IBM United Kingdom Ltd v Lzlabs GmbH
| Jurisdiction | England & Wales |
| Judge | Mr Justice Waksman |
| Judgment Date | 05 August 2022 |
| Neutral Citation | [2022] EWHC 2094 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Claim No: HT-2021-000363 |
[2022] EWHC 2094 (TCC)
Mr Justice Waksman
Claim No: HT-2021-000363
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Nicholas Saunders QC, Matthew Lavy and Gideon Shirazi (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP, Solicitors) for the Claimant
Alex Charlton QC, Jaani Riordan and Daniel Khoo (instructed by Clifford Chance LLP, Solicitors) for the First to Third Defendants
Hearing dates: 13 and 14 July 2022
Table of Contents
| INTRODUCTION | 4 |
| THE APPLICATIONS | 5 |
| THE ICA AND THE SOFTWARE | 5 |
| The Terms of the ICA | 5 |
| The Software | 8 |
| THE ENGLISH PROCEEDINGS | 8 |
| The POC | 8 |
| The DAC | 10 |
| RFIS | 10 |
| Proposed Amendments to the DAC | 10 |
| THE US CLAIM | 11 |
| Introduction | 11 |
| The Introductory Section of the Complaint | 11 |
| Jurisdiction | 12 |
| Corp's Trade Secrets Case | 12 |
| THE PART 11 APPLICATION: PRELIMINARY | 16 |
| Introduction | 16 |
| Procedural Requirements | 17 |
| THE EJC | 17 |
| Introduction | 17 |
| Background Matters | 18 |
| Agency | 18 |
| Introduction | 18 |
| The Law | 18 |
| Analysis: the ICA | 20 |
| Analysis: other circumstances | 21 |
| Analysis: Conclusion | 23 |
| Collateral Agreement | 23 |
| Estoppel | 23 |
| Conclusions on the EJC in relation to Corp. | 25 |
| SCOPE OF THE EJC | 25 |
| JURISDICTION FOUNDED ON CPR 6.33(2B) | 27 |
| THE GATEWAYS | 29 |
| Introduction | 29 |
| Winsopia's claim for declaratory relief against Corp. | 29 |
| Introduction | 29 |
| The Law | 30 |
| Analysis: serious issue to be tried | 31 |
| Analysis: GAC on the Gateways | 34 |
| Analysis: Appropriate Forum | 35 |
| Conclusion | 35 |
| LZ Switzerland's claim for declaratory relief against Corp. | 35 |
| Winsopia's claim for ASI against Corp. | 36 |
| LZ Switzerland's claim for ASI Against Corp. | 36 |
| CONCLUSIONS ON JURISDICTION | 36 |
| INTERIM ASI RELIEF AGAINST CORP | 37 |
| Jurisdiction | 37 |
| The Law | 37 |
| ASI on a Contractual Basis | 39 |
| ASI on a quasi-contractual basis | 40 |
| ASI on the “vexatious/oppression” basis | 40 |
| Conclusions | 41 |
| INTERIM ASI AGAINST UK | 41 |
| CONCLUSION | 42 |
INTRODUCTION
I have before me applications made under CPR Part 11 to set aside service out against a foreign defendant, applications for interim anti-suit injunctions (“ASIs”) and an application to make various amendments to the Defence and Counterclaim. They arise in the circumstances set out below.
On 21 September 2021, the Claimant in this action, IBM United Kingdom Limited (“UK”), issued proceedings against 5 Defendants (“the English Proceedings”). The Second Defendant, Winsopia Limited (“Winsopia”), and the Third Defendant, LZLABS Ltd (“LZ Ltd”), are English companies. LZ Ltd is a wholly-owned subsidiary of the First Defendant, LZLABS GmbH, a Swiss company (“LZ Switzerland”). The Fourth Defendant, Mr Cresswell, is Executive Chairman and a director of LZ Switzerland and also a director of LZ Ltd and Winsopia. The Fifth Defendant, Mr Rockmann, is CEO and a director of LZ Switzerland and a director of LZ Ltd and Winsopia.
The Particulars of Claim were amended on 29 October 2021 and 22 April 2022. I shall refer to them simply as “the POC”. LZ Switzerland, Winsopia and LZ Ltd (“the Corporate Defendants”) served their Defence and Counterclaim (“the DAC”) on 31 January 2022. UK served its Reply and Defence to Counterclaim (“the RDC”) on 4 April 2022. On 27 May 2022 the Corporate Defendants served a Rejoinder.
Meanwhile, on 21 March 2022, International Business Machines Corporation, a New York company (“Corp”), brought proceedings in the US District (i.e. Federal) Court in the Western District of Texas, Waco Division, against LZ Switzerland and Texas Wormhole LLC (“TW”), a Delaware company (“the US Proceedings”). On 9 June 2022, LZ Switzerland and TW filed motions to dismiss the US proceedings. Those motions have not yet been determined. UK is indirectly, a wholly-owned subsidiary of Corp.
It is not in dispute that both the English and the US Proceedings have at their respective hearts an allegation that the relevant defendants have been involved, one way or another, in what is alleged to be the unlawful use of software whose intellectual property rights ultimately vest in Corp. The software in question (“the Software”) is typically licensed to owners of IBM Mainframe computers (“Mainframes”) in order to allow them to run various applications on that hardware. Once one moves beyond these matters, however, the extent to which the two sets of proceedings truly overlap is a matter of serious dispute between the parties.
The essential claim made by UK in the English Proceedings is that Winsopia was in breach of an IBM Customer Agreement (“the ICA”) made between them on 5 August 2013. At around the same time, Winsopia purchased an IBM Mainframe computer. On 24 February 2021, UK terminated the ICA for alleged breaches thereof by Winsopia. The principal breaches of the ICA alleged relate to the misuse of the Software by Winsopia in developing or causing to be developed a product known as “SDM” (Software Defined Mainframe) which is marketed by LZ Switzerland and LZ Ltd. UK also alleges that all of the Defendants other than Winsopia procured its breach of the ICA. There is a further breach alleged which is the failure on the part of Winsopia to permit UK to audit its use of the Software. The ICA contains an exclusive jurisdiction clause in favour of the English court and English law (“the EJC”).
In the US Proceedings, Corp alleges that LZ Switzerland and TW have misappropriated its trade secrets, contrary to the (Federal) Defend Trade Secrets Act of 2016 (“DTSA”) and the (Texas State law) Texas Uniform Trade Secrets Act of 2013 (“TUTSA”). Those trade secrets all relate to the Software. It also alleges wilful infringement of a number of its US patents and false advertising, contrary to the (Federal) Lanham Act of 1946.
THE APPLICATIONS
By application notices dated 20 April and 3 May 2022, LZ Switzerland and Winsopia applied (a) for interim ASIs against both UK and Corp in relation to the US proceedings and (b) for permission (if required) to serve out as against Corp in relation to Part 20 claims to be made against it. On 4 May 2022, on paper and in the usual way, Mrs Justice O'Farrell gave permission to LZ Switzerland and Winsopia to serve their Part 20 claims against Corp out of the jurisdiction (“the 4 May Order”). On 10 June, Corp applied to set aside the 4 May Order pursuant to CPR Part 11 on the basis that the Court has no jurisdiction over Corp in relation to the English Proceedings.
Those applications conveniently break down into two groups: first, the applications concerned with the joinder of Corp to these proceedings and related questions of amendments in respect of the Part 20 Claims and second, the applications for interim ASIs in relation to the US proceedings. I shall refer to the first group as “the Part 11 Applications” and to the second as “the ASI Applications” just as the parties have done. The Part 11 applications will be considered first as they logically precede the ASI Applications.
For the purpose of the Applications, I have received three witness statements (“WSs”) from Kate Scott, the solicitor for the Corporate Defendants, dated 20 April, 3 May and 24 June, and two WSs from Kate Vernon, solicitor for UK and Corp, dated 10 June and 5 July. I have also had expert evidence on various aspects of the US proceedings. For the Corporate Defendants, there are two reports from Mr William Jacks, dated 13 May and 24 June. Mr Jacks is an attorney from Texas, dealing in a wide variety of civil cases including those concerned with trade secrets and patent infringements. For UK and Corp there are reports from Mr Jim Pooley, dated 9 June and 4 July. He is an attorney from California practising in, and teaching, trade secrets law.
I also have a draft Amended DAC which includes the proposed Part 20 Claims which LZ Switzerland and Winsopia seek to make against UK and Corp (“the Amended DAC”).
There are a number of underlying key issues or matters which inform both sets of Applications, one way or another, namely:
(1) The nature and content of the ICA and the ownership of the Software licensed thereby;
(2) The proper characterisation of the English Proceedings and the proposed amendments thereto;
(3) The proper characterisation of the nature and scope of the US proceedings; and
(4) Whether Corp, which is not a party to the EJC on its face, is nonetheless in truth a party to it or is otherwise bound by it. The EJC itself is set out at paragraph 21. below.
THE ICA AND THE SOFTWARE
The Terms of the ICA
It is common ground that in very broad terms, a customer which owns an IBM Mainframe computer requires software to enable it to run its applications on that Mainframe. The ICA sets out (among other things) the terms on which such software (“the Software”) is provided to the customer in exchange for the payment of licence fees.
The Recital states as follows:
“This IBM Customer Agreement (called the “Agreement”) governs transactions by which the Customer purchases Machines, licenses ICA Programs, obtains Program licences and acquires Services (including, without limitation, customised development and support, business consulting, and maintenance Services) from IBM United Kingdom Limited (“IBM”).”
There are then the following definitions:
ICA Program — an IBM Program licensed under Part 4 of this Agreement.
Machine — a...
To continue reading
Request your trial
-
Topalsson GmbH v Rolls-Royce Motor Cars Ltd
...in England. The proceedings in California were fundamentally connected with the underlying agreement in that way. 68 In IBM v LzLabs [2022] EWHC 2094 (TCC), I distinguished Skype Technologies so far as subject matter was concerned. This was not only because the party sought to be restraine......