clear intention of the contracting parties.[6] On the authority of Morton’s Trustees v The Aged Christian Friend Society of Scotland ,[7] the parties to the contract must expressly state that the third party is to benefit. It is insufficient to show merely that the third party did incidentally benefit.[8] It is piquant to recall that Beta regarded the interests of Informix as irrelevant.
The concern exhibited by Lord Penrose for the software industry in general is probably misplaced. Much computer software is sold without added licence. The result of the decision was that Beta, having performed its contractual obligation of supply, lost the sale and had to take back the software. Lord Penrose believed that no contract existed until acceptance of the licence conditions. If this were correct, there would be no reason to distinguish it from other types of transaction involving the attachment of conditions. No contract would exist until the conditions were agreed. This raises the question of what constitutes a condition. Lord Penrose did not qualify his statement and applied it in circumstances where the present writer considers the ‘conditions’ to carry the legal weight of mere guidelines. It is conceivable that a product warning is a condition. Accordingly, if a label on an electric drill warns the purchaser to ‘keep out of reach of children,’ could the product be returned to the retailer because the purchaser is unhappy with the ‘condition’?
The licence is arguably unnecessary because the law of copyright would protect the position of software companies such as Informix. Infringement of copyright would include inter alia piracy by making multiple copies, the publication of variations of the original and making arrangements by translation between programming languages.[9] The remedies for infringement include interdict/injunction, delivery up, damages and account of profits. The attempts at the limitation of liability would perhaps be negated by statute in any event. The Unfair Contract Terms Act 1977 was so applied in the recent English case of St Albans City and District Council v International Computers Ltd. [10]
One further criticism of Lord Penrose’s approach is in his treatment of the supply of software for a price as a contract sui generis . He correctly observed that the rights of the parties should not depend upon the medium of supply. However he distinguished the software transaction from one for a book or record on the basis that a computer program could be obtained ‘over the telephone system for a price’ and therefore all supplies of software must be treated as sui generis . The present writer agrees with Adams ( 1997 ) that this reasoning is flawed. It overlooks the fact that any copyright work can be delivered either on a physical medium or on-line. On this rationale, all sales of books, paintings, music etc. must be treated as sui generis.
It is submitted that, in the circumstances, Adobe should have been held to its bargain with Beta, and able to use the software free of Informix’s licence conditions. Informix would not have a jus quaesitum tertio but would still enjoy the protection established by having the copyright in the software. If a software company expects an end user to be bound by licence conditions, it should take further steps. Such steps will be considered at the end of this article.
6. Shrink-Wrap Licenses under English and US Law
Although Lord Penrose found that there was no consensus in idem between Beta and Adobe, he recognised the validity of shrink-wrap licences per se , on the basis of jus quaesitum tertio . The concept is alien to English law. The doctrine of privity in English law provides that contracts are binding only on those party to them. This means that where there is a software company, supplier and end-user, the software company must seek to create a contract with the ultimate customer. In circumstances similar to Beta v Adobe , it could be argued that the shrink-wrap licence would be unenforceable by English law because there is no consideration from the purchaser to the software company. The licence then becomes an unenforceable set of guidelines. However, any ‘promise’ by the purchaser might be interpreted to be a form of consideration. A contract could then exist between the software company and purchaser. If so, the outstanding question concerns the fact that the licence terms only come to the attention of the purchaser after the apparent point of sale. The issues are the same as those considered above. To date, no English court has addressed the question of the validity of shrink-wrap licences. If the issue should arise, Beta v. Adobe may hold some persuasive authority.
Shrink-wrap licences originated in the United States. It is also the biggest source of software publication. Like English law, federal law demands privity of contract, although this is diluted to some extent by the US doctrine of warranty. The validity of shrink-wrap licences was unresolved [11] until the case of ProCD, Inc. v. Zeidenberg .[12] In this case the Court of Appeals held that shrink-wrap licences are enforceable as a matter of contract unless their terms are objectionable on grounds applicable to contracts in general. The case is not of itself binding precedent for the validity of the licences. However, it is the most recent and most extensive consideration of the matter.
This case can be distinguished from that of Beta v. Adobe . The US Uniform Commercial Code governs the sale of goods. Section 2-206(1)(b) thereof states that, ‘a buyer accepts goods when, after an opportunity to inspect, he fails to make an effective rejection.’ Accordingly, if the sale of software constitutes the sale of goods, the implied acceptance is at a later stage to its UK equivalent. The licence in ProCD was a so-called ‘click-wrap,’ by which positive action is required on-line to indicate acceptance of conditions. As Judge Easterbrook observed:
‘the software splashed the licence on the screen and would not let [the purchaser] proceed without indicating acceptance. (…) ProCD extended an opportunity to reject if a buyer should find the licence terms unsatisfactory. Zeidenberg inspected the package, tried out the software, learned of the licence and did not reject the goods.’
The case is important to US practice because it recognises the potential validity of the licence. However, in ProCD there was no intermediary (the Beta equivalent) and therefore the question of enforceability by a third party did not arise. The case, and those before it, explicitly rejected the argument that a provision stating that ‘opening this package indicates your acceptance of these terms’ were of themselves sufficient to demonstrate a conditional acceptance.
7. Conclusion
Shrink-wrap licences have been supported by industry practice for some years. Individual companies will be reluctant to stand out against such an established practice and will continue to supply such licences with software. The Scottish legal system has now endorsed the practice. The present writer is of the view that the validity of these licences has been introduced by dubious reasoning.
This writer is of the view that shrink-wrap licences are a reasonable concept. However, the prudent software company would be well advised to incorporate them in a different manner to that adopted by Informix. The customer should be offered the opportunity to receive a copy of the licence before placing an order. The purchaser should be required to view the entire licence agreement before the order process can be completed. The software company should obligate the supplier by written agreement to instruct every customer that the order is being accepted conditioned upon the shrink-wrap licence and that it will be supplied with the product. The supplier should accept returns from and refund any customer unwilling to accept the licence terms. The supplier should enjoy a reciprocal arrangement with the software company. The click-wrap licence used in ProCD is increasingly popular and offers a better means of ensuring that the conditions come to the user’s attention. The problem is that the packaging will be open and accordingly it will be necessary to rely on a procedure for return. Notwithstanding any such licence protection, the software company should bear in mind that the law of copyright will protect its basic rights.
Software companies should find safer ways of validating the conditions in their shrink-wrap licences than relying on the Beta v Adobe case. It would be tempting to advocate the continued disregard of the piece of paper between the cellophane and the box, if only to bring the issue before the courts again. It is hoped that a judicial second thought on the question of validity will relieve the burden from the purchaser.
Bibliography
Cornish, W. R. (1996) Intellectual Property (London, Sweet & Maxwell)
Edwards, L. and Waelde, C. (1997) Law & the Internet – Regulating Cyberspace (Oxford, Hart)
Klinger, P. and Burnett, R. (1994) Drafting and Negotiating Computer Contracts (London, Butterworths)
Reed, C. (ed. 1996) Computer Law (3rd ed., London, Blackstone Press)
Walker, D. M. (1985) The Law of Contracts and Related Obligations in Scotland (2nd ed., London, Butterworths).
Woolman, S. (1987) An Introduction to the Scots Law of Contract (Edinburgh, W Green & Son Ltd.)
Journal Articles
Adams, J. N. (1997) ‘The Snark Was a Boojum, You See’, Edinburgh Law Review Volume 1, page 386.
Bainbridge, D. I. (1997) ‘Software Licencing Fundamentals’, Computers and Law , Volume 8, Issue 2, page 4.
Covington, T. A. (1997) ‘The Future of Shrink-Wrap Licences’, Fenwick & West LLP, California – Web site publication:
Gringas, C. (1996) ‘The Validity of Shrink-Wrap Licences’, International Journal of Law and Information Technology , Volume 4, Number 2, page 77.
Hayes, D L (1997) The Enforceability of Shrink-Wrap Licences On-Line and Off-Line , Fenwick & West LLP, California – Web site publication:
Marsland, V. (1997) ‘Online Services – Copyright in the Online World’ (London, Hawksmere) – Seminar Paper.
Silverleaf, M. (1996) ‘Beta v Adobe’, Commercial Lawyer , February, page 7.
Smith, G. P. (1996) ‘Shrink-Wrap Licensing in the Scottish Courts’, International Journal of Law and Information Technology , Volume 4, Number 2, page 131.
Stone, S. (1996) ‘Shrink-Wrap Licences – Are They Enforceable?’ Commercial Lawyer , February, page 7.
Turner, M. J. (1997) ‘Anatomy of a Computer Contract Dispute’, Computers and Law , Volume 8, Issue 3, page 12.
Footnotes
[1] Trainee Solicitor, Bishop and Robertson Chalmers , Glasgow. The author invites comments on this article. Email: struan.robertson@virgin.net
[2] Section 3(1)(b).
[3] 1996 SLT 604; 1996 SCLR 587.
[4] At page 606.
[5] At page 611.
[6] Woolman (1987), page 142.
[7] (1899) 2 F 82.
[8] Finnie v Glasgow & South-Western Railway Co . (1857) 3 Macq. 75.
[9] Copyright, Designs and Patents Act 1988 section 21, as amended following the European Directive on Computer Programs 1991, Article 5(5).
[10] [1996] 4 All ER 481.
[11] See: Step-Saver Data Systems Inc. v Wyse Technology and The Software Link, 939 F 2d 91 (3rd Cir 1991); Arizona Retail Systems Inc. v The Software Link Inc ., 831 F Supp 759 (D Ariz 1993); Vault Corporation v Quaid Software Ltd , 847 F 2d 255 (5th Cir 1988); For consideration of these cases, see David Hayes (1997).
[12] 86 F. 3d 1447 (7th Circuit 1996).
Last revised: Wed 23 Feb 2005
UsedSoft
(Legal protection of computer programs) [2012] EUECJ C-128/11, [2012] All ER (EC) 1220, [2012] WLR(D) 192, [2013] RPC 6, [2012] ECDR 19, [2013] BUS LR 911, [2013] Bus LR 911, [
Judgment
1 This reference for a preliminary ruling concerns the interpretation of Articles 4(2) and 5(1) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (OJ 2009 L 111, p. 16).
2 The reference has been made in proceedings between UsedSoft GmbH (‘UsedSoft’) and Oracle International Corp. (‘Oracle’) concerning the marketing by UsedSoft of used licences for Oracle computer programs.
Legal context
International law
3 The World Intellectual Property Organisation (WIPO) adopted the WIPO Copyright Treaty (‘the Copyright Treaty’) in Geneva on 20 December 1996. That treaty was approved on behalf of the European Community by Council Decision 2000/278/EC of 16 March 2000 (OJ 2000 L 89, p. 6).
4 Article 4 of the Copyright Treaty, ‘Computer programs’, reads as follows:
‘Computer programs are protected as literary works within the meaning of Article 2 of the Berne Convention. Such protection applies to computer programs, whatever may be the mode or form of their expression.’
5 Article 6 of the Copyright Treaty, ‘Right of distribution’, provides:
‘1. Authors of literary and artistic works shall enjoy the exclusive right of authorising the making available to the public of the original and copies of their works through sale or other transfer of ownership.
2. Nothing in this Treaty shall affect the freedom of Contracting Parties to determine the conditions, if any, under which the exhaustion of the right in paragraph 1 applies after the first sale or other transfer of ownership of the original or a copy of the work with the authorisation of the author.’
6 Article 8 of the Copyright Treaty provides:
‘… authors of literary and artistic works shall enjoy the exclusive right of authorising any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them’.
7 In the agreed statements concerning Articles 6 and 7 of the Copyright Treaty, it is declared that:
‘As used in these Articles, the expressions “copies” and “original and copies” being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects.’
European Union law
Directive 2001/29
8 Recitals 28 and 29 in the preamble to Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10) state:
‘(28) Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article. The first sale in the Community of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the Community. This right should not be exhausted in respect of the original or of copies thereof sold by the rightholder or with his consent outside the Community. Rental and lending rights for authors have been established in Directive 92/100/EEC. The distribution right provided for in this Directive is without prejudice to the provisions relating to the rental and lending rights contained in Chapter I of that Directive.
(29) The question of exhaustion does not arise in the case of services and on-line services in particular. This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the rightholder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every on-line service is in fact an act which should be subject to authorisation where the copyright or related right so provides.’
9 In accordance with Article 1(2)(a) of Directive 2001/29, the directive ‘shall leave intact and shall in no way affect existing Community provisions relating to … the legal protection of computer programs’.
10 Article 3 of Directive 2001/29 provides:
‘1. Member States shall provide authors with the exclusive right to authorise or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.
…
3. The rights referred to in paragraphs 1 and 2 shall not be exhausted by any act of communication to the public or making available to the public as set out in this Article.’
11 Article 4 of Directive 2001/29, ‘Distribution right’, provides:
‘1. Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise.
2. The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.’
Directive 2009/24
12 According to recital 1 in the preamble to Directive 2009/24, that directive codifies Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs (OJ 1991 L 122, p. 42).
13 According to recital 7 in that preamble, ‘[f]or the purpose of this Directive, the term “computer program” shall include programs in any form, including those which are incorporated into hardware.’
14 According to recital 13 in that preamble, ‘the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired, and the act of correction of its errors, may not be prohibited by contract’.
15 Article 1(1) of Directive 2009/24 provides that ‘Member States shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works’.
16 Under Article 1(2) of that directive, ‘[p]rotection in accordance with this Directive shall apply to the expression in any form of a computer program’.
17 Article 4 of the directive, ‘Restricted acts’, provides:
‘1. Subject to the provisions of Articles 5 and 6, the exclusive rights of the rightholder within the meaning of Article 2 shall include the right to do or to authorise:
(a) the permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole; in so far as loading, displaying, running, transmission or storage of the computer program necessitate such reproduction, such acts shall be subject to authorisation by the rightholder;
(b) the translation, adaptation, arrangement and any other alteration of a computer program and the reproduction of the results thereof, without prejudice to the rights of the person who alters the program;
(c) any form of distribution to the public, including the rental, of the original computer program or of copies thereof.
2. The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.’
18 Article 5 of the directive, ‘Exceptions to the restricted acts’, provides in paragraph 1:
‘In the absence of specific contractual provisions, the acts referred to in points (a) and (b) of Article 4(1) shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.’
German law
19 Paragraphs 69c and 69d of the Law on copyright and related rights (Gesetz über Urheberrecht und verwandte Schutzrechte (Urheberrechtsgesetz)) of 9 September 1965, as amended (‘the UrhG’), transpose Articles 4 and 5 of Directive 2009/24 into national law.
Facts of the main proceedings and questions referred for a preliminary ruling
20 Oracle develops and markets computer software. It is the proprietor of the exclusive user rights under copyright law in those programs. It is also the proprietor of the German and Community word marks Oracle, which are registered inter alia for computer software.
21 Oracle distributes the software at issue in the main proceedings, namely databank software, in 85% of cases by downloading from the internet. The customer downloads a copy of the software directly to his computer from Oracle’s website. The software is what is known as ‘client-server-software’. The user right for such a program, which is granted by a licence agreement, includes the right to store a copy of the program permanently on a server and to allow a certain number of users to access it by downloading it to the main memory of their work-station computers. On the basis of a maintenance agreement, updated versions of the software (‘updates’) and programs for correcting faults (‘patches’) can be downloaded from Oracle’s website. At the customer’s request, the programs are also supplied on CD-ROM or DVD.
22 Oracle offers group licences for the software at issue in the main proceedings for a minimum of 25 users each. An undertaking requiring licences for 27 users thus has to acquire two licences.
23 Oracle’s licence agreements for the software at issue in the main proceedings contain the following term, under the heading ‘Grant of rights’:
‘With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement.’
24 UsedSoft markets used software licences, including user licences for the Oracle computer programs at issue in the main proceedings. For that purpose UsedSoft acquires from customers of Oracle such user licences, or parts of them, where the original licences relate to a greater number of users than required by the first acquirer.
25 In October 2005 UsedSoft promoted an ‘Oracle Special Offer’ in which it offered for sale ‘already used’ licences for the Oracle programs at issue in the main proceedings. In doing so it pointed out that the licences were all ‘current’ in the sense that the maintenance agreement concluded between the original licence holder and Oracle was still in force, and that the lawfulness of the original sale was confirmed by a notarial certificate.
26 Customers of UsedSoft who are not yet in possession of the Oracle software in question download a copy of the program directly from Oracle’s website, after acquiring such a used licence. Customers who already have that software and then purchase further licences for additional users are induced by UsedSoft to copy the program to the work stations of those users.
27 Oracle brought proceedings in the Landgericht München I (Regional Court, Munich I) seeking an order that UsedSoft cease the practices described in paragraphs 24 to 26 above. That court allowed Oracle’s application. UsedSoft’s appeal against the decision was dismissed. UsedSoft thereupon appealed on a point of law to the Bundesgerichtshof (Federal Court of Justice).
28 According to the Bundesgerichtshof, the actions of UsedSoft and its customers infringe Oracle’s exclusive right of permanent or temporary reproduction of computer programs within the meaning of Article 4(1)(a) of Directive 2009/24. UsedSoft’s customers cannot, in that court’s view, rely on a right validly transferred to them by Oracle to reproduce the computer programs. Oracle’s licence agreements state that the right to use the programs is ‘non-transferable’. Oracle’s customers are not therefore entitled to transfer to third parties the right of reproduction of those programs.
29 The outcome of the dispute depends, according to that court, on whether the customers of UsedSoft can successfully rely on Paragraph 69d(1) of the UrhG, which transposes Article 5(1) of Directive 2009/24 into German law.
30 The question arises, first, whether a person who, like UsedSoft’s customers, does not hold a user right in the computer program granted by the rightholder, but relies on the exhaustion of the right to distribute a copy of the computer program, is a ‘lawful acquirer’ of that copy within the meaning of Article 5(1) of Directive 2009/24. The referring court considers that that is the case. It explains that the marketability of a copy of the computer program which arises from the exhaustion of the distribution right would be largely meaningless if the acquirer of such a copy did not have the right to reproduce the program. The use of a computer program, unlike the use of other works protected by copyright, generally requires its reproduction. Article 5(1) of Directive 2009/24 thus serves to safeguard the exhaustion of the distribution right under Article 4(2) of Directive 2009/24.
31 Next, the referring court considers whether, in a case such as that in the main proceedings, the right to distribute a copy of a computer program is exhausted under the second sentence of Paragraph 69c(3) of the UrhG, which transposes Article 4(2) of Directive 2009/24.
32 There are several possible interpretations. First, Article 4(2) of Directive 2009/24 could be applicable if the rightholder allows a customer, after the conclusion of a licence agreement, to make a copy of a computer program by downloading that program from the internet and storing it on a computer. That provision attaches the legal consequence of exhaustion of the distribution right to the first sale of a copy of the program and does not necessarily presuppose the putting into circulation of a physical copy of the program. Secondly, Article 4(2) of Directive 2009/24 could be applicable by analogy in the case of the sale of a computer program by means of on-line transmission. According to the supporters of that view, there is an unintended lacuna in the law (‘planwidrige Regelungslücke’) because the authors of the directive did not regulate or contemplate on-line transmission of computer programs. Thirdly, Article 4(2) of Directive 2009/24 is inapplicable because the exhaustion of the distribution right under that provision always presupposes the putting into circulation of a physical copy of the program by the rightholder or with his consent. The authors of the directive deliberately refrained from extending the rule on exhaustion to the on-line transmission of computer programs.
33 Finally, the referring court raises the question whether a person who has acquired a used licence may, for making a copy of the program (as UsedSoft’s customers do in the dispute in the main proceedings by downloading a copy of Oracle’s program onto a computer from Oracle’s website or uploading it to the main memory of other work stations), rely on exhaustion of the right of distribution of the copy of the program made by the first acquirer, with the consent of the rightholder, by downloading it from the internet, if the first acquirer has deleted his copy or no longer uses it. The referring court considers that the application by analogy of Articles 5(1) and 4(2) of Directive 2009/24 can be ruled out. Exhaustion of the distribution right is intended solely to guarantee the marketability of a copy of a program which is incorporated in a particular data carrier and sold by the rightholder or with his consent. The effect of exhaustion should not therefore be extended to the non-physical data transmitted on-line.
34 In those circumstances the Bundesgerichtshof decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1. Is the person who can rely on exhaustion of the right to distribute a copy of a computer program a “lawful acquirer” within the meaning of Article 5(1) of Directive 2009/24?
2. If the reply to the first question is in the affirmative: is the right to distribute a copy of a computer program exhausted in accordance with the first half-sentence of Article 4(2) of Directive 2009/24 when the acquirer has made the copy with the rightholder’s consent by downloading the program from the internet onto a data carrier?
3. If the reply to the second question is also in the affirmative: can a person who has acquired a “used” software licence for generating a program copy as “lawful acquirer” under Article 5(1) and the first half-sentence of Article 4(2) of Directive 2009/24 also rely on exhaustion of the right to distribute the copy of the computer program made by the first acquirer with the rightholder’s consent by downloading the program from the internet onto a data carrier if the first acquirer has erased his program copy or no longer uses it?’
Consideration of the questions referred
Question 2
35 By its second question, which should be addressed first, the referring court essentially seeks to know whether and under what conditions the downloading from the internet of a copy of a computer program, authorised by the copyright holder, can give rise to exhaustion of the right of distribution of that copy in the European Union within the meaning of Article 4(2) of Directive 2009/24.
36 It should be recalled that under Article 4(2) of Directive 2009/24 the first sale in the European Union of a copy of a computer program by the rightholder or with his consent exhausts the distribution right within the European Union of that copy.
37 According to the order for reference, the copyright holder itself, in this case Oracle, makes available to its customers in the European Union who wish to use its computer program a copy of that program which can be downloaded from its website.
38 To determine whether, in a situation such as that at issue in the main proceedings, the copyright holder’s distribution right is exhausted, it must be ascertained, first, whether the contractual relationship between the rightholder and its customer, within which the downloading of a copy of the program in question has taken place, may be regarded as a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24.
39 According to settled case-law, the need for a uniform application of European Union law and the principle of equality require that the terms of a provision of European Union law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an independent and uniform interpretation throughout the European Union (see, inter alia, Case C-5/08 Infopaq International [2009] ECR I-6569, paragraph 27; Case C-34/10 Brüstle [2011] ECR I-0000, paragraph 25; and Case C-510/10 DR and TV2 Danmark [2012] ECR I-0000, paragraph 33).
40 The wording of Directive 2009/24 does not make any reference to national laws as regards the meaning to be given to the term ‘sale’ in Article 4(2) of the directive. It follows that that term must be regarded, for the purposes of applying the directive, as designating an autonomous concept of European Union law, which must be interpreted in a uniform manner throughout the territory of the European Union (see, to that effect, DR and TV2 Danmark, paragraph 34).
41 That conclusion is supported by the subject-matter and purpose of Directive 2009/24. Recitals 4 and 5 in the preamble to that directive, which is based on Article 95 EC, to which Article 114 TFEU corresponds, state that its objective is to remove differences between the laws of the Member States which have adverse effects on the functioning of the internal market and concern computer programs. A uniform interpretation of the term ‘sale’ is necessary in order to avoid the protection offered to copyright holders by that directive varying according to the national law applicable.
42 According to a commonly accepted definition, a ‘sale’ is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him. It follows that the commercial transaction giving rise, in accordance with Article 4(2) of Directive 2009/24, to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.
43 Oracle submits that it does not sell copies of its computer programs at issue in the main proceedings. It says that it makes available to its customers, free of charge, on its website a copy of the program concerned, and they can download that copy. The copy thus downloaded may not, however, be used by the customers unless they have concluded a user licence agreement with Oracle. Such a licence gives Oracle’s customers a non-exclusive and non-transferable user right for an unlimited period for that program. Oracle submits that neither the making available of a copy free of charge nor the conclusion of the user licence agreement involves a transfer of the right of ownership of that copy.
44 In this respect, it must be observed that the downloading of a copy of a computer program and the conclusion of a user licence agreement for that copy form an indivisible whole. Downloading a copy of a computer program is pointless if the copy cannot be used by its possessor. Those two operations must therefore be examined as a whole for the purposes of their legal classification (see, by analogy, Joined Cases C-145/08 and C-149/08 Club Hotel Loutraki and Others [2010] ECR I-4165, paragraphs 48 and 49 and the case-law cited).
45 As regards the question whether, in a situation such as that at issue in the main proceedings, the commercial transactions concerned involve a transfer of the right of ownership of the copy of the computer program, it must be stated that, according to the order for reference, a customer of Oracle who downloads the copy of the program and concludes with that company a user licence agreement relating to that copy receives, in return for payment of a fee, a right to use that copy for an unlimited period. The making available by Oracle of a copy of its computer program and the conclusion of a user licence agreement for that copy are thus intended to make the copy usable by the customer, permanently, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which it is the proprietor.
46 In those circumstances, the operations mentioned in paragraph 44 above, examined as a whole, involve the transfer of the right of ownership of the copy of the computer program in question.
47 It makes no difference, in a situation such as that at issue in the main proceedings, whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD. Even if, in the latter case too, the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer, for the reasons set out in paragraph 44 above. Since an acquirer who downloads a copy of the program concerned by means of a material medium such as a CD-ROM or DVD and concludes a licence agreement for that copy receives the right to use the copy for an unlimited period in return for payment of a fee, it must be considered that those two operations likewise involve, in the case of the making available of a copy of the computer program concerned by means of a material medium such as a CD-ROM or DVD, the transfer of the right of ownership of that copy.
48 Consequently, in a situation such as that at issue in the main proceedings, the transfer by the copyright holder to a customer of a copy of a computer program, accompanied by the conclusion between the same parties of a user licence agreement, constitutes a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24.
49 As the Advocate General observes in point 59 of his Opinion, if the term ‘sale’ within the meaning of Article 4(2) of Directive 2009/24 were not given a broad interpretation as encompassing all forms of product marketing characterised by the grant of a right to use a copy of a computer program, for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, the effectiveness of that provision would be undermined, since suppliers would merely have to call the contract a ‘licence’ rather than a ‘sale’ in order to circumvent the rule of exhaustion and divest it of all scope.
50 Secondly, the argument put forward by Oracle and the European Commission that the making available of a copy of a computer program on the copyright holder’s website constitutes a ‘making available to the public’ within the meaning of Article 3(1) of Directive 2001/29, which, in accordance with Article 3(3) of that directive, cannot give rise to exhaustion of the right of distribution of the copy, cannot be accepted.
51 It is apparent from Article 1(2)(a) of Directive 2001/29 that the directive ‘leave[s] intact and … in no way affect[s] existing … provisions [of European Union law] relating to … the legal protection of computer programs’ conferred by Directive 91/250, which was subsequently codified by Directive 2009/24. The provisions of Directive 2009/24, in particular Article 4(2), thus constitute a lex specialis in relation to the provisions of Directive 2001/29, so that even if the contractual relationship at issue in the main proceedings or an aspect of it might also be covered by the concept of ‘communication to the public’ within the meaning of Article 3(1) of the latter directive, the ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24 would still give rise, in accordance with that provision, to exhaustion of the right of distribution of that copy.
52 Moreover, as stated in paragraph 46 above, in a situation such as that at issue in the main proceedings, the copyright holder transfers the right of ownership of the copy of the computer program to his customer. As the Advocate General observes in point 73 of his Opinion, it follows from Article 6(1) of the Copyright Treaty, in the light of which Articles 3 and 4 of Directive 2001/29 must, so far as possible, be interpreted (see, to that effect, Case C-456/06 Peek & Cloppenburg [2008] ECR I-2731, paragraph 30), that the existence of a transfer of ownership changes an ‘act of communication to the public’ provided for in Article 3 of that directive into an act of distribution referred to in Article 4 of the directive which, if the conditions in Article 4(2) of the directive are satisfied, can, like a ‘first sale … of a copy of a program’ referred to in Article 4(2) of Directive 2009/24, give rise to exhaustion of the distribution right.
53 Thirdly, it must also be examined whether, as argued by Oracle, the governments which have submitted observations to the Court, and the Commission, the exhaustion of the distribution right referred to in Article 4(2) of Directive 2009/24 relates only to tangible property and not to intangible copies of computer programs downloaded from the internet. They refer in this respect to the wording of Article 4(2) of Directive 2009/24, recitals 28 and 29 in the preamble to Directive 2001/29, Article 4 of Directive 2001/29 read in conjunction with Article 8 of the Copyright Treaty, and the agreed statement concerning Articles 6 and 7 of the Copyright Treaty, whose transposition is one of the aims of Directive 2001/29.
54 Furthermore, according to the Commission, recital 29 in the preamble to Directive 2001/29 confirms that ‘[t]he question of exhaustion does not arise in the case of services and on-line services in particular’.
55 On this point, it must be stated, first, that it does not appear from Article 4(2) of Directive 2009/24 that the exhaustion of the right of distribution of copies of computer programs mentioned in that provision is limited to copies of programmes on a material medium such as a CD-ROM or DVD. On the contrary, that provision, by referring without further specification to the ‘sale … of a copy of a program’, makes no distinction according to the tangible or intangible form of the copy in question.
56 Next, it must be recalled that Directive 2009/24, which concerns specifically the legal protection of computer programs, constitutes a lex specialis in relation to Directive 2001/29.
57 Article 1(2) of Directive 2009/24 states that ‘[p]rotection in accordance with this Directive shall apply to the expression in any form of a computer program’. Recital 7 in the preamble to that directive specifies that the ‘computer programs’ it aims to protect ‘include programs in any form, including those which are incorporated into hardware’.
58 Those provisions thus make abundantly clear the intention of the European Union legislature to assimilate, for the purposes of the protection laid down by Directive 2009/24, tangible and intangible copies of computer programs.
59 In those circumstances, it must be considered that the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 concerns both tangible and intangible copies of a computer program, and hence also copies of programs which, on the occasion of their first sale, have been downloaded from the internet onto the first acquirer’s computer.
60 It is true that the concepts used in Directives 2001/29 and 2009/24 must in principle have the same meaning (see Joined Cases C-403/08 and C-429/08 Football Association Premier League and Others [2011] ECR I-0000, paragraphs 187 and 188). However, even supposing that Article 4(2) of Directive 2001/29, interpreted in the light of recitals 28 and 29 in its preamble and in the light of the Copyright Treaty, which Directive 2001/29 aims to implement (Case C-277/10 Luksan [2012] ECR I-0000, paragraph 59), indicated that, for the works covered by that directive, the exhaustion of the distribution right concerned only tangible objects, that would not be capable of affecting the interpretation of Article 4(2) of Directive 2009/24, having regard to the different intention expressed by the European Union legislature in the specific context of that directive.
61 It should be added that, from an economic point of view, the sale of a computer program on CD-ROM or DVD and the sale of a program by downloading from the internet are similar. The on-line transmission method is the functional equivalent of the supply of a material medium. Interpreting Article 4(2) of Directive 2009/24 in the light of the principle of equal treatment confirms that the exhaustion of the distribution right under that provision takes effect after the first sale in the European Union of a copy of a computer program by the copyright holder or with his consent, regardless of whether the sale relates to a tangible or an intangible copy of the program.
62 As to the Commission’s argument that European Union law does not provide for the exhaustion of the distribution right in the case of services, it must be recalled that the objective of the principle of the exhaustion of the right of distribution of works protected by copyright is, in order to avoid partitioning of markets, to limit restrictions of the distribution of those works to what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Case C-200/96 Metronome Musik [1998] ECR I-1953, paragraph 14; Case C-61/97 FDV [1998] ECR I-5171, paragraph 13; and Football Association Premier League and Others, paragraph 106).
63 To limit the application, in circumstances such as those at issue in the main proceedings, of the principle of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Football Association Premier League and Others, paragraphs 105 and 106).
64 Fourthly, it must also be examined whether, as Oracle claims, the maintenance agreement concluded by the first acquirer prevents in any event the exhaustion of the right provided for in Article 4(2) of Directive 2009/24, since the copy of the computer program which the first acquirer may transfer to a second acquirer no longer corresponds to the copy he downloaded but to a new copy of the program.
65 According to the order for reference, the used licences offered by UsedSoft are ‘current’, in that the sale of the copy of the program by Oracle to its customer was accompanied by the conclusion of a maintenance agreement for that copy.
66 It must be observed that the exhaustion of the right of distribution of a copy of a computer program under Article 4(2) of Directive 2009/24 only concerns copies which have been the subject of a first sale in the European Union by the copyright holder or with his consent. It does not relate to contracts for services, such as maintenance agreements, which are separable from such a sale and were concluded, possibly for an unlimited period, on the occasion of the sale.
67 None the less, the conclusion of a maintenance agreement, such as those at issue in the main proceedings, on the occasion of the sale of an intangible copy of a computer program has the effect that the copy originally purchased is patched and updated. Even if the maintenance agreement is for a limited period, the functionalities corrected, altered or added on the basis of such an agreement form an integral part of the copy originally downloaded and can be used by the acquirer of the copy for an unlimited period, even in the event that the acquirer subsequently decides not to renew the maintenance agreement.
68 In such circumstances, the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 extends to the copy of the computer program sold as corrected and updated by the copyright holder.
69 It should be pointed out, however, that if the licence acquired by the first acquirer relates to a greater number of users than he needs, as stated in paragraphs 22 and 24 above, the acquirer is not authorised by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the licence and resell only the user right for the computer program concerned corresponding to a number of users determined by him.
70 An original acquirer who resells a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted in accordance with Article 4(2) of Directive 2009/24 must, in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author, laid down in Article 4(1)(a) of Directive 2009/24, make his own copy unusable at the time of its resale. In a situation such as that mentioned in the preceding paragraph, the customer of the copyright holder will continue to use the copy of the program installed on his server and will not thus make it unusable.
71 Moreover, even if an acquirer of additional user rights for the computer program concerned did not carry out a new installation – and hence a new reproduction – of the program on a server belonging to him, the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 would in any event not extend to such user rights. In such a case the acquisition of additional user rights does not relate to the copy for which the distribution right was exhausted at the time of that transaction. On the contrary, it is intended solely to make it possible to extend the number of users of the copy which the acquirer of additional rights has himself already installed on his server.
72 On the basis of all the foregoing, the answer to Question 2 is that Article 4(2) of Directive 2009/24 must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
Questions 1 and 3
73 By its first and third questions the referring court seeks essentially to know whether, and under what conditions, an acquirer of used licences for computer programs, such as those sold by UsedSoft, may, as a result of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24, be regarded as a ‘lawful acquirer’ within the meaning of Article 5(1) of Directive 2009/24 who, in accordance with that provision, enjoys the right of reproduction of the program concerned in order to enable him to use the program in accordance with its intended purpose.
74 Article 5(1) of Directive 2009/24 provides that, in the absence of specific contractual provisions, the reproduction of a computer program does not require authorisation by the author of the program where that reproduction is necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.
75 When the customer of the copyright holder purchases a copy of a computer program that is on the rightholder’s website, he performs, by downloading the copy onto his computer, a reproduction of the copy which is authorised under Article 5(1) of Directive 2009/24. This is a reproduction that is necessary for the use of the program by the lawful acquirer in accordance with its intended purpose.
76 Moreover, recital 13 in the preamble to Directive 2009/24 states that ‘the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired … may not be prohibited by contract’.
77 It must be recalled, next, that the copyright holder’s distribution right is exhausted, in accordance with Article 4(2) of Directive 2009/24, on the occasion of the first sale in the European Union by that rightholder, or with his consent, of any copy, tangible or intangible, of his computer program. It follows that, by virtue of that provision and notwithstanding the existence of contractual terms prohibiting a further transfer, the rightholder in question can no longer oppose the resale of that copy.
78 Admittedly, as stated in paragraph 70 above, the original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s distribution right is exhausted in accordance with Article 4(2) of Directive 2009/24 who resells that copy must, in order to avoid infringing that rightholder’s exclusive right of reproduction of his computer program under Article 4(1)(a) of Directive 2009/24, make the copy downloaded onto his computer unusable at the time of its resale.
79 As Oracle rightly observes, ascertaining whether such a copy has been made unusable may prove difficult. However, a copyright holder who distributes copies of a computer program on a material medium such as a CD-ROM or DVD is faced with the same problem, since it is only with great difficulty that he can make sure that the original acquirer has not made copies of the program which he will continue to use after selling his material medium. To solve that problem, it is permissible for the distributor – whether ‘classic’ or ‘digital’ – to make use of technical protective measures such as product keys.
80 Since the copyright holder cannot object to the resale of a copy of a computer program for which that rightholder’s distribution right is exhausted under Article 4(2) of Directive 2009/24, it must be concluded that a second acquirer of that copy and any subsequent acquirer are ‘lawful acquirers’ of it within the meaning of Article 5(1) of Directive 2009/24.
81 Consequently, in the event of a resale of the copy of the computer program by the first acquirer, the new acquirer will be able, in accordance with Article 5(1) of Directive 2009/24, to download onto his computer the copy sold to him by the first acquirer. Such a download must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.
82 The argument put forward by Oracle, Ireland and the French and Italian Governments that the concept of ‘lawful acquirer’ in Article 5(1) of Directive 2009/24 relates only to an acquirer who is authorised, under a licence agreement concluded directly with the copyright holder, to use the computer programme cannot be accepted.
83 That argument would have the effect of allowing the copyright holder to prevent the effective use of any used copy in respect of which his distribution right has been exhausted under Article 4(2) of Directive 2009/24, by relying on his exclusive right of reproduction laid down in Article 4(1)(a) of that directive, and would thus render ineffective the exhaustion of the distribution right under Article 4(2).
84 In the case of a situation such as that at issue in the main proceedings, it must be recalled that in paragraphs 44 and 48 above it was found that the downloading onto the customer’s server of a copy of the computer program on the rightholder’s website and the conclusion of a user licence agreement for that copy form an indivisible whole which, as a whole, must be classified as a sale. Having regard to that indivisible link between the copy on the rightholder’s website, as subsequently corrected and updated, on the one hand, and the user licence relating to the copy, on the other, the resale of the user licence entails the resale of ‘that copy’ within the meaning of Article 4(2) of Directive 2009/24, and thus benefits from the exhaustion of the distribution right under that provision, notwithstanding the term in the licence agreement set out in paragraph 23 above.
85 As may be seen from paragraph 81 above, it follows that a new acquirer of the user licence, such as a customer of UsedSoft, will be able, as a ‘lawful acquirer’ within the meaning of Article 5(1) of Directive 2009/24 of the corrected and updated copy of the computer program concerned, to download that copy from the copyright holder’s website, with that downloading constituting a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.
86 It should be recalled, however, that, if the licence acquired by the first acquirer relates to a greater number of users than he needs, that acquirer is not authorised by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the licence and resell only the user right for the computer program concerned corresponding to a number of users determined by him, as explained in paragraphs 69 to 71 above.
87 Moreover, a copyright holder such as Oracle is entitled, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from his website, to ensure by all technical means at his disposal that the copy is made unusable.
88 It follows from the foregoing that the answer to Questions 1 and 3 is that Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.
Costs
89 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Grand Chamber) hereby rules:
1. Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
2. Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.
[Signatures]
* Language of the case: German.
The source of this judgment is the Europa web site. The information on this site is subject to a Disclaimer and a Copyright notice and rules related to Personal data protection. This electronic version is not authentic and is subject to amendment.
Kaisha v. Green Cartridge Company (Hong Kong) Limited (Hong Kong)
1997] UKPC 19 [1997] FSR 817, [1997] UKPC 19, [1997] AC 728, [1997] 3 WLR 13
Present at the hearing:-
Lord Browne-Wilkinson
Lord Lloyd of Berwick
Lord Hoffmann
Lord Hope of Craighead
Lord Hutton
·[Delivered by Lord Hoffmann]
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1. The issue in this appeal is the scope of the spare parts exception recognised by the House of Lords in British Leyland Motor Corporation Ltd. v. Armstrong Patents Co. Ltd. [1986] AC 577. In particular, the question is whether that doctrine entitles the defendant to infringe the plaintiff’s copyright in drawings of parts of the cartridges used with its photocopiers and laser printers.
2. It is first necessary to explain the part played by the cartridges in the operation of the plaintiff’s machines. Both photocopiers and laser printers use the same relatively simple technology. A discharge from a corona wire charges the surface of a rotating drum so that in the absence of light the charged surface acts as an insulator. Light in the form of a reflected image of the item to be photocopied or a laser generated by a computer selectively discharges the insulating surface so as to create a latent image on the drum. Electrostatically charged particles of toner are brought into proximity to the drum and adhere to the latent image, thereby creating a visible image. The image is then transferred to a sheet of paper brought into contact with the drum and passed through a heater to fix the toner particles. Finally, the drum is discharged and cleaned of excess toner.
3. During the lifetime of the machine, various of the components will need to be replaced. First and most obviously, the supply of toner will need to be renewed. The corona wire may fail, the drum may become scratched or dirty and the blade which cleans it may have to be replaced. Seals and other moving parts may break. A disadvantage of early models was that the replacement of toner was messy and the replacement of other parts by expert technicians expensive. The plaintiff therefore hit on the idea of including a supply of toner and all the parts which might need replacement in a single disposable plastic cartridge. style=”mso-spacerun: yes”> Besides the toner reservoir, it contains the corona wire, the drum and the wiper blade. When the toner gives out, the owner of the machine simply puts in a new cartridge and thereby at the same time renews the other parts. He does not have to mess with toner or call in an expert. The plaintiff has carefully chosen the cartridge materials to ensure that the various parts will usually function for at least as long as the toner lasts. It would be wasteful if they were made to function for much longer because the cartridge is usually discarded when the toner is used up.
4. The aftermarket (as it is called) in cartridges contributes a significant part to the plaintiff’s profits. The defendant’s business plan, prepared when it decided to enter the market in 1990, analysed the lifetime cost of one of the plaintiff’s typical desktop laser printers as follows. The initial cost was US$1,700. During a projected life of 5 years or 200,000 copies, the owner would need about 62 cartridges at $120 each, involving a further expenditure of $7,500.
5. Although the aftermarket is dominated by the plaintiff’s sales of new cartridges, there is also in Hong Kong a cottage industry of refilling used cartridges. style=”mso-spacerun: yes”> These naturally vary a good deal in quality. In some cases the refiller does no more than that; there is a risk that toner may leak or parts may fail during the second use. Others do a more professional job and replace the parts most at risk. But most of the cartridge, particularly the plastic casing and similar parts, will not need replacement. The plaintiff has never objected to the refillers, even though some use spare parts which are not of the plaintiff’s manufacture. The defendant’s evidence was that in Hong Kong the refillers had 40% of the market.
6. The defendant started in business as a superior refiller, hoping to build up a large turnover selling high-quality refilled cartridges at prices less than those of the plaintiff but higher than those of cottage refillers. It found however that inability to obtain enough empty cartridges squeezed its volume and a reduction in prices by the plaintiff squeezed its margins. It therefore decided that the only way to make money was to manufacture new cartridges and sell them both in Hong Kong and for export in competition with those of the plaintiff.
7. The plaintiff commenced proceedings for infringement of certain patents which it held in respect of parts of the cartridge and for infringement of copyright in the drawings from which 48 of the parts for the cartridge had been made. The Court of Appeal (varying the order of Rogers J.) held certain patents valid and infringed and granted injunctions and ancillary relief. Their Lordships’ Board has refused leave to appeal on this aspect of the case and no more need be said about it. As for infringement of copyright, it is conceded that the plaintiff was entitled to artistic copyright in the drawings from which the 48 parts were made. Accordingly, by sections 1(1) and 3(5)(a) of the (U.K.) Copyright Act 1956 (which is extended to Hong Kong by the Copyright (Hong Kong) Order 1972) (S.I. 1972 No. 1724) the plaintiff has the exclusive right to reproduce the drawings in any material form.
8. In the courts of Hong Kong it was accepted, in view of the decisions of the House of Lords in L.B. (Plastics) Ltd. v. Swish Products Ltd. [1979] R.P.C. 551 and British Leyland Motor Corporation v. Armstrong Patents Co. Ltd. [1986] AC 577, that the manufacture of the parts by the defendant by reverse engineering from the plaintiff’s parts was an indirect reproduction in three-dimensional form of the drawings from which the parts had been made. The Board was invited to depart from these decisions of the House of Lords and say that the copying of functional three-dimensional objects is not an indirect reproduction of the drawings. But their Lordships indicated in the course of argument that they were unwilling to do so. It appears to their Lordships that a strong case can be made for saying that the earlier authorities, starting with Dorling v. Honnor Marine Ltd. [1965] Ch. 1 and ending with L.B. (Plastics) Ltd. v. Swish Products Ltd. [1979] R.P.C. 551, did not sufficiently distinguish between the reproduction of an artistic work, whether in two-dimensional or (as in King Features Syndicate Inc. v. O. and M. Kleeman Ltd. [1941] A.C. 417) in three-dimensional form, and the use of the information contained in an artistic work such as a drawing or diagram (together with any additional text) as the instructions for making a three-dimensional object which, although plainly derived from that information, does not reproduce the artistic work: see Burke and Margot Burke Ltd. v. Spicers Dress Designs [1936] Ch. 400. But however that may be, their Lordships think that it is far too late to depart from the construction which has been given to the Copyright Act 1956 by the earlier cases. The question of whether the House of Lords should depart from L.B. (Plastics) Ltd. v. Swish Products Ltd. [1979] R.P.C. 551 was carefully considered in British Leyland; the dissenting speech of Lord Griffiths at pages 645-657 attracted the sympathy of at least three other members of the House. But the decision was nevertheless taken to follow the earlier cases. The Board is therefore faced not merely with the decision as to whether it should depart from L.B. (Plastics) Ltd. v. Swish Products Ltd. but with the second-order question of whether it should depart from the decision in British Leyland not to depart from the earlier decision. Their Lordships consider that there are strong reasons for not doing so. First, the artistic copyright is intellectual property which can be sold, licensed and otherwise dealt with. Since British Leyland, if not some earlier date, there must have been many dealings in such rights of property on the assumption that the rights conferred by the copyright were as extensive as the House of Lords had said. It would therefore be wrong retrospectively to invalidate that assumption. Secondly, and as to the future, the matter is under consideration by the Legislative Council. The Law Reform Commission published a report on copyright in January 1994. The Government published a consultation paper and draft Bill in November 1996. A Bill was put before the Legislative Council in February 1997. It is therefore open to the Hong Kong legislature to restrict or preserve the artistic copyright recognised in British Leyland and inappropriate for this Board to undertake the task of reforming the construction of a statute which shortly will no longer be in force.
9. Their Lordships therefore turn to the main question in the appeal, which is the scope of the spare parts exception. The question, on which a majority of the Court of Appeal differed from the trial judge, is whether the manufacture of cartridges falls within the principle of that exception. Rogers J. thought that it did not and a majority of the Court of Appeal thought it did. In order to answer that question, it is first necessary to decide what the principle was. This, as will appear, is no easy matter.
10. The exception was discussed in the speeches of Lord Bridge of Harwich at pages 615-628 and Lord Templeman at pages 628-645. Their reasoning was not entirely congruent. Lord Bridge began by considering cases on patents in which it had been said that the purchaser of a patented article had an implied licence to keep it in repair. So in Solar Thomson Engineering Co. Ltd. v. Barton [1977] R.P.C. 537, 555, Buckley L.J. said:-
“The cardinal question must be whether what has been done can fairly be termed a repair, having regard to the nature of the patented article. If it is, any purchaser of such an article, whether from the patentee … or from a purchaser from the patentee …, is impliedly licenced to carry it out or to contract with someone else to carry it out for him: …”
Their Lordships would observe that the concept of a licence, namely something which “makes an action lawful which without it had been unlawful” (Thomas v. Sorrell (1674) Vaughan 330, 351) is not really applicable to the repair of a patented article. Because repair is by definition something which does not amount to the manufacture of the patented article, it is not an infringement of the monopoly conferred by the patent. It cannot therefore be an unlawful act and needs no special licence to make it lawful, unless as part of a general implied licence to use the patented product at all, which is sometimes used to explain why mere user does not infringe the patentee’s monopoly. But this is perhaps better regarded as a consequence of the exhaustion of the patentee’s rights in respect of the particular article when it is sold. In Solar Thomson, however, (at pages 560-561) the Court of Appeal extended the concept into the field of copyright by holding that a purchaser of an article is impliedly licenced to infringe the owner’s copyright in drawings of parts of that article so far as is necessary to enable repairs to be carried out. This is a genuine implied licence since, without it, the reproduction of the parts would be unlawful.
11. Lord Bridge did not however find the concept of a licence helpful in British Leyland at page 625. It has obvious difficulties of transmission in a case in which the person infringing copyright is not the purchaser of the article, or his successor in title, or acting on his behalf, but an independent third party manufacturing spare parts for sale on the market. It was for this reason that it was rejected as a defence by the Court of Appeal in British Leyland [1986] RPC 279, 298 (Oliver L.J.); 313-314 (Fox L.J.). No doubt Lord Bridge accepted the reasoning of the Court of Appeal on this point.
12. Instead, Lord Bridge said at page 625 that the owner of a car:-
“… must be entitled to do whatever is necessary to keep it in running order and to effect whatever repairs may be necessary in the most economical way possible.”
This was a right “inherent in the ownership of the car itself”. In the case of an exhaust pipe, he could exercise this right by producing a copy himself or instructing someone else (“the local blacksmith”) to do so. But in practical terms, the “right to repair” could be of value only if other people could manufacture copy exhausts which the motorist could acquire “in an unrestricted market”. Thus there was a “clear conflict of legal rights”; the owner’s right of repair and the manufacturer’s copyright. The question was which right “should prevail over the other”. In Lord Bridge’s view, it was the right of the owner.
13. This reasoning involves a somewhat unorthodox extension of what would normally be understood by the inherent right to repair one’s motor car. Of course one has a right to repair one’s car, as one has the right to cultivate one’s garden and indulge in all kinds of harmless activities. But such a right is not usually treated as entitling one to invade the property rights of others; for example, by taking a neighbour’s dahlias on the ground that this is the most economical way of going about it. It is hard to see why the appropriation of intellectual property rights should be any different. Indeed, so much is in principle acknowledged by Lord Bridge at page 628 when he says that the right to repair would not justify the infringement of patents or registered designs. He distinguished these forms of intellectual property as “truly and expressly monopolistic”. It must however be noted that section 1(1) of the Copyright Act 1956 expressly confers “the exclusive right … to do, and to authorise other persons to do” the acts restricted by the copyright in the various works. This looks for all practical purposes like a monopoly; indeed, most of the reasoning in British Leyland proceeds on the basis that it confers unacceptable monopoly rights. It is hard to escape the conclusion that although Lord Bridge felt driven to accept that Parliament had created intellectual property rights which covered the manufacture of three-dimensional parts by reverse engineering, he felt free to remedy what he saw as a legislative error by treating such rights as an inferior species of property which could be subordinated to the right to repair one’s motor car. Such prepotency over statute has not yet been accorded in this country even to human rights such as free speech.
14. Lord Templeman at pages 628-645 approached the question somewhat differently. He found an analogy in the principle that a grantor may not derogate from his grant. The manufacturer, having sold the car, should not be entitled to derogate from his grant by using his copyright to prevent the owner from buying a spare exhaust in the open market. The principle of non-derogation is however based upon the presumed intention of the parties. The rights derived from the principle must, as Bowen L.J. said in Birmingham, Dudley and District Banking Co. v. Ross (1888) 38 Ch.D. 295, 313, have a consensual origin. It is the conveyancing equivalent of an implied term derived, in a broad sense, from the construction of the transaction into which the parties have entered. In the case of the sale of a motor car, it is not easy to say what terms could be implied about the existence of intellectual property rights which restricted the market in spare parts. One can however safely say that the notional parties are unlikely to have received the suggestion that it was to be restricted by patents and design rights but not by copyright with a common “of course”. This concept of non-derogation from grant would also suggest that if it was made clear to the purchaser that he was buying the motor car subject to the manufacturer’s continuing copyright in the drawings of the parts, no question of non-derogation could arise. But Lord Templeman at page 643 regarded the right to repair as inalienable:-
“Every owner of a car has the right to repair it. That right would be useless if suppliers of spare parts were not entitled to anticipate the need for repair. The right cannot, in my view, be withheld by the manufacturer of the car by contract with the first purchaser and cannot be withheld from any subsequent owner.”
15. This is something quite different from non-derogation from grant as understood in the law of property.
16. Their Lordships think the British Leyland spare parts exception cannot be regarded as truly founded upon any principle of the law of contract or property. It is instead an expression of what the House perceived as overriding public policy, namely the need to prevent a manufacturer from using copyright (as opposed to patents or design right) in order to control the aftermarket in spare parts. This appears clearly from the emphasis on the need for an “unrestricted market” as opposed to the right of the manufacturer to “use his copyright in such a way as to maintain a monopoly in the supply of spare parts” (Lord Bridge at page 625) and the danger of the car owner who “sells his soul to the company store” being enmeshed in the “tentacles of copyright” (Lord Templeman at pages 628-629).
17. It is of course a strong thing (not to say constitutionally questionable) for a judicially-declared head of public policy to be treated as overriding or qualifying an express statutory right. Their Lordships therefore think that the prospect of any extension of the British Leyland exception should be treated with some caution. The question of whether it is contrary to the public interest for a manufacturer to be able to exercise monopoly control over his aftermarket cannot usually be answered without some inquiry into the relevant market. For example, if customers are in a position to reckon the lifetime cost of one product (including purchases such as cartridges which will have to be made in the aftermarket) as against the lifetime cost of a competing product, then control of the aftermarket will not be anticompetitive. A manufacturer who charges too much for his cartridges will sell less of his machines. The figures which their Lordships have already quoted for expenditure on the machine itself and on cartridges make it likely that purchasers with any degree of sophistication will be comparing machines on a lifetime cost basis.
18. Furthermore, the ability to control the aftermarket and price the machines on the assumption that the purchasers will buy one’s cartridges may actually enhance competition and provide greater choice to consumers, because it will enable manufacturers to compete not only on quality and price but also on the way they divide the cost of their products between the initial outlay and the aftermarket. For example, as Rogers J. pointed out, expenditure in the aftermarket may be treated by the tax authorities as revenue costs and more fully deductible than the capital cost of the machine. Thus a manufacturer who prices the machines lower and the cartridges higher may secure a competitive advantage as against a rival who charges the same lifetime cost in different proportions. It is not necessary for the purposes of this appeal to form any view on whether the existence of copyright is capable of giving the plaintiff such economic power in the aftermarket as to be anticompetitive and contrary to the public interest. It is sufficient to recognise that the question is a complicated one which cannot be solved by broad generalisation. The courts are ill-equipped to pronounce upon such matters, which often involve questions of economic policy and are generally left to specialised bodies such as the Monopolies and Mergers Commission: see, for example, the report of the MMC on Car Parts (House of Commons Paper No. 318 Session 1981-1982) and compare the sophisticated economic arguments deployed in the judgment of the Supreme Court of the United States in Eastman Kodak Co. v. Image Technical Services Inc. (1992) 504 U.S. 451 and comments by Shapiro and Teece, Systems competition and aftermarkets: an economic analysis of Kodak (1994) 39 The Antitrust Bulletin 135.
19. These unusual features of the reasoning in British Leyland make it difficult to pick out any particular phrase in the judgments as encapsulating a general principle. Mr. Thorley Q.C., who appeared for the defendant, relied upon Lord Bridge’s statement at page 625 that the owner of a car “must be entitled to do whatever is necessary to keep it in running order”. A supply of cartridges was, he said, necessary to keep the photocopier in running order and therefore the owner of a photocopier was entitled to the existence of an unrestricted market in which he could buy cartridges. style=”mso-spacerun: yes”> Their Lordships think that this reasoning, which appears to have attracted the majority of the Court of Appeal, amounts to treating a single phrase of Lord Bridge as if it were an amendment to the Copyright Act 1956 and is far too simplistic. Likewise it was suggested that the question turns upon whether the cartridge can properly be regarded as a separate entity or as an accessory part of a larger entity, namely, the photocopier. Since for most ordinary purposes the latter is certainly the more plausible view, it was said that replacement of the accessory entity must constitute “repair” of the larger. A reductio ad absurdum of this approach is shown by the New Zealand case of Dennison Manufacturing Co. v. Alfred Holt & Co. Ltd. (1987) 10 I.P.R. 612. The plaintiff manufactured plastic tags for attaching price labels to garments and a gun which could be loaded with a supply of tags and used to shoot the tag through the material of the garment. The defendant claimed to be entitled to make tags infringing the plaintiff’s copyright on the British Leyland principle, saying that the tags were accessories necessary to keep the gun supplied and in working order. No doubt this was true, but the absurdity of treating this physical relationship as conclusive was shown by the fact that the plaintiffs actually gave the guns away for nothing and made their money from selling the tags. Their Lordships think it would reflect no credit upon the law if a doctrine which obviously rests heavily upon economic assumptions were to be applied in so mechanistic a fashion.
20. The basis of the decision in British Leyland appears to their Lordships to rest upon two features. First, a compelling analogy with the kind of repair which the ordinary man who bought an article would unquestionably assume that he could do for himself (or commission someone else to do) without infringing any rights of the manufacturer. This is the rhetorical force of Lord Bridge’s reference at page 625 to the blacksmith. Secondly, an assumption that the exercise of monopoly power in the aftermarket by means of copyright would unquestionably operate against the interests of consumers. This appears from Lord Templeman’s references at pages 628-629 to the customer selling his soul, the tentacles of copyright and his mention at page 641 of the Report of the Monopolies and Mergers Commission on the refusal of the Ford Motor Company Limited to grant licences for the manufacture of certain replacement body parts (Cmnd. 9437, February 1985), which he said had “stigmatised” the company’s conduct as anticompetitive.
21. Their Lordships consider that once one departs from the case in which the unfairness to the customer and the anticompetitive nature of the monopoly is as plain and obvious as it appeared to the House of Lords in British Leyland, the jurisprudential and economic basis for the doctrine becomes extremely fragile. They must accordingly examine the strength of the arguments from analogy with repair and the stifling of competition as they apply to photocopier cartridges.
22. It seems plain that the analogy with repair is far weaker. The cartridge will usually be replaced at a stage when nothing whatever in the photocopier requires repair. It will simply have run out of toner. It is true that there can be said to be an element of preventive maintenance: items like the drum and wiper blade are replaced because there is a distinct possibility that they may give out at some time in the near future. But these items form only a relatively small (though important) part of the unit which is being replaced. Mr. Thorley said that in British Leyland it was assumed that the exception permitted the manufacture of entire exhaust assemblies, even though parts (like the muffler) might still be serviceable. The point was not debated in British Leyland but it can be fairly be assumed in Mr. Thorley’s favour that the House did not regard this feature as taking the product outside the repair analogy. But one cannot use this as a base from which to extend the analogy still further: there comes a point when so little of the replacement can be described as repair or even in lieu of repair that the analogy ceases to be plausible.
23. On the competition aspect of the matter, the present case seems to their Lordships for two reasons far weaker than British Leyland. First, the cost of a replacement exhaust, even at two-yearly intervals during the life of the vehicle, is relatively small in relation to the capital and other running costs of the vehicle. The House of Lords appears to have assumed, with some support from contemporary reports of the Monopolies and Mergers Commission, that purchasers were unlikely to adopt “lifetime costing” in assessing the relative attractions of rival makes of vehicles and that competition in the market for the cars themselves would not therefore prevent anticompetitive practices in the aftermarket. In the present case, given the relative importance of the cost of cartridges as a proportion of the lifetime cost of the photocopier or laser printer, it would be impossible without evidence to make such an assumption. Secondly, there is already competition in the aftermarket between the plaintiff and the refillers. It cannot therefore be assumed without evidence that the exercise of its intellectual property rights is giving the plaintiff a monopoly position, let alone that the position is being abused. Mr. Thorley said that customers did not have a complete choice because the products of the refillers were inferior and sometimes very inferior. But even if the refill products cannot be regarded as completely substitutable for the plaintiff’s products, the existence of a large refill market must inhibit the plaintiff’s ability to raise prices. The other side of the coin is the fact that one of the reasons why the defendant’s refilling business failed was because the plaintiff did not keep its prices sufficiently high to allow the defendant’s refilled cartridges to make any substantial inroads into its market.
24. Their Lordships are accordingly of the opinion that the features of unfairness and abuse of monopoly power which underlay the decision in British Leyland cannot be said to be plainly and obviously present in this case. The analogy with repair is not strong enough to bring the case within the exceptional doctrine which the House of Lords propounded. Since, as their Lordships have said, the whole question of copyright is before the Legislative Council, it would not be appropriate to extend that doctrine further than it can legitimately be sustained. They will therefore humbly advise Her Majesty that the appeal should be allowed and the decision of Rogers J. on the copyright issue restored. The respondent must pay the appellant’s costs in the Court of Appeal and before their Lordships’ Board.
Navitaire Inc v Easyjet Airline Co. & Anor
[2004] EWHC 1725 (Ch) [2006] RPC 3, [2005] Info TLR 1, [2004] EWHC 1725 (Ch), [2005] ECDR 17, [2005] ECC 30
Mr Justice Pumfrey :
There are a number of problems. The first is to identify the copyright work. ‘Database’ for the purpose of Part 1 of the Act, is defined in section 3A(1)
3A.—(1) In this part ‘database’ means a collection of independent works, data or other materials which—
(a) are arranged in a systematic or methodical way, and
(b) are individually accessible by electronic or other means.
(2) For the purposes of this Part a literary work consisting of a database is original if, and only if, by reason of the selection or arrangement of the contents of the database the database constitutes the author’s own intellectual creation.
So far as the OpenRes database is concerned, the ‘database copyright’ subsisting by virtue of section 3A does not, in my view, extend to the schemas or material directly entered at the Adager or Suprtool prompt which has the effect of changing the structure of the database by adding or subtracting fields, or adding or removing datasets. Such scripts, schemas and even directly entered commands seem to me to be properly viewed as computer programs, because that is what they are. The effect of Adager and similar tools is to compile or interpret the commands given to it to create data (the database metadata) that will be recognised by the database management system as specifying the existence of items which need to be stored and indexed in a defined way. It is of course true that the schema is not a procedural but a non-procedural language, but that does not seem to me to affect the issue. The metadata defining the fields and datasets, or the tables, rows and columns, falls with some difficulty into section 3A, if only because they are not a collection of data. I cannot help but feel that section 3A is directed to the contents of the database. The one pointer against this conclusion is to be found in the European Parliament and Council Directive (96/9/EC) of 11 March 1996 on the Legal Protection of Databases (‘the Database Directive’) which section 3A is intended to implement. Recital 15 says ‘Whereas the criteria whether a database should be protected by copyright should be defined to the fact (sic: the French text is “devront se limiter au fait que”, which is clearer) that the selection or the arrangement of the contents of the database is the author’s own intellectual creation; whereas such protection should cover the structure of the database.’ In an electronic database, there is no compelling need to view the programs or scripts creating the database as part of the database, even though they define its ‘arrangement’ and ‘structure’. Anyway, they acquire copyright even if no database is ever generated from them, and my inclination would be to say that they do so by virtue of the fact that they are computer programs.
Whether or not the foregoing is a correct analysis does not seem to me to matter, since the primary obligations placed on easyJet are those of clause 4 of the agreement (paragraph 19 above) and in particular clauses 4a, 4c and 4d. Thus, to the extent that easyJet are entitled to abstract the material they sent to BulletProof, any clause restricting their right to do so is void. I repeat those clauses here for convenience:
4. Conditions of License. This license is granted subject to the following conditions:
a. Title to and ownership of OpenRes shall remain with Open Skies. (easyJet, however, shall own and retain title to all underlying easyJet data generated by OpenRes). easyJet acknowledges that OpenRes is the property of Open Skies and that easyJet’s rights in and to OpenRes, or any portion thereof, may not be assigned, licensed, sub-licensed or transferred (whether by operation of law or otherwise) without the prior written consent of Open Skies, which consent shall not be unreasonably withheld. This restriction on transfer shall not apply to (a) a merger in which easyJet is the surviving entity or (b) a change in the ownership or control of easyJet.
…
c. Any OpenRes software that is supplied to easyJet in machine-readable form may be copied, in whole or in part, by easyJet only for back-up or archive purposes. No other form of copying is allowed.
d. easyJet agrees not to disclose or otherwise make available OpenRes or any portion thereof, or any related material or information, to any person or entity outside of easyJet without the prior written consent of Open Skies. The granting or withholding of such consent shall be entirely within the discretion of Open Skies; however, such consent shall not be unreasonably withheld by Open Skies. Open Skies agrees that it shall not disclose any commercially sensitive information relating to easyJet without easyJet’s prior written consent.
The abstractions of data of which complaint is made took place in this jurisdiction, in Luton. I say nothing about what happened in California, since that cannot be an infringement of the UK copyright. However, the crucial event, which is the final migration, took place in this jurisidiction. easyJet should be in no better and no worse position than they would have been had BulletProof been located in Skegness rather than Pasadena, but, of course, BulletProof are not liable for acts done in California which would be infringements if done here.
The primary question is one of necessity. I construe this word so as to exclude the merely desirable or convenient, but not so as to require the merely absurd—cf. Sony Computer Entertainment v Paul Owen [2002] EMLR 34 (page 742) (Jacob J). So far as anything was extracted and supplied to BulletProof, if it was necessary for the purposes of access to or use of the database to extract the field and dataset names either alone or along with the data, then that is enough. Navitaire say it certainly was not necessary. For the purpose of migrating data, Ms Antry says that a neutral file format could be used. For this purpose, the designer of the new database designs the database, having found out what he can about the contents of the old database from legitimate sources. He then tells the user what data to extract into the new database, and provides a file format of unnamed records separated by separators, such as commas. The user extracts the data into this file without telling the designer of the new database what he is extracting. The data is then transferred from this ‘neutral’ file into the new database. There is no doubt that this method is used—indeed, it was accepted by Mr Rees that its use was possible.
It should also be noted that because easyJet did not seek Navitaire’s consent, their only escape from a finding of infringement in relation to the data migration databases is either that no substantial part was taken or that what they have done is a permitted act. It does not matter that Navitaire would have had no grounds reasonably to refuse consent.
Screen shots
I consider the screenshots at this point. While it is possible that to copy a screenshot cannot communicate anything about the structure of the underlying database, it may incidentally do so and did so in the present case, for example in relation to the AGENTS dataset. Thus, it is possible to allege that the schema for the dataset was indirectly copied by copying the names of the data items shown on the screen.
It seems to me that the screen shots tell the user what data was present in the system, but not how it was stored. I think the use of that data is legitimate. It is no more than telling the user what data of his is stored in the system, and he can scarcely access the contents if he does not know what is there. So the use of the screen shots is necessary to find out what data is present, and accordingly permitted by section 50D even if the result of using the screens for this purpose is the reproduction of a dataset schema, or part of it. I am reinforced in this view by the fact that Dr Hunt and Dr Chiu, with long experience in this area, and the textbook, all regarded the use of screen displays as a normal way to find out what data was stored in the system. Indeed, I think any other conclusion would be intolerable. The database would be transformed into a heap of numbers and letters to which only the owner of the copyright held the key.
The copy tables FareClass.tbl and Fares.tbl
These are the two tables in the Proof of Concept folder obviously derived from the OpenRes tables. They should not have been extracted by easyJet, if they were, and they should not have been supplied, if they were. Since they were manifestly never used, they are of no concern.
Mr Amjad Khan’s spreadsheet
This identifies not only the nature of the data but where it is stored. It does so because this is data used by the external routines, and Mr Khan included the dataset name as well as the nature of the data item, which appears pretty clearly from its name. The names will have to be changed to accommodate the new database structure but he was entitled to tell BulletProof what the data items were. I do not think it was necessary to specify the names of the datasets, and so this is a breach of contract, albeit trivial. I do not think it was an infringement since a substantial part of the work was not taken.
bp.mdb
It is of course acceptable for easyJet to extract their own data, and identify what it is to BulletProof. If they use Access to do it, they get Access versions of the OpenRes datasets. I think that this is just ordinary abstraction of data. To provide the ODBC links confuses matters, since they are an invitation to BulletProof to abstract data duly authorised by easyJet, but, of course, they include information about the database fields even when there is no access to the data. It is difficult to shoehorn this into the statutory provisions in an acceptable way, but I conclude that to send the ODBC links was not acceptable, and was an infringement.
The tapes and the OpenRes SQL database
There is no doubt that a neutral file format technique would have worked. Dr Chiu and Mr Rees of easyJet agreed. It would not have involved sending the tapes to BulletProof. It would still have been open to easyJet to specify further fields that they wished to see in the eRes database, once they had seen a draft of it, to hold data they wished to have or preserve. There would equally have been no objection to BulletProof’s indicating to easyJet the order in which it wished to see the data on the neutral format tape and explain what that data was. I suspect that using this technique, and identifying the data to be migrated at an earlier stage, would have taken no longer than the approach ultimately taken, although the witnesses were adamant that the corruption of the data made migration difficult, and that the structure of some of the datasets could not be understood. This technique involved infringement, but in my judgment since it is a clear corollary to this finding that some other technique would have worked and within a time that was not unreasonable, it caused the claimant no loss.
Finally in this connection I should refer to a contention advanced by Ms Antry, to the effect that ‘screen scraping’ would have enabled the defendants to abstract the contents of the database. I have to say that I regard this suggestion as bizarre and unreasonable. ‘Screen scraping’ is a technique in which the output of, for example, a report is not sent to the screen but instead to a file. It would take forever. Dr Hunt was far from enthusiastic for it. In principle, it is no doubt possible, but the test for necessity in section 50D would be met were this the only alternative to what easyJet actually did.
CONCLUSIONS
Except in limited respects concerning the process of migrating the data to the eRes system, and the supply of certain database extracts to BulletProof, this action fails.
Annexe 1 Code for the OpenRes availability command
The code fragment that identifies the arguments to an availability command seems to be the following in the source module AVAILSCR:
[redacted]
I have emboldened certain passages relevant to the simple A13JUNLTNAMS… enquiry. We enter the routine knowing what the operator typed is stored in a location called ans-buff, and the individual characters, counting from the left hand end, can be referred to as ans-buff(1), ans-buff(2) and so on. We know already that the first letter (ans-buff(1)) is ‘A’. We need to know whether the command is the AA, AS or AR variant, and so ans-buff(2) is checked to see: lines 067700 and 068300.
If both the second and third characters are numeric, it is likely to be a date. On the assumption that it is, the program accordingly assumes that the fourth, fifth and sixth characters are a three-character month (JUN) and a routine is called (0999-convert-date) that expresses the day (which is in ans-buff(2) and ans-buff(3)), the month and the year as an 8 digit number (lines 069200-069500). It is assumed that the next six characters are a city pair, and they are stored as such. This is what Mr David Evans described in the passage quoted above in the judgment at paragraph 30.
The code fragment also shows the parsing of the contents of ans-buff to see if the optional characters ‘/’ or ‘+’ are present, and if so sets a flag for return flights on appropriate dates (lines 071900 ff.).
The code to process the availability command in eRes is found principally in the ProcessAvailability.bas source code module and in the AvailabilityObject.cls class module. It is more complex, but it is possible to see that the characters of the command (which in eRes start with the number of passengers immediately following the A, as in A0113JUNLTNAMS() are processed on assumptions as to the structure of the string of characters. In other words, the syntax of the command is implicit in the parser: an error in the syntax of the command should produce an appropriate error message from the parser.
I am satisfied that the only similarity between the two systems in this respect is in the results of the processing, and in the command lines to be processed
Annexe 2 Parsing in OpenRes
I set out the ‘top level’ of the parser from the file BUILDPNR with comments to indicate what is happening.
[redacted]
The purpose of setting out the piece of code above is to show how the programmer approached the parsing of the command lines. It is a step-by-step approach: start with the first letter. If the first letter is ambiguous, in that other families of commands, or individual commands, also begin with that letter, advance as far along the line as is necessary unambiguously to identify what the command is, and then branch to the code that processes that family of commands. It is in the latter code, as I have discussed above and in Annexe 1 below, that the syntax of the command is implicit.
Annexe 3 Parsing in eRes
As I understand it, the parsing system in eRes works like this. The commands are divided up into single letter, two-letter, three-letter and four-letter commands. They are all placed in arrays, by code like this (from the file EzVT100CmdParser.cls):
[redacted]
The code which does this (I give a single example, the three-character command names) methodically sets them all out:
[redacted]
The array CCFourCharCmdArray() contains all the four-character commands, and so on.
In order to parse a command line, the method used is first to employ a longest match technique: the parser starts by trying to find a match with the four-character commands, then the three-character commands, then the two-character commands and finally the single character commands, stopping as soon as a match is found. This works because all commands (including sub-commands) differ in at least one letter. In this process, all dot commands are recognised only as dot commands, and generally all commands consisting of a prefix and a variable suffix are dealt with after the invariant part of the command is recognised. Thus, at the first stage, A and A- are recognised as distinct commands, one of one character, the other of two characters. AnA, AnS and AnR are recognised as an A command and they are differentiated at a subsequent parsing stage. First I give the relevant part of the parser: it is a succession of calls looking for a match, longest first. It is part of a function called ParseAndExecuteCommand.
[redacted]
I next give an example of the function which does the comparison: it compares the first letter of the command string with each of the single-letter commands stored in the array: if it finds a hit, it calls the ParseCC2char routine to parse the whole command string, placing the result in a variable called strResponse.
[redacted]
If the command is AnA, it is recognised by all the code above as an ‘A’ command, and it is when the ParseCC1char routine is called that AnA, AnR and AnS are ultimately distinguished. If the command is ‘A’ all that ParseCC1char does is call a routine called ProcessAvailabilityCmd. This is very long and is contained in its own source code file, ProcessAvailability.bas. It is this routine that checks that the number of passengers has been entered, and then processes the rest of the command string. The A, the S and the R do appear in the code (more than once), and upon analysis they can be recognised as the so-far-unprocessed characters in the subcommands, but they are never seen as a unit with the initial ‘A’.
Annexe 4 The eRes code for the incomplete reservation screen ‘.A’
This is the output of a ‘.A’ command. It does not affect the booking: it provides the operator with a list of the things that are needed to complete a reservation. The example of the use of eRes that forms Dr Hunt’s walkthrough (the slideshow) demonstrates its use after (1) an availability command A (2) a G1/1 command[29] to grab one seat on flight on line 1 of the results of the availability display command (3) an NT1 command[30] to set the number of travellers. At this point, the operator wants to know what else to do. When ‘.A’ is typed, the things that still need to be done are displayed, with the appropriate codes. There are three parts of the display: the things that need to be done part, the segment (flight) part and the comments part. The code that formats the upper part of the ‘incomplete reservation’ screen in eRes is apparently contained in the function ProcessDisplayCmd in the module ProcessDisplay.bas. This contains all the ‘Needs…’ lines. Each is formatted to include the spaces that mean that the commands (‘N–’ and so on) appear in a neat column on the screen.
The lower part of the screen seems to be generated by the function FormatGrabSeats, in the ProcessGetSeat.bas module. Lurking in here is code which sets the order in which the items on the line appear (it is quite easy to see the ‘0n-EZ’ at the beginning of the line). The line is built on the fly: the order in which the data items are obtained determines the order in which they are displayed.
Again, therefore, the eRes code does not contain any sections in respect of these commands that look like the picture that appears on the screen. If one reads the code, one can see how the machine will execute it so as to produce a particular appearance. It is possible to recognise parts of the layout. Paragraphs 8.14 ff. of Dr Chiu’s report show this.
Annexe 5 Conclusions on the display aspects of OpenRes and eRes
I am obliged to consider each of the displays in turn. Numbers 1–15 are supplied marked up in pink, green and yellow, at Appendix 6 to Dr Hunt’s September Report, which is in turn a photocopy of section 5.2 of her May report. The colour coding is explained in paragraph 9.5 of the September report:
Green: Identical fixed data on both eRes and OpenRes screens
Pink: Similar fixed data on both the eRes and openRes screens
Yellow: Variable data which is set out in the same order and positioning in both the eRes and openRes screens
There are errors in certain of the markups (see paragraph 10 of the January report) but they do not seem to me to matter all that much. Of rather greater importance is that Dr Hunt occasionally suggests that features are identical in the fixed data, when they are not.
Numbers 16–21 are GUI user input forms, and are dealt with separately. They are described in section 5.3 of the May report, marked up in Appendix 6 of the September report at pages 164.31 ff.[31]. We revert (numbers 22–27) to the VT100 display. Originally dealt with by Dr Hunt as part of the ‘Business Logic’ of OpenRes and eRes, these screens are found in section 4.
It is common ground that the basic constraint on the design of a VT100 display is that the screen has 24 rows of 80 characters. So if a line is not to be wrapped, or further screen-fulls of data displayed, there must be 24 or fewer lines containing 80 or fewer characters including the displayed data. Dr Chiu described how this can be done when programming on COBOL, by using a coding sheet, but this method does not appear to have been used by the persons responsible for devising the displays.
With that introduction, I can turn to the individual displays starting with the VT100 screens.
i) Item 1. ‘.A’ screen (incomplete reservation): May report paragraph 5.1. This is a display function, the elements to be displayed depending upon the commands that have previously been executed. It is shown in section 5.1 of Dr Hunt’s 2 May 2003 report.
a) Ms Beesley says it took her a day to devise, and I must accept this since she wasn’t challenged on it. There is no proper evidence of any prior material in written form for this command, although it is fairly likely that Ms Beesley prepared a list of prompts in an appropriate order. Thereafter, it seems to have been down to the programmers—see 1 Beesley paragraphs 286-291.
b) It includes a further feature to assist the operator. If the operator types just one of the specified commands (say ‘N-‘) without any arguments, the system returns an example line setting the necessary arguments out (see OpenRes slide 9). eRes does this as well (eRes slide 11), but nobody told me where the code was, or whether that code reproduced the little example string (it does: for ‘N-‘ the code is in ProcessTraveler.bas. It is in BUILDPNR in OpenRes).
c) The .A command is similar to the *A command in SABRE, a fact of which Ms Beesley was unaware, thinking that the SABRE command is *R. There was no evidence that any other system has the ability to provide the detailed arguments to a command requiring arguments if it is typed without arguments, although that is an entirely normal, one might even observe usual, feature of any command line interface.
d) Dr Hunt gave this display a 75% score in section 9 of her September report. As an indication that the displays are not very similar, that seems to me to be fair. From the point of view of conveying information, they are very similar, but most of the information is dynamic.
ii) Item 2. The call centre HELP screen: Section 5.2 of the May Report. Score 80% in September report. This screen merely consists of a list of available common commands and a one or two word description. The lists are not the same, save where eRes possesses the same command as OpenRes, when the entry in the list is identical. I regard this two-column list as trivial. It is contented that the layout involved ‘creative skill and labour’ in the decision to list the items alphabetically and in two columns rather than as going onto a second page. Dr Hunt identifies the words ‘HELP MENU’, ‘NAME’ and ‘COMMAND KEY’ as identical between the two screens, together with the two column layout, together with the word ‘Vers’ in the top right-hand corner. I was not shown the code.
iii) Item 3. The reservation display: Section 5.3 of the May report. This is the same display as i) above when all the data has been entered. It is another example of the display produced by the ‘.A’ command. It is to be noted since it records nearly all the essential data in respect of a booking. There are differences between the displays, but the overall scheme is very similar. The descriptive words (Booked, Modified, EZ Record Locator, Received, Lang Curr, Dist and so on) are for the most part the same. To my eye at least, the eRes screen is marginally tidier, but there is not much in it. There was no proper evidence that any of the ‘.A’ screens involved the use of preliminary drawings, and this one is the same.
iv) Item 4. Check-In passenger counts: May report section 5.4. 100% in September report. These are identical, but trivial. They involved creative skill and labour to a negligible degree.
v) Item 5. Check-In Passenger list: May report section 5.5. There is no evidence as to who devised the layout of this list. Mr McDaniel was proposed, but he could not remember. It is trivial.
vi) Item 6. List flights for checkin: May report section 5.6. The columns are
15jun02 Flt St Dept Arrv ETD ETA Dept Arrv Sold
1) LTNAMS 221 0620/0825 64
that is, line number, segment, flight number (omitting the EZ), status, Departure Time, Arrival Time, Estimated Departure Time, Estimated Arrival Time, Actual Departure Time, Actual Arrival Time, and seats sold. Again, this is trivial.
vii) Item 7. Display Flight Information: May report section 5.7. The September report gives it a mere 10%, but says ‘eRes includes the OpenRes program name “Fnflinfo”‘, which is another module. I can discern no similarities between the eRes and OpenRes screens, but Dr Hunt says that another OpenRes screen (shown as 5.7(c) and the only one copied in Appendix 6 to the September report) was also copied. I do not agree. The eRes screen is plainly different from both those mentioned by Dr Hunt. The second screen, produced by a module called FNFLINFO, is not explained, save that FNFLINFO is a distinct executable program whose purpose is to produce this flight information and does not seem to be executed in response to any of the commands we have been considering. I believe it is executed from item 9 on the top-level menu of both systems (see slide 1 of the OpenRes walkthrough and slide 2 of the eRes walkthrough), but there is no evidence. Dr Hunt’s cross-examination on this display was informative:
MR. ARNOLD: Could you move on please to page 162. This is item 7, display flight information. A. Yes.
Q. We see the respective screens at 163 for eRes and 164 for OpenRes. A. 164 and 165 because —-
Q. Indeed. A. They are not desperately similar as you will no doubt be telling me.
Q. They are pretty different, are they not? A. Yes, apart from the peculiar “fnflinfo” bit [at] the top.
Q. Why did you include these two therefore? A. There is a similarity there. As I have said already, this is not an analysis of how similar something is. There is a similarity. It is included.
In eRes, the screen is produced in response to the FI command. The screen alleged to have been copied is not so produced in OpenRes. I do not know, and was not told, how the code in eRes that places the word fnflinfo on the screen works, where it is, or why it matters. I regard Dr Hunt’s response in this passage as completely unhelpful. It suggests that it is not possible to attach importance to her schedule of similarities: anything, however insubstantial, may have been included. Every suggestion must be analysed. Anything like this should not have been included, or should have been discarded as soon as possible, and certainly not in the grudging way exemplified in this cross-examination.
viii) Item 8. Contact details: Section 5.8 of the May report. The September report gives it 70%. The cross-examination of David Evans revealed a substantial amount of programming effort underlying the display, but accepted that the display itself was ‘like addressing an envelope.’ Unsurprisingly the eRes display is similar, but, perhaps surprisingly, not identical. As a design of screen, I think that this is trivial, but of course the programming effort is not necessarily trivial at all. It may be noted that the fields of the screen are entirely natural, and reflect the corresponding contact database table in eRes.
ix) Item 9. General Information systems: May report section 5.9. Dr Hunt gives it 100%. The screen is displayed in response to the ‘GS’ command, and contains a list of general information topics (they include such things as firearms, wheelchairs and company news). Ms Antry gives evidence that it was sketched out on paper, but I do not know if that was for layout (it is two columns) or merely for order. The number of entries in a column, for example, is constrained by the fact that there are 24 lines on a VT100 terminal. Dr Hunt’s 100% is inexplicable. The two tables are not the same. The entries are in many cases, I believe a majority, different. All that can be said to have been taken here is the two column layout and the manner in which the system works, i.e. by inviting the user to type a number for the specific topic they wish to read. It should be noted, however, that the eRes screen contains a reference at the top to ‘gssearch 1.5’. This is a reference to an OpenRes program which is not used, or copied, in the eRes system. For those who wish to believe that they are still looking at OpenRes, it certainly adds verisimilitude. It appears to have no other function.
x) Item 10. Display comments: May report section 5.10. The similarity identified by Dr Hunt consists only of the use of the word ‘Comments’ and that the comments are listed (in a slightly different format) below that word. This, again, is trivial.
xi) Item 11. Display bag counts: May report section 5.11. These are the displays:
Figure 7
Figure 7: eRes bag count display
Figure 8
Figure 8: OpenRes bag count display
a) There is no evidence as to who devised this display. The best evidence is that of Greg McDaniel, who said that he devised much of the checkin functionality—but this does not relate to functionality, rather, it relates to displays. Oddly, it is one of the displays whose layout appears plainly in the code (module CICLNT01):
[redacted]
This code is called directly in response to the ‘.B’ command in Check-In, and the module claims to have been written by Mr McDaniel. So, applying the usual presumption, he is its author.
b) The eRes copy with which I have been supplied marks this display as not having been implemented in March 2002, but the display is in fact generated by DisplayBagSummaryReport in the module ProcessAirportCommands.bas. This is as follows:
[redacted]
c) [redacted] A single string containing all of it called strResponse is assembled, from the response in XML to a message to the application server. It is completed by the prompt for a new command. Another part of the code displays it and enters a state where a new command is expected.
d) It should be noted that the XML attributes representing the numbers are called CheckedinBags, ThruBags and TotalBags. The values of these attributes are ultimately computed by a stored procedure (FlightCheckIn_BagsReport.sp) from a single table in the database called ‘FlightCheckInBagTags’ by counting all the bagtags issued for the specified flight and converting the result into XML. Since easyJet did not permit through bookings, the value of ThruBags is always zero, and thus TotalBags (the sum) is always the same as CheckedinBags. I draw attention to this only because it is by far the simplest example of a database query in eRes that I have seen.
xii) Item 12. Display History: May report section 5.12. Note that the marked up copy of the displays in Annexe 6 to the September report is incorrect, the prompts before and after the display having been coloured green. What the displays have in common are the words ‘history’, ‘Date’, ‘Agent’ and ‘Received’. The lines are similarly numbered, and the ‘history codes’ are the same. The databases in eRes and OpenRes store extensive information relating to the changes made to particular reservations and so forth, and this forms a self-contained part of Navitaire’s complaint. I need only record here that the command is ‘.H’ and it displays the history of the current reservation, on numbered lines. The ‘.Hn’ command, where n is the number of a line on the history display, displays the detailed history of that line. The the history details (Booking-Agent, Received-from, Change-date, Change-time, Code and a repeat of the history item) are the same in both systems: eRes has an additional line for the agency-number of the agent making the change.
xiii) Item 13. Detailed history: see xii) above.
xiv) Item 14. Display calendar: May report section 5.14. Dr Hunt gives it a score of 40% for similarity. There is here no evidence of copying: the layout is conventional, and different (one calendar starts its weeks on a Sunday, the other on a Monday). It is just a calendar. The layout is trivial, no reasonable inference of copying of the layout can be drawn, and it should not have been relied on, except to demonstrate the overall similarities of the user interface.
xv) Item 15. Show queues: May report section 5.15. The ‘queues’ in question are ordered lists of items requiring attention. They have a name and a description, among other attributes. The evidence is that the use of queues is common in reservation systems. There is no fixed data in the screen display: Dr Hunt gives it 100% similarity because of the padding with spaces and the use of colons. As Dr Hunt acknowledged in cross-examination, even on this basis the displays are not identical (eRes lacks the second column of colons). They do display similar data. So far as what is displayed is concerned, the OpenRes display is the QUEUE-ID (6 characters), a colon, the QUEUE-DESC (26 characters), two spaces and a colon, followed by a count. This is a direct display of the contents of two fields of the OpenRes datatset called QUEUE-TABLE. The eRes display is, it appears, derived from the QueueType table in the workspace database, the corresponding field being identified by Dr Hunt as the QueueTypeCodeName field. This has 30 characters, and the display appears to be truncated to 29 characters. So there is that difference as well.
xvi) Items 16–21: these are graphical interfaces from the Schedule planning module. They are dealt with separately below, since in their corresponding displays BulletProof have copied certain icons devised by Navitaire.
xvii) Item 22. Airport Menu. May report, section 4 page 4.56, Display A. The eRes screen is at page 4.15 Display A. The marked-up copies are September report Appendix 6 page 164.44 (OpenRes) and 164.43 (eRes). This gets 90% from Dr Hunt. It is a list of functions available to Airport staff, and is in the familiar two-column layout. All but three of the 16 functions available in OpenRes are available in eRes, and the absence of those functions represents the difference between the two screens. The screen was, in fact, specified by easyJet to Navitaire (OpenSkies) from a list of what could be included. As Mr Farrukh Khan acknowledged in cross-examination, order and content came from easyJet:
Q. You explain in your first witness statement about how the menu was customised to easyJet’s requirements using an existing program. Is the existing program that you used for that purpose the MENUX reference? A. That is correct.
Q. So you would have asked easyJet what options they wanted and in what order and they would have told you what they wanted and you then went away and used the program to produce this. A. Right. (page 1102).
I conclude that if anybody is the author of this layout so far as its contents are concerned, it is whoever at easyJet gave Mr Khan his instructions. The two-column layout, the numbers and the ‘Enter choice:’ prompt are trivial.
xviii) Item 23. Flights Display. May report 4.57 Display D (OpenRes), 4.16 Display B (eRes), September report appendix 6 pages 164.45 and 164.46. There is no fixed data in these displays at all. They are the response to the ‘A’ command in OpenRes and the ‘An’ in eRes (see above paragraph 5.ii)). The output of this command differs between the systems only in the final columns, where OpenRes allows for more than one class: eRes, in contrast, does not. The displayed data is, in order, line number, airline code, date, day of the week, number of available seats, city pair, departure time, arrival time, number of stops, price and seats available. It seems that eRes always displays a 9 in the first seats available column. No detectable skill and labour goes into this display that I can discern.
xix) Item 24. Flights list. May report Section 4, page 4.60, Display N (OpenRes), Section 4, page 4.19, Display J (eRes), September report appendix 6 pages 164.48 (OpenRes), 164.47 (eRes). This is the output from the Flight Close Report program (item 4 on the front OpenRes screen) and is best seen from the slideshow (slides 42-46 in OpenRes, slides 40-42 of eRes). This is just a list of flights. The only fixed data are the words ‘dep’, ‘arr’, ‘avail seats’ and ‘sold’. The display is arranged in columns, and seems merely to list the identifying features of a flight. There is nothing in this. Moreover, to get to the display, eRes and OpenRes are rather different, both in the prompts and what is typed at the prompt. In eRes, the display is not generated by a different program.
xx) Item 25. Flight Manifest. May report Section 4, page 4.61, Display O (OpenRes), Section 4, page 4.20, Display K (eRes): September report, Appendix 6, page 164.50 (OpenRes), 164.49 (eRes). This is a report generated in OpenRes by entering a line number in the prompt following the last screen (Item 23, Flights list) in the Flight Close Out program. There is no evidence as to how the eRes display is generated, and I cannot find the code. Overall, obviously the displays are very similar.
xxi) Item 26. Display Changed Reservation. May report: Section 4, page 4.75, Display H (OpenRes); Section 4, page 4.32, Display F (eRes). September report Appendix 6 page 164.52 (OpenRes), page 164.51 (eRes). These are substantially identical with the Reservations display (item 3, paragraph 287.iii) above) and do not call for separate comment.
xxii) Item 27. Display Reqested Flights. May report, Section 4, page 4.86, Display D (OpenRes), Section 4, page 4.42, Display D (eRes): September report pages 164.54 (OpenRes) and 164.53 (eRes). This is the display following an irregular operation. There is fixed data, although that in eRes is not referred to in Dr Hunt’s September report. It is display C on page 4.41 of the May report. It is different from that of OpenRes, although it identifies a similar operation. The data display just identifies the passengers, and their identifiers.
The GUI ‘screens’ (items 16-21) are rather different. There is no difference of principle from the VT100 screens, but they are more obviously graphic works in their own right, and they have been rather more closely copied. While the screens are fairly simple, in OpenRes they represent an interface to a program (the Schedule planning program) rather different in concept from the remainder of the system. It is a client module for use by the database administrators at headquarters for changing the persistent data in the database relating to the times and dates of flights and seat prices. It interacts with a server module (FMSERVER) written in COBOL. The evidence was that the program was the result of merging a fares maintenance module with a schedule maintenace module.[32] This was not the first GUI that had been devised at Navitaire but the evidence is that some time was spent on the appearance of the screens because the intention was that this appearance would be consistent across the system when Navitaireproduced a GUI interface to replace the VT100 screens. The applications including the screens were built using Microsoft Visual Studio, and the resulting application is in the C++ language. As one might expect, this application permits the designer to ‘prototype’ the screens, that is, construct screens that will display dummy data and accept input, before the underlying software is written. It permits the designer to design icons for the buttons, and some specific icons were designed by Justin Wilde. These icons were copied by BulletProof. The screens of which complaint is made are the ‘front screen’ and a number of the individual screens.
I was told little about the eRes module. The evidence is that it was written in Visual Basic. Mr Wheeler gave evidence that there was much of the OpenRes module that did not relate to eRes. The general similarity of the screens is no doubt in part due to the identity in the features of appearance of User Interface components common to Microsoft products. There was evidence from Mr Salib that it was an unpopular application to work on and that it was not much used in practice, easyJet preferring to modify the relevant database tables by importing Excel spreadsheets, a facility that had been provided for them.
It is the front screen (Item 16: May report page 5.51 (OpenRes) and page 5.50 (eRes)) that contains the icons, which are individually printed out in Schedule F to the Particulars of Claim. The OpenRes screen apparently opens the way to a wide functionality not present in eRes, but, to the extent that the icons relate to functions present in eRes (I do not believe I am told what they are) they have been taken. Mr Haddock’s evidence was unchallenged:
7. In practice, designing a user interface is a complex task in which there are a substantial number of decisions to be made about how all the various commands and functions will be presented to the user. The general requirement is for the most common commands that a user is likely to use to be put in easily accessible locations on the screen. A good design will not bury frequently used commands several menus deep so that they are hard to find. To do this well is a highly skilled job.
8. I designed the interface based on screen shots of, and end-user documentation for, the text-based Fare Maintenance. I also used printed definition of data structures from the back-end program to determine all the fields of data I needed to display and collect. I did not base the design of the screen layouts on any third party systems. The Microsoft Visual Studio development environment that I used to develop Fare Maintenance has a very robust design interface for Windows applications. I worked directly in that environment to create prototypes for the various screens presented to the user. These prototypes eventually evolved into the actual product after discussions with Thomas Lerman and Mary Beesley without any documentation describing the process.
There is a number of kinds of skill and labour here: There is the overall design, in which the structure of the various menus is worked out. No work relied on in this case, apart from the code itself, can be said even to record that effort. Then there is the appearance. This naturally is to be viewed as a graphic work, and the draftsman uses the development environment to move the various elements of the interface around on the screen until they are in a suitable position. If he wants buttons with icons, he can either use the ones supplied (the first two on the screen are standard Microsoft icons) or he draws his own. Mr Wilde in fact drew the icons. I have been supplied with the original bitmap and icon (.ico) files. Eight icons are taken from about 18 devised by Mr Wilde. I am sure that enough skill and labour went into the little icon drawings to entitle them to copyright, and they have been copied exactly by the defendants. Their general positioning on the screen in two toolbars is entirely conventional, as anyone who has used a Microsoft GUI will know. However, the menu bar (File/Edit/View/Communications/Options/Flights/Fares/Help) has to be designed, except for the four standard entries. The four buttons (Send All Items/Send Item/ Edit Item/Delete Item) are positioned where they are (rather than below the window, perhaps) as a matter of taste[33]. I think that the whole is entitled to a copyright.
The eRes screen is much simpler: the toolbars with the icons are shorter, but the four buttons are in the same place. On the whole I think this is an infringement of the OpenRes copyright.
Item 17, the Build Non-Stop screen, and Item 18, Change Schedule, are very simple screens, but parts of them have been copied precisely. Such skill and labour as there is in the original screens has been taken, and there is infringement.
Dr Hunt’s May report refers to a further screen, Build Fare Class[34], that is so different between the two systems that I cannot see how it was relied on as an indication of similarity. There is no reproduction of the OpenRes screen. This screen is not relied on for copyright infringement, but is still relied on as one of the similarities between the systems.
The remaining screens, Items 19, 20 and 21, are in the same case as items 17 and 18. The amount of skill and labour going into them as graphic works is modest, but what has been put in has, equally, been taken.
I have not really considered the source of these screens: but it seems likely that OpenRes Schedule Planning.doc, which is the Navitaire document describing the module, and which was checked into Source Safe on 17 February 2000 by Mr Kleyman is likely.
Annexe 6 Reports
Introduction
There are fourteen reports complained of out of 66 in OpenRes version 5.58. Certain of them, in Dr Hunt’s view are ‘key’. There is no challenge to copying, but the results are in no case precisely identical. Again, there is no suggestion that the underlying code is copied, and thus the result depends in part upon the correct characterisation of the work (literary or artistic) and the substantiality of what the defendants have taken. Note that we can here only be concerned with the fixed data as displayed on the screen, and the position of the variable data.
In general, the defendants’ attack on this aspect of the case is that Navitaire are not responsible for the contents of the reports. In nearly every case, it is said that the contents of the report were specified by others (WestJet, Freedom Air and easyJet itself, in a number of cases). Thus, the selection of what is specified originates with others and the effort went into the COBOL code, leaving little taken by the defendants that could amount to a substantial part of the copyright work, that is, the code.
The claimant says (relying on a passage in the cross-examination of David Evans) that to the extent that the contents of the report were specified by WestJet in the person of Don Bell, all that he did was to specify problems. The passage will not support the contention. Taking the reports in order:
i) Flight Close Out (File A0025ROS, choice 4 on the Airport menu). This was one of a number of reports (including Flight Close, Passenger List, Flight Loads, and Payment Totals) specified by Don Bell. David Evans said that ‘Don was responsible for a lot of the design of the management information reports that later became part of the Open Skies product line’ and this was confirmed by Farrukh Khan. Examination of the code shows how tiresome placing data at the right point on the screen is if COBOL is the programming language. That has nothing to do with the skill and labour going into the data to be displayed, or the column headers (which describe what Mr Bell specified). There are three screens: the first specifies the flight(s), the second is an availability display and the third is the report for the line number specified from the second screen. There is nothing in the first two screens.
ii) Flight Loads (File A0020ROS). Mr McDaniel says he wrote this report, as does Farrukh Khan. The code itself says it was written by Mr Khan, but some of the changes are the work of Mr McDaniel. It is impossible to choose between them: but if all Mr Bell specified was a report showing the number of passengers, that is all this is.
iii) Payment receipt (file LOCPAYRP: Airport menu choice 12). This does appear to be a report designed by Navitaire. It was written before easyJet acquired its system, and, although the file records comparatively minor changes made at the request of other customers, the changes do not appear to be substantial. The report sets out payments per passenger per location, and totals, and totals per location. The fixed data is trivial, the programs report the data in different orders down the page, and the OpenRes code contains a bug which constantly announces it is at the end of a screen when it is not. The similarity lies in what is reported, and in the fixed data across columns, and there is much programming effort in extracting it from the database. Again, the formatting must be distinguished from the code used to extract the information from the database, which is completely different in the two systems. I do not regard this as a substantial part of the code.
iv) Gender Count Report (File FLTRPT01: Airport menu choice 3). The report is remarkably simple, and was designed for Freedom Air. As the code says, it will list the number of male, female and child pax on a given flight. I am afraid I consider that the form of the display involved trivial skill and labour although I accept that the COBOL coding might have been time-consuming.
v) Flight Manifest (file A0022ROS: Airport menu choice 5). The evidence is that parts, at least, were specified by Freedom Air. I am not quite sure it goes as far as Mr Arnold suggests, and was all specified by Freedom Air, but the contents are straightforward, and the result is a simple list arranged into columns. I cannot view this as a substantial part of the code.
vi) Passenger List (file PAXLIST: Airport Menu choice 6). This was programmed by Mr Khan. It was specified by WestJet, and the data to be extracted must, therefore, be disregarded. What remains is trivial. Indeed, if it was a cut-down version of Flight Manifest, as Mr Khan suspects, its substantiality is slight in any event.
vii) Check in (file A0021ROS: Airport menu choice 7). The selection criteria are not the same, since OpenRes asks if the user wants to see the passenger names. The OpenRes screen is 120 characters wide, and eRes 80. It appears from Mr Khan’s evidence to have Mr Bell involved in its history, and the contents are entirely banal.
viii) Inventory report (file A009ROS: management utilities). This report lists the seats sold in the form of rows having the format date/flight number/city pair/departure time/arrival time/seats sold in a scrolling list. It is entirely trivial as a piece of layout. The selection of data is obvious. For such a simple report, the COBOL programming effort is substantial, but none of that is taken. The corresponding stored procedure in eRes is only about seventy lines long, but, of course, that program handles the formatting separately.
ix) Fees Detail (file A0035ROS: Management Utilities). The eRes report is formatted using different typefaces (as is the Inventory report above). It offers an additional selection option (summary/detailed) to that of OpenRes. The displays are very similar. Again, this report appears to have originated with WestJet, and the column titles follow the content. The COBOL is again complex.
x) Sales Report (slsbypay: Management utilities). This report was specified by easyJet. Again the programming effort seems to have been substantial.
xi) PNR Balance (A003ROS: Management utilities). This report was specified by easyJet. Again, once the contents are specified, the programmer (Ms Antry) set out the columns and labelled them. The programming effort was substantial, but that is not appropriated by the defendants.
xii) Commission Report (A0004ROS: Management utilities). The contents of the report were specified by easyJet. It is not suggested that the layout was specified, but the layout follows from the data specified.
xiii) Segment Report (EJSEGRTE: Management utilities). Again, the contents of this report were specified by easyJet. The layout is trivial, and follows from the contents specified.
xiv) Payment Totals (A0031ROS: Management utilities). This report is not included in Dr Hunt’s ‘similarities’ report. It is introduced in her September report. I do not consider there to be much similarity between the eRes and OpenRes reports, and the two are straightforward.
The claim in respect of reports specified by easyJet was always going to be difficult to justify. While I might have expressed my views globally, I should make it clear that I have considered all the reports, and I find this claim cannot be substantiated. I am impressed by the amount of programming effort that went into the display of very simple layouts on the screen, and in manipulating the data, but the defendants manipulate the data in a different way and display in a different way. The actual layouts are trivial. What the defendants have taken cannot amount to a substantial part either of the individual modules identified above or of the code as a whole.
Nova Productions Ltd v Mazooma Games Ltd & Ors
[2007] EWCA Civ 219 [2007] Bus LR 1032, [2007] EWCA Civ 219, [2007] BusLR 1032, [2007] ECDR 6
Lord Justice Jacob:
Nova appeals from the dismissal by Kitchin J of its actions for infringement of copyright against Mazooma (and others) and against Bell-Fruit, [2006] EWHC 24 (Ch); [2006] RPC 379. The copyright works relied on are Nova’s computer game based on pool and called “Pocket Money”. The defendants’ games are respectively called “Jackpot Pool” and “Trick Shot.” Nova’s case was argued by Mr Martin Howe QC, that of the defendants by Mr Henry Carr QC
The kinds of copyright work originally relied upon were:
i) Artistic works being the bitmap graphics and the frames generated and displayed to the user;
ii) Literary works, being Mr Jones’ [Nova’s designer] design notes and the program which he wrote to implement the game;
iii) A dramatic work embodied in the game itself;
iv) Film copyright.
Below, Nova relied upon the first three types. Having regard to the decision in Norowzian v Arks [1998] FSR 394 it merely reserved its position in relation to film copyright for possible argument on appeal. In the event it chose not to do so. It has also abandoned its dramatic work case. So we only have to consider the cases advanced based on artistic and literary works.
The relevant legislation is rather lengthy. I set it out in an Appendix so as to get to the issues sooner. So far as the facts are concerned Kitchin J had to deal with more than we do. None of his factual findings is challenged. A fuller account of them than is necessary here can be found in his judgment and the Annex to it showing relevant screens of the various games. We had the advantage of actually seeing the games and the moving images involved and also a DVD of them. These helped, but actually, having read in advance the Judge’s extremely clear description with the Annex, I at least, saw just what I expected to see.
Key Findings of fact
Generally
First some general findings applicable to both actions. I set them out in the words of the Judge:
(1) … the visual appearance and the rules of Pocket Money, Trick Shot and Jackpot Pool are all very different. There are certainly similarities between them which I address below. Nevertheless, each of the games looks and, to my mind, plays in a very different way, [136].
I pause to interpolate that it is a remarkable feature of this case that it is unnecessary actually to know how any of the games concerned are played or even what they are other than computer games based on pool. Moreover although the two defendants’ games are very different from each other as well as from the claimants’, both are said to infringe the same copyrights. This is because the allegation is at such a general level.
Moving back to the findings:
(2) It is not contended that the defendants ever had access to or copied the code itself, [129].
(3) the use of a power meter was extremely common practice in games design and to have the power level pulsing was an obvious way to implement the feature and so permit the player to select what level of force he wishes to use. …. having a pulsing bar going from left to right was a common choice by numerous games designers and … the colour scheme involving the use of yellow changing to red was also a common choice as it conveyed to the player the strength of the shot, [151].
(4) the idea of having a visual indication of the direction of the shot was commonplace. …. nearly all two dimensional and three dimensional pool games produced over the last 20 years have had some form of dashed or dotted or solid view line projecting from the cue ball for aiming purposes. …. having an aiming or view line was a simple or common idea, [149].
(5) …. it was desirable to have dots or crosses as opposed to a solid view line to avoid the problem of aliasing, [136].
(6) Further, it was common ground … that having the cue rotate around the cue ball was an obvious, common and functional way of showing the player how to direct the shot [144]. … the majority of computer pool games in the last 20 years show a cue pointing at the cue ball and rotating around it under player control. It is fundamental to a pool game to show the direction of a shot, and generally speaking it is usual to show the cue rotating around the cue ball to indicate this. …. this feature was commonplace, [145].
(7) Showing the table in plan view is commonplace, [140] and [141].
(8) Showing the pulsing power level by an animation cycle in which (i) the cue moves away from and towards the cue ball, and (ii) a bar graphic varies with the power level [is not commonplace but] was one of the obvious ways to implement the commonplace idea of having a pulsing power meter in a pool game, [155].
(9) Having values associated with pockets was very common in video pool games, [162].
Extent of “copying” generally
The Judge of course had to consider in detail the features of Pocket Money said to have been copied into Trick Shot and Jackpot Pool respectively. This he did at [138 – 197] for Trick Shot and at [172-197] for Jackpot Pool. In each case the claimants had listed a number of features which they alleged had been copied. The Judge found that none of these features had been copied actually as implemented in Pocket Money. However a few had been “inspired” or “affected” by Pocket Money. I turn to consider these in the case of each game complained of.
“Copying” by Trick shot
12 features were alleged to be similar and to have been copied. In the result the Judge found that most of the features of similarity relied upon owed nothing to Pocket Money at all. They were the result of the designers’ of Trick Shot own work based on their general experience and what was commonplace. His findings in relation to the surviving features were summarised conveniently by Mr Howe as follows, using the Judge’s numbering:
(1) Theme of pool: general idea in part inspired by PM.
(4) Cue moves round ball under rotary controller: idea of rotary controller inspired by PM but movement of cue round ball not derived from PM.
(7) Animation cycle: idea of synchronising cue with power meter probably derived from PM.
(8) Values near/in pockets: general idea inspired by PM, implemented very differently.
“Copying” by Jackpot Pool
Mr Howe’s summary of the features found by the Judge was:
(1) Theme of pool: inspired by PM.
(4) Row of sighting dots: affected by PM in that it led to shortening of line of dots.
(6) Animation of cycle: synchronise pulsing cue with pulsing power meter.
(9) Graphic of money travelling across screen: not as pleaded derived but idea of coin graphic moving across screen probably inspired by PM.
The case on artistic works
Identify the copyright work – a series?
First one must identify the artistic work relied upon and then decide whether it has been reproduced by copying of the work as a whole or of any substantial part of it. That is the effect of s.3(1) and s.16(1) of the Act. It is an aspect of UK copyright law untouched by any EU harmonisation.
First then, what is the artistic work? It was common ground that the individual frames stored in the memory of a computer were “graphic works” with the meaning of the Act (Judgment [100-104]). But the actual appearance of individual frames between Pocket Money and the alleged infringements are very different (see Judgment Annex). Regarded just as pictures – as “graphic works” in the words of the Act – they are obviously very different. Save for the fact that they are of a pool table with pocket, balls and a cue, nothing of the defendants’ screens as single frames can be said to be a substantial reproduction of a corresponding screen in Pocket Money. Both before the Judge and us Mr Howe accepted that “each of the defendants had done their own drawings of cues and billiard balls” and did not contend for infringement at the level of individual screen graphics.
Mr Howe invited us to find that there was in effect a further kind of artistic work, something beyond individual freeze-frame graphics. This was said to be because there is a series of graphics which show the “in-time” movement of cue and meter. So, it was said, that what the defendants had done was to:
create “a dynamic ‘re- posing’ of the Claimant’s version – one in which the detail of the subjects had changed, but an essential artistic element of the original was carried through to the Defendants.
This was said to involve extra skill and labour beyond just that involved in creating the individual frames.
The Judge was prepared to accept:
that “in time” movement of the cue and meter must be considered as being reflected in a series of still shots and like must be compared with like,
but nonetheless held there was no infringement.
Mr Carr, by a respondents’ notice, challenged that assumption. He submitted that a series of still images, whether created by drawing for a cartoon film or by a computer, was not in itself anything more than a series of frames, each of which would have its own copyright and no more. No “extra” copyright work or protection is created by having a series. Putting it another way, a series of stills is just that.
I think that must be right. “Graphic work” is defined as including all the types of thing specified in s.4(2) which all have this in common, namely that they are static, non-moving. A series of drawings is a series of graphic works, not a single graphic work in itself. No-one would say that the copyright in a single drawing of Felix the Cat is infringed by a drawing of Donald Duck. A series of cartoon frames showing Felix running over a cliff edge into space, looking down and only then falling would not be infringed by a similar set of frames depicting Donald doing the same thing. That is in effect what is alleged here.
This reasoning is supported by the fact that Parliament has specifically created copyright in moving images by way of copyright in films. If Mr Howe were right, the series of still images which provides the illusion of movement would itself create a further kind of copyright work protecting moving images. It is unlikely that Parliament intended this.
So I think the case on artistic works falls at the first hurdle, given the concession that there is no frame-for-frame reproduction.
Reproduction of a substantial part
If it got as far as the second hurdle, the case would fall there too – no reproduction of a substantial part. The Judge so held at [245] for Trick Shot and [252] for Jackpot Pool. Mr Howe first has to overcome the difficulty that he is asking us on appeal to take a different view from that of the trial judge as to what amounts to a “substantial part”. That brings him right up against the clear direction from the House of Lords in Designer Guild v Russell Williams [2001] FSR 113 that the Court of Appeal should be very chary of doing so.
Thus Lord Bingham (with whom the rest of the House agreed) said:
It was not for the Court of Appeal to embark on the issue of substantiality afresh, unless the judge had misdirected himself, which in my opinion he had not, [6]
See also Lord Hoffmann at [29].
Mr Howe contended that the Judge had indeed misdirected himself – in two ways, on the facts and as a matter of law. As to the facts, he relied upon a passage in the evidence of Mr Starling, the designer of Jackpot Pool. It was about the “animation” cycle”. The judge records this:
[231] In early December Mr Wilson and Mr Burns arranged for Pocket Money to be brought into the office where it stayed for five or six days. Mr Starling played the game solidly for one day and reached the conclusion that it was not sufficiently skill based. He wanted to produce a game which was more realistic. He recalled finding the level of control obtained by the rotary controller impressive.
[232] Under cross examination he accepted that he definitely noticed other aspects of the game. In particular, he limited the length of the line of dots of the sight line having seen Pocket Money and he also noticed the combination of cue, line of dots and cue pulsing in and out in time with the power meter. He accepted that having seen the game he “tied the features that I already had in my mind into the game” and that this “solved all the problems”.
The submission was that that which “solved all the problems” must be a substantial part of Pocket Money. Mr Howe developed the argument:
When you talk about an idea that consists in essence of using a number of features in combination, it is possible to look at that from two points of view. One is to say it is just the idea of combining things. The other way to look at it is to say what you have created by way of expression in the program is a combination of features, and that combination is what you should look at. Ask whether that is a substantial part of the copyright work if that combination is reproduced in the defendant’s work.
Thus, it was argued, the combination represented a significant part of Mr Jones’ skill and labour and must be a substantial part of the work created by him.
The submission applied also to the case on literary works. I reject it for reasons given in more detail in relation to them (in short, idea not expression) but even as a matter of alleged misdirection by the judge it must fail – for the Judge clearly took the answer into consideration. So where is the misdirection?
Moreover the answer must be seen in context. The “combination” is actually just a construct of Mr Howe’s argument. After all the idea of a cue moving round a ball, of a pulsing power meter, of a sight line indicated by dots or crosses were all commonplace. And the Judge held that Mr Starling knew about all of them before he saw Pocket Money and they had already been developed by him for his game (Judgment [231]). All that was “taken” by Mr Starling was a shortened row of dots (he already had one) and synchronisation of the pulsing cue with the power meter.
As to the law, Mr Howe relied upon what was said by Lord Scott in Designers Guild:
There had been no direct evidence of copying and the judge’s finding had been based on the extensive similarities between Ixia and Marguerite. These similarities, coupled with the opportunity to copy and in the absence of any acceptable evidence from RWT as to an independent provenance for Marguerite, had led the judge to conclude, on a balance of probabilities, that Marguerite had been copied from Ixia. If the similarities between the two works were sufficient to justify the inference that one had been copied from the other, there was, in my judgment, no further part for the concept of substantiality to play
Mr Howe tried to elevate this into a general principle – that whenever copying has been found it must follow that a substantial part has been taken. I cannot agree. In many cases a coincidence in the copyright work and the alleged infringement of small, unimportant, details is an indication of copying. Thus the “reverse countersink” in LB Plastics v Swish [1979] RPC 551 and the misspellings in Ibcos v Barclays proved the copying. But no-one would say that those details alone meant that a substantial part of the copyright work had been taken – they are the starting point for a finding of infringement, not the end point. Lord Scott’s observations must be taken as concerned with the facts of Designers Guild itself, not as laying down any general principle. Actually that is clear from what he said, referring as he did to “the [my emphasis] two works.” After all in that case it was the overall appearance of the two works which led to the inference of overall copying – an inference which the defendants failed to rebut. And the two designs were not just similar overall, one would serve as a substitute for the other. Here the judge has expressly rejected nearly all of the allegations of copying, leaving just a rump of a few ideas which were “derived from or inspired by the copyright work”, albeit implemented in very different ways. And the games, being different from one another, are not competitive in the sense that one would do as a substitute for the other.
The case on a literary work
Accordingly I think the appeal in relation to artistic works fails. I turn to that in relation to the literary work. This involves EU law since it is based on the Software Directive of 1991. Pursuant to that Directive as implemented in the UK, copyright can subsist in a computer program and its preparatory design material. It was common ground that the UK legislation must be interpreted in accordance with the Directive, see Marleasing [1990] I ECR 4135.
The UK Act, drafted with the traditional, but wholly unhelpful way of re-wording a Directive, sets out “a computer program” and “preparatory design work for a computer program” as though they are entirely different types of work in which literary copyright can subsist. What the Directive actually says is: “the term ‘computer programs’ shall include their preparatory design material.” That may not be quite the same thing – the EU legislation appears to contemplate just one copyright in a computer program, not two, one in the preparatory work and the other in the program itself. I do not think anything turns on the difference here. But one can think of cases where it might. Suppose for example different authors for the program and its preparatory material. When does the copyright expire – on different dates depending on the death of the respective author? Or suppose different dealings in the “two” copyrights – is that possible given that the Directive supposes only one copyright? The re-wording, as it nearly always does, throws up room for wholly unnecessary uncertainty and argument.
Fortunately nothing turns on the difference of language here. I should, in passing, mention one other difference of language pointed out by Mr Howe. The Directive defines “restricted acts” as reproduction “in any form, in part or in whole” (Art 4(a)). The UK Act does not say “in part or in whole”. It uses the well-established language “in relation to the work as a whole or any substantial part”, s.16(3)(a). Mr Howe wisely decided that he could not make any point based on this difference of language. He accepted that although the Directive did not say “substantial part” its meaning must be so limited. Otherwise it would require the copying of insubstantial parts to be an infringement – which is so absurd as to be assuredly wrong.
With those preliminary observations I can turn to the main arguments. The Judge found against the claimants on two distinct, although related, bases, applicable to both alleged infringements:
[247] [The similarities found to have been derived] are cast at such a level of abstraction and are so general that I am quite unable to conclude that they amount to a substantial part of the computer program. They are ideas which have little to do with the skill and effort expended by the programmer and do not constitute the form of expression of the literary works relied upon.
[248] Further, application of the principles explained by Pumfrey J in Navitaire leads to the same conclusion. Nothing has been taken in terms of program code or program architecture. Such similarities that exist in the outputs do not mean that there are any similarities in the software. Further, what has been taken is a combination of a limited number of generalised ideas which are reflected in the output of the program. They do not form a substantial part of the computer program itself. Consideration of Article 1(2) of the Software Directive confirms this position. Ideas and principles which underlie any element of a computer program are not protected by copyright under the Directive.
Mere idea, not expression
Mr Howe had to face the formidable objection created by Art. 1.2 of the Directive and recitals 13 and 15. To my mind these provisions are abundantly clear. The well-known dichotomy between an idea and its individual expression is intended to apply and does to copyright in computer software. When I say “well-known” I mean not just known to copyright lawyers of one country but well-known all over the world. Recital 15 refers to the protection of the expression of ideas as being “in accordance with the legislation and jurisprudence of the Member States and the international copyright conventions” and is clearly a reference to this dichotomy. The TRIPS agreement of 1994 likewise recognises this dichotomy, see particularly Art, 9.2.
Mr Howe suggested that the dichotomy was intended to apply only to ideas which underlie an element of a program – what he called a “building block”. He cited (as did the Judge) what Lord Hoffmann said about the dichotomy outside the context of computer programs in Designers Guild:
[25] My Lords, if one examines the cases in which the distinction between ideas and the expression of ideas has been given effect, I think it will be found that they support two quite distinct propositions. The first is that a copyright work may express certain ideas which are not protected because they have no connection with the literary, dramatic, musical or artistic nature of the work. It is on this ground that, for example, a literary work which describes a system or invention does not entitle the author to claim protection for his system or invention as such. The same is true of an inventive concept expressed in an artistic work. However striking or original it may be, others are (in the absence of patent protection) free to express it in works of their own: see Kleeneze Ltd. v. D.R.G. (U.K.) Ltd. [1984] F.S.R. 399 . The other proposition is that certain ideas expressed by a copyright work may not be protected because, although they are ideas of a literary, dramatic or artistic nature, they are not original, or so commonplace as not to form a substantial part of the work. Kenrick & Co. v. Lawrence & Co. (1890) 25 Q.B.D. 99 is a well-known example. It is on this ground that the mere notion of combining stripes and flowers would not have amounted to a substantial part of the plaintiff’s work. At that level of abstraction, the idea, though expressed in the design, would not have represented sufficient of the author’s skill and labour as to attract copyright protection.
As regards the first proposition I said much the same thing in Ibcos Computers v. Barclays Mercantile [1994] FSR 275 at p.291:
The true position is that where an “idea” is sufficiently general, then even if an original work embodies it, the mere taking of that idea will not infringe. But if the “idea” is detailed, then there may be infringement. It is a question of degree. The same applies whether the work is functional or not, and whether visual or literary. In the latter field the taking of a plot (i.e. the “idea”) of a novel or play can certainly infringe if that plot is a substantial part of the copyright work. As Judge Learned Hand said (speaking of the distinction between “idea” and “expression”): “Nobody has ever been able to fix that boundary and nobody ever can, Nichols v Universal Pictures (1930) 45 F. (2d) 119”
Mr Howe then submitted that the “idea” of the cue pulsing with the power-meter could not be discounted within Lord Hoffmann’s first category because here we are concerned with copyright in a computer program. You cannot say the “idea” has no connection with the nature of the work. Nor did it fall within the second category because it was not held “commonplace,” merely “obvious.” He sought to bolster the argument by reference to the travaux préparatoires to the Directive. At the very least, he submitted, the position was unclear and that we should refer some questions to the European Court of Justice pursuant to Art. 234 of the Treaty.
I reject all of that. First I think the fact that we are considering a computer program copyright does not in any way preclude a mere “idea” as to what the program should do from being excluded as having nothing to do with the nature of the work. The nature of the work is a computer program having all the necessary coding to function. The general idea is only faintly related to that – no different from the relationship of the general idea of a plastic letter-box draught excluder to the artistic works consisting of the drawings for a particular excluder in the Kleeneze case. Indeed I have to say that, as Mr Howe waxed lyrical about the combination of features in the animation, he sounded more like counsel in a patent case than one in a copyright case. Not all of the skill which goes into a copyright work is protected – the obvious example being the skill involved in creating an invention which is then described in a literary work. An idea consisting of a combination of ideas is still just an idea. That is as true for ideas in a computer program as for any other copyright work.
Nor am I impressed by Mr Howe’s attempt to limit the dichotomy to “building blocks”. He sought to do this by reference to recital 14 which refers to “logic, algorithms and programming languages” as comprising “ideas and principles.” I see no reason to suppose that Art. 13 is thereby limited. Art 14 is clearly drawn on the basis that the basic position of Art.13 – no protection for ideas and principles – applies also to those specified matters.
The same conclusion is reached if one considers TRIPS. Although normally a UK Act is not to be construed by reference to a later international Treaty, I note that Lord Hoffmann considered TRIPS to be of relevance to our domestic copyright law in Designers Guild (see [23]). Here the position is much clearer because we are dealing with EU law. The ECJ has held that TRIPS (to which the EU as well as its Member States is a party) is relevant to the construction of earlier EU legislation concerned with intellectual property. In Schieving-Nijstad v Groeneveld Case C-89/99 (13th September 2001) the court said:
[30] In the field of trade marks, to which TRIPs is applicable and in respect of which the Community has already legislated, the Court has jurisdiction to interpret Article 50 of TRIPs – as, indeed, it has previously had occasion to do (see Hermés [ [1998] ECR I-3603], and Joined Cases C-300/98 and C-392-98 Dior and Others [2000] ECR I-11307). It is therefore appropriate to recapitulate the principles laid down in that case-law.”
[35] Nevertheless, it is apparent from the Court’s case-law, in a field which TRIPs applies and in respect of which the Community has already legislated, the judicial authorities of the Member States are required by virtue of Community law, when called upon to apply national rules with a view to ordering provisional measures for the protection of rights falling within such a field, to do so as far as possible in the light of the wording and purpose of Article 50 of TRIPs (see Hermés, paragraph 28, and Dior and Others, paragraph 47).
Mr Howe sought to escape from the fact that we should construe the UK Act in accordance with the Directive which should be construed so far as possible as to conform to TRIPS by a further submission: that TRIPS was only concerned with minimum standards for intellectual property rights and that its signatories were free to provide for greater rights. So, he said, the EU could provide that copyright protection extended to ideas if it so wanted. Now it is in general true that a party to TRIPS can provide more extensive protection than called for TRIPS, see Art.1. But the concluding words of the first sentence of Art.1 add “provided that such protection does not contravene the provisions of this Agreement”. Art. 9.2 positively provides that “copyright protection shall extend to expressions and not to ideas etc. as such”. So in this instance TRIPS lays down a positive rule as to the point beyond which copyright protection may not go. To protect by copyright mere ideas as such would contravene TRIPS. The Software Directive must be construed so as to conform to TRIPS and so must be construed as not to protect ideas as such.
As to the travaux Mr Howe took us through the following:
i) the original Commission “Proposal for a Council Directive on the legal protection of computer programs” COM(88) 816 final –SYN 183, submitted on 5th January 1989 (89/C91/05);
ii) the amended proposal COM (90) 509 final –SYN 183 (1990/C 320/11), submitted on 18th October 1990; and
iii) the Opinion of the Economic and Social Committee.
Mr Howe was unable to point to any clear unequivocal statement anywhere suggesting that copyright in computer programs should extend to ideas. Given that state of affairs it would be a waste of time to set out all the material in detail. It is sufficient to record that the submission is based on an argument by implication from unexplained alterations from the original proposal. In particular the original proposal did not use the expression “element of a computer program” in proposed Art.1.2 but merely to “the ideas, principles, logic, algorithms or programming languages.” I cannot extract from this any intention to extend protection to ideas provided they are not “elements.”
I am reinforced in my view by the fact that the Economic and Social Committee (whose report is specifically recited in the Directive as being a document to which the Council had regard in making the Directive) clearly did not think the proposal was limited as suggested by Mr Howe. It said tersely:
“There is no dispute that ‘ideas and principles’ are outside the protection of the law of copyright.”
So there is no help for Mr Howe in the travaux. I would add generally that travaux preparatoires, if not bang on the point, seldom help. If the meaning of the ultimate document is ambiguous, or obscure, then, even if the travaux are admissible, there is no point in trawling through them unless they are clear as to what was intended and meant. Constructing arguments around unexplained changes, passages in themselves ambiguous, or mere possible hints as to what would have been intended if the actual point in issue had actually been addressed, is just a waste of time. I said in Dyson v Qualtex [2006] EWCA Civ 166, [2006] RPC 769:
[11] …. In the context of construing an international treaty by reference to the travaux préparatoires to find a definite legal intention Lord Steyn said: “Only a bull’s-eye counts” (Effort Shipping v Linden Management [1988] AC 605 at 625). Much the same goes for trying to ascertain such an intention from a White Paper which precedes legislation.
That is equally applicable to all documents which fall to be construed in the light of admissible travaux. There is no point in relying upon travaux which are not directly in point – you just substitute the puzzle posed by the actual language to be construed by another puzzle about other language at first or even second remove.
So I reject Mr Howe’s “only ideas which are elements are excluded” argument. Actually I do not see, even if it had been right, why the animation cycle should not be regarded as “an element”. After all it is not the game itself. It is an element of the game and so of its computer program. That it is only an element is shown by the fact that it could be transposed to any other snooker/pool computer game as an element of that game.
Accordingly I think the appeal on literary copyright fails on the simple ground that what was found to have inspired some aspects of the defendants’ game is just too general to amount to a substantial part of the claimants’ game. The Judge’s evaluation, far from being wrong in principle, was right when he said:
They are ideas which have little to do with the skill and effort expended by the programmer and do not constitute the form of expression of the literary works relied upon.
I also think the appeal fails on the more specific basis (also accepted by the Judge) of the principles applied by Pumfrey J in Navitaire v easyJet [2004] EWHC 1725 (Ch), [2006] RPC 111.
The facts there were stronger than in the present cases, yet the claimants lost. easyJet wanted to substitute its existing airline booking program with another because it had fallen out with Navitaire, the owner of the copyright in the existing program. It commissioned the second defendant to produce a substitute which would look and feel like its predecessor. So far as possible users were not to notice any difference when they used the new program. Without in any way using or even having access to the source code of Navitaire, this was achieved.
Pumfrey J held that there was infringement of the artistic copyright in some of the “buttons” of the claimants’ program (see p.131 of the RPC report). But he rejected the main claim. He said:
“125. This does not answer the question with which I am confronted, which is peculiar, I believe, to computer programs. The reason it is a new problem is that two completely different computer programs can produce an identical result: not a result identical at some level of abstraction but identical at any level of abstraction. This is so even if the author of one has no access at all to the other but only to its results. The analogy with a plot is for this reason a poor one. It is a poor one for other reasons as well. To say these programs possess a plot is precisely like saying that the book of instructions for a booking clerk acting manually has a plot: but a book of instructions has no theme, no events, and does not have a narrative flow. Nor does a computer program, particularly one whose behaviour depends upon the history of its inputs in any given transaction. It does not have a plot, merely a series of pre-defined operations intended to achieve the desired result in response to the requests of the customer.
126. The view in favour of Navitaire’s case is expressed concisely by the authors of The Modern Law in paragraph 34.64 (I have assumed that when they speak of ‘obtains…from the original program’ they do not mean obtain directly, but indirectly from watching the program work):
For instance, the writing of a financing program may require as part of the task a careful elucidation of the relevant tax regulations—so that they may be reduced to a series of unambiguous statements—and it will be evident to any lawyer that this alone will probably involve a very large amount of work. A competitor might write a program of his own in a different computer language and arranged in a different way and with many improvements of his own but if he obtains the rules for calculating the tax from the original program instead of working these out for himself it is hard to see why he should not be considered a plagiarist.
127. There is a counter-example that throws some light on the nature of the problem. Take the example of a chef who invents a new pudding. After a lot of work he gets a satisfactory result, and thereafter his puddings are always made using his written recipe, undoubtedly a literary work. Along comes a competitor who likes the pudding and resolves to make it himself. Ultimately, after much culinary labour, he succeeds in emulating the earlier result, and he records his recipe. Is the later recipe an infringement of the earlier, as the end result, the plot and purpose of both (the pudding) is the same? I believe the answer is no.
129. The questions in the present case are both a lack of substantiality and the nature of the skill and labour to be protected. Navitaire’s computer program invites input in a manner excluded from copyright protection, outputs its results in a form excluded from copyright protection and creates a record of a reservation in the name of a particular passenger on a particular flight. What is left when the interface aspects of the case are disregarded is the business function of carrying out the transaction and creating the record, because none of the code was read or copied by the defendants. It is right that those responsible for devising OpenRes envisaged this as the end result for their program: but that is not relevant skill and labour. In my judgment, this claim for non-textual copying should fail.
130. I do not come to this conclusion with any regret. If it is the policy of the Software Directive to exclude both computer languages and the underlying ideas of the interfaces from protection, then it should not be possible to circumvent these exclusions by seeking to identify some overall function or functions that it is the sole purpose of the interface to invoke and relying on those instead. As a matter of policy also, it seems to me that to permit the ‘business logic’ of a program to attract protection through the literary copyright afforded to the program itself is an unjustifiable extension of copyright protection into a field where I am far from satisfied that it is appropriate.”
Mr Howe attacked that. I quote his skeleton argument:
“this analogy is a poor one. The reason is that the first chef has deployed two quite distinct types of skill and labour. The first is the skill of devising a recipe, a skill which on no view forms part of the skill and labour protected by copyright in literary works. The second is skill and labour in reducing the recipe he has devised to written form. A copyist who copies from his pudding rather than from his recipe book may appropriate the former skill and labour but none of the latter.
By contrast, a copyist who copies the function of a computer program to write his own program to achieve the same results is clearly appropriating part of the skill and labour expended in designing the program.
He further developed the argument basing himself on recital 7 of the Directive. This says “‘computer program’ … also includes preparatory design work leading to the development of a computer program provided that the nature of the preparatory work is such that a computer program can result from it at a later stage”. He asked us to suppose a case where there are two clear stages in the making of a program – a first stage where the designer sets out all the things he wants the program to be able do and a second stage (which may be by a different person) where the actual program code is written. Mr Howe contended that the first stage was intended to be protected as such, even if it consisted only of ideas as to what the program should do. Going back to the analogy, the “preparatory work” for the program is like the skill of devising the recipe and the actual program writing like the reduction of the recipe to written form. The difference, he submitted, is that for computer programs, unlike the recipe, the preparatory work is to be protected.
I reject the argument. The reason is simple. The Directive does not say that mere ideas by way of preparatory design work are to be protected. As I have said it makes it clear that for computer programs as a whole (which includes their preparatory design work) ideas are not to be protected. What is protected by way of preparatory design work is that work as a literary work – the expression of the design which are to go into the ultimate program, not the ideas themselves.
So for example, if Mr Jones had actually written a description of the pulsing, rotating cue, and synchronised power meter his description would (if not too trivial at least) be protected as a literary work. People could not copy that. But they could use the same idea. Similarly and more generally, a written work consisting of a specification of the functions of an intended computer program will attract protection as a literary work. But the functions themselves do not. Of course to someone familiar with the prior English law it is self-evident that copyright could subsist in such a description. The fact that a work can get copyright even if mundane, is old and familiar to an English lawyer. But the Directive needed to say that protection as a literary work should be provided for preparatory design work because not all Member States under their existing laws necessarily provided that. That is the whole point of the Directive – and the clear reason for it is recited in Art. 1.
So I think Mr Howe’s attack on Navitaire fails. The reasoning in Navitaire provides a second reason for dismissing this appeal. Pumfrey J was quite right to say that merely making a program which will emulate another but which in no way involves copying the program code or any of the program’s graphics is legitimate.
Finally Mr Howe suggested the law was sufficiently uncertain as to warrant a reference being made to the European Court of Justice. No less than 6 elaborate draft questions were supplied. I do not think it is necessary to make any reference to resolve this case. It is wholly unrealistic to suppose that the European Court of Justice would hold that copyright protection was to be given to ideas at such a high level of abstraction as those in this case.
I would only add this. Both sides submitted that this case had significance for the computer games (and computer program writing) industry. Mr Howe submitted that if the decision below is upheld there is no effective protection for games against copying of the game where a party copies the rules of a game but not its graphics. Mr Carr submitted that that not all things are covered by copyright, that most if not every work is, to some extent, influenced or derived from other works. So it is very important that copyright is not allowed to intervene to stifle the creation of works that are actually very different, as the individual games are here.
I agree with Mr Carr. If protection for such general ideas as are relied on here were conferred by the law, copyright would become an instrument of oppression rather than the incentive for creation which it is intended to be. Protection would have moved to cover works merely inspired by others, to ideas themselves.
Lord Justice Lloyd:
I agree.
Chancellor of the High Court:
I also agree.
APPENDIX – THE LEGISLATION
For “artistic works”
So far as is relevant here, s.4(1) of the Copyright, Designs and Patents Act defines artistic works and graphic work as follows:
4.—(1) In this Part “artistic work” means—
(a) a graphic work, …., irrespective of artistic quality,
(2) In this Part—
……
“graphic work” includes—
(a) any painting, drawing, diagram, map, chart or plan, and
(b) any engraving, etching, lithograph, woodcut or similar work;
Additionally s. 9(3) provides:
3—In the case of a literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken.
And s.178 reads:
“Computer-generated”, in relation to a work, means that the work is generated by computer in circumstances such that there is no human author of the work.
For “Literary Works”
Section 3(1) of the Act (as amended by the Copyright (Computer Programs) Regulations (1992)) provides so far as is relevant:
3(1) In this Part:
“literary work” means any work, other than a dramatic or musical work, which is written, spoken or sung, and accordingly includes:
…….
(b) a computer program,
(c) preparatory design material for a computer program
……
For Infringement
Section 16 of the Act provides:
16 The acts restricted by copyright in a work
(1) The owner of the copyright in a work has, in accordance with the following provisions of this Chapter, the exclusive right to do the following acts in the United Kingdom –
(a) to copy the work (see section 17);
(3) References in this Part to the doing of an act restricted by the copyright in a work are to the doing of it –
(a) in relation to the work as a whole or any substantial part of it
Section 17 expands on the meaning of “to copy”
17 Infringement of copyright by copying
(1) The copying of the work is an act restricted by the copyright in every description of copyright work; and references in this Part to copying and copies shall be construed as follows.
(2) Copying in relation to a literary, dramatic, musical or artistic work means reproducing the work in any material form. This includes storing the work in any medium by electronic means.
The Software Directive 91/250/EEC
The 1992 Regulations implement Council Directive 91/250/EEC of 14 May 1991 on the Legal Protection of Computer Programs (“the Directive”). It follows (and was not disputed) that these provisions of the Act must be interepreted in accordance with the Directive. I therefore set out its relevant recitals (adding numbers) and provisions:
1. Whereas computer programs are at present not clearly protected in all Member States by existing legislation and such protection, where it exists, has different attributes;
4. Whereas certain differences in the legal protection of computer programs offered by the laws of the Member States have direct and negative effects on the functioning of the common market as regards computer programs and such differences could well become greater as Member States introduce new legislation on this subject;
5. Whereas existing differences having such effects need to be removed and new ones prevented from arising, while differences not adversely affecting the functioning of the common market to a substantial degree need not be removed or prevented from arising;
6. Whereas the Community’s legal framework on the protection of computer programs can accordingly in the first instance be limited to establishing that Member States should accord protection to computer programs under copyright law as literary works and, further, to establishing who and what should be protected, the exclusive rights on which protected persons should be able to rely in order to authorize or prohibit certain acts and for how long the protection should apply;
7. Whereas, for the purpose of this Directive, the term ‘computer program’ shall include programs in any form, including those which are incorporated into hardware; whereas this term also includes preparatory design work leading to the development of a computer program provided that the nature of the preparatory work is such that a computer program can result from it at a later stage;
13. Whereas, for the avoidance of doubt, it has to be made clear that only the expression of a computer program is protected and that ideas and principles which underlie any element of a program, including those which underlie its interfaces, are not protected by copyright under this Directive;
14. Whereas, in accordance with this principle of copyright, to the extent that logic, algorithms and programming languages comprise ideas and principles, those ideas and principles are not protected under this Directive;
15. Whereas, in accordance with the legislation and jurisprudence of the Member States and the international copyright conventions, the expression of those ideas and principles is to be protected by copyright;
20. Whereas the unauthorized reproduction, translation, adaptation or transformation of the form of the code in which a copy of a computer program has been made available constitutes an infringement of the exclusive rights of the author;
Article 1
Object of protection
1. In accordance with the provisions of this Directive, Member States shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works. For the purposes of this Directive, the term ‘computer programs’ shall include their preparatory design material.
2. Protection in accordance with this Directive shall apply to the expression in any form of a computer program. Ideas and principles which underlie any element of a computer program, including those which underlie its interfaces, are not protected by copyright under this Directive.
3. A computer program shall be protected if it is original in the sense that it is the author’s own intellectual creation. No other criteria shall be applied to determine its eligibility for protection.
Article 4
Restricted Acts
Subject to the provisions of Articles 5 and 6, the exclusive rights of the rightholder within the meaning of Article 2, shall include the right to do or to authorize:
(a) the permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole. Insofar as loading, displaying, running, transmision or storage of the computer program necessitate such reproduction, such acts shall be subject to authorization by the rightholder;
…
TRIPS
Also of importance in the debate are Arts. 1 and 9 of TRIPS (The Agreement on Trade-related Aspects of Intellectual Property Rights which forms Annex 1C to the Agreement establishing the World Trade Organisation signed in Morocco on 15th April 1994 by representatives of the Community and its Member States).
Art. 1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection that is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.
Art. 9.1 Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom.
Art. 9.2 Copyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.
CBS Songs Ltd v Amstrad Consumer Electronics Plc
[1988] UKHL 15 [1988] AC 1013, [1988] 2 FTLR 168, [1988] 2 WLR 1191, [1988] UKHL 15, [1988] RPC 567, [1988] 2 All ER 484
Lord Keith of Kinkel
Lord Templeman
Lord Griffiths
Lord Oliver of Aylmerton
Lord Jauncey of Tullichettle
JUDGMENT
Die Jovis 12° Maii 1988
Upon Report from the Appellate Committee to whom was referred the Cause CBS Songs Limited (suing on their own behalf and on behalf of the other members of the Mechanical Rights Society Limited) and others against Amstrad Consumer Electronics plc and others, That the Committee had heard Counsel on Tuesday the 15th, Wednesday the 16th, Thursday the 17th, Monday the 21st, Tuesday the 22nd and Wednesday the 23rd days of March last upon the Petition and Appeal of CBS Songs Limited, whose Registered Office is at 17-19 Soho Square, London Wl, EMI Records Limited, whose Registered Office is at Blythe Road, Hayes, Middlesex, and Chrysalis Records Limited, whose Registered Office is at 15 Jermyn Street, London Wl, praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty’s Court of Appeal of the 10th day of April 1987, might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as upon the Cases of Amstrad Consumer Electronics plc and of Dixons Limited lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It :is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said’ Order of Her Majesty’s Court of Appeal (Civil Division) of the 10th day of April 1987 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.
Cler: Asst. Parliamentor:
LORD KEITH OF KINKEL
My Lords,
I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Templeman. I agree with it, and for the reasons stated by him would dismiss the appeal.
LORD TEMPLEMAN
My Lords,
During the past half-century there have been continuous improvements in sciences and techniques concerned with the transmission, reception, recording and reproduction of sounds and signals. These developments were required for serious purposes such as war, espionage, safety and communications. The benefits of advances made for serious purposes have been employed for purposes of leisure and pleasure and have spawned two flourishing industries, the electronic equipment industry and the entertainment industry. The electronic equipment industry manufactures and sells sophisticated machines which enable individual members of the public to transmit, receive, record and reproduce sounds and signals in their own homes. The entertainment industry transmits and records entertainment on an enormous scale. Each industry is dependent on the other. Without the public demand for entertainment, the electronic equipment industry would not be able to sell its machines to the public. Without the facilities provided by the electronic equipment industry, the entertainment industry could not provide entertainment in the home, and could not, for example, maintain orchestras which fill the air with 20th century cacophony or make gratifying profit from a recording of a group without a voice singing a song without a tune. Although the two industries are interdependent and flourish to their mutual satisfaction there is one area in which their interests conflict. It is in the interests of the electronic equipment industry to put on the market every facility which is likely to induce customers to purchase new machines made by the industry. It is in the interests of the entertainment industry to maintain a monopoly in the reproduction of entertainment. Facilities for recording and reproducing incorporated in machines sold to the public by the electronic equipment industry are capable of being utilised by members of the public to copy the published works of the entertainment industry, thus reducing the public demand for the original works and recordings of the entertainment industry itself. The electronic equipment industry invents and markets new and improved facilities which enable records to be made and copied. The public make use of those facilities to copy the recordings issued by recording companies and thus infringe the copyrights of the recording companies and of the composers, lyricists
and others engaged in the entertainment industry. Hence arises the conflict between the electronic equipment industry and the entertainment industry which has resulted in these present proceedings.
This appeal is the climax of a conflict between the makers of records and the makers of recording equipment. The appellants, The British Phonographic Industry Ltd. (“B.P.I.”), represent the makers of records while the respondents, Amstrad Consumer Electronics Plc. and Dixons Ltd., represent the makers and sellers respectively of recording equipment. B.P.I. argue that it is unlawful for Amstrad to make recording equipment which will be used by members of the public to copy records in which copyright subsists. In the alternative, B.P.I. argue that Amstrad must not advertise their equipment in such a way as to encourage copying. Amstrad and Dixons argue that they may lawfully make and sell to the public any recording equipment which ingenuity may devise and may lawfully advertise the advantages of such equipment.
By the Copyright Act 1956:
“1(1) . . . ‘copyright’ in relation to a work . . . means the exclusive right, by virtue and subject to the provisions of this Act, to do, and to authorise other persons to do … in relation to that work . . . those acts which, in the relevant provision of this Act, are designated as the acts restricted by the copyright in a work of that description. (2) . . . the copyright in a work is infringed by any person who, not being the owner of the copyright, and without the licence of the owner thereof, does, or authorises another person to do, any of the said acts in relation to the work … to which the relevant provision of this Act extends. 2 … (2) Where an original literary, dramatic or musical work has been published, then, subject to the provisions of this Act, copyright shall subsist in the work …. (3) . . . copyright subsisting in a work by virtue of this section shall continue to subsist until the end of the period of 50 years from the end of the calendar year in which the author died, and shall then expire: … (5) The acts restricted by the copyright in a literary, dramatic or musical work are – (a) reproducing the work in any material form; …(c) performing the work in public; (d) broadcasting the work; . . . 4(1) . . . the author of a work shall be entitled to any copyright subsisting in the work …. 12(2) . . . copyright shall subsist … in every sound recording …. (3) Copyright subsisting in a sound recording . . . shall continue to subsist until the end of the period of fifty years from the end of the calendar year in which the recording is first published, and shall then expire. (4) . . . the maker of a sound recording shall be entitled to any copyright subsisting in the recording …. (5) The acts restricted by the copyright in a sound recording are the following, whether a record embodying the recording is utilised directly or indirectly in doing them, that is to say, – (a) making a record embodying the recording; (b) causing the recording to be heard in public; (c) broadcasting the recording . . . . “
By section 48 “reproduction” includes a reproduction in the form of a record and “record” means any disc, tape, perforated roll or other device in which sounds are embodied so as to be capable (with or without the aid of some other instrument) of being automatically reproduced therefrom.
Thus a sound recording of a performance of a song with words may involve three or more separate copyrights, each with different periods of duration of not less than 50 years. There is copyright in the composer in respect of his musical work, copyright in the lyricist in respect of his literary work and copyright in the recording company in respect of its sound recording. In the case of Beethoven and Bach and other copyright owners who died more than 50 years ago, the musical works copyright will no longer subsist. In the case of recordings published more than 50 years ago the recording copyright will no longer subsist. But every tape or other copy of a sound recording of a song with words will infringe any subsisting copyrights in the works recorded and in the sound recording.
B.P.I. represent the various owners of copyrights in musical and literary works and in sound recordings. Amstrad make and Dixons sell equipment which makes it possible for sound recordings to be copied on to tape. Any purchaser of Amstrad’s equipment who makes use of the equipment for the purpose of copying a sound recording infringes any and all of the subsisting copyrights in the relevant works recorded and in the sound recording
There are broadly two types of infringers who concern B.P.I. First there are “pirates” who make large numbers of copies of a sound recording for the purposes of sale. Pirates do not generally employ the equipment which Amstrad sell to the public but use different equipment which enables the mass production of infringing copies at low cost. The infringing copies are then sold in competition with the original sound recording which has been produced at great expense. With some difficulty but with marked success in this country, B.P.I. and other owners of copyright are able to detect infringing copies offered for sale, to identify pirates by means of Anton Piller orders and then to obtain the remedies of injunction, confiscation and damages.
The second types of infringers are “home copiers,” that is to say, members of the public who, by using Amstrad or other machines which are capable of making copies of sound recordings, can copy on to a blank tape for an expenditure of less than £1 an original recording priced at £5 or £10. A home copier makes a copy for his own private use and is thus to be distinguished from a pirate who makes infringing copies for sale. The infringements of a home copier are almost impossible to detect and a successful action for infringement against one copier would have little deterrent effect. The sales of sound recordings in 1984 were estimated at 40 million, and the sales of blank tapes at 70 million or thereabouts. Blank tapes may be employed for purposes which do not infringe copyright but on average for every authorised copy of a record there will now be two infringing copies.
Home copiers are entitled to make copies of sound broadcasts but may, nevertheless, infringe copyright in the works broadcast. By section 14 of the Act of 1956:
“(1) Copyright shall subsist … – (a) in every television broadcast made by the British Broadcasting Corporation … or by the Independent Television Authority . . . and (b) in every sound broadcast made by the Corporation or the Authority . . . . (2) . . . the Corporation or the Authority, as the case may be, shall be entitled to any copyright subsisting in a television broadcast or sound broadcast made by them; and any such copyright shall continue to subsist until the end of the period of 50 years from the end of the calendar year in which the broadcast is made, and shall then expire. … (4) The acts restricted by the copyright in a television broadcast or sound broadcast are – … (b) in the case of a sound broadcast, or of a television broadcast in so far as it consists of sounds, making, otherwise than for private purposes, a sound recording of it or a record embodying such a recording; … (5) The restrictions imposed … in relation to a television broadcast or sound broadcast . . . shall apply whether the act in question is done by the reception of the broadcast or by making use of any record, print, negative, tape or other article on which the broadcast has been recorded. … (7) For the purposes of subsection (4) of this section … a sound recording or a record embodying a recording shall be taken to be made otherwise than for private purposes if it is made for the purposes of the doing by any person of any of the following acts, that is to say, – (a) the sale or letting for hire of any copy . . . of any record embodying the recording; (b) broadcasting the . . . recording . . . ; (c) causing the . . . recording to be . . . heard in public”
Thus, where a live broadcast is made, the home copier may lawfully record the broadcast on tape for his own “private purposes.” But by section 16(6) copyright in a sound recording or broadcast shall be in addition to, and independent of, any copyright subsisting in the musical or literary work recorded or broadcast. It appears, therefore, that a home copier may lawfully record on tape a live broadcast of a Schubert song but cannot lawfully record on tape a live broadcast of a Beatle song without infringing the Beatles1 copyright. A home copier who is recording a live concert of the works of Bach and Walton must be careful to switch off his machine during the performance of Walton’s work. It appears also that an authorised broadcast of a sound recording cannot be recorded on tape by a home copier without infringing the copyright in the sound recording and any subsisting copyrights in the work recorded.
By section 17 of the Act of 1956:
(1) . . . infringements of copyright shall be actionable at the suit of the owner of the copyright; and in any action for such an infringement all such relief, by way of damages, injunction, accounts or otherwise, shall be available to the plaintiff as is available in any corresponding proceedings in respect of infringements of other proprietary rights.”
By section 17(3) if the court is satisfied that effective relief would not otherwise be available to the plaintiff, the court, having regard in addition to all other material considerations to the flagrancy of the infringement, and any benefit shown to have accrued to the defendant by reason of the infringement, may award additional damages.
By section 18:
“(1) . . . the owner of any copyright shall be entitled to all such rights and remedies, in respect of the conversion or detention by any person of any infringing copy, or of any plate used or intended to be used for making infringing copies, as he would be entitled to if he were the owner of every such copy or plate and had been the owner thereof since the time when it was made: …”
Section 21 creates certain copyright offences punishable with fines and imprisonment. These crimes are concerned with pirates and others dealing with infringing copies by way of sale, hire or trade but B.P.I. contend in the present proceedings that every home copier commits a criminal offence under section 21(3) which is in the following terms:
“Any person who, at a time when copyright subsists in a work, makes or has in his possession a plate, knowing that it is to be used for making infringing copies of the work, shall be guilty of an offence under this subsection.”
By section 18(3):
“‘plate’ includes any stereotype, stone, block, mould, matrix, transfer, negative or other appliance.”
The argument is that when a home copier borrows a record intending to use it for making infringing copies, the record which has been borrowed becomes “a plate.” I do not accept that a record can become a plate and I do not agree that a home copier commits a criminal offence. By the Performers’ Protection Acts 1958 to 1972 it is an offence knowingly to make a record of a performance of literary, dramatic, musical or artistic work without the consent in writing of the performers, but it is a defence to prove that the record was made for private and domestic use only.
Under and by virtue of section 17 of the Copyright Act 1956, a home copier is liable in civil proceedings to pay damages for infringement, and to be restrained by injunction against further infringement and his unlawful copy may be confiscated by a copyright owner. For at least a decade, members of the public, including home copiers, have been able to buy from a variety of manufacturers and retailers listening and recording equipment housed in a compact console. The listening facilities are enhanced by high fidelity speakers and extend to sound broadcasting, the playing of a record from a disc held on a turntable and the playing of a record from a recorded tape housed in a cassette and held in a cassette deck incorporated in the console. The recording facilities may include the power to record on a blank tape, housed in a cassette held in the cassette deck, any sound broadcast, disc record or taped record. These recording facilities may be used for lawful or unlawful purposes. A live broadcast may be heard and lawfully recorded and copied by means of the console by a home copier for his own use. Live recordings may be lawfully made on blank tape and may be copied with the permission of the recorder. Records with no subsisting copyright may be copied. But there is nothing to prevent the recording facilities of the console being used to copy on to a blank tape commercial records and commercial tapes in infringement of copyright. It is statistically certain that most but not all consoles are used for the purpose of home copying in breach of copyright.
There is competition between the manufacturers of consoles to improve the facilities offered by their models. About 1982 the company, AIWA, improved the recording facilities of their products by increasing the speed by which recorded tape could be copied on to a blank tape by a factor of four. Other manufacturers, including Amstrad, Sanyo, Philips and Sharp, increased the speed of tape-to-tape recording by a factor of two. B.P.I. persuaded AIWA to reduce its unique high speed to the speed offered by other manufacturers. Amstrad then provoked B.P.I. by hypocritical and disingenuous forms of advertising. An Amstrad model, as advertised, consisted of
“a remote control operated hi-fi system (supplied with speakers) comprising . . . two functional cassette machines with hi-speed dubbing facility, BSR belt-driven turntable, stereo amplifier . . . and tuner sections. This elegant ‘flush-look’ system is internally connected and fitted in its own rack and comes with a smoked glass door and lid for dust protection and castors for manoeuvrability.”
Translated into plain speech, the model enabled the purchaser to receive broadcast transmissions, to play disc records, to play taped records and, on blank tape, to record broadcasts, disc records and taped records. The advertisement boasted that the model
“now features ‘hi-speed dubbing’ enabling you to make duplicate recordings from one cassette to another, record direct from any source and then make a copy and you can even make a copy of your favourite cassette.”
A record on tape could be copied on to blank tape at twice the speed of play-back. An asterisk drew attention to the following footnote:
“The recording and playback of certain material may only be possible by permission. Please refer to the Copyright Act 1956, the Performers’ Protection Acts 1958-1972.”
The consoles which incorporated a twin cassette deck at twice play-back speed and which were advertised by Amstrad and sold by Dixons were models SM-104, T5-87 and TS-39. B.P.I. wrote to Amstrad asserting that
“the sale to the public of any machine offering a double-headed copying facility encourages, incites or otherwise facilitates the copying of pre-recorded and other cassettes containing copyright sound recordings and musical works.”
B.P.I. also asserted that Amstrad’s advertisement which had appeared on TV was an “encouragement to break the law.” After some correspondence, Amstrad issued proceedings and by their statement of claim dated 2 November 1984 sought a declaration that by advertising and offering their models for sale they were not acting unlawfully. CBS Songs Ltd., suing on its own behalf and on behalf of the other members of The Mechanical Rights Society Ltd., and EMI Records Ltd. and Chrysalis Records Ltd., suing on their own behalf and on behalf of the other members of B.P.I., also issued a writ and by their amended statement of claim dated 16 November 1984 claimed against Amstrad and Dixons:
“An injunction to restrain the defendants . . . from parting with possession of models SM-104, TS-87 and TS-39 cassette reproducing machines (or any like machine) without taking such precautions as are necessary reasonably to ensure that copyrights in sound recordings or musical works owned or exclusively licensed to the plaintiffs or a member of the British Phonographic Industry Ltd. or the Mechanical Rights Society Ltd. are not infringed by the use of such machines.”
Since the plaintiffs were suing in a representative capacity the appellants are referred to in this speech as “B.P.I.”
B.P.I. also claimed an inquiry as to damages or an account of profits. In the course of interlocutory proceedings Whitford J. ordered Amstrad to produce all returned guarantee cards from customers who had purchased Amstrad’s impugned models. Amstrad produced 25,000 guarantee cards. B.P.I. selected 1,600 for further investigation and ultimately called three representative witnesses. The first had not seen Amstrad’sadvertisement, the second knew before he saw the advertisement that home copying was unlawful, and the third had seen the advertisement but also knew that home copying was unlawful
On 17 June 1985 Whitford J. [1986] F.S.R. 159 dismissed Amstrad’s action claiming a declaration that their actions were lawful. The judge held that Amstrad were authorising infringement, were joint tortfeasors, and might be guilty of negligence and of inciting, procuring, aiding or abetting infringement contrary to law or equity. The Court of Appeal (Lawton, Slade and Glidewell L.JJ.) [1986] F.S.R. 159, 201′ disagreed, but on 29 October 1985 declined to make a declaration in favour of Amstrad on the grounds that Amstrad’s advertisement might amount to an incitement to a home copier to commit a criminal offence under section 21(3) of the Act of 1956. On 8 May 1986, Whitford J. heard and dismissed a summons by Amstrad to strike out B.P.I.’s action for an injunction and damages on the grounds that the statement of claim did not disclose a cause of action. On 25 February 1987, the Court of Appeal (Fox and Nicholls L.JJ., Sir Denys Buckley dissenting) [1988] Ch. 61; [1987] R.P.C. 429, 447 struck out B.P.I.’s action. B.P.I. now appeal to this House and, in brief, contend that the decision of Whitford J. in both actions should be upheld. In the course of argument, Mr. Kentridge, counsel for B.P.I., acting on instructions from B.P.I., amplified the reliefs which B.P.I. seek. B.P.I. ask for an injunction which would prevent Amstrad from selling machines with a copying facility. That relief, if available against all manufacturers, would appear to be the only form of relief which would eliminate home copying. In the alternative, B.P.I. seek an injunction which would prevent Amstrad from selling machines with a high-speed copying facility. This might reduce home copying. If an injunction restraining manufacture and sale is not considered to be appropriate,. B.P.I. seek an injunction which will restrain Amstrad from extolling the advantages of double-speed taping and will compel Amstrad to give due notice to a purchaser that copying of copyright material is unlawful. It is doubtful whether this would effect any material reduction in home copying. My Lords, the only relevant rights vested in B.P.I. by the Act of 1956 are the exclusive rights to reproduce and to authorise others to reproduce B.P.I.’s records, and the only relevant remedy conferred on B.P.I. by the Act is the remedy of injunction to restrain an infringement by a person who reproduces or authorises another person to reproduce B.P.I.’s records. There is nothing express or implied in the Act which inhibits the invention, manufacture, sale or advertisement of electronic equipment capable of lawful or unlawful reproduction. B.P.I.’s initial submissions are that Amstrad “authorised” infringement and that Amstrad are joint infringers together with any person who uses an Amstrad machine for the purpose of making an infringing reproduction of a recording in which copyright subsists.
Section 1(1) of the Act of 1956 confers on the copyright owners in a record the “exclusive right … to authorise other persons” to copy the record. B.P.I. submit that by selling a model which incorporates a double-speed twin-tape recorder Amstrad “authorise” the purchaser of the model to copy a record in which copyright subsists and therefore Amstrad infringe the exclusive right of the copyright owner. My Lords, twin-tape recorders, fast or slow, and single-tape recorders, in addition to their recording and playing functions, are capable of copying on to blank tape, directly or indirectly, records which are broadcast, records on discs and records on tape. Blank tapes are capable of being employed for recording or copying. Copying may be lawful or unlawful. Every tape recorder confers on the operator who acquires a blank tape the facility of copying; the double-speed twin-tape recorder provides a modern and efficient facility for continuous playing and continuous recording and for copying. No manufacturer and no machine confers on the purchaser authority to copy unlawfully. The purchaser or other operator of the recorder determines whether he shall copy and what he shall copy. By selling the recorder Amstrad may facilitate copying in breach of copyright but do not authorise it.
B.P.I.’s next submission is that Amstrad by their advertisement authorise the purchaser of an Amstrad model to copy records in which copyright subsists. Amstrad’s advertisement drew attention to the advantages of their models and to the fact that the recorder incorporated in the model could be employed in the copying of modern records. But the advertisement did not authorise the unlawful copying of records; on the contrary, the footnote warned that some copying required permission and made it clear that Amstrad had no authority to grant that permission. If Amstrad had considered the interests of copyright owners, Amstrad could have declined to incorporate double-tape double-speed recorders in Amstrad’s models or could have advertised the illegality of home copying. If Amstrad had deprived themselves of the advantages of offering improved recording facilities, other manufacturers would have reaped the benefit. The effect of double-tape double-speed recorders on the incidence of home copying is altogether speculative. If Amstrad had advertised the illegality of home copying the effect would have been minimal. Amstrad’s advertisement was deplorable because Amstrad thereby flouted the rights of copyright owners. Amstrad’s advertisement was cynical because Amstrad advertised the increased efficiency of a facility capable of being employed to break the law. But the operator of an Amstrad tape recording facility, like all other operators, can alone decide whether to record or play and what material is to be recorded. The Amstrad advertisement is open to severe criticism but no purchaser of an Amstrad model could reasonably deduce from the facilities incorporated in the model or from Amstrad’s advertisement that Amstrad possessed or purported to possess the authority to grant any required permission for a record to be copied.
In Monckton v. Pathe Freres Pathephone Ltd. [1914] 1 K.B. 395, Buckley L.J. said, at p. 403: “The seller of a record authorises, I conceive, the use of the record, and such use will be a performance of the musical work.” In that case a performance of the musical work by the use of the record was bound to be an infringing use and the record was sold for that purpose. In Evans v. Hulton (1924) 131 L.T. 534, Tomlin J. said, at p. 535 that:
“where a man sold the rights in relation to a manuscript to another with a view to its production, and it was in fact produced, both the English language and common sense required him to hold that this man had ‘authorised’ the printing and publication.”
The object of the sale, namely publication, was bound to infringe. In Falcon v. Famous Players Film Co. [1926] 2 K.B. 474, the defendants hired to a cinema a film based on the plaintiff’s play. It was held that the defendants infringed the plaintiff’s exclusive right conferred by the Copyright Act 1911 to authorise a performance of the play. Here again, the hirer sold the use which was only capable of being an infringing use. Bankes L.J., at p. 491, following Monckton v. Pathe Freres Pathephone Ltd. and Evans v. Hulton, accepted that for the purpose of the Act of 1911 the expression “authorise” meant “sanction, approve, and countenance.” Atkin L.J. said, at p. 499:
“to ‘authorise’ means to grant or purport to grant to a third person the right to do the act complained of, whether the intention is that the grantee shall do the act on his own account, or only on account of the grantor; . . .
In the present case, Amstrad did not sanction, approve or countenance an infringing use of their model and I respectfully agree with Atkin L.J. and with Lawton L.J. in the present case [1986] F.5.R. 159, 207 that in the context of the Copyright Act an authorisation means a grant or purported grant, which may be express or implied, of the right to do the act complained of. Amstrad conferred on the purchaser the power to copy but did not grant or purport to grant the right to copy.
In Moorhouse v. University of New South Wales [1976] R.P.C. 151 in the High Court of Australia where the facilities of a library included a photocopying machine, Gibbs J. said, at p. 159:
“a person who has under his control the means by which an infringement of copyright may be committed – such as a photocopying machine – and who makes it available to other persons, knowing, or having reason to suspect, that it is likely to be used for the purpose of committing an infringement, and omitting to take reasonable steps to limit its use to legitimate purposes, would authorise any infringement that resulted from its use.”
Whatever may be said about this proposition, Amstrad have no control over the use of their models once they are sold. In this country the duties of some libraries are defined by the Copyright (Libraries) Regulations 1957 (S.I. 1957 No. 868) made under section 15 of the Act of 1956.
In C.B.S. Inc. v. Ames Records & Tapes Ltd. [1982] Ch. 91, Whitford J. held that a record library which lent out records and simultaneously offered blank tapes for sale at a discount did not authorise the infringement of copyright in the records. He said, at p. 106 :
“Any ordinary person would, I think, assume that an authorisation can only come from somebody having or purporting to have authority and that an act is not authorised by somebody who merely enables or possibly assists or even encourages another to do that act, but does not purport to have any authority which he can grant to justify the doing of the act.”
This precisely describes Amstrad.
In RCA Corporation v. John Fairfax & Sons Ltd. [1982] R.P.C. 91 in the High Court of Australia, Kearney J., at p. 100, approved a passage in Laddie, Prescott & Vitoria, The Modern Law of Copyright (1980), para. 12.9, p. 403, in these terms:
“a person may be said to authorise another to commit an infringement if the one has some form of control over the other at the time of infringement or, if he has no such control, is responsible for placing in the other’s hands materials which by their nature are almost inevitably to be used for the purpose of infringement.”
This proposition seems to me to be stated much too widely.
As Whitford J. pointed out in the Ames case, at p. 107:
“you can home tape from bought records, borrowed records, borrowed from friends or public libraries, from the playing of records over the radio, and indeed, at no expense, from records which can be obtained for trial periods on introductory offers from many record clubs who advertise in the papers, who are prepared to let you have up to three or four records for a limited period of trial, free of any charge whatsoever.”
These borrowed records together with all recording machines and blank tapes could be said to be “materials which by their nature are almost inevitably to be used for the purpose of an infringement.” But lenders and sellers do not authorise infringing use.
For these reasons, which are to be found also in the judgments of the Court of Appeal, at pp. 207, 210 and 217, I am satisfied that Amstrad did not authorise infringement.
B.P.I. next submitted that Amstrad were joint infringers; they became joint infringers if and as soon as a purchaser decided to copy a record in which copyright subsisted; Amstrad could become joint infringers not only with the immediate purchaser of an Amstrad model but also with anyone else who at any time in the future used the model to copy records. My Lords, Amstrad sell models which include facilities for receiving and recording broadcasts, disc records and taped records. All these facilities are lawful although the recording device is capable of being used for unlawful purposes. Once a model is sold Amstrad have no control over or interest in its use. In these circumstances the allegation that Amstrad is a joint infringer is untenable. In Townsend v. Haworth decided in 1875 but reported in 1879 in 48 L.J.Ch., at p. 770n, the defendant sold chemicals to be used by the purchaser in infringement of patent and agreed to indemnify the purchaser if the patent should prove to be valid. Mellish L.J. said, at p. 773:
“Selling materials for the purpose of infringing a patent to the man who is going to infringe it, even although the party who sells it knows that he is going to infringe it and indemnifies him, does not by itself make the person who so sells an infringer. He must be a party with the man who so infringes and actually infringe.”
Mr. Kentridge on behalf of B.P.I. relied on the decision in Innes v. Short and Beal (1898) 15 R.P.C 449. In that case the defendant Short sold powdered zinc and gave instructions to a purchaser to enable the purchaser to infringe a process patent. Bigham J. said, at p. 452:
“There is no reason whatever why Mr. Short should not sell powdered zinc, and he will not be in the wrong, though he may know or expect the people who buy it from him are going to use it in such a way it will amount to an infringement of Mr. Innes’ patent rights. But he must not ask the people to use it in that way, and he must not ask the people to use it in that way in order to induce them to buy his powdered zinc from him.”
Assuming that decision to be correct, it does not assist B.P.I. because in the present case Amstrad did not ask anyone to use an Amstrad model in a way which would amount to an infringement.
In Dunlop Pneumatic Tyre Co. Ltd. v. David Moseley & Sons Ltd. (1903) 21 R.P.C. 53; (1904) 21 R.P.C. 274, the defendant sold tyre covers which were an essential feature of a combination patent for tyres and rims. The tyre covers were adapted for use in the manner described in the patent, but not necessarily solely for use in that manner. Swinfen Eady 3, said, at p. 60, that most of the “covers would probably ultimately be used in one or other of” the patented method but that
“those are not exhaustive of the purposes to which the covers may be put, and that they would be useful for other purposes in connection with other tyres . . . . “
Swinfen Eady X, upheld by the Court of Appeal, decided that the defendants did not infringe.
In The Koursk [1924] P. 140 where the question was whether the navigators of two ships had committed two separate torts or one tort in which they were both tortfeasors, Scrutton L.J., at p. 156, adopted the passage in Clerk & Lindsell on Torts 7th ed. (1921) p. 59, to the effect that:
“Persons are said to be joint tortfeasors when their respective shares in the commission of the tort are done in furtherance of a common design.”
In the present case there is no common design between Amstrad and anybody else to infringe copyright.
In Rotocrop International Ltd v. Gembourne Ltd. [1982] F.S.R. 241, Graham J. held, perhaps surprisingly, that there was novelty in a patent for a compost bin with removable panels and, less surprisingly, that a rival manufacturer who made and sold infringing bins in parts with assembly instructions was a joint tortfeasor with his customers. In that case, as in Innes v. Short and Beal, the vendor and the purchaser had a common design to carry out an infringing act.
In Belegging-en Exploitatiemaatschappij Lavender B.V. v. Witten Industrial Diamonds Ltd. [1979] F.S.R. 59, the defendants were alleged to have sold diamond grit for the sole purpose of making grinding tools in which it was to be embedded in a resin bond as part of a grinding material patented by the plaintiffs. Buckley L.J. held, at p. 66, that the defendants could not be infringers unless they
“sold the grits in circumstances which in some way made them participants in their subsequent embodiment in resin bonded grinding wheels, or that they induced someone so to embody them . . . .”
My Lords, joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement. In the present case there was no common design, Amstrad sold a machine and the purchaser or the operator of the machine decided the purpose for which the machine should from time to time be used. The machine was capable of being used for lawful or unlawful purposes. All recording machines and many other machines are capable of being used for unlawful purposes but manufacturers and retailers are not joint infringers if purchasers choose to break the law. Since Amstrad did not make or authorise other persons to make a record embodying a recording in which copyright subsisted, Amstrad did not entrench upon the exclusive rights granted by the Act of 1956 to copyright owners and Amstrad were not in breach of the duties imposed by the Act.
B.P.I. submit, however, that if the Act of 1956 is defective to protect them, they are entitled to the protection of the common law. As a foundation for this submission B.P.I. seek to elevate the quality of the rights granted by the Act. They point out that in section 17(1) of the Act the owner of copyright in any action for infringement is entitled to all such relief as is available in any corresponding proceedings in respect of infringements of other proprietary rights; that copyright is an example of intellectual property; and that in Macmillan & Co. Ltd. v. K. and J. Cooper (1923) L.R. 51 Ind.App. 109, Lord Atkinson said, at p. 118, that an infringer of copyright disobeyed the injunction “thou shalt not steal.” My Lords, these considerations cannot enhance the rights of owners of copyright or extend the ambit of infringement. The rights of B.P.I. are derived from statute and not from the Ten Commandments. Those rights are defined by Parliament, not by the clergy or the judiciary. The rights of B.P.I. conferred by the Act of 1956 are in no way superior or inferior to any other legal rights; if B.P.I. prove that upon the true construction of the Act Amstrad and Dixons have infringed the rights conferred on B.P.I. by the Act, the court will grant appropriate and effective reliefs and remedies. But the court will not invent additional rights or impose fresh burdens.
On behalf of B.P.I. it was submitted that even if Amstrad did not authorise infringement and were not themselves infringers, nevertheless the activities of Amstrad in the sale and advertisement of Amstrad’s models constitute a common law tort. The suggested torts were three in number, namely, incitement to commit a tort, incitement to commit a criminal offence and negligence.
B.P.I. base their submission on incitement on a passage in Lumley v. Gye (1853) 2 E. & B. 216, where Erle J. said, at p. 232:
“It is clear that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong, as in violation of a right to property, whether real or personal, or to personal security: he who procures the wrong is a joint wrongdoer, and may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of.”
In Lumley v. Gye an opera singer and the defendant theatre owner were joint wrongdoers. They had a common design that the opera singer should break her contract with the plaintiff theatre owner, refuse to sing in the plaintiff’s theatre and instead sing in the defendant’s theatre. The plaintiff’s cause of action against the opera singer lay in contract, and the plaintiff’s cause of action against the defendant lay in tort. But both the opera singer and the defendant were joint wrongdoers participating in an unlawful common design.
B.P.I. referred to Belegging-en Exploitatiemaatschappij Lavender B.V. v. Witten Industrial Diamonds Ltd., where Buckley L.J. said at p. 66:
“The plaintiffs do not only assert infringement by the defendants. They also say that the defendants have procured, counselled and/or aided other persons to infringe. This may perhaps amount to an allegation of indirect infringement by the defendants themselves, but I am inclined to think that it is a claim in respect of a distinct, suggested tort of procuring infringement by others (based upon the principle enunciated by Erle J. in Lumley v. Gye, 2 E. & B. 216, 231)
My Lords, I accept that a defendant who procures a breach of copyright is liable jointly and severally with the infringer for the damages suffered by the plaintiff as a result of the infringement. The defendant is a joint infringer; he intends and procures and shares a common design that infringement shall take place. A defendant may procure an infringement by inducement, incitement or persuasion. But in the present case Amstrad do not procure infringement by offering for sale a machine which may be used for lawful or unlawful copying and they do not procure infringement by advertising the attractions of their machine to any purchaser who may decide to copy unlawfully. Amstrad are not concerned to procure and cannot procure unlawful copying. The purchaser will not make unlawful copies because he has been induced or incited or persuaded to do so by Amstrad.The purchaser will make unlawful copies for his own use because he chooses to do so. Amstrad’s advertisements may persuade the purchaser to buy an Amstrad machine but will not influence the purchaser’s later decision to infringe copyright. Buckley L.J. observed in Belegging-en Exploitatiemaatschappij Lavender B.V. v. Witten Industrial Diamonds Ltd., at p.65, that “facilitating the doing of an act is obviously different from procuring the doing of an act.” Sales and advertisements to the public generally of a machine which may be used for lawful or unlawful purposes, including infringement of copyright, cannot be said to “procure” all breaches of copyright thereafter by members of the public who use the machine. Generally speaking, inducement, incitement or persuasion to infringe must be by a defendant to an individual infringer and must indentifiably procure a particular infringement in order to make the defendant liable as a joint infringer.
The next tort suggested by B.P.I. was incitement to commit a criminal offence. In Invicta Plastics Ltd. v. Clare [1976] R.T.R. 251, the defendant company manufactured, advertised and sold a device to give warning of police radar speed traps. The device necessarily involved the unlawful use of apparatus for wireless telegraphy without a licence which would never have been granted. The defendants were convicted of incitement. In the present case it is submitted that Amstrad by the sale and advertisement of their models committed the tort of inciting the purchasers to commit a criminal offence. By section 21(3) of the Act of 1956 it is an offence for any person to have in his possession a “plate” knowing that it is to be used for making infringing copies. By section 18(3) “plate” includes any stereotype, stone, block, mould, matrix, transfer negative or other appliance. It is said that when a purchaser of an Amstrad model has in his possession a record in which copyright subsists that record becomes a “plate” and the purchaser commits an offence under section 21(3) as soon as he forms the intention of copying that record.
There are two answers to this submission. First, as a matter of construction a record is not a plate but the product of the master recording which is a plate and from which the record is derived. Secondly, it is a mistake to compare crime and tort. If three persons are incited by a fourth to break into a house and cause damage each will be guilty of a crime and will receive separate punishment. The inciter will be guilty of the criminal offence of inciting others to commit crime. The other three will be guilty of the crime of breaking in. If the damage caused amounts to £5,000 then in a civil action the three who caused the damage will be jointly and severally liable for £5,000 and no more. The inciter will also be jointly and severally liable for the damage if he procures the commission of the tort and is a joint tortfeasor.
Finally B.P.I. submit that Amstrad committed the tort of negligence, that Amstrad owes to all owners of copyright a duty to take care not to cause or permit purchasers to infringe copyright or alternatively that Amstrad owes a duty to take care not to facilitate by the sale of their models or by their advertisement the infringement of copyright. My Lords, it is always easy to draft a proposition which is tailor-made to produce the desired result. Since Anns v. Merton London Borough Council [1978] AC 728 put the floodgates on the jar, a fashionable plaintiff alleges negligence. The pleading assumes that we are all neighbours now, Pharisees and Samaritans alike, that forseeability is a reflection of hindsight and that for every mischance in an accident-prone world someone solvent must be liable in damages. In Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210 the plaintiffs were the authors of their own misfortune but sought to make the local authority liable for the consequences. In Yuen Kun-Yeu v. Attorney-General of Hong Kong [1987] 3 W.L.R. 776 the plaintiff chose to invest in a deposit-taking company which went into liquidation; the plaintiff sought to recover his deposit from the commissioner charged with the public duty of registering deposit-taking companies. In Rowling v. Takaro Properties Ltd. [1988] 1 All E.R. 163 a claim for damages in negligence was made against a minister of the Crown for declining in good faith to exercise in favour of the plaintiff a statutory discretion vested in the minister in the public interest. In Hill v. Chief Constable of West Yorkshire [1987] 2 W.L.R. 1126 damages against a police force were sought on behalf of the victim of a criminal In the present proceedings damages and an injunction for negligence are sought against Amstrad for a breach of statutory duty which Amstrad did not commit and in which Amstrad did not participate. The rights of B.P.I are to be found in the Act of 1956 and nowhere else. Under and by virtue of that Act Amstrad owed a duty not to infringe copyright and not to authorise an infringement of copyright. They did not owe a duty to prevent or discourage or warn against infringement.
B.P.I. complain and the Court of Appeal agreed that the law is in an unsatisfactory state, as indeed it is. The present position is infuriating from the point of view of B.P.I. because they conceive that if the use of 50 million blank tapes could be prevented, there would be a sale of roughly 30 million more records. This may not be so. If the home copier were denied recording machines or blank tapes he would not necessarily wish to buy or might not be able to afford to buy a popular record which in the space of a month might only remain a permanent reminder of a transient attraction. It is possible that if the public could not obtain recording machines or blank tapes enthusiasm for records would decline and be replaced by other enthusiasms. For present purposes however, it must be assumed that the profits of the recording industry would be greatly increased if the home copying of records involving breach of copyright could be prevented or if home copiers were required to pay, directly or indirectly, a licence fee for copying.
From the point of view of society the present position is lamentable. Millions of breaches of the law must be committed by home copiers every year. Some home copiers may break the law in ignorance, despite extensive publicity and warning notices on records, tapes and films. Some home copiers may break the law because they estimate that the chances of detection are nonexistent. Some home copiers may consider that the entertainment and recording industry already exhibit all the characteristics of undesirable monopoly – lavish expenses, extravagant earnings and exorbitant profits – and that the blank tape is the only restraint on further increases in the prices of records. Whatever the reason for home copying, the beat of Sergeant Pepper and the soaring sounds of the Miserere from unlawful copies are more powerful than law-abiding instincts or twinges of conscience. A law which is treated with such contempt should be amended or repealed
In these proceedings the court is being asked to forbid the sale to the public of all or some selected types of tape recorder or to ensure that advertisements for tape recorders shall be censored by the court on behalf of copyright owners. The court has no power to make such orders and judges are not qualified to decide whether a restraint should be placed on the manufacture of electronic equipment or on the contents of advertising. No one is to blame for the present situation. Copyright law could not envisage and now cannot cope with mass-production techniques and inventions which create a vast market for the works of a copyright owner but also provide opportunities for his rights to be infringed. Parliament could place limitations on the manufacture or sale of certain types of tape recorder and could prescribe notices and warnings to be included in advertisements. Parliament might take the view that any such restraints and prescriptions would constitute an unwarrantable interference with the development of the electronic industry and be ineffective.
Parliament could legalise home copying just as the copying of sound broadcasts was expressly authorised for “private purposes.” The Whitford Committee appointed to consider the Law on Copyright and Designs reported in March 1977 (Cmnd. 6732) and made a number of important comments and recommendations. Some of those comments and recommendations illustrate the grievances of the recording industry, the impossibility of coping with home copying and the uselessness and unfairness of singling out double-speed twin-tape recorders or any other type of recorder for condemnation. The Whitford Report included the following paragraphs:
“292. It is generally accepted that the use of tape recording equipment, particularly in the home, is resulting in the wide-spread infringement of rights in musical and other works, as well as in sound recordings …. the practical problems of policing acts of infringement which take place in private render it impossible for copyright owners to exercise their rights.
“293. . . . Whereas in the 1940s and early 1950s tape recording was little used outside professional circles, advances in technology have made the tape recorder almost standard equipment in the home and in schools. . . .
“294. [A survey in 1975] showed that 45 per cent, of homes have access to a recording facility and that 20 per cent. of persons over 16 have used recording equipment at some time or other to record from commercial records or tapes. [A sample survey in 1972] showed that . . . two-thirds of the persons recording took recordings off radio at least occasionally, and over half copied borrowed recordings.”
“301. The German Copyright Act of 1965 imposed a levy on a wide range of recording equipment in return for a blanket licence to make recording in single copies for personal use.”
“308. The possibility of imposing a levy on blank tape, either as an alternative to or as an addition to a levy on equipment, was considered by a number of bodies and almost universally rejected as being unsatisfactory. Although in theory such a levy should reflect, more accurately, actual usage for recording, it would involve a much larger operation and, in view of the smaller values of tapes compared with equipment and the fact that tape can be re-used, might be less productive of revenue.”
“322. It is our view that, for private recording, the only satisfactory solution is the introduction of a levy on the sale price of recording equipment. A major problem in the case of private recording, which no other system seems able to overcome, is that of policing; we feel the levy approach will effectively meet this difficulty. . . .”
Since 1977 when the Whitford Committee reported, a levy on blank tapes has met with more favourable consideration. In face of the difficulties inherent in the problem generated by the mass-production of electronic equipment capable of infringing copyright Parliament has not yet determined on any course of action. These proceedings will have served a useful purpose if they remind Parliament of the grievances of the recording companies and other owners of copyright and if at the same time they draw the attention of Parliament to the fact that home copying cannot be prevented, is widely practised and brings the law into disrepute. As the law now stands I would dismiss the appeal of B.P.I.
LORD GRIFFITHS
My Lords,
I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Templeman. I agree with it, and for the reasons stated by him would dismiss the appeal
LORD OLIVER OF AYLMERTON
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Templeman. I agree with it and would dismiss the appeal for the reasons which he has given.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Templeman. I agree with it, and for the reasons stated by him would dismiss the appeal
EMI Records & Ors -v- Eircom Ltd
[2010] IEHC 108 [2010] 4 IR 349JUDGMENT of Mr. Justice Charleton delivered on 16th April, 2010
1. A settlement has been effected in the litigation between the parties. Its purpose is to diminish the theft of copyright material over the internet. The infringers are to have their service cut off. This judgment concerns the compatibility of what the parties have agreed in relation to data protection legislation. The substance of the original case concerned the stealing of copyright-protected sound and video recordings over the internet, mainly by peer-to-peer sharing groups. Eircom Limited, the defendant, is an internet service provider and some of their customers, among others, engage is this activity. Nothing suggests any willing infringement of copyright by Eircom, or that they were in any way a party to copyright theft. That, however, does not mean that an injunction cannot justly and conveniently be granted against a conduit for copyright infringement; a point to which I will return. The plaintiffs are big players in the music and film industry. They represent sound recording and motion picture artists who have assigned their copyright in new original creative work to them in exchange for financial backing, promotion and the protection of a commercial organisation to further their interests. Remuneration for that kind of work is shrinking by reason of copyright theft over the internet. I will describe the process shortly.
2. Since the parties in this case resolved their differences, after eight days of evidence, it was not necessary for the Court to make an order. On 28th January, 2009, terms of settlement were set down in writing and filed in court. The implementation of that settlement raises issues under the Data Protection Acts 1988 and 2003 and, in consequence, the terms agreed must be scrutinised by the Court to analyse its compliance with that legislation. Because a large amount of computerised data was involved, one of the parties communicated with the Data Protection Commissioner to seek his advice. He, in turn, raised three issues as to why the settlement might be doubted to conform with the legislation as to the manner of its implementation. By order of Kelly J. made in the Commercial Court motion list, and dated 18th January 2010, I am asked to rule on these issues. Hence, this judgment is given after argument by the parties to the main case. The Data Protection Commissioner did not appear because of a concern over indemnity as to his costs. I will shortly recite each issue and my conclusion thereon but, firstly, I need to refer to some background.
Background
3. The problem faced by the plaintiffs is extremely serious. Many talented artists have assigned copyright in their musical and cinematic work to them. In common with many other occupations, those working in the music and film industry may be at the very top of the earnings ladder or at the bottom without even a foot on the first rung. Most will be somewhere in between. It is of no interest to me as to whether people hold views that the music and film industry either over-rewards or unfairly-exploits its artists. Copyright is a universal entitlement to be identified with and to sell, and therefore to enjoy, the fruits of creative work. It applies to everyone who manages to produce anything copyrightable from a song, to a telephone directory, to a symphony, to a film. Were copyright not to exist, then the efforts of an artist could be both stolen and passed off as the talent of another. Were the artist not entitled to exploit her or his creation by preventing others from copying it without permission, usually for a fee, then the fruits of moments of inspiration worked out through weeks of endeavour and representing, sometimes, the distillation of some fundamental experience of life, would bring no reward, perhaps not even applause. Even if an artist won acclaim, it alone would not keep body and soul together. Examples of what can occur where copyright protection is absent used to be found as notorious examples of unfairness in history rather than as a contemporary situation that has developed because of the abuse of the internet. When Jan Sibelius, a Finn, penned his Valse Triste, Finland was part of the Russian Empire, not a party to the copyright convention, and the great composer received nothing for what was then his most popular work. The three early ballets of Igor Stravinsky, a Russian, suffered the same fate; though on moving to the West, the composer re-orchestrated them and republished them gaining copyright but only in that form. No reasonable person doubts the injustice of that situation. The law does not doubt it either.
4. When the internet gained wide currency in the 1990s many of its adages began to believe that a new form of reality had been created. Some felt that it should be subject to no rules since, as it was not based in a particular country, but as its name implies is a world-wide web of communication, unlike the previous means of communication through the post, by telephone, through television or through films, it seemed to be impossible to subject to local regulation. That is not so. Nor should it be. In common with other aspects of life, the internet has both a positive and a dark side. On the positive side, its aids free communication; it opens up avenues of knowledge so that it has become a centre of learning in itself; it furthers public debate; and has established the swiftest and most far reaching form of communication that humanity has known. It is, on the other hand, also thickly populated by fraudsters, pornographers of the worst kind and cranks.
5. The internet is only a means of communication. It has not rewritten the legal rules of each nation through which it passes. It is not an amorphous extraterrestrial body with an entitlement to norms that run counter to the fundamental principles of human rights. Since the early days of the internet, and increasingly as time has gone on, copyright material has been placed on the World Wide Web by those with no entitlement to share it. There, it is downloaded by those who would normally have expected to pay for it. Among younger people, so much has the habit grown of downloading copyright material from the internet that a claim of entitlement seems to have arisen to have what is not theirs for free.
6. How is this done? The internet consists of millions of connected computers with linkages established by many thousands of internet service providers operating very large computers. The defendant Eircom is one of these. Normally, an internet service provider could not be expected to control the contents of what flows over the communications channel between its customers, who pay them for internet service, and others on its network, or elsewhere on the World Wide Web. Before this case, Eircom did not monitor its customers. It provides a service and lets the customer proceed with enjoying the benefits of that. This freedom does not exempt the customer from criminal or civil liability. There is nothing in the criminal or civil law which legalises that which is otherwise illegal simply because the transaction takes place over the internet. Child pornography, for instance, remains child pornography whether sent by post or digitally transmitted.
7. Those who wish to obtain, or to share, copyright material which belongs to others, without acknowledgement of their rights and without payment, frequently join a peer-to-peer network. This may consist of a swarm of thousands of computers which are all on line at any one time and connected through internet service providers. To obtain the relevant software for downloading complex material in musical or cinematographic form, an internet user can go to an illegal site. Legal downloading of free material is also becoming increasingly popular on sites hosted by, for instance, national radio and television broadcasters. Many television and radio networks store material for legally downloading for free from their television or radio archives, or for listening or seeing again, using an ‘i-Player’ system, or something similar. This can be accessed on their websites, and links to the relevant software as a free service are often provided. The software for peer-to-peer illegal downloading, on the other hand, is obtained from such sites as Pirate Bay. That is only an example. As I understand the evidence that I heard, internet sites like that one supply two basic things. Firstly, they will allow downloading of the relevant software for peer-to-peer illegal file participation. Secondly, those so inclined can learn from such sites what swarms of active computers contain the material that they want to filch. Then, a person so inclined will open up a new file on their computer with the relevant newly-downloaded software. This enables a peer-to-peer download. It also makes each downloading participant an uploading participant whereby others in an active swarm will load from each other participant. This happens because of the peer-to-peer software and it happens whether a participant wants it to happen or not. Whatever is within the peer-to-peer file that is necessary for illegal downloading on a computer will be copied as a participant downloads and will be sent over the internet, through the internet service provider, and into, and from, the participant’s computer. This is a complex activity and used to be very slow. Using high speed broadband quickens the process. That which used to take hours can sometimes now be completed in minutes. As to a song or a video, it does not all come from, nor is it all taken from, the same participant. Again, reviewing the evidence that I heard in this case, it seems to operate like this: each digital encoding of a musical or cinematographic work is split up into miniature files. These may last a couple of seconds in real time when played. They, as well as being in digital language, have a beginning and an end code in digital format. Since internet technology is partly about the shortest route of communication, the peer-to-peer software enables the illegal downloader to obtain a few seconds here, there and elsewhere from participating swarms. The overall file of the work will be identifiable in the beginning and end codes and within the intermediate codes. These will arrive randomly, a bit like a computer image building up on the screen, and be put together by the computer software docking the beginning and end codes of each of the few seconds into a complete and chronologically correct entity. While a participant is downloading this material, each participant’s own computer engages with the swarm so that every music song or video in the relevant file of each individual computer becomes available to thousands of other users around the world. They will mutually download, and so illegally share material, in the same way.
8. In general, no one will come knocking on the door of any of these people. Up to the terms of settlement agreed between the parties in this case, moreover, no internet service provider had apparently agreed to attempt to tackle this copyright-repugnant situation of their own volition. From the point of view of the participants, everyone seemed to win; except for the creators of original copyright material who were, and are, utterly disregarded. It is only common sense that this attraction of free, but illegal, downloading of the latest songs and videos made the sale of internet access attractive. Those who wished to filch the copyright material of others had to provide others with material to be filched from them. The more the participants, it seems, the easier the internet route. The only downside to participation, mentioned in the course of the hearing, is that the mischievous side of the human personality, containing a repulsive aspect as well as an attractive and humorous one, has also come to the fore over the internet. Using these networks exposes participants in the swarms to severe computer-crippling viruses.
The Settlement
9. Because this process takes place over the internet in generally unencoded form, software has been developed to detect illegal downloaders. One such was referred to in evidence as DtecNet. This is one of the current technology market leaders, but if encoding of illegal sharing of copyright material increases – it is now in its infancy – technology for detection will have to forge ahead also. Companies operating this or similar services are hired by the plaintiffs. Under the terms of the settlement, these companies tell the plaintiffs that a particular computer has been involved in illegal file sharing of its copyright material. This information is passed by one of the plaintiffs to the defendant Eircom, as the internet service provider. It then informs its subscribers that they have been detected infringing copyright. If there is a second occasion of illegal downloading, Eircom is obliged, when so informed, under the settlement to write to the subscriber warning them that unless that sort of infringement ceases, they will be disconnected from general internet service. This disconnection does not apply to any telephone or television service that a subscriber gets over their internet facility. On a third infringement, that discontinuance is implemented by Eircom: the subscriber is taken off service except for phone or television internet access. This is a serious sanction. Some would argue that it is an imposition on human freedom. There is no freedom, however, to break the law. Further, while it is convenient to have internet access at home, most people in Ireland have only to walk down to their local town centre to gain access for around €1.50 an hour. The parties also agreed, under the settlement, to negotiate a protocol setting out the details of the precise procedure for implementing this settlement.
10. Since it was likely to be deeply unfair that only Eircom with about 40% of the market share, as the defendant in these proceedings, should bear the burden of this settlement, thus activating the winds of market forces to drive customers towards Eircom’s competitors, the plaintiffs agreed to initiate similar proceedings against other internet service providers in the State. This, I understand, has been done. That case is in the Commercial Court list for hearing on 10th June, 2010. In addition, Eircom agreed not to oppose an application by the plaintiffs to injunct the Pirate Bay site. I have already given judgment on this ex tempore, closing down access to that site through Eircom; see EMI v. Eircom, SIZE=2 FACE=”Verdana”> [2009] IEHC 411, (Unreported, High Court, Charleton J., 24 July, 2010).
The Protocol
11. The settlement was always going to be difficult to implement precisely. The parties agreed, as part of it, to negotiate a protocol governing their respective sides of the bargain. I wish to refer to the main points. There has to be an education and awareness campaign by Eircom, directed at its internet customers, about the abuse of peer-to-peer software, securing broadband installation in the home and how signs of copyright infringement might be detected by the main householder. A lot of this seems predicated as likely to happen at teenager or slightly older level. The implementation of the settlement was to be phased in by a three month pilot programme; because this was the only way the parties could see how things were working and to analyse how practical their measures might be proved to be. There were to be exceptions to the ultimate sanction. Some people might be depending on their broadband internet access for medical services and others for their livelihood. Where an infringement took place within a business, but contrary to the internet use policy within the organisation, communication by way of admonition might replace the ultimate measure of shutdown. Other categories of exception might grow over time. In terms of privacy, there are two provisions which are relevant to the data protection legislation to which I shall shortly turn. Under para. 2.10 of the protocol, where an exception to shut down after a third infringement occurs in the manner provided for, Eircomwill only communicate with the relevant plaintiff to the effect that “this IP address does not fall with the terms of the protocol”. Under para. 2.3, notification by one of the plaintiffs to the defendant that there has been an illegal downloading of their copyright material consists of details of the copyright holder (which could be, for example, a particular songwriter); that a breach of copyright has occurred; details of the relevant album or song or video; the IP address that has been detected in infringing copyright; and other details that show proper investigation, namely, the relevant software used and the digital fingerprint of the copyright material used.
12. Then one moves on to the three infringement levels under the protocol. Nothing in these provisions changes one basic fact. Neither DtecNet, or any similar service of detection, nor any of the plaintiffs whose copyright material is being infringed would ever know through this process that the infringer is a particular person living in a particular place in Ireland. What they do know is that a particular IP address has been involved in the downloading. An IP address is the number given to a computer from an internet service provider when it receives internet access. The IP number electronically identifies the user of the internet. Banks of numbers for IP addresses are produced by an international organisation and these, in turn, are provided to internet service providers. One can find out by looking at the IP number, I understand, who the internet service provider is. What internet service provider is given what bank of thousands or millions of IP numbers is not kept a secret anywhere. Since each internet service provider will have, in turn, many thousands of customers, one is not moving much closer to finding out the identity of an internet abuser by knowing the copyright infringing IP address was assigned to that company. That number will probably give you no more than an indication of the domicile of the computer. Further, I am convinced, on the basis of the affidavit evidence before me, that the plaintiffs have no interest at all in using this process to find out who the copyright infringers are. Rather, what they are interested in is having the protocol work so that the plague of copyright infringement may be undermined.
13. On the first infringement, the bill payer at the IP address will be told with their bill that an infringement was detected at such and such a time in respect of a particular song, or whatever it is, that is subject to copyright. This enables them to reflect on their conduct or to communicate with the rest of their household. On a second infringement, a formal letter is received by the customer from Eircom. This is to the same effect, but it will presumably be couched in stronger terms than the warning with the bill. The customer can only go to level 2 after fourteen days have passed since the first infringement. As I understand it, these communications may also contain information concerning how to keep one’s computer secure from, for instance, the person next door and other continuing education tips. When a third infringement notification is received by Eircom from one of the plaintiffs, after a further fourteen days, Eircom must then review all the evidence. This is done on a human basis; the first two levels operating automatically. A termination notice is then issued to the customer giving fourteen days before cut-off. The customer is then entitled to make representations to Eircom, as the internet service provider, over the telephone or through the internet. The user’s representation is considered by Eircom, not in consultation with the plaintiffs, under para. 2.8 of the protocol. Private matters involving extenuating circumstances, so as to call into play one of the exceptions, or material whereby it is claimed as a matter of fact that the infringement has not taken place at all, must be considered by Eircom. Then, if that does not cause the consequences of the protocol to be diverted or postponed, the customer is cut-off from internet service.
The Eircom Subscriber Contract
14. Eircom provides internet service to its customers based on a written contract. This document is very strong in the pact which a customer makes with Eircom not to use the internet for illegal purposes. Under clause 2.1 of the agreement, the customer agrees to avail of the facility of internet service subject to the terms and conditions set out in the written document. Among the matters which the customer has to agree to is not to use the facility to create, to host, or to transmit obscene or racist material; clause 5.3. The customer must agree not to use the facility of internet access to infringe the propriety rights of any software; clause 5.6. Under clause 5.10, the customer agrees that the internet service can only be used in accordance with the acceptable usage policy posted in clear terms on www.eircom.net. This site displays a clause very similar to clause 5.5 of the contract which, because of its importance to the issues which follow, I should now quote:-
“Customers may not use the facility to create, host or transmit material which infringes the intellectual property rights including, but not limited to, the copyright of another person or organisation”.
15. Clause 7.1 provides that the agreement may be suspended or terminated by Eircom for breach of its terms. It is important to recall that it is one of the basic functions of the courts under the Constitution to give effect to lawful agreements.
The Issues Raised
16. By letter dated 4th December, 2009, the Data Protection Commissioner wrote to the solicitor for the plaintiffs raising a number of concerns as to the lawfulness of the settlement terms. These were later, on the 15th January, 2010, encapsulated by Philip Lee, solicitor, in a precise form for which the Court is grateful. These are the three issues:-
“1. Do data comprising IP addresses, in the hands of EMI or its agent(s), and taking account of the purpose for which they are collected and their intended provision to Eircom,constitute “personal data” for the purposes of the Data Protection Acts, 1988-2003, thereby requiring that the collection of such IP addresses by EMI or its agents must comply with the specific requirements of each of section 2, 2A|, 2B, 2C and 2D of the Data Protection Act, 1988 as amended?
2. Having regard to section 2A(1) of the Data Protection Act 1988 as amended, and assuming for current purposes that the processing by Eircom of “personal data” in the context of the third of three steps envisaged by the graduated response scheme proposed under the terms of this settlement, (i.e. the termination of an internet user’s subscription) is “necessary for the purposes of the legitimate interests pursued by [Eircom]”, does much processing represent “unwarranted [processing] by reasons of prejudice to the fundamental rights and freedoms or legitimate interests of the data subject”?
3. Having regard to section 2A(1) and 2B(1) of the Data Protection Act 1988 as amended, is it open to EMI and/or Eircom to implement the graduated response process set out in the terms of the settlement including, in particular, the termination of an internet user’s subscription under step 3 of that process, in circumstances where:-
(a) In doing so they would be engaged in the processing of personal data and/or sensitive personal data (in so far as the data can be considered to relate to the commission of a criminal offence), including the provision of such data from one private entity to another private entity; and
(b) The termination of an internet user’s subscription by Eircom would be predicated on the internet user in question having committed an offence (i.e. the uploading of copyright-protected material to a third party by means of a peer-to-peer application) but without any such offence having been the subject of investigation by an authorised body; and, further, without any determination having been made by a court of competent jurisdiction, following the conduct of a fair and impartial hearing, to the effect that an offence had in fact been committed.”
17. I now propose to address each of these issues in turn and to rule on same.
Issue 1
18. Here, for the sake of clarity, is issue 1 again:
“Do data comprising IP addresses, in the hands of EMI or its agent(s), and taking account of the purpose for which they are collected and their intended provision to Eircom,constitute “personal data” for the purposes of the Data Protection Acts, 1988-2003, thereby requiring that the collection of such IP addresses by EMI or its agents must comply with the specific requirements of each of section 2, 2A|, 2B, 2C and 2D of the Data Protection Act, 1988 as amended?”
19. Personal data is defined by s. 1 of the Data Protection Act 1988, as amended by the Data Protection (Amendment) Act 2003, as:-
“Data relating to a living individual who is or can be identified either from the data or from the data in conjunction with other information that is in, or is likely to come into, the possession of the data controller.”
20. Under the same section of the Act, the data controller is defined as meaning a person who, either alone or with others, controls the contents and use of personal data. What is involved in the first, second and third step of the protocol is the scanning by either the plaintiff personally, or more likely through computer agencies hired in that regard, of the entire internet network to see whether any infringement of copyright material is taking place. Attention is likely to be focused in Ireland for these purposes. Using software such as DtecNet, their efforts will gain two basic pieces of information. Personalising DtecNet, for the moment, it, as a computer programme is only interested in the copyright material of the plaintiffs, or one or other of them. Continually scanning and rescanning internet communications, it finds the material being transmitted in various directions from peer-to-peer, or similar, swarms and, in effect, follows the communication down the line until it ends up in a particular computer and takes note of its IP number. In the course of the case, I heard that some computer firms are also developing automatic systems to cut copyright infringing communications prior to completion; but that is not relevant here. In some way, perhaps because the signal runs two ways, at least after the first illegal download, DtecNet and similar systems are able to find out the IP address and what infringement of copyright material has taken place. This is the material that is then collected in blocks and delivered to one or other of the plaintiffs. As I have previously indicated by reference to the protocol, none of this material gives any clue as to the name of the main householder, or business, or café in which the computer is situated or whether it is in An Gorta Choirce in County Donegal or in Ranelagh in Dublin.
21. I need to refer here to what processing means under the Act, as amended. This is set out thus in s. 1, the definition section:-
“Processing, of or in relation to information or data, means performing any operation or set of operations on the information or data, whether or not by automatic means, including –
(a) obtaining, recording or keeping the information or data,
(b) collecting, organising, storing, altering or adapting the information or data,
(c) retrieving, consulting or using the information or data,
(d) disclosing the information or data by transmitting, disseminating or otherwise making it available, or
(e) aligning, combining, blocking, erasing or destroying the information or data;”
22. An Act should never be split up into its constituent pieces and then analysed as if each were disconnected from the broader purpose that constitutes the legislation. Insight is often gained as to the meaning of a particular section, or indeed a definition, by showing how it is used in conjunction with other sections, or by analysing how the same concept is dealt with elsewhere. The definition of disclosure in s. 1 of the Act assists in this regard. That definition states:
“Disclosure, in relation to personal data, includes the disclosure of information extracted from such data and the transfer of such data but does not include a disclosure made directly or indirectly by a data controller or a data processor to an employee or agent of his for the purpose of enabling the employee or agent to carry out his duties; and, where the identification of a data subject depends partly on the data and partly on other information in the possession of the data controller, the data shall not be regarded as disclosed unless the other information is also disclosed”.
23. I do not accept fully the dictum of McMullin J. in Transport Ministry v. Simmonds, [1973] 1 NZLR 359 at 363 as to what the word “likely” means when used within a statute. To be personal data, under the Act, the information has to identify a living individual from the data or from data in conjunction with other information in the possession of the data controller, or from other information that is likely to come into the possession of the data controller. McMullin J. says that the word likely can be used in many contexts and that its meaning has to depend upon the particular context of the statute or regulation. That is hard to disagree with. He refers to an event which is likely in terms that it “may be an event which is probable but it may also be an event which, while not probable, could well happen”. In addressing juries, judges in this jurisdiction refer to the civil standard of proof as being that a fact is shown to be more likely than not; in other words, more probable than not. In referring to a sporting fixture, the pundits will say that one team, rather than another, is the likely winner. Where a group of teams is involved, the most likely winner may be identified and, in that context, the word may be used to mean something other than probable. If likely does not mean probable in a particular context, it at least means something akin to probable. I agree with McMullin J. that the word “likely” has no relevance to any concept such as a bare possibility, and I am rather inclined to believe that in most, if not all, statutory contexts that likely means probable; no more or less than that.
24. The previous approach of the plaintiffs to the problem which I have described was to apply for what are now called Norwich Pharmacal orders; named after the House of Lords decision in Norwich Pharmacal v. Customs and Excise [1974] AC 133. That order involves an application against an innocent party, such as Eircom, to disclose information because a civil wrong is being, or was being, perpetrated against the plaintiff and because the defendant, though not a party to the wrong, can identify the tortfeasor. In EMI Records v. Eircom Limited [2005] 4 IR 148 Kelly J. made such an order against the defendants in the context of the activity that I have described earlier in this judgment. The plaintiffs were then exploring obtaining information by court order in civil proceedings as to who was infringing copyright over the internet and then following up on that by further legal action. I do not regard it as relevant whether that further action might be criminal or civil. The purpose of this settlement is different. Kelly J. made an order that Eircom should disclose the names of its infringing customers, the plaintiffs having first supplied a tranche of IP addresses together with evidence of copyright infringement. That order was made on the basis that there had been a demonstration of wrongful activity by unknown persons who were internet subscribers of Eircom whereby copyright assigned to the plaintiff was being infringed. The stated purpose of such an order was to enable the plaintiff to then directly take action against each such illegal downloader. Kelly J. considered in depth the issue as to whether the information required could be obtained elsewhere than from the defendant. The action in question is pointless, in terms of the practical application of litigation tools, and the Norwich Pharmacal order is not allowable as a matter of law, unless the only practical way of obtaining the identifying details is through the suit. Since the High Court has made such an order in the context of this problem, I regard it as beyond doubt that it was both necessary to make the order disclosing the tortfeasors and that the judgment conformed with the requirements of the procedure that is so clearly set out in the judgment of Kelly J. The difference between that order and this settlement, is that the plaintiffs have left behind what they reasonably regard as an expensive and futile pursuit of the identity of copyright tortfeasors in favour of injunctive relief that has been expressed in the settlement of this case as a protocol to choke off the problem in a three stage process that never involves the identification of any wrongdoer.
25. In consequence, I conclude, that none of the plaintiffs have any interest in personally identifying any living person who is infringing their copyright by means of the settlement and protocol. I do not regard it as at all likely that they will attempt in any way to use the IP address as supplied to them by DtecNet of those engaged in illegal downloading in order to find out their names and addresses. Further, since, on the affidavit evidence before me, the plaintiffs had previously engaged in expensive litigation against Eircom in order to find out who they were, there seems no legal avenue open to them to get that information apart from an application for the names and addresses of the copyright thieves to the internet service provider. It is proved to me to be close to impossible that they could have recovered them by any easier or less pricey means. Nor do any of the plaintiffs have any intention of engaging in any illegal activity. Rather, the entire purpose of this litigation is to uphold the law. The first question is therefore answered no.
Issue 2
26. The second issue raised by the Data Protection Commissioner questions whether the settlement furthers any legitimate interest pursued by Eircom and asserts a possible conflict with the fundamental rights and freedoms of the data subject. For the sake of clarity, I reproduce it again:
“Having regard to section 2A(1) of the Data Protection Act, 1988 as amended, and assuming for current purposes that the processing by Eircom of “personal data” in the context of the third of three steps envisaged by the graduated response scheme proposed under the terms of this settlement, (i.e. the termination of an internet user’s subscription) is “necessary for the purposes of the legitimate interests pursued by [Eircom]”, does much processing represent “unwarranted [processing] by reasons of prejudice to the fundamental rights and freedoms or legitimate interests of the data subject”?
27. I define this issue as involving, firstly, identifying if there is a necessity from the point of view of Eircom in entering into the settlement. Secondly, it is relevant whether there is any right to steal somebody else’s copyright material. Thirdly, and in the context of the first two questions, it is relevant to ask if the protocol involves any interference with any fundamental right or freedom involving internet service. If so, I must consider any intervention on the basis that the interference should be proportional and justified. This involves, in this context, looking at what is protected; how important that right is; what level of threat is directed at that right; and what level of participation may be legitimately inferred against the data subject. Since this question is responsibly based by the Data Protection Commissioner on s. 2A of the Act as amended I need to quote that in full:
“2A(1) Personal data shall not be processed by a data controller unless section 2 of this Act (as amended by the Act of 2003) is complied with by the data controller and at least one of the following conditions is met:
(a) the data subject has given his or her consent to the processing or, if the data subject, by reason of his or her physical or mental incapacity or age, is or is likely to be unable to appreciate the nature and effect of such consent, it is given by a parent or guardian or a grandparent, uncle, aunt, brother or sister of the data subject and giving such consent is not prohibited by law,
(b) the processing is necessary –
(i) for the performance of a contract to which the data subject is a party.
(ii) in order to take steps at the request of the data subject prior to entering into a contract.
(iii) for compliance with a legal obligation to which the data controller is subject other than an obligation imposed by contract, or
(iv) to prevent –
(I) injury or other damage to the health of the data subject or
(II) serious loss or damage to property of the data subject,
or otherwise to protect his or her vital interests where the seeking of the consent of the data subject or another person referred to in paragraph (a) of this subsection is likely to result in those interests being damaged.
(c) the processing is necessary –
(i) for the administration of justice,
(ii) for the performance of a function conferred on a person by or under an enactment,
(iii) for the performance of a function of the Government or a Minister of the Government, or
(iv) for the performance of any other function of a public nature performed in the public interest by a person.
(d) the processing is necessary for the purposes of the legitimate interests pursued by the data controller or by a third party or parties to whom the data are disclosed, except where the processing is unwarranted in any particular case by reason of prejudice to the fundamental rights and freedoms or legitimate interests of the data subject”.
28. In dealing with this aspect of data protection entitlement, I feel I must return, for a moment, to some basic principles of law. There is fundamental right to copyright in Irish Law. This has existed as part of Irish legal tradition since the time of Saint Colmcille. He is often quoted in connection with the aphorism: le gach bó a buinín agus le gach leabhar a chóip (to each cow its calf and to every book its copy). I regard the right to be identified with and to reasonably exploit one’s own original creative endeavour as a human right. Apart from legal tradition, the rights now enshrined in the Copyright and Related Rights Act, 2000 were, under their previous legislative incarnation, identified in Phonographic Performance Ireland Limited v. Cody, [1998] 4 I.R. 504 by Keane J. at 511 as having a pre-legislative origin and super-legislative effectiveness as part of the unenumerated fundamental rights under the Constitution:-
“The right of the creator of a literary, dramatic, musical or artistic work not to have his or her creation stolen or plagiarised is a right of private property within the meaning of article 40.3.2° and Article 43.1 of the Constitution of Ireland, 1937, as is the similar right of a person who has employed his or her technical skills and/or capital in the sound recording of a musical work. As such, they can hardly be abolished in their entirety, although it was doubtless within the competence of the Oireachtas to regulate their exercise in the interests of the common good. In addition and even in the absence of any statutory machinery, it is the duty of the organs of the State, including the courts, to ensure, as best they may, that these rights are protected from unjust attack and, in the case of injustice done, vindicated.”
29. I regard that authority as both binding and sound. The courts under the Constitution are obliged to supply, even in the absence of legislative intervention, appropriate remedies for the undermining of rights within the scheme of fundamental law that the Constitution represents. As has often been said, the powers of the courts in that regard are as ample as the Constitution requires. I am, therefore, obliged by Constitutional imperative to protect, as best I can, the rights of copyright owners from unjust attack or, where that sort of attack has taken place, to vindicate their rights through an appropriate order. There is ample expression of statutory remedies in the laws passed by the Oireachtas under the Constitution. Section 37 of the Copyright and Related Rights Act 2000 provides that the owner of the copyright in work has the exclusive right to undertake or authorise others to make that work available to the public. This legal entitlement is being flagrantly violated by peer-to-peer illegal downloading. I can see no other way of looking at the problem. More than one of the conditions in s.2A of the Data Protection Act 1988 as amended is met as to both the legitimate interests of Eircom, as a responsible company, and that of the community in general. The most important of these interests is that of abiding by the law. It is completely within the legitimate standing of Eircom to act, and to be seen to act, as a body which upholds the law and the Constitution. That is what the court expects of both individuals and companies. That expectation is derived from the rights protected under the Constitution and the general pact which the people of Ireland mutually made in founding a legal system, as the Preamble to the Constitution clearly declares, that is dedicated to attaining true social order. The insertion of express conditions by Eircom in the user – internet service provider contract, as quoted above, against the use of the internet as a facility for transmitting obscene images and against the infringement of the copyright of others is a step taken in pursuance of a corporate policy that is no less than lawful and proper. It is abundantly clear that the data subject has given his or her consent in return for obtaining internet access. Under contract, if any of these conditions be breached, then their access can be terminated. It may be that internet access is available elsewhere from other internet service providers on lesser conditions. If that is so it is hard to see, however, how conditions of a contract can validly avoid the law. These, however, are the conditions that apply here. A contract for service, involving termination for breach as a consequence on the operation of a condition is present by consent. That is not all. Furthermore, such processing, involving sifting the data from the plaintiffs, warning Eircom customers and, ultimately, cutting them off, is necessary for both the performance of a contract and for compliance with a legal obligation cast upon the courts, among other organs of the State, to defend the Constitution and the laws of our society. No one in the community can escape the law, as to the obligations that it imposes or the rights that it declares. The means of infringement, or the ideology that may grow around a medium of infringement, are not germane. Otherwise, the law lacks legitimacy.
30. Even if only s. 2A(1)(b) of the Data Protection Act, as amended, was operative, it is legitimate for Eircom to have a corporate policy whereby the facilities that it hires out to the people of Ireland are used for lawful purposes only. Having that policy, they are entitled to pursue it by means of conditions in contract that incorporate an enforcement modality. The protocol is merely a more complex means to that end. I find it impossible to imagine that such interference is unwarranted because there is some fundamental right or freedom or legitimate interest in the data subject whereby, in contrast to those who engage in other forms of unlawful copyright theft which may leave them more readily subject to the law, the internet is used for the violation. There cannot be a right to infringe the constitutional rights of others, absent some argument as to a genuine and compelling competing right. In some instances, the purpose for which a right is asserted undermines its character as a right. There could not be, for instance, a constitutional right to privacy that extended to the organisation of a violent crime over the internet or by telephone. There is nothing disproportionate, and it is therefore not unwarranted, about cutting off internet access because of three infringements of copyright. The exceptions in the protocol, to which I have already referred in detail, provide for upholding relevant rights to medical care, to livelihood and to business use in appropriate circumstances. The protocol, at the relevant stage, is not inhumane or arbitrary. Rather, there is a right to make representations and these will, I am assured and I believe, be listened to if sensible and credible.
31. These are adequate procedural safeguards in the protocol and there is conformity, in addition, in my view, with article 1(b) of the European Parliament and Council Directive 2009/140/EC of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services O.J. L 337/37 18.12.2009, commonly called the framework Directive. At the moment there is no instrument making this effective in Irish law, but I have been referred to it as a matter of caution.
32. Lastly, I note the many Directives in European Law on the harmonisation of aspects of copyright and related rights. The Copyright and Related Rights Act 2000, as amended by the Copyright and Related Rights (Amendment) Act 2007 is a domestic Act, but it must be interpreted in accordance with Ireland’s obligations under European law. In part, some terms are derived from our European Union obligations. The relevant European law Directives were implemented piecemeal over many years and later Directives, at times, repeat the text of earlier ones. Two sections of the European Parliament and Council Directive 2001/29/EC of 22nd May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society O.J. L167/10 22.6.2001 are important. Firstly, recital 59 records:-
“In the digital environment, in particular, the services of intermediaries may increasingly be used by third parties for infringing activities. In many case such intermediaries are best placed to bring such infringing activities to an end. Therefore, without prejudice to any other sanctions and remedies available, rightholders should have the possibility of applying for an injunction against an intermediary who carries a third party’s infringement of a protected work or other subject matter in a network. This possibility should be available even where the acts carried out by the intermediary are exempted under Article 5. The conditions and modalities relating to such injunctions should be left to the national law of the Member States.”
33. And then there is Article 8.3 of the Directive:-
“Member States shall ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe a copyright or related right”.
34. In the Copyright and Related Rights Acts 2000, as amended, references to the right of the copyright holder in section 40 to make available to the public copies of a work are declared to include such acts as broadcasting the work, issuing copies of it or renting out copies; as in DVD libraries. Then, after establishing those legal entitlements in the holder of copyright, subs. 3 and 4 of that section go together and I quote them:-
“3. Subject to subsection 4, the provision of facilities for enabling the making available to the public of copies of a work shall not of itself constitute an act of making available to the public of copies of the work.
4. Without prejudice to subsection 3, where a person who provides facilities referred to in that subsection is notified by the owner of the copyright in the work concerned that those facilities are being used to infringe the copyright in that work and that person fails to remove that infringing material as soon as practicable, thereafter that person shall also be liable for the infringement.”
35. Injunctions are granted by the court where it “just and convenient”. That is the basis for all equitable relief formalised by the Supreme Court of Judicature (Ireland) Act 1875. I interpret the Copyright and Related Rights Act 2000 as extending to the making of an injunction against an innocent third party in order to block, in the appropriate way that is convenient as to the balance between the parties and that is just, as to their standing and conduct, the wholesale illegal destruction of the right to livelihood through creative effort which copyright, as a fundamental concept in law, is designed to defend and to vindicate. I make no comment on the protection of rights through injunctive relief where a primary actionable wrong in damages is not present; see Prince Albert v Strange (1849) 2 De & Sm 293 and, more recently, Douglas v Hello! [2002] 2 A.C. 457. The second question should therefore be answered no.
Issue 3
36. Central to this two-part third issue raised by the Data Protection Commissioner is whether the processing by Eircom, through warning and then on the third infringement, through cutting internet access, involves sensitive personal data. It admits of only one answer. I, again for clarity’s sake, requote the issue:
“Having regard to section 2A(1) and 2B(1) of the Data Protection Act 1988, as amended, is it open to EMI and/or Eircom to implement the graduated response process set out in the terms of the settlement including, in particular, the termination of an internet user’s subscription under step 3 of that process, in circumstances where:-
In doing so they would be engaged in the processing of personal data and/or sensitive personal data (in so far as the data can be considered to relate to the commission of a criminal offence), including the provision of such data from one private entity to another private entity; and
The termination of an internet user’s subscription by Eircom would be predicated on the internet user in question having committed an offence (i.e. the uploading of copyright-protected material to a third party by means of a peer-to-peer application) but without any such offence having been the subject of investigation by an authorised body; and, further, without any determination having been made by a court of competent jurisdiction, following the conduct of a fair and impartial hearing, to the effect that an offence had in fact been committed.”
37. In considering this issue, I recall that since the earliest days of entitlement to copyright as enshrined in legislation, it has been both part of the civil code of law and it has also involved the creation of a number of criminal offences. These criminal offences are now set out in s. 140 of the Copyright and Related Rights Act 2000. I need to quote this in part:-
“140(1) A person who, without the consent of the copyright owner
(a) makes for sale, rental or loan,
(b) sells, rents or lends, or offers or exposes for sale, rental or loan,
(c) imports into the State, otherwise than for his or her private and domestic use,
(d) in the course of a business, trade or profession, has in his or her possession, custody or control, or makes available to the public, or
(e) otherwise than in the course of a business, trade or profession, makes available to the public to such an extent as to prejudice the interests of the owner of the copyright,
a copy of a work which is, and which he or she knows or has reason to believe is, an infringing copy of the work, shall be guilty of an offence…
(7) A person guilty of an offence under subsection (1) … shall be liable-
(a) on summary conviction, to a fine not exceeding £1,500 in respect of each infringing copy, article or device, or to imprisonment for a term not exceeding 12 months, or both, or
(b) on conviction on indictment, to a fine not exceeding £100,000, or to imprisonment for a term not exceeding 5 years, or both”.
38. These are certainly criminal offences but they are not merely regulatory offences, the commission whereof may involve no element of mental culpability beyond doing the action outlawed. They are true criminal offences. They involve an external element of the infringement of copyright, in one of the modes provided for; an absence of any consent of the copyright owner; and a mental element of knowing or having reason to believe that one is dealing with an infringing copy of the work: in other words knowledge or recklessness. I am satisfied that neither the plaintiffs as owners or assignees of valuable copyright, nor Eircom as the internet service provider, are in any way interested in the detection or prosecution of criminal offences. There are now many instances where civil liability and criminal responsibility coincide by reason of statute. The most obvious example occurs under the Taxes Consolidation Act, 1997 whereby every infringement of taxation regulation is made into a crime. Every statutory instrument of which I am aware under the European Communities Act 1972, as amended, involves an apparently fixed policy of transmuting European law Directives into Irish law in a form that makes an infringement of the relevant term a summary offence. The Act forbids the creation by statutory instrument of indictable offences. Even before that modern statutory tendency, matters such as assault and false imprisonment existed in virtually identical form in tort law and in criminal law by virtue of accepted common law definitions carrying remedies, on the one hand, in damages and, on the other, in punishment.
39. There doesn’t seem to be any relevant issue, however, as to any mental element for the proof of any relevant criminal offence in terms of the purpose in processing data that is dependent upon the legal definition of sensitive personal data contained in the definition section of the Data Protection Act 1988, as amended. I quote this:-
“Sensitive personal data means personal data as to
(a) the racial or ethic origin, the political opinions or the religious or philosophical beliefs of the data subject,
(b) whether the data subject is a member of a trade union,
(c) the physical or mental health or condition or sexual life of the data subject,
(d) the commission or alleged commission of any offence by the data subject, or
(e) any proceedings for an offence committed or alleged to have been committed by the data subject, the disposal of such proceedings or the sentence of any court in any such proceedings.”
40. In consequence, it could be argued that the sensitivity of data in relation to crime is centred on the commission of the offence, or an allegation of the commission of an offence through criminal process. That could be a parking offence or a litter offence as well as arson or murder. But, criminal proofs as regards the definitional elements of the first two offences differ markedly from the last two. This much, however, is obvious. Nothing in the affidavits that I have seen, nor anything in the evidence which I have heard, shows any interest by any of the plaintiffs, much less by the defendant, in alleging the commission by the person illegally downloading copyright material, the data subject, of a criminal offence. Nothing in the protocol to which I have referred will ever involve “the disposal of… proceedings” or “the sentence of any court”. This strikes me as having high relevance to the third issue. Furthermore, since one is dealing here not with a regulatory offence, one which carries no necessary mental element of culpability, but with a true criminal offence, which does, there is nothing in the terms of the settlement, or the resulting protocol, or the attitude of the parties, which is directed at that crucial, and elusive, proof of the relevant mental element in criminal law. Rather, everything that I have seen is based upon civil law principles. In contrast to the criminal process, these establish liability by virtue of the proof of external facts, without any necessity to proceed to look to knowledge or intention, to recklessness or to criminal negligence (an element exclusive to manslaughter not relevant here). Even in the law of negligence, one is concerned with what ought to have been realised or done and not, as in criminal law, with what was perceived. As to the principles of liability, civil and criminal law are entirely different.
41. I do not believe that, in truth, this issue arises at all. Nor do I believe that it is necessary that there should be an investigation by an authorised body, or a determination made by a court of competent jurisdiction, following the conduct of a fair and impartial hearing, in order to determine that an offence has in fact been committed. That is because, in reality, no one is accusing anyone of an offence. There is no issue as to anything beyond civil copyright infringement. To accuse them of the criminal offence it would have to be copyright infringement together with the mental element expressly required by the crime.
42. In the course of the hearing, as I have said, reference was made to the framework directive, Directive 2009/140/EC. Its seems to me that the right to an effective and timely judicial review can be enabled by the State, if following settlements as carefully drafted as the protocol to which I have referred, or injunctions granted by the court in accordance with s. 40(4) of the Copyright and Related Rights Act 2000 as interpreted in accordance with Article 8.3 and recital 59 of the Directive 2001/29/EC, that an overall supervisory review of a settlement can in future be made at the time by the court granting an injunction or other order with all due respect to fundamental rights and freedoms. Any of that is an aspect of the future regulation of a very serious problem. As it is, I believe that I have made that review now and that nothing prevents the Court from enforcing the orders made in the settlement. The answer to the last composite question is therefore yes, the graduated response process is lawful. As to the present, I believe I have answered the questions posed as best I can.
Result
43. The parties can therefore lawfully proceed to implement the settlement.
EMI Records [Ireland] Ltd -v- Eircom PLC
[2009] IEHC 411
Judgment by: Charleton J.
Status of Judgment: Approved
JUDGMENT of Mr. Justice Charleton delivered on the 24th day of July, 2009 ex tempore
In this ruling, I just want to make it clear that I have only heard one side, and that therefore any decision I am making in relation to the law is on the basis of one side putting forward an argument in the context of a settlement that was reached between the parties in the main proceedings, whereby it was agreed between the plaintiffs and the defendant that the defendant would not oppose this, the plaintiffs’, application.
This is an application by the plaintiffs who are EMI Records, Sony, Universal, and Warner to require Eircom plc to block access to a site which is commonly called Pirate Bay, which is the subject of proceedings in its country of origin, and which is a site dedicated, on a weird ideological basis, to basically stealing the copyright owned by the plaintiffs in mainly musical works. That copyright, I am satisfied, has been assigned to the plaintiffs often by hardworking artists, some of whom may indeed be very wealthy, but some of whom may be trying to do their very best to make a living out of the work that they love, namely, making music, making films, or other forms of entertainment, and that work, let us be clear, enriches the human race. Having created original work, copyright arises as a legal right under statute in the author. Apart from legislation, a natural human expectation arises that there should be such a right as a matter of simple fairness. As St. Colmcille, one of the patron saints of Ireland, said, “le gach bó a buinín agus le gach leabhar a chóip” (to every cow its calf and to every book its copy). This work is now being taken by people using the internet, going on to the Pirate Bay site, getting the appropriate information and/or software for their computers, thus identifying swarms of other people currently online who will share the material and then accessing these swarms whereby, in small portions from multiple individuals within the online swarms, entire songs, musical works, or video works, are appropriated by them free of charge from multiple individuals who already have taken the copyright material.
Now, as I understand it, as a matter of law up to the Copyright and Related Rights Act 2000 there was only the possibility of basically making an injunction against parties who were infringing copyright by doing any of the acts set out in s. 40(1) of the Copyright and Related Rights Act 2000, of which para. (g) has been in turn amended by the Copyright and Related Rights Amendment Act 2007. The legal wrongs against copyright could be making available copies of a copyright work, performing it, broadcasting it, including a copy of a work in a programme, issuing copies of the work to the public, renting copies of the work, or lending copies of the work without the payment of remuneration to the owners of the copyright work. These actions under the Act of 2000, and the legislation which preceded it, can all be unlawful methods of infringing copyright through making available without authorisation of the owner or her or his assignee a copyright work to the public.
There is no doubt that EMI, Sony, Universal, and Warner have copyright by way of assignment from musicians and other artists in a vast bulk of copyright work, and there is no doubt, on the affidavits before me, that they as plaintiffs in this action are facing a situation of undermining their intellectual property rights (and those who have assigned such rights to them) by virtually unrestrained unauthorised copying over the internet, which I regard as being theft. I note the quote from the Envisional report, in evidence before me, which is attributed to Mr. Peter Sunde who is one of the controlling minds of Pirate Bay:
“This is how it works: Whatever you sink, we build back up. Whomever you sue, 10 new pirates are recruited. Wherever you go, we are already ahead of you. You are the past and the forgotten; we are the internet and the future.”
Well, that kind of statement I have just quoted is clear evidence of both an intention to flout the law and of an inflated personality which believes that Mr. Peter Sunde is on some kind of a white horse and carrying a lance on behalf of good. I am convinced, on the affidavits before me, that he is carrying a lance on behalf of self-interest. In part, that is proved in the affidavits before me by the amount of advertising which Pirate Bay carries, which is making him and those associated with him a very substantial amount of money from those accessing their sites. Those accessing the sites of Pirate Bay are shown on the affidavits before me to have advertising popping up in relation to what they do, and those advertisers are paying money to Pirate Bay.
It is clear to me at the moment, though it hasn’t been argued in this case to the contrary, going back to the copyright point, that s. 40(4) of the Act of 2000 gives an entitlement in the right circumstances to the plaintiffs to seek an order against a party who is essentially innocent in relation to copyright infringement, in distinction to those actively stealing copyright material through the act of copying without authorisation and facilitating it, Pirate Bay and the illegal downloaders, and I put Eircom into that category of innocent transmitter of infringing material. For the sake of clarity, I quote the section:
“
40.—(1) References in this Part to the making available to the public of a work shall be construed as including all or any of the following, namely:
(a) making available to the public of copies of the work, by wire or wireless means, in such a way that members of the public may access the work from a place and at a time chosen by them (including the making available of copies of works through the Internet);
(a) making available to the public of copies of the work, by wire or wireless means, in such a way that members of the public may access the work from a place and at a time chosen by them (including the making available of copies of works through the Internet);
(c) broadcasting a copy of the work;
(d) including a copy of the work in a cable programme service;
(e) issuing copies of the work to the public;
(f) renting copies of the work;
(g) lending copies of the work without the payment of remuneration to the owner of the copyright in the work,
and references to “lawfully making available to the public” shall mean the undertaking of any of the acts referred to in paragraphs (a) to (g) by or with the licence of the copyright owner.
(2) References in this Part to the making available to the public of copies of a work shall include the making available to the public of the original of the work.
(3) Subject to subsection (4), the provision of facilities for enabling the making available to the public of copies of a work shall not of itself constitute an act of making available to the public of copies of the work.
(4) Without prejudice to subsection (3), where a person who provides facilities referred to in that subsection is notified by the owner of the copyright in the work concerned that those facilities are being used to infringe the copyright in that work and that person fails to remove that infringing material as soon as practicable thereafter that person shall also be liable for the infringement.
(5) Without prejudice to subsection (4), the Minister may prescribe the form of the notice to be given under that subsection and the form shall specify—
(a) the name and address of the person claiming to be the owner of the copyright in the work concerned,
(b) the grounds that the person requesting the removal of material has for such removal, and
(c) a list of the material which is to be removed.”
Now, why is this decision different to an injunction that might be obtained directly against the infringer of copyright, such as Pirate Bay, as opposed to a carrier of the breach by other people, the internet service providers? The person who takes a book and photocopies it for themselves in breach of copyright is, of course, infringing the legal right of the copyright owner. The person who takes a CD and makes a copy of it in their own home is, of course, infringing copyright. But without infringement of copyright, and having heard only one side, and I again emphasise that, it seems to me that s. 40(4) gives a wider entitlement to a copyright owner by providing that, without prejudice to subs. (3), (which relates to the provision of facilities for enabling the making available of copies of a work to the public, not in itself constituting an act of making available to the public copies of the work), where a person who provides facilities that are being used to infringe the copyright in a work and the infringing material is not removed on being notified by the owner (and that has happened here) that those facilities are being used to infringe the copyright in that work, and the person who provides facilities fails to remove that infringing material as soon as practicable thereafter, that person shall also be liable for the infringement. I interpret that, at the moment, as saying that the pipe or channel (i.e. the electronic pipe or channel in this case) down which the copyright infringing material is going can be the subject of injunctive relief under s. 40(4). This section is derived according to the long title of the 2000 Act as amended in 2007 from the relevant EU Directive, and is to be interpreted in conformity with it. In its original form, that Directive is Council Directive 2001/29 EC of the 22nd May, 2001, on the harmonisation of certain aspects of copyright and related rights in the information society with recitals to which I have regard and the relevant article reads:
“Article 8
Sanctions and remedies
1. Member States shall provide appropriate sanctions and remedies in respect of infringements of the rights and obligations set out in this Directive and shall take all the measures necessary to ensure that those sanctions and remedies are applied. The sanctions thus provided for shall be effective, proportionate and dissuasive.
2. Each Member State shall take the measures necessary to ensure that rightholders whose interests are affected by an infringing activity carried out on its territory can bring an action for damages and/or apply for an injunction and, where appropriate, for the seizure of infringing material as well as of devices, products or components referred to in Article 6(2).
3. Member States shall ensure that rightholders are in a position to
apply for an injunction against intermediaries whose services are
used by a third party to infringe a copyright or related right.”
Article 9 of the Directive provides for exclusive rights in the owner of copyright to make available copies to the public by sale or otherwise. Under Article 8, and for the first time, the owner of facilities used to infringe those rights can be subject to injunctive relief. Eircom, the defendant, is an innocent party here, but an innocent party whose facilities are being used so that their publicly available channels for the transmission of material over the internet (i.e. electronic pipes) are being used for the transmission of copyright material, and therefore the infringement of copyright works, and this under the Directive as implemented in s. 40(4) of the 2000 Act, as amended, can be made the subject of an injunctive order. Had the matter been argued on both sides, and it wasn’t (as I said, it’s the subject of a settlement) well, then, in those circumstances, it may be that a different conclusion would have been reached by a different court, but that’s my conclusion, at the moment, having heard one side, and I therefore emphasise that.
The next thing is the question of damages. Under the Supreme Court of Judicature Act 1875, an injunction is granted where it is “just and convenient” for a court to so order. Even at final hearing, a court must weigh up the legal remedy of damages as an alternative and the convenience of the remedy as opposed to any alternative. I cannot decide if the transmission through the Eircom network of copyright infringing material gives rise to a remedy in damages. That might possibly be argued in the context of a statutory duty arising as a benefit to copyright owners as a particular class, but as it has not been argued here, I am making no decision. For the moment, I have no entitlement it seems to order damages as an alternative to an injunction. Even if I were so entitled, I am satisfied on the affidavit evidence before me that the damage being suffered by those who work for the plaintiffs, or in association with them, and who ultimately assign copyright material to them are being deprived of their livelihoods through the agency of Pirate Bay. The operation of this site is completely undermining the fundamental notion of copyright, so that those who create a work are put in a position where they no longer, in effect, own the benefit of the work because it is being illegally copied wholesale. I am satisfied the balance of convenience also lies in favour of an injunction being granted.
I am satisfied, on those two points, that if I were not to grant this injunction, notwithstanding the fact that the plaintiffs are going to have a further battle on their hands in terms of dealing with people like Mr. Peter Sunde and the other controllers of Pirate Bay and the like, the effect would be for the Court not to enforce copyright and to throw up its hands and to say in effect that it’s useless and it’s futile. I am satisfied that it is not useless and it is not futile to grant an order in this form.
Therefore, on the basis of the affidavit evidence that I have heard from Willy Kavanagh, the exhibits therein, and the affidavit evidence that I have heard in relation to the progress of proceedings in other jurisdictions from Helen Sheehy, I am going to grant an injunction in the form of paragraph 1 of the Notice of Motion that I have amended in red ink for my registrar Ms. Feerick, which will be an order pursuant to s. 40(4) of the Copyright and Related Rights Act 2000 requiring the defendant to block or otherwise disable access by its internet subscribers to the website – thePirateBay.org and related domain names, as set out in the schedule, to IP addresses and URLs, as set out in the schedule, together with such other domain names, IP addresses and URLs as may reasonably be notified as related domain names by the plaintiffs to the defendant from time to time. And I’m sure everyone will act reasonably in that regard.
Secondly, as this is a final but unopposed order that I am making, I am making a direction that the application be heard on affidavit without oral evidence. I am satisfied it is not necessary to hear oral evidence as there is cogent and persuasive evidence on affidavit.
Thirdly, I am making a further order of liberty to both sides to apply, and a stay on the order until the 1st September, 2009, because there needs to be some enabling and technical uptooling by the defendant, who, again I emphasise, is entirely, to my mind, an innocent party in relation to this.
There will be no order in relation to the costs as the costs have not been sought by either party. That, therefore, is the order the Court will make.
EMI Records (Ireland) Ltd & Ors -v- UPC Communications Ireland Ltd
[2010] IEHC 377 JUDGMENT of Mr. Justice Charleton delivered on the 11th day of October, 2010
1. The plaintiffs, who I will call the recording companies, record and release music and video for sale. They seek injunctions against the defendant, an internet service provider, to prevent the theft of their copyright by third parties illegally downloading it over the internet. The form of injunction sought is left to the discretion of the court. Hence, I will analyse various technical solutions.
2. Those enthused by music and video may legally buy it in a disc format or download it on the internet for a fee. Prices vary, but music in CD format or film captured on DVD can typically cost between €10 and €20 in a shop. A CD will contain up to 80 minutes of music, perhaps 15 tracks, and a DVD can store a 180 minute film. This case is about music. Both music and films are widely available for purchase to one’s home computer over the internet. Because the material is in digital format, in the form of downloadable files, the quality is the same as that on a disc. To download a music track from the internet typically costs under €1 per music track but films are more expensive. All of these digital files are of original creative work. They are, as a matter of law, protected by copyright. Increasingly, as the evidence in this case has demonstrated, such protection has been undermined to the status of an empty formula. The recording companies complain that their entire business has been decimated by piracy on the internet. They claim that a whole generation is growing up, who instead of purchasing recordings in hard format or by legal download, simply access the sites on the internet that enable them to download for free the millions of music tracks that are available illegally worldwide.
3. The defendant, who I will call UPC, sells internet service to about 15% of the Irish market. Its turnover is in the order of €250M per year and the underlying nature of the business is profitable. It employs 800 staff. In its interface with customers it deals with about 35,000 inbound calls per month, of which it answers about 90%. Later in this judgment, I will refer in detail to the fact that a substantial portion of its 150,000 customers, or the children in their teenage and twenties years of these customers, are using the internet service provided by UPC to steal copyright material which is the property of the recording companies. UPC, as the internet service provider, transmits, in digital form, this copyright protected music through its system and into, and out of, the home personal computers that are used for copyright piracy. UPC claims it has no liability in respect of this activity because it is merely a conduit. The recording companies disagree.
4. The recording companies say they are entitled to an injunctive order of the Court requiring UPC to stop this infringing activity from taking place over its network. The recording companies say that UPC is in the best position to do this. The record companies have communicated with UPC not only as to the nature of the problem, but by actually giving it details whereby the infringers of copyright were detected, by the unique IP numbers assigned to their computers, illegally downloading their songs; but that they have been ignored. The recording companies claim that UPC is turning its face aside from this problem while maintaining a front of righteousness by having in place a customer use policy that condemns internet piracy but which it ignores deliberately in order increase its profit. The customer use policy of UPC makes it very clear that the internet service of UPC cannot be used to steal copyright material. This is a matter of contract, and for a breach of this obligation by the customer, UPC can terminate the contract. It never does. It is not so inclined.
5. At the end of their amended statement of claim, the recording companies are specific only to this extent as to what they seek:-
“1. An injunction, pursuant to s. 37 and s. 40(4) of the Copyright and Related Rights Act, 2000, restraining the defendant internet service provider from infringing the copyright in sound recordings owned by, or exclusively licensed to, the plaintiffs by making available to the public copies of those sound recording without the plaintiffs’ consent using its internet service facilities.