Copyright: Software Solutions Ltd v 365 Health and Wellbeing Ltd

Jane Lambert



 







Intellectual Property Enterprise Court (Judge Melissa Clarke) Software Solutions Ltd and others v 365 Health and Wellbeing Ltd. and another [2021] EWHC 237 (IPEC) (9 Feb 2021)

This was an action for copyright and database right infringement. The work that was alleged to have been infringed was what Her Honour Judge Melissa Clarke called "a computer application development framework" known as the "Integrated Development Environment for Applications" ("IDEA"). In other words, a tool for developing software. The first application ever to be created with the use of that tool was a mental health application called "Beating the Blues" ("BTB"). It was not disputed that copyright subsisted in the IDEA system, in each of its components and in its source code and that such copyrights belonged to the first claimant. It was also common ground that BTB reproduced the IDEA System source code materials. The claimants alleged that the defendants infringed those copyrights by marketing BTB without their consent.

The Issues

As much of the claim had been admitted or at least was not disputed, the issues that Judge Melissa Clarke had to try were as follows.  The defendants admitted that BTB reproduced not only substantial parts of IDEA but also something called "the XML Schema". The defendants admitted that the XML Schema was also a copyright work.  However, the defendants denied that the XML Schema was part of the IDEA system and that the claimants owned the copyrights in the work.  The first and second issues that the judge had to decide was:

"What is the XML Schema? Is it properly to be characterised as part of the IDEA System or part of the BTB application developed using the IDEA System?"

Her Honour also had to decide who owned the rights in the XML Schema.  Though it was agreed that copyright subsisted in the XM L Schema it was disputed that database right subsisted in it.  The claimants claimed that it did and that the first claimant owned such database right.  The third issue for Judge Melissa Clarke was whether database right subsisted in the XML Schema.   Finally, the claimants claimed additional damages under s. 97 (2) of the Copyright, Designs and Patents Act 1988 ("CDPA") and/or art 13 (1) of Directive 2004/48/EC ("Enforcement Directive").

Judgment

After a 2 day trial, the learned judge delivered her judgment on 9 Feb 2021.  At para [178] of Software Solutions Ltd and others v 365 Health and Wellbeing Ltd and another [2021] EWHC 237, she found that the XML Schema was properly to be characterized as part of the IDEA System, that the first claimant owned the rights in that work and that the defendants had infringed those rights by marketing the 5th version of the BTB software.  However, she was not persuaded that database right subsisted in that work and dismissed that part of the claim.  Lastly, she found that the defendants' infringements of copyright had been flagrant and they had enjoyed benefits from their infringement to the distress of the directors of the claimant companies.

What is an XML Schema?

The letters "XML" is an abbreviation for extensible markup language.   A "markup language" is a way of annotating a document to display text.   The following is an example of such a language:


When the document appears on a screen or printout the black text is visible but not the blue.  The blue text indicates how the black text is to appear.   For instance, the words "Peanut-butter On A Spoon" is a title that will appear more prominently than the "ingredient" or "preparation" below.  It is similar to an editor's markup of a typescript in his or her instructions to a printer.

One of the characteristics of XML is that its instructions are comprehensible to humans as well as machines. There are different ways of expressing those instructions known as "schemas".   An XML Schema is a set of rules for annotating XML documents.  Some schemas are standardized and used by many programmers such as XML Schema (W3C) which was established by the World Wide Consortium.  Others such as the one in this case are created by individual programmers for one or more specific purposes.

Who owned the Rights in the XML Schema?

According to Mr Tuvi Orbach, founder of the claimants and a director of the third claimant. a software development team consisting of 5 to 7 employees of the second defendant developed the XML Schema between 1995 and 2006.  The judge found at para [52] of her judgment that the XLM Schema:

"i) was painstakingly developed with great effort, time and expense;
ii) is special and unique;
iii) is part of, and lies at the heart of the IDEA System, being utilised in a number of components including the IDEA Editor, IDEA Engine, IDEA Player, and Runtime player; and
iv) is utilised in the creation and running of any application created using the IDEA System, not just BTB."

Mr Orbach said that the second company spent at least £2 million on developing the XML Schema and his evidence was supported by his company's accounts.  He added:

"A very significant part of the IDEA Software was the time developing the XML Schema. I remember that a huge amount of time was spent working out how data would be represented and validated, what components and properties would be supported, and how this would be displayed in the user interface. Our strategy and purpose in designing the XML Schema is to define all type[s] of elements and attribute[s] which can [define] any complex interactive self-help applications."

He was supported by Mr Yochai Uliel whom the judge described as the "architect of the IDEA System:"

"This was a schema... that we developed with painstaking effort over a number of years to create a structured format that could represent all of the objects and data types that users might wish to include in applications."

The judge found that the second claimant was the first owner of the XML Schema.

In 2002 the second claimant assigned the copyrights in BTB to a company called Ultrasis Plc which later went into administration.  The second defendant, John  Frederick Smith, and his company, 365 Health and Wellbeing Ltd., purported to buy the rights to BTB from the administrators. The question for the judge was whether the copyright and database rights in the XML Schema had been assigned to Ultrasis and, if so, whether they had been further assigned to the defendants.   The 2002 assignment specifically reserved the "IDEA software" to the second claimant.   The definition of the IDEA software included "all the development tools and sub-components which have been used to develop and maintain Ultrasis interactive applications" but it did not refer to the XML Schema by name.  

As the assignment did not specifically refer to the XML Schema, Judge Melissa Clarke referred to para [25] Lord Hoffmann's speech in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101, where the House of Lords construed a formal contract to cure a linguistic mistake.   After reviewing the previous case law, Lord Hoffmann had said:

"What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied."

In Her Honour's judgment, the case before her was also a case where it was clear that something had gone wrong with the language.  Accordingly, she considered it necessary to interpret the definitions in the assignment in such a way as to give effect to what a reasonable person would have understood the parties to have meant. 

Mr Orbach was asked in cross-examination why there was no reference to the XML Schema in the 2002 assignment. He replied:

"About the Schema, it was obvious. Nobody can think that the Schema belonged to BTB because without the Schema we cannot develop any new application with the IDEA System. [If] we give the Schema then we cannot write any more application with IDEA… It was obvious to every intelligent person that you cannot assign the schema, so you don't have to do something which is obvious. The software includes source code material which includes not only what we call standard source code but includes all the component code including documents, schematics including flow charts etc. All of this includes the XML Schema and is part of the Retained IPR".

The defendants attacked that evidence as self-serving and pointed out that Mr Orbach's explanation could apply equally to many other things that had not been mentioned in the assignment.  The judge replied at [121]:

"I have considered this submission carefully but on balance I do not consider that Mr Orbach's evidence on this point was self-serving. It is consistent with the pre-2002 Transaction IDEA documentation; my finding that the IDEA System is a complex system with a number of components with the XML Schema at the heart; my finding that the XML Schema is used by all of the main components of the IDEA System; and my finding that without the XML Schema, the IDEA System in which so much money was invested could not be used by the Second Claimant. I accept the Claimants' submission that this would be a nonsensical effect. Mr Orbach's evidence was entirely clear and compelling, in my judgment, that this was not the intention of either party."

It followed that the second claimant had retained the copyright in the XML Schema.  In view of their admission that the BTB software reproduced the XML Schema, the judge found that the defendants had infringed copyright in the XML Schema as well as in IDEA.

Whether Database Right subsists in the XML Schema? 

The claimants alleged that database right subsisted in the XML Schema because the schema fell within the definition of a database in art 1 (2) of Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases ("the Database Directive") and that the second claimant was entitled to such database right because of its substantial investment in the obtaining, verification and/or presentation of the contents of the alleged database.   Her Honour directed herself at [129] that her first task was to decide whether the XML Schema was a database within the meaning of art 1 (2).

Art 1 (2) provides:

"For the purposes of this Directive 'database' shall mean a collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means."

The judge noted that the Court of Justice of the European Union had given the definition "wide scope, unencumbered by considerations of a formal, technical or material nature" in C-444/02 Fixtures Marketing Ltd v Organismos Prognostikon Agonon Podosfairou (OPAP) (C-444/02) EU:C:2004:697; [2005] 1 C.M.L.R.16. at [20] to [36] and that judgment had been quoted with approval by Sir Robin Jacob in Football Dataco Ltd v Sportradar GmbH [2013] EWCA Civ 27 and by Mr David Stone in Technomed Ltd v Bluecrest Health Screening [2018] FSR 8, 2017 EWHC 2142 (Ch).

At para [136] the judge noted:

"....... the XML Schema provides a structure or framework for arranging independent data in a systematic or methodical way which are then individually accessible by electronic means, but it is not clear to me that it is itself a collection of independent data so arranged. I remind myself that 'independent' data are data which are "separable from one another without their informative, literary… or other value being affected". The question appears to be whether they have autonomous informative value, per [33] of Fixtures. That case related to a structure for recording the date, time and identity of teams for various fixtures in a football league. This was held to be a database even without being populated by the results of various matches, as that data (date, time and identity of teams) was held to have an independent value in that they provided interested third parties with relevant information (at [34] of the judgment). The Claimants in this case have not drawn my attention to any evidence which can satisfy me that the various elements making up the XML Schema have autonomous informative value. Much as the individual words in a literary work cannot be separated without losing their literary value (per [29] of Fixtures), it seems to me (in the absence of any submissions otherwise) that the individual categories of what elements, attributes and data are validly contained in the XML Schema cannot be separated without losing the informative value of the rules as a whole."

Although the definition of "database" was very wide, the claimants failed to persuade the judge that the XML Schema fell within that definition.  It followed that the XML Schema was  not  a database and that it was, therefore, unnecessary for her to consider whether database right subsisted in the schema amd whether the second claimant was entitled to such right, 

Whether the Claimants are entitled to Additional Damages

Judge Melissa Clarke listed the grounds upon which the claimants claimed additional damages under s.97 (2) of the CDPA and/or art 13 (1) of the Directive at para [145]:

"i) Mr Smith knew that the Claimants had objected to the sale of BTB to the First Defendant on the basis that BTB v5 was still based on the IDEA System, and so he should have properly investigated whether this was the case or not. The Defendants' decision to exploit BTB v5 in the light of this information was at the very least reckless ("Allegation (i)");
ii) Mr Smith admitted in cross-examination that he knew that the 2002 Licence to Ultrasis terminated on its insolvency and did not permit assignment of rights, and therefore he must have known those rights could not validly be assigned to the First Defendant by the administrators of Ultrasis. The Defendants' decision to exploit BTB v5 in the light of this information was either knowing or at the very least reckless ("Allegation (ii)").
iii) The Defendants attempted to conceal the infringement through disingenuous correspondence, alternatively they adopted a deliberate strategy to obfuscate and delay, by refusing to provide disclosure of the BTB XML files, Java source code and other documents mentioned in the Defence when the Claimants requested them, until the Claimants made an application for specific disclosure ("Allegation (iii)");
iv) The Defendants adopted a deliberate strategy to obfuscate and delay, by objecting to the Claimants showing the BTB source code materials to Mr Simonov, who was the one person who seemed to know about the copying which actually occurred ("Allegation (iv)")."

The judge found Allegations i and ii to be made out but not the others. She also found that 365 Health and Wellbeing had built a very successful business from marketing the BTB application and that both Mr Smith and the company had benefited financially from delays in bringing this case to trial.  Mr Orbach and Mr Uliel had suffered anguish and distress as a result of the infringement and the time it had taken for the case to come to trial.

It is important to note that actions in the Chancery Divison (including IPEC) tend to proceed in two stages.  First, there is the trial on liability to determine whether the claimant has rights and, if so, whether those rights have been infringed.  If the court finds for the claimant on liability the next stage is an account of profits or an inquiry as to damages to determine how much is due to the claimant by way of accountable profits or compensatable damages. The trial before Judge Melissa Clarke was a trial on liability.  Her Honour noted at [143] that it was common ground

"that a judge of liability may direct a court taking a later inquiry as to damages to have particular regard to any findings which he or she makes which may be relevant as to the flagrancy of infringement, but he or she is not in a position to determine or direct whether the flagrancy of the infringement requires an award of additional damages, as this is a matter for the court before whom the inquiry as to damages is taken (per MCA v Charly Records [2002] FSR 26, in particular [65] of the judgment of Chadwick LJ. See also ZYX Music GmbH v King [1997] 2 All E.R. 129 at [147] cited in Nottinghamshire v NGN: '…on the judge's findings, which I have upheld, Pinnacle's infringement was undoubtedly flagrant and substantial benefit must have accrued to Pinnacle as a result. Whether the justice of the case requires an award of additional damages can only be determined on the inquiry.'"

A successful claimant can choose an account or an inquiry but not both. In a case such as this, a claimant can be expected to choose the remedy that will result in the larger payment.  Additional damages are only available where the claimant chooses an inquiry. 

Comment

This judgment was closely reasoned and well documented.  Although the case turned on its own facts, it did break new ground with the legal characterization of a schema in a markup language.  It may also be cited for its application of Persimmon Homes Ltd to a copyright assignment.  Anyone wishing to discuss this case may call me on 020 7404 5252 or send me a message through my contact form.

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