13th March 2025
On 10 March 2025, the TCC handed down judgment in the case of IBM United Kingdom Ltd v LzLabs GmbH & Ors [2025] EWHC 532 (TCC).
The case, which was featured as one of The Lawyer’s Top 20 Cases of 2024, proceeded to a 10-week trial last April on liability issues.
IBM UK’s (“IBM”) claim related to the development by the Defendants of a platform known as the Software Defined Mainframe (“the SDM”), which was marketed as a substitute for various mainframe software products offered by IBM. IBM issued proceedings in 2021, alleging reverse engineering by the Defendants in breach of contract. IBM said that it was “inconceivable” that the SDM could have been developed without making unlawful use of IBM mainframe software.
The SDM was developed and is supplied by the First Defendant, LzLabs GmBH (“LzLabs”), a Swiss company owned by US technology entrepreneur John Moores. The Second Defendant, Winsopia, which was acquired by LzLabs shortly after its incorporation and was ultimately beneficially owned by Mr Moores, entered into a license agreement (the “ICA”) for the use of certain IBM software products in 2013. As the Court held, the Defendants concealed the connection between LzLabs and Winsopia from IBM, with the result that IBM did not discover until several years later that Winsopia was a subsidiary of LzLabs, and that the purpose of Winsopia’s operation was to furnish LzLabs with information gleaned from IBM’s mainframe software to assist in LzLabs’ development of the SDM.
O’Farrell J found that Winsopia (at the direction and under the control of LzLabs) had breached the terms the ICA, including by reverse engineering the IBM mainframe software licensed to it. It did so by deploying a number of invasive reverse engineering techniques, including disassembly, decompilation and translation, on a large scale over a period of several years. As Mrs Justice O’Farrell put it at [873] of the judgment, “The breaches that have been established by IBM could not be described as isolated errors; their nature and extent, and the duration over which they occurred, are indicative of deliberate and systematic disregard of the terms of the ICA”.
Mrs Justice O’Farrell rejected Winsopia’s defence to IBM’s claim for breach of the ICA under the EU Software Directive. Winsopia had argued unsuccessfully that it had merely carried out “observation, studying and testing” of the licensed programs and/or acts which were necessary to achieve the interoperability between those licensed programs and other programs, such that it fell within the protections provided by Articles 5 and 6 of the Directive.
The Court also found that LzLabs and Mr Moores were liable for procuring Winsopia’s breaches of the ICA, and that Winsopia, LzLabs and Mr Moores participated in an unlawful means conspiracy with the aim of developing and marketing the SDM by committing (and procuring) breaches of the ICA.
The defendants also raised contractual and statutory limitation defences. The Court found that the defendants deliberately concealed their wrongdoing, with the result that the statutory period of limitation was postponed under 32(1)(b) of the Limitation Act 1980 and the relevant contractual time bar provisions did not apply. As O’Farrell J described it, “the defendants embarked on… a series of steps and policies to conceal from IBM that Winsopia was a wholly-owned subsidiary of LzLabs, set up to acquire a mainframe and software licence, using what I have found to be breaches of the ICA, with the sole purpose of assisting and facilitating development of the SDM” [1067]. The Court also found that IBM, acting with reasonable diligence, could not have discovered the concealment prior to August 2020, or (with regards to the unlawful conspiracy claim) prior to June 2023 [1118]-[1119].
4 Pump Court’s Matthew Lavy KC, Laura Wright, Alex Taylor and Jacob Haddad, together with Nicholas Saunders KC and Fred Hobson KC of Brick Court Chambers, James Weale of Serle Court, and Henry Edwards of 8 New Square, were instructed by Partners Kate Vernon, Gregory Pantlin and David Lancaster of Quinn Emanuel Urquhart & Sullivan UK LLP on behalf of the successful claimant, IBM.
You can read the full judgment here.
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