The recent case of IPC Global Pty Ltd v Pavetest Pty Ltd (No 3) [2017] FCA82, provides a textbook example of how not to create a competitive start-up.

A group of senior employees left IPC and started up Pavetest in competition. IPC was the dominant player in marketing software to determine the material strength of concrete pavements and the new start up Pavetest produced a similar software product.

In leaving, they took a copy of the source code for the software product and gave it to a programmer to recreate a competitive product. The programmer referred extensively to the IPC software when producing version 1 of the Pavetest product.

IPC sued the new start up under both copyright and breach of confidence. Under copyright, the core issue was one of whether a “substantial part” of the software had been reproduced. Although IPC’s software contained about 250,000 lines of source code, a large amount of this had been replicated in internal libraries, and it was found that there were only about 15,000 unique lines of code.

Of this, about 800 lines were found to have been directly copied. The judge held that this amount to copying a substantial part. This was due to the originality of the expression in the IPC code, the belief that the emphasis should be qualitative rather than quantitative, and that the parts copied were deeply functionally significant.

The judge also found that the ex-employees had breached their duty of confidence in taking the confidential source code and misusing confidential information of IPC.

The case provides an exemplary illustration of how not to go about establishing a competitive entity, in competition with an ex-employer. It was evident that relying on the previous employer’s source code was likely to result in the judge taking a dim view of any software from which it had been subsequently derived.

This article by Shelston IP Principal, Peter Treloar, first appeared in Managing Intellectual Property magazine, mid-year 2017 issue.