IBM United Kingdom Ltd v (1) Lzlabs GmbH (a company incorporated in Switzerland)
| Jurisdiction | England & Wales |
| Court | King's Bench Division (Technology and Construction Court) |
| Judge | Mrs Justice O'Farrell |
| Judgment Date | 10 March 2025 |
| Neutral Citation | [2025] EWHC 532 (TCC) |
| Docket Number | Case No: HT-2021-000363 |
I
Introduction
1 – 16
II
Background to the dispute
IBM Mainframes
Software Defined Mainframe (“the SDM”)
Hercules
Neon litigation
Formation of LzLabs and Winsopia
The ICA
Development of the SDM and the clean room procedures
Launch of the SDM
111 – 119
Project Eiger
120
Further development of the SDM
121 – 128
Audit request and termination
129 – 135
III
The Proceedings
136 – 146
The issues
138
Factual witnesses
139 – 141
Expert evidence
142 – 145
IV
Construction of the ICA
147 – 272
Approach to construction of the ICA
149
Scope of the licence
150 – 160
The ICA Programs
161 – 175
Customer applications
176 – 184
Licensed program specifications (“LPSs”)
185 – 193
Independent software vendors (“ISVs”)
194 – 195
Debugging tools
196 – 207
Restrictions on use of ICA Programs
208 – 213
Legislative framework
214 – 223
Berne Convention
224
TRIPS
225
WIPO
226
General principles from Convention and Treaties
227
228 – 233
234 – 239
Applicable legal principles
240 – 270
Conclusions on ICA construction
271
V
Alleged breaches of the ICA
273
Item 1 – IGZCUST
274 – 310
Item 2 – LMD
311 – 345
Item 3 – CICS Control Blocks Document
356 – 380
Item 4 – EXEC DLI
381 – 382
Item 5 – IBM Binder Software
383 – 401
Compiler listings – summary of dispute
402 – 406
Item 6 – IGZCIVL COBOL runtime module
407 – 423
Item 7 – CICS Translators
424 – 435
Item 8 – Floating point rounding rules
436 – 453
Item 9 – IBM PL/I Compiler
454 – 469
Item 10 – XML Parse statements
470 – 483
Item 11 – COBOL initialisation, branching and I/O declaratives
484 – 504
Item 12 – PL/I condition handling
505 – 522
Use of de-bugging tools – summary of dispute
523 – 524
Item 13 – CICS-to-CICS communications
525 – 544
Item 14 – AMBLIST analysis of CICS stubs
545 – 544
Item 15 – Colesoft XDC and COBOL initialisation
555 – 568
Item 16 – XDC and IMS
569 – 584
Item 17 – SLIP traps and CICS
586 – 596
Item 18 – SLIP traps and COBOL
597 – 605
Macros and Copybooks — introduction
606 – 612
Macros – summary of dispute
613 – 614
Item 19 – DR 3246
615
Item 20 – DR 10237
616 – 617
Item 21 – DR 2753
618
Item 22 – DR 2771
619
Item 23 – DR 2796
620
Item 24 – DR 3280
621
Item 25 – DR 4281
622
Item 26 – DR 4322
623
Item 27 – DR 0847
624
Macros — discussion
625 – 640
Copybooks – summary of dispute
641 – 642
Item 28 – DR 715
643 – 649
Item 29 – DR 753
650 – 653
Item 30 – DR 756
654 – 658
Copybooks — discussion
659 – 660
Transferring unscrubbed materials
661 – 674
Item 31 – Epiphany
675
Item 32 – Db2 catalog table metadata
676 – 688
Item 33 – DSS dump
689 – 693
Item 34 – Kednos
694 – 702
Item 35 – CSECTS omitted from scrubbing
703 – 720
Items 36 & 42 – unscrubbed CSECTs
721 – 729
Items 37 & 40 – IMS PROCLIB & DLIBATCH
730 – 739
Item 38 – DFHEI1 module
740 – 750
Item 39 – IGZXANE
751 – 754
Item 41 – IGZXNE3N
755 – 759
Item 43 – CEEBETBL, CEEBLLST, IBMPINPL & CEESG*
760 – 771
Item 44 – DR 4617
772 – 776
Item 45 – DR 171
777 – 783
Item 46 – scrubbing failures
784 – 800
Item 47 —@@TRGLOC CSECT
801 – 803
Item 48 – PARMLIB & PROCLIB
804 – 807
Use outside Enterprise and beyond Designated Machine
808 – 810
Item 49 – Brad Taylor
811 – 825
Item 50 – Winsopia Pizzabox
826 – 831
Item 51 – Justin Bendich
832 – 837
Conclusions on technical breaches
838 – 844
VI
Wrongful procurement of breach
845 – 936
Introduction
845 851
Applicable legal principles
852 – 861
LzLabs
863 – 888
LzLabs UK
889 – 897
Mr Cresswell and Mr Rockmann
898 – 916
Mr Moores
917 – 935
Summary
936
VII
Unlawful means conspiracy
937 – 960
Introduction
937 – 940
Legal principles and application
941 – 947
Knowledge of unlawfulness
948 – 959
Summary
960
VIII
Audit and Termination
961 – 983
Introduction
961 – 962
Validity of the audit request
963 – 979
Validity of termination
980 – 987
IX
Limitation
988 – 1119
Introduction
988 – 990
Contractual limitation
991-1007
Statutory limitation
1008-1012
Deliberate concealment
1013 – 1062
Section 32(1)(b) finding
1063 – 1068
Section 32(2) finding
1068 – 1072
Actual or constructive knowledge – legal principles
1073 – 1076
Date of knowledge issues
1077 – 1081
1082 – 1088
Mr Knight 2017
1089 – 1093
Mr Anzani 2018
1094-1118
Summary
1119 – 1120
X
Conclusions
1121 – 1122
This claim concerns allegations of reverse engineering arising out of the development of software, known as the Software Defined Mainframe (“the SDM”), which is said to enable its customers to take business applications developed for IBM mainframe computers and run them on x86-based computer architectures using the Linux operating system, without the need for source code changes or recompilation. One
of the central issues is whether the defendants are entitled to rely on rights of observation, studying and testing and/or interoperability, conferred by Directive 2009/24/EC (“the Software Directive”), implemented by the Copyright, Designs and Patents Act 1988 (“the CDPA”), by way of defence to the claimThe claimant (“IBM”), a subsidiary of International Business Machines Corporation (“IBM Corp”), is a supplier of computer hardware and software, and licensor of IBM mainframe software within the UK.
The first defendant (“LzLabs”), a Swiss company incorporated in 2011, is the developer and supplier of the SDM.
The second defendant (“Winsopia”), a company incorporated in England and Wales in 2013, is a wholly owned subsidiary of LzLabs. In 2013 Winsopia purchased an IBM mainframe computer and entered into a licence agreement with IBM in respect of IBM mainframe software.
The third defendant (“LzLabs UK”), a company incorporated in England and Wales in 2015, is a wholly owned subsidiary of LzLabs, providing specialist technical support services.
The fourth defendant, Mark Cresswell, is a non-executive chairman and former CEO of LzLabs, and a former director of Winsopia and LzLabs UK.
The fifth defendant, Thilo Rockmann, is the CEO of LzLabs, a director of Winsopia and a director of LzLabs UK.
The sixth defendant, John Jay Moores, is a software entrepreneur who financed the development of the SDM and is the main beneficial owner of LzLabs, Winsopia and LzLabs UK.
On 15 August 2013 IBM licensed IBM mainframe software to Winsopia pursuant to an IBM customer agreement (“the ICA”). Additional and updated licence agreements were entered into by IBM and Winsopia, subject to the same material terms and conditions.
IBM's primary case is that the defendants breached, or procured breach of, the ICA, using Winsopia's access to the IBM mainframe software to develop the SDM by unlawful reverse engineering of the licensed software.
In December 2020/January 2021, IBM requested an audit of Winsopia's compliance with the terms of the ICA. Winsopia refused to accede to the request on the grounds that the request exceeded the ambit of IBM's contractual audit rights and sought to impose unreasonable demands within an unreasonable timescale for compliance.
By letter dated 24 February 2021, IBM purported to terminate the ICA and other licence agreements for contractual breach; alternatively at common law. By letter dated 1 March 2021, Winsopia disputed the validity of the purported termination and sought to affirm the agreements. By two letters each dated 29 July 2024, Winsopia purported to terminate the ICA and other licence agreements as from 31 August 2024. It follows that, although there is a dispute as to the mode and date of termination, it is common ground that the parties' primary obligations under the ICA have ceased. The parties confirmed in letters to the court that this does not affect any of the issues which fall to be decided at this stage in the hearing.
On 21 September 2021, IBM issued these proceedings, in which it seeks:
i) a declaration that Winsopia's licence has been lawfully terminated;
ii) an injunction restraining Winsopia from making any further use of the IBM licensed software, including from offering any services relying on the SDM that contains or uses any part of the IBM licensed software (and the other defendants from procuring the same); and
iii) an account of profits and/or damages.
The defendants dispute the claims. Their case is that the SDM was developed by LzLabs following an extensive research and development process spanning almost ten years, using strict processes and policies which applied both to LzLabs and Winsopia, to ensure that no IBM material was used other than in compliance with the terms of the ICA and as permitted by the Software Directive. In developing the SDM, LzLabs employed a clean room process with a code of conduct and there was no unlawful use of the IBM licensed software.
The defendants counterclaim:
i) injunctive / declaratory relief that Winsopia was not in breach of the ICA; and
ii) damages for breach of the ICA.
This part of the trial is limited to issues of liability, including injunctive and declaratory relief. The parties have agreed that the precise form of any order and other consequential matters, including future disposal of the case, should be determined following this judgment.
Section II — Background to the dispute
IBM Mainframes
In 1964 the IBM group developed its first mainframe computer, System/360. Mainframes are high performance computers...
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