Richard Harrison is a partner in Laytons, a firm of solicitorswith four offices nationwide. He can be contacted on 0171 842 8000 or richardh@laytons.com
The last issue contained William Cook’s detailed review of the implicationsof Mars UK Limited v Teknowledge Limited (11 June 1999). This was asuperb analysis of both the issue of confidence in encrypted material (on whichMars failed) and the issue of software copyright in embedded applications (onwhich Mars succeeded).
The present article is a follow-up. It looks at the decision on the costs andprocedural aspects of the case, Mars UK Limited v Teknowledge Limited (No2) (1999) The Times, 8 July.1 Its message tocomputer lawyers is that the quality of the rights you possess is only as goodas the means you have to enforce them and the cost to you of exercising thoserights. The scope of the risks involved and the benefits to be gained frommanaging them competently have been radically affected by recent changes in thelitigation landscape.
Two Limbs to the Decision
Teknowledge’s defence on the infringement of copyright and database rightclaims was based on an extension to the ‘right to repair’ exception whichapplied to industrial articles prior to the Copyright, Designs and Patents Act1988. Following that Act, the defences previously available for infringement ofindustrial design right do not apply to infringement of copyright in computerprograms and database rights. As far as these rights are concerned, there is acomplete statutory code of permitted acts which is incorporated into the 1988Act following the EC Software Directive of 1991. However, the more legallyinteresting part of the decision was the confidential information aspect.
Can the ‘Confidence’ Decision be Questioned?
Jacob J decided that the encrypted information did not have the necessaryquality of confidence. A purchaser of machinery is entitled to dismantle it tofind out how it works and tell anybody he pleases what he finds. It has beenargued that the judge did not take into account the skilled techniques involvedin the exercise of reverse engineering when object code is decompiled to producesource code. It could be argued that encrypted software may well possess thenecessary quality of confidence if such skilled work needs to be done to accessit.
It may also be possible to argue on appeal that the fact of encryptiondemonstrates to any reasonable recipient the fact that the owner of the rightsin the encrypted material wishes to impose an obligation of confidentiality.Nevertheless, as the judge said, all a recipient might derive from the fact ofencryption is that the source of the information would prefer him to refrainfrom reverse engineering it (or fiddling with it) – not that there is anyobligation of confidence. Decisions such as Spycatcher and the ‘hiddencamera’ cases involve some additional element of ‘surreptitiousness’ orotherwise inequitable behaviour.
The purpose of this article is not to criticise the decision of Jacob J; infact, I find the robust reasoning in the case fairly compelling. But I canunderstand that there are other views and do not think that, on reflection, theoutcome was necessarily obvious or that any appeal would be hopeless.
Whatever the merits of the decision, on the particular facts of the Marscase, it cannot simply be asserted that attempts to impose confidentiality bynotice will always fail. No doubt there are authorities not before Jacob J whichmight well be cited on any appeal, and no doubt there are ways, as William Cookdemonstrated in the previous article, that obligations in contract andconfidence can be imposed so as to protect software embedded in machinery.
Practical Lessons
The decision in the Mars case flowed like so many others from itsparticular facts. But there are other aspects of the case which also meritattention. It is no good having theoretical rights: such rights must be assertedand protected. This is generally achieved through using or threatening thelitigation process. That process has, following the implementation of the CivilProcedure Rules, and the overall change of landscape and culture generated bythe ‘Access to Justice’ reports of Lord Woolf, changed considerably. The Marscase provides some useful lessons to those who need to assert their rights.
Risk Management in Litigation
Litigation can often be a high stakes business and awareness of the risks isvital. Those risks have recently increased. As mentioned, Mars succeeded on thecopyright issue and failed on the confidence issue. Yet on the question ofcosts, Jacob J held that the making of the confidence claim had only‘barely’ been reasonable. He did not see how Mars could have thought itwinnable. This seems rather sweeping. As suggested, the confidence issue doesnot on reflection appear as clear-cut as appears from the judgment.
Endnotes
1. The short timescale between publication of the last issueand the editor’s deadline for the present issue, coupled with the author’slate summer holiday meant that the full transcript of the second part of thedecision has not been obtained and analysed. For reasons which appear from thenext note, it may be that detailed reference to particular instances is nothelpful.
2. No doubt examples are available and can be cited from thefull judgment but for present purposes it would be invidious to speculate andthose involved would have a different story to tell. It is more helpful toconcentrate on the general message of the decision.
In accordance with the new costs philosophy under the Civil Procedure Rulesand also not inconsistently with a developing tendency under the previousregime, Teknowledge were entitled to their costs of that issue. They agreed toconduct the exercise on the basis of an apportionment of the vast costs – over£550,000 – which had been incurred by Mars. On the basis that one day of athree-day trial had been spent on the confidence issue, the judge awarded Marstwo-thirds of their actual costs.
Under the Civil Procedure Rules, Jacob J was encouraged to order an interimpayment prior to detailed assessment of those costs. There appears to have beenevidence that Mars’ conduct of the case had been ‘heavy handed’ and thatTeknowledge had been trying to co-operate and negotiate.2On this basis, the interim payment to be awarded was reduced to £80,000 to bepaid in instalments over six months.
The New Litigation Culture
So, following a successful assertion of its rights, albeit having launched abattle over a broad front, Mars’ legal advisers were accused ofheavy-handedness and the resultant recovery from the unsuccessful defendant wasconsiderably limited. It may be that few tears will be shed over this but onestraw in the wind which emerges from the judgment is that the old style oflitigation, under which aggressive attacks were launched on every possiblefront, is now being discouraged. ‘Proportionality’ and reasonable conductare the watchwords and the judges are paying close attention to the spirit ofthe Civil Procedure Rules and the ‘overriding objective’ set out on theirfirst page.
Mars won: for the present they have control of their own vending machines andfuture competitors may be discouraged from engaging in reverse engineering.However, we have also learnt from the case that owners of rights need to conducttheir litigation very carefully in the present climate so as to avoid subsequentvictory turning out to be pyrrhic. A new culture has been nurtured under whichthe cost-benefit analysis of every step to be taken must be very carefullyconsidered.
Thoughts for the Future
A salutary lesson for all lawyers who have to take practical steps to enforcerights is that legal rights, however firm in theory, are always relative and areaffected by many external aspects. These include: the relevant facts, theparties’ manipulation of those facts, the presentation of the case, the conductof the parties and the perception of the tribunal.
The new civil justice regime emphasises the significance of presentation, therole of judicial discretion and the consequences of unreasonable behaviour. Theattitudes it encourages – sharing of information, co-operation, earlyidentification of crucial issues – is something which should be in theforefront of the advice of all involved in protecting information technologyinvestment. Litigation is, as it always has been, a practical and pragmaticexercise but there are some new twists to be learnt.
Endnotes
1. The short timescale between publication of the last issue and theeditor’s deadline for the present issue, coupled with the author’s latesummer holiday meant that the full transcript of the second part of the decisionhas not been obtained and analysed. For reasons which appear from the next note,it may be that detailed reference to particular instances is not helpful.
2. No doubt examples are available and can be cited from thefull judgment but for present purposes it would be invidious to speculate andthose involved would have a different story to tell. It is more helpful toconcentrate on the general message of the decision.
