Out-Law News | 24 Jan 2006 | 9:48 pm | 3 min. read
In April 2001 when Focus Solutions, a dominant supplier of software to financial services institutions, asked a smaller software firm, Point Solutions, to review modules of one of its products, Goal: Builder, a tool that can be used to develop insurance products. At the time, it did not expect Point to become a rival.
But one month later, Point was approached by Clerical Medical International and struck a deal to develop software for the investment firm. This was Point's first paying customer. Within two months, Point had begun development of what it called Acuo. The software was delivered to CMI six months later, on 11th January 2002. A variation, Acuo Web, was commercially released in August 2002.
Shortly afterwards, Point received a letter from the Chief Technology Officer of Focus. "I am now writing to seek confirmation of the provenance of the software you have developed in order to compete with Focus," wrote Frank Murray. "Our main concern relates to the speed with which you have developed your product."
The letter mentioned another firm, Synaptic Systems, with which Focus had contracted, only to find, as Murray put it, “that they, like you, had developed a product to compete with ours in an impossibly short time frame.”
Requesting confirmation that Point had not copied the Focus software, Murray advised that legal action had been taken against Synaptic. "What has happened between Focus and Point Solutions is strikingly similar to what happened between Focus and Synaptic," he warned.
Point denied that any copying of code or structure had taken place. It also refused to allow Focus access to Acuo's source code. However, Point suggested that a third party could check the code.
Negotiations began over the use of an independent expert, but disagreements arose over costs and the identity and terms of reference for the expert. Eventually, Point announced that it was no longer proceeding; that it would instead seek a court's declaration that it had not infringed upon copyright.
So Point filed suit in December 2004, requesting a declaration and an injunction, prohibiting Focus from representing that Acuo is in breach of copyright.
It was a peculiar case for Judge Frances Kirkham.
“I am being asked to make a declaration that software, which I have not seen, does not infringe any copyright in another software product which I have not seen and in respect of which copyright has not been demonstrated,” she wrote.
She took a cautious approach.
“In my judgment, the absence of tested evidence brings this case close to the category of cases where the court is asked to answer a theoretical question,” wrote Judge Kirkham. “The court should not grant a declaration which it is not satisfied is in respect of matters which are proven; which is necessary, which will be useful and which is accurate and which is appropriate in the context of the case.”
Unlike most intellectual property rights, copyright does not have a statutory-based right of action in cases where there are unjustified threats of infringement action. For such copyright cases the court has to look to general rules of procedure, and a discretionary ability to grant declarations.
The question for the court was, firstly, whether this discretionary right had been triggered.
According to the court papers, Focus had been careful not to accuse Point of copyright infringement, often saying that it was concerned that there may have been infringement but that it could not yet say whether there had been actual infringement.
According to Judge Kirkham, the October letter was sufficiently implicit in its accusation as to trigger the discretion.
“The letter went further than merely expressing Focus' concerns, as they allege,” she found. “Of itself, in my judgment the letter does assert, by implication, that Point had copied and it was, at that time, sufficient assertion of right to trigger the exercise of discretion to grant declaratory relief.”
But the Judge then found that Point had not sufficiently established that it had not copied the Focus software in developing the Acuo products.
“I cannot be confident that Point's approach has been sufficiently transparent and accurate to enable me to conclude, on the basis of largely untested evidence, that Point are entitled to the declaration they seek. Focus have succeeded in casting doubt on Point's claim to have created their Acuo software by independent design to the extent that Point have not discharged the burden of persuading me, on balance of probabilities, that they did achieve the design independently.”
She therefore refused to grant the declaration.
In her opinion, neither party had pursued the alternative solutions with urgency. In addition, it was Point who pulled out of the attempt to use an independent third party.
“In my judgment the refusal by Point to continue with the independent expert scrutiny process is a factor which weighs against them,” she wrote.
Judge Kirkham was also concerned that to grant the declaration would then prevent Focus from bringing an infringement claim in the future.
“It would be unjust to do so in circumstances where the court had not examined the evidence which a court would normally expect to see to be able to determine, on all available evidence, whether or not there had been infringement,” she concluded.