White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
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White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter November 2004

Developing Similar programs for competitors

Whether or not a software developer is free to develop a software program for a client that is similar to a program which was previously developed by them for another client is determined by issues such as (a) the contractual obligations owed to the original client, (b) who is the copyright owner of the source code (including library code) and © whether the original program was written using confidential information supplied by the original client.

These issues were considered in the matter of Telephonic Communicators International Pty Ltd v Motor Solutions Australia Pty Ltd & Others, which involved software that was developed for training systems used for staff in car dealerships. Mr Phillis had begun to develop these training tools and systems in about 1990. The intellectual property rights in the training products were transferred to Telephonic Communicators International Pty Ltd ( “TCI” ), a company owned by My Phillis's family.

Mr Phillis sought to develop hardware and software solutions that would record telephone calls, to be integrated into the training products and in 1996 engaged the company Scribe Communications Pty Ltd ( “Scribe” ) to do both the software and hardware development.

Scribe developed a device that could be connected to a telephone line and a computer, together with software that controlled the device and caused telephone calls to be recorded. The hardware and software solution ( “E-call24.com” ) had been developed in accordance with the functional requirements provided by Mr Phillis.

Following Mr Phillis being unwell for some time in 2000 and 2001, the business generated by TCI reduced and consequently, the monthly retainer paid to Scribe was reduced from $6,000 to $4,000. To attempt to overcome the financial difficulties this caused Scribe, TCI agreed that Scribe could take over one of TCI's customers, however, Scribe continued to face financial difficulties.

In March 2002, Scribe entered into discussions with one of TCI's competitors and agreed to supply E-call24.com product to Motor Solutions Australia Pty Ltd ( “MSA” ). In June 2002, TCI commenced legal proceedings to restrain Scribe from selling the E-call24.com product to MSA. As a result, the agreement between Scribe and MSA was cancelled.

Scribe's director, Mr Murray, who had developed the E-call24.com product subsequently incorporated a new company Logea IT Solutions Pty Ltd ( “Logea” ) and rewrote the software. An agreement was entered into between Logea and MSA for the supply of the redeveloped software and hardware solution ( “Phone Wizard” ) and prior to 15 January 2003, supply commenced.

On 15 January 2003, TCI and Scribe settled their dispute over the E-call24.com product and as part of the settlement, Scribe transferred various intellectual property rights to TCI. As the parties had agreed to settle the dispute and the Court had made orders fully disposing of the proceedings, TCI could subsequently only pursue further related claims that were not reasonably within TCI's knowledge at the time that the previous proceedings were issued.

The Court held that TCI was not aware at the time of settling the dispute that Logea had developed and was distributing the Phone Wizard product. Once TCI became aware of this fact, it issued fresh legal proceedings and alleged, amongst other things, that there had been copyright infringement, breach of confidence and misleading and deceptive conduct by Logea in relation to the Phone Wizard product.

The Court had to decide whether the Phone Wizard software was a copy of a substantial part of the software programs developed by Scribe for TCI, for which TCI was the copyright owner ( “the TCI Programs” ).

The Court acknowledged that it can be expected that there will be some similarity in the computer code of programs developed using the same programming language and tools. Expert evidence was called in relation to the similarities between the Phone Wizard programs and the TCI Programs to determine whether there had been a substantial reproduction or adaptation of the TCI Programs in the Phone Wizard program.

The High Court had previously held that in such cases, in determining whether there has been a reproduction of a substantial part of a computer programme, the essential or material features of the program need to be ascertained by considering the originality of the part allegedly reproduced. This is assessed by examining the originality with which it expresses the algorithmic or logical relationship which is the essential feature of a computer program.

Although the expert witness called by TCI demonstrated that there were similarities between the lines of code in the Phone Wizard program and the TCI Programs, the Court was not satisfied that the evidence supported an argument that the Phone Wizard program was a copy of a substantial part of the TCI Programs as it had not been demonstrated that there had been duplication of anything that was essential or original, notwithstanding that in two programs 142 and 145 lines of code respectively were considered by the Court to be the same lines in the same sequence.. It was held that there had been no copyright infringement in the development of the Phone Wizard Program.

In relation to the claims of breach of confidence, there had been no written contract dealing with a duty of confidentiality owed to TCI by Logea or Mr Murray. The information supplied by Mr Phillis to Mr Murray involved the disclosure of the various training programs written by Mr Phillis. As these programs were provided to various clients of TCI, and in the absence of contrary evidence, the Court held such information was not secret.

Having found that Phone Wizard was a different product to the TCI Programs, the Court required TCI to show that there was something specifically confidential about the functionality of the TCI Programs. No such evidence was provided.

There are two key points to consider from this judgment. The first is before commencing legal proceedings it is very important to be able to confirm whether or not there is in fact any infringement of your intellectual property rights. Further, disputes such as this one may be avoided if there is a clear written assignment of intellectual property coupled with a lawful restraint of trade which prevents the sub-contractor or its related entities from supplying similar services to the customer's competitors.

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