What you need to know
- As always, retaining and using materials created under a previous employment is fraught with danger. In this instance, the act itself of copying software owned by a former employer onto a rival company’s computer was found to constitute copyright infringement, and use of part of that software in a rival software product amounted to both copyright infringement and breach of confidence.
- In determining whether a “substantial part” had been copied (in relation to the software product ultimately created by the rival company):
- A key consideration was that “originality of expression” was found to exist in the source code, as there was scope for choices and judgement to be made in its development.
- Although the relevant source code was in many cases not difficult or unconventional, it was nevertheless determined to be “functionally significant” to the operation of the software.
- In assessing substantiality, the emphasis was on quality over quantity. The similarity of approximately 800 out of 250,000 lines of source code (duplicated throughout the source code) was sufficient to comprise a “substantial part”.
What you need to do
- Ensure that employees involved in creating copyright material, including software, for your company are aware of their obligations to avoid any breach of intellectual property laws or breach of confidence.
- This can be dealt with in employment agreements and induction training.
Facts
This Federal Court proceeding centred around the action of two individuals who left their positions and started a rival company. Until 2012, Con Sinadinos and Alan Feeley were the CEO and Manager of Research and Development (respectively) at Industrial Process Controls Ltd, the former IPC Global Pty Ltd (IPC Global). IPC Global makes testing equipment for construction materials, such as asphalt, rock and soil, facilitated by its computer software and firmware. In 2012, Mr Sinadinos and Mr Feeley resigned, and established a rival company, Pavetest Pty Ltd (Pavetest), which subsequently launched a range of competing equipment testing products.
At the time that Mr Feeley resigned from IPC Global, he retained copies of IPC Global’s software on his computer. He had been involved in the creation of the software, and gave evidence that he had made copies as a “back up”. Mr Feeney later provided copies of the software to Pavetest’s computer programmer, Mr Li, who was responsible for writing Pavetest’s software. Mr Feeley claimed that this was to give Mr Li an understanding of the application of the software and how it had been previously achieved, in order to develop a different and better system. Mr Li referred “regularly” to IPC Global’s software in writing Pavetest’s software.
Pavetest’s software was found to contain some identical and some similar lines of code to IPC Global’s software. After the proceedings commenced, Mr Li was instructed by Pavetest to remove those parts of the software that were identical or similar, which resulted in a second version of the software. The Court was tasked with determining whether Pavetest’s version 1 of its software infringed copyright in IPC Global’s software, and whether Mr Sinadinos and Mr Feeley had breached duties of confidence, as well as contractual duties of good faith and fidelity to IPC Global. At trial, IPC Global withdrew its allegation that Pavetest’s version 2 infringed IPC Global’s copyright.
Decision
In relation to the question of copyright infringement, Justice Moshinsky first considered the act of copying the software onto the computer provided to Mr Li. In this regard, the respondents conceded that copyright subsisted in IPC Global’s software, that substantial parts of the software were copied to Mr Li’s computer, and that the acts were performed on behalf of Pavetest. On this basis, his Honour had no difficulty in determining that Pavetest had infringed copyright by copying the software to Mr Li’s computer. The second and more substantial query was whether copyright had been infringed in the creation of version 1 of Pavetest’s software. In determining that there had been a reproduction of a substantial part of the software, Justice Moshinsky considered three key factors:
- First, his Honour directed his attention to whether there had been “originality of expression” in IPC Global’s source code. The respondents argued that it was not an original expression, as the code’s format was largely dictated by the “problem domain” (ie the requirements of the equipment tests, based on external factors such as international standards). Justice Moshinsky rejected this, finding that while the “problem domain” had a heavy influence, there were still choices that could have been made and judgement that could have been applied in developing the software, such that there was originality in the expression of the sequences of the relevant source code.
- Second, Justice Moshinsky considered whether the relevant source code played a “functionally significant” role within the software. In this regard, the respondents claimed that the software copied was “common code”, and supporting infrastructure for the software, as opposed to its “core intelligence”. Although his Honour confirmed that the relevant code was in many cases not “difficult or unconventional”, he nevertheless determined it to be functionally significant to the operation of the software as a whole.
- Third, Justice Moshinsky reaffirmed the long established principle that, in considering substantiality, the emphasis should be on quality rather than quantity. In relation to the quantum of copying, the evidence indicated that approximately 800 lines of Pavetest’s source code were identical or similar to IPC Global’s source code, out of a total of approximately 250,000 lines. However, his Honour took into account that there was significant duplication of the code across the 40 “test modules” within the software, and that this was sufficient for a finding that a substantial part had been copied.
The Court accordingly found that version 1 of the Pavetest software infringed IPC Global’s software, and that Mr Sinadinos and Mr Feeley had authorised that infringement.
Justice Moshinsky also determined that Mr Sinadinos and Mr Feeley’s conduct amounted to a breach of confidence. His Honour was prepared to accept that Mr Feeley originally made copies of the software as a “back-up”. However, he firmly noted that this did not negate the confidentiality of the material, that it was acquired in a relationship of confidence and was misused. In relation to the use, he found that by keeping the software and developing it in a rival product, Pavetest gained a substantial “springboard benefit”. In particular, Mr Li had saved at least months of development time. The claims in relation to breach of contract were, however, not established due to a lack of written evidence.
Authors: Jordan Clitheroe, Lawyer; Anita Cade, Partner
