In IPC Global Pty Ltd v Pavetest Pty Ltd (No 3) [2017] FCA 82, Justice Moshinsky of the Federal Court of Australia held that Pavetest's use of computer program source code and several test modules had infringed IPC Global's copyright in the software and firmware and that the former CEO and R&D Manager at IPC Global had authorised the infringement. Final orders were made on 16 March 2017 [insert Federal Court link IPC Global Pty Ltd v Pavetest Pty Ltd (No. 4) [2017] FCA 260] and it does not appear that any appeal has been lodged. The case is scheduled to continue to determine the quantum of damages or account of profits to which IPC Global is entitled.

A complex factual history

IPC Global makes equipment for testing construction materials including asphalt. The equipment uses software which, based on the operator's input of information and commands, generates the test results. The dispute involved IPC Global's software known as Universal Testing Software ("UT software") and its Integrated Multi Access Controller firmware ("IMACS firmware"). Both the UT software and IMACS firmware exist in both object code and source code.

Until mid 2012 Mr Sinadinos (the second respondent) and Mr Feeley (the third respondent) were employed by IPC Global which had acquired the assets of Industrial Process Controls Ltd, referred to in the judgment as "Old IPC". Between 1999 and 2003 Mr Feeley was engaged by Old IPC pursuant to a contract of employment and from July 2003 to mid-2012 Mr Feeley worked for Old IPC pursuant to a consultancy agreement between Old IPC and his family company, Aleuta Technology Pty Ltd (the fourth respondent). In mid-2012 Mr Sinadinos and Mr Feeley resigned from IPC Global and established Pavetest (the first respondent). Pavetest then released a range of testing products which competed with IPC Global's products, identified as TestLab Software and CDAS firmware. At the time Mr Feeley resigned from IPC Global, he had copies of the UT software on his computer and after his resignation he provided them to a computer programmer engaged by Pavetest to write the TestLab software. The evidence demonstrated that some parts of the source code of the first version of the TestLab software were identical to parts of the UT software whilst other parts were similar.

After the commencement of the proceeding, changes were made to version 1 of the TestLab software to remove the identical or similar parts, which resulted in version 2.

IPC Global alleged that:

  1. Pavetest had infringed its copyright in the UT software and the IMACS firmware;
  2. Mr Sinadinos and Mr Feeley authorised the infringement;
  3. both men had breached duties of confidence towards IPC Global; and
  4. Mr Feeley and Aleuta had breached contractual duties of good faith and fidelity owed to IPC Global.

His Honour undertook a detailed factual analysis of the relationships between the parties over a period of more than 10 years. His Honour noted that on the third day of trial the respondents conceded liability in relation to the firmware part of the case, both as regards copyright and breach of confidence. The trial, therefore, continued only in relation to the software part of the case. The decision in respect of the firmware can be found in IPC Global Pty Ltd v Pavetest Pty Ltd (No 2) [2016] FCA 1332.

Was IPC Global's copyright infringed?

His Honour noted that the issues in respect of the UT software significantly narrowed up to and during the course of the trial. It was not disputed by the respondents that the source code of the UT software had been used and copied in developing the TestLab software. The respondents did not dispute either subsistence or ownership of copyright and they further conceded that if and to the extent that if Pavetest was liable for copyright infringement Mr Sinadinos and Mr Feeley would also be liable for authorisation.

During its closing submissions IPC Global indicated that it was no longer pressing its copyright claim in relation to version 2 of the TestLab software.

In the case for copyright infringement, the remaining question his Honour was required to determine was whether Pavetest had infringed copyright in the UT software by the creation of version 1 of the TestLab software and, in particular, did version 1 of the TestLab software reproduce a substantial part of the UT software?

His Honour determined that infringement of copyright had occurred (on the basis that version 1 of the TestLab software reproduced a substantial part of the UT software) and that Mr Sinadinos and Mr Feeley had authorised the infringement.

His Honour held that there was originality in the expression of the sequences of the UT software source code and that these sequences played a functionally significant role in the operation of the UT software as a whole. His Honour stated that although the quantum of the source code copied was relatively small in relation to the total size of the UT software, the assessment of substantiality is a qualitative one. Due to duplication across the UT software test modules, his Honour considered the copied source code to be sufficient to constitute a substantial part.

Was there a breach of confidential information? In closing submissions the respondents accepted that the UT software source code included confidential information, which IPC Global was entitled to protect, that substantial parts of the source code were copied in late 2012, and that this information was used in the process of creating version 1 of the TestLab software. In respect of the breach of confidence claim, his Honour held that IPC Global had established each of the necessary elements of a breach of confidence action, namely:

  1. The confidential information was specifically identified – here being the UT software source code as a whole, the documents described as "the UT software communications protocol" documents and elements of the information in the IMACS firmware;
  2. The relevant information was confidential;
  3. Mr Feeley had received the confidential information in circumstances imparting an obligation of confidence; and
  4. The confidential information had been misused.

The Court held that Mr Feeley had breached a duty of confidence owed to IPC Global by providing the source code and the UT software communications protocol documents to Pavetest's programmer to develop the TestLab Software and that Pavetest, Mr Feeley and Mr Sinadinos had misused IPC Global's confidential information in the IMACS firmware to create the CDAS firmware. His Honour also noted that, Pavetest had gained a substantial "springboard" benefit by the misuse of the information.

Was there any breach of contract?

His Honour held that on the evidence, IPC Global’s contract claims were not established. The Aleuta Consultancy Agreement could not be located and the evidence about its written terms was limited. His Honour was therefore not prepared to imply the terms alleged by IPC Global and IPC's claim failed.

Take Home Lessons

  1. Employers and businesses engaging employees, contractors or consultants to perform services which are intended or likely to generate intellectual property need to have in place policies and processes for securing any intellectual property created at their request and within the scope of the arrangements. They also need to take all necessary steps to ensure individuals understand the policies and their implications.
  2. Arrangements with employees and contractors need to be properly documented and retained. Enforcement without these documents may be difficult.
  3. The policies and processes referred to in item 1 need to extend to "exit arrangements", whether as a result of expiration of the arrangement, early termination or resignation. A formal reminder to a departing employee, contractor or consultant of the arrangements in place may well head off any argument of innocence on the part of the offender when challenged or prosecuted.
  4. If an ex-employee or ex-contractor/consultant is suspected of any wrongdoing, the employer or business needs to act quickly to identify exactly what has occurred and to assess the damage (actual or potential). Damage which cannot be compensated financially needs to be dealt with promptly.
  5. The assessment of whether a reproduction of a copyright work involves a "substantial part" is as much qualitative as quantitative.