White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - June 1997

When a information technology business is broken down into separate entities for sale, it is important that the contractual documentation of the original conglomerate be carefully examined to determine any residual obligations on parties acquiring a partial interest. The 1997 NSW Supreme Court Case of Sanderson Computer Pty Ltd v McDonnell Information Systems Pty Ltd & Anor provides an interesting example of this principle. In 1987, AWA acquired the intellectual property rights in some software developed by a municipal council subject to the council being able to continue to use and modify the software. Normally, AWA licensed software on a per machine basis. In 1989, Sanderson acquired interests in AWA Ltd's application software division and McDonnell acquired an interest in AWA Ltd's hardware division. In 1992 McDonnell sold new hardware to the council and the Council's existing software was installed on the new hardware. Sanderson demanded payment of a commission for the hardware sold by McDonnell to the Council on the basis that McDonnell had “re-licensed” the Council's use of the software. The Court found that Sanderson's acquisition of AWA's software division was subject to the pre-existing right of the Council to use the software regardless of the hardware used and no rights to a commission arose as the software was not “re-licensed”. Intellectual property sale and licensing can give rise to comlex legal problems if the appropriate documentation is not prepared and signed by all parties. This problem could have been avoided by a proper intellectual property assignment (including future software rights) from the Council to AWA, a limit on the scope of the licence given to the Council or an appropriate warranty and indemnity being obtained from AWA.

If a foreign company can prove that the Australian registration of an identical or similar name would mislead or deceive their potential customer base in Australia an application can be made to the Federal Court to seek an injunction which would force the Australian company to cease trading under their company name. (Section 52 of the Trade Practices Act (Cth) and passing off). In MIPS Computer Systems Inc and MIPS Computer Resources Pty Limited and Ors, MIPS Computer Systems successfully argued that its international reputation was significantly strong in Australia for the company MIPS Computer Resources to mislead the public as to a possible connection between the two entities. MIPS Computer Resources were compelled on a interim basis to rename the company so as to not include the terms “MIPS” in the name until the matter was finally heard. The choice of a business name or company name is an important decision. Care needs to be taken to avoid selecting a name which is similar to a trade mark, product or business/company name belonging to another party offering similar goods and/or services.

If you are a party to litigation, it is important that your opponent is made aware of any change of your address. If your opponent is unable to deliver Court documents to you, the litigation may continue in your absence. In Tradebanc International Pty Limited v Robert Balsdon and Trade Winds Express Card Company Pty Limited, the solicitors acting for Balsdon and Trade Winds ceased to act after filing a Notice of Defence. Balsdon and Trade Winds had been sued in respect of monies paid ($25,000.00) for a software program to be developed. The software program was found to be inadequate for its intended use and a new software program was developed by a third party. Balsdon and Trade Winds did not attend the Court hearing in the matter and in their absence, Balsdon was ordered to pay, to Tradebanc, the sum of $25,000.00 together with legal costs and interest on the basis that the development agreement had been discharged as the software was for all practical purposes useless to Tradebanc. Although the Court will assist patries which represent themselves in Court, there are many rules which must be complied with to ensure that you are able to best protect your interests.

In 1997, over 200 software patents are being issued every week in the US. On these calculations, the US Patent Ofice will issue as many patents this year as were issued in the period of the late 1960s to early 1990s. Patent litigation is on the increase both as source of revenue and tactical manoeuvre. Major suppliers, including IBM, Microsoft, Xerox, Adobe, Autodesk, Computer Associates, Informix, Intuit, Oracle, Sequent Computers, Novell, have been parties to such litigation amongst themselves and other parties. When considering supplying unlimited intellectual property warranties it is important to either qualify the scope of the warranty and/or conduct very thorough searches of the patent offices of the states in which such indemnities are offered. The fact that you wrote the software or created other intellectual property from first principles will not prevent an injunction being granted to prevent you licensing your product as independent development is no defence to a patent infringement claim. Your responsibility for such an indemnity may be enormous. For this reason many multinational suppliers currently refuse to supply unlimited indemnities.

In Geoffrey McHattan v Australian Specialised Vehicle Systems Pty Ltd and Anor ("ASVS"), ASVS wanted to use the name “Taipan” in relation to a specific armoured vehicle it had developed in response to a tender by the Australian Defence Forces. McHattan had a trade mark “GJM Taipan” registered in respect of motor vehicles. McHattan had an objection to ASVS using the Taipan name in relation to goods which were included in his trade mark. He applied to the Court for an injunction against ASVS to restrain it from using the name “Taipan” until the matter was resolved. ASVS lodged an application seeking to exclude certain goods from McHattan's trade mark. The Court considered the effect, on both parties, of the success and failure of an application by McHattan to obtain an interim injunction against ASVS. An interim injunction was granted which prevented ASVS's use of the mark “Taipan” in relation to the tender until the issue of infringement of McHattan's trade mark was resolved. The Court considered that notwithstanding McHattan's case being considered “weak” no detriment would be suffered by ASVS as the name of the vehicle was not likely to be significant in the tender process. As a result ASVS incurred substantial legal costs, inconvenience and possible damage as a result of not conducting a proper search of the trade mark register before committing resources to a product name.

In a US Appeal in April 1997, Corcoran v Sullivan, Corcoran, a software developer, attempted to appeal his criminal conviction for wilful destruction of computer data by relying on copyright law. Cocoran was hired to develop a computer program. The program purportedly had many bugs in it and Corcoran was concerned that he was not going to be paid for the project. In order to seek revenge, should he not be paid, Corcoran included a “bomb” in his software which, if activated, would delete his program and all the company's data which had been entered using his program. Corcoran maintained that copyright law permitted him to destroy his software for which he was the copyright owner. The Court rejected his appeal on the basis that the copyright law does not permit the destruction of property owned by another party which is intermingled with a copyright work. ie his customer's data Caution must be taken with the inclusion of such “bombs” in software. If the “bomb” is likely to effect any data other than your program, you may be civilly and criminally liable. In cases when passwords or other keys are required to use the software, your customer should be made aware of this requirement to avoid loss or damages arising from a delay in being able to use the software.

In the May 1997 US District Court case Hyperlaw Inc v West Publishing Company, West maintained that it had copyright protection with respect to Judges' opinions from the US Supreme Court and the Circuit Courts of Appeals which it publishes in law reports. Hyperlaw produces a CD-ROM products which contain Supreme Court and Circuit Court of Appeals decisions. Hyperlaw uses West's publications to scan cases which were heard before Hyperlaw began collecting Court decisions and West claimed that this action constituted an infringement of copyright. It was found that since the authors of the opinions were Judges and the fact that Hyperlaw did not copy the headnotes or numbering system which are added by West, Hyperlaw's actions did not constitute an infringement of copyright. If you produce a product which is a collation of works authored by other parties, in the absence of an exclusive licence to use those works, you cannot prevent another party using the works in a similar collation if the authors of the works consent to such use.