HT-2021-000363 - [2025] EWHC 532 (TCC)

This claim concerns allegations of reverse engineering arising out of the development of software, known as the Software Defined Mainframe (“the SDM”), which is said to enable its customers to take business applications developed for IBM mainframe computers and run them on x86-based computer architectures using the Linux operating system, without the need for source code changes or recompilation. One of the central issues is whether the defendants are entitled to rely on rights of observation, studying and testing and/or interoperability, conferred by Directive 2009/24/EC (“the Software Directive”), implemented by the Copyright, Designs and Patents Act 1988 (“the CDPA”), by way of defence to the claim.

The claimant (“IBM”), a subsidiary of International Business Machines Corporation (“IBM Corp”), is a supplier of computer hardware and software, and licensor of IBM mainframe software within the UK.

The first defendant (“LzLabs”), a Swiss company incorporated in 2011, is the developer and supplier of the SDM.

The second defendant (“Winsopia”), a company incorporated in England and Wales in 2013, is a wholly owned subsidiary of LzLabs. In 2013 Winsopia purchased an IBM mainframe computer and entered into a licence agreement with IBM in respect of IBM mainframe software.

The third defendant (“LzLabs UK”), a company incorporated in England and Wales in 2015, is a wholly owned subsidiary of LzLabs, providing specialist technical support services.

The fourth defendant, Mark Cresswell, is a non-executive chairman and former CEO of LzLabs, and a former director of Winsopia and LzLabs UK.

The fifth defendant, Thilo Rockmann, is the CEO of LzLabs, a director of Winsopia and a director of LzLabs UK.

The sixth defendant, John Jay Moores, is a software entrepreneur who financed the development of the SDM and is the main beneficial owner of LzLabs, Winsopia and LzLabs UK.

On 15 August 2013 IBM licensed IBM mainframe software to Winsopia pursuant to an IBM customer agreement (“the ICA”). Additional and updated licence agreements were entered into by IBM and Winsopia, subject to the same material terms and conditions.

IBM’s primary case is that the defendants breached, or procured breach of, the ICA, using Winsopia’s access to the IBM mainframe software to develop the SDM by unlawful reverse engineering of the licensed software.

In December 2020/January 2021, IBM requested an audit of Winsopia’s compliance with the terms of the ICA. Winsopia refused to accede to the request on the grounds that the request exceeded the ambit of IBM’s contractual audit rights and sought to impose unreasonable demands within an unreasonable timescale for compliance.

By letter dated 24 February 2021, IBM purported to terminate the ICA and other licence agreements for contractual breach; alternatively at common law. By letter dated 1 March 2021, Winsopia disputed the validity of the purported termination and sought to affirm the agreements. By two letters each dated 29 July 2024, Winsopia purported to terminate the ICA and other licence agreements as from 31 August 2024. It follows that, although there is a dispute as to the mode and date of termination, it is common ground that the parties’ primary obligations under the ICA have ceased. The parties confirmed in letters to the court that this does not affect any of the issues which fall to be decided at this stage in the hearing.

On 21 September 2021, IBM issued these proceedings, in which it seeks:

The defendants dispute the claims. Their case is that the SDM was developed by LzLabs following an extensive research and development process spanning almost ten years, using strict processes and policies which applied both to LzLabs and Winsopia, to ensure that no IBM material was used other than in compliance with the terms of the ICA and as permitted by the Software Directive. In developing the SDM, LzLabs employed a clean room process with a code of conduct and there was no unlawful use of the IBM licensed software.

The defendants counterclaim:

This part of the trial is limited to issues of liability, including injunctive and declaratory relief. The parties have agreed that the precise form of any order and other consequential matters, including future disposal of the case, should be determined following this judgment.