Last week, Melissa Clarke J handed down her decision on Software Solutions Limited and others v 365 Health and Wellbeing Limited and John Smith  EWHC 237 (IPEC), a rare and interesting IPEC judgment on copyright and database right infringement in software.
The dispute concerned a mental health app called Beating the Blues, which provides patients with mental health conditions such as depression an interactive clinical programme through a series of self-guided sessions. The self-help app was built using the claimants’ software authoring tool (the “IDEA system”) which allowed the defendants to create the app without any detailed knowledge of programming.
The claim was issued in January 2016. The defendants initially argued that they owned all of the intellectual property rights in the version of the app that was eventually marketed and that it did not infringe the claimants’ copyright. However, in the month leading to trial, the defendants conceded a number of key issues in dispute, including that Beating the Blues did, in fact, reproduce the source code of the claimants’ IDEA system.
Key to what remained of the dispute was the defendants’ use of the IDEA System to create files in XML, which were encoded and subsequently deciphered in accordance with a particular structure, known as the XML Schema. The dispute at trial centred on the XML Schema, and specifically whether it was a part of the claimants’ IDEA System and whether it infringed the claimants’ copyright. After hearing evidence from a computer expert and witnesses from the claimants involved in the development of the IDEA System and Beating the Blues, the Court concluded that the XML Schema was a part of the claimants’ IDEA System and copyright in it had been infringed (See our previous blog post on copyright in the XML Schema here). The Court was then asked to consider the circumstances in which the defendants could be liable to pay additional damages for copyright infringement under section 97(2) of the Copyright, Designs and Patents Act 1988 (“CDPA”) and/or Article 13(1) of Directive 2004/48/EC (“Enforcement Directive”).
Section 97(2) CDPA provides that in an action for copyright infringement, the Court may award additional damages to a claimant if it would be just to do so, having regard to all the circumstances of the case but in particular to (a) the flagrancy of the infringement, and (b) any benefit accruing to the defendant by reason of the infringement. These damages are awarded at the Court’s discretion in special circumstances to supplement the usual damages which are calculated based on the claimant’s lost profits, expenses, and moral prejudice.
Similarly, the Court is required under Article 13 of the Enforcement Directive, codified in national UK law under Regulation 3 of Intellectual Property (Enforcement, etc.) Regulations 2006 (SI 2006/1028), to take into account any profits made by a defendant in cases where compensation to the claimant would otherwise be inadequate.
There was a dispute between the parties as to what “flagrancy” of infringement under section 97(2) CDPA properly means. In her judgment, Melissa Clarke J rejected the defendants’ submission that flagrant infringement required the defendants to have deliberately infringed copyright. Rather, flagrant infringement could include reckless behaviour. In her summary of the main principles to guide the exercise of the Court’s discretion, she noted that all of the circumstances of the case should be considered and, while actual dishonesty is not required, any attempt to destroy evidence or conceal infringement through disingenuous correspondence would be relevant factors. Furthermore, the Court would take into consideration the impact of the infringement on the claimant, such as injury to pride and dignity, as well as distress.
The claimants argued that the defendants were reckless in selling Beating the Blues by failing to investigate whether the app used the claimants’ IDEA system and in assigning rights to the app despite knowing that this was not permitted.
The defendants argued that their employees believed that that the source code used in Beating the Blues had been rewritten from scratch, such that the IDEA System had not been used at all. This belief was said to have derived from conversations between a director of one of the defendant companies and certain key witnesses, including the Head of IT of the First Defendant, an employee involved in the front-end development of the app, and an employee software developer.
The Court noted that these alleged conversations were only raised for the first time at trial, such that they could not be properly investigated or challenged by the claimants, and the Court was only prepared to accept parts of the defendants’ evidence which could be corroborated by other evidence.
Ultimately, the Court was not satisfied that the enquiries made by the defendants were sufficient to confirm their belief that the source code used was different from the claimants’ and the Court concluded that the defendants did not carry out a sufficient investigation into the allegations of infringement.
Deliberate strategy to delay
The claimants also argued that the defendants had attempted to conceal their infringement through disingenuous correspondence by refusing the claimants’ request for specific disclosure of the XML files, Beating the Blues source code, and other documents.
The defendants had argued that these materials were irrelevant to the case and that the claimants’ request for their disclosure was “misguided”. The defendants were ultimately ordered by the Court to disclose the materials to an independent expert. However, the claimants argued that the defendants’ refusal to disclose had caused significant delays in obtaining expert reports, which later formed the basis of the defendants’ eventual concession on liability on the bulk of the infringement case. The claimants also argued that the defendants had reaped ongoing benefits from exploiting Beating the Blues during this delay.
The claimants further alleged that the defendants’ objection to disclosure of the source code to a key witness was a part of its “deliberate strategy to obfuscate and delay”. The key witness was the individual who transpired to know about the copying which occurred and was eventually proved.
The Court found that the fact the defendants did not trust the claimants with the source code was relevant to the Court’s conclusion that the defendants did not, on the balance of probabilities, deliberately and strategically delay and obfuscate disclosure in order to gain commercial advantage. Further, refusing to allow disclosure of the source code to the key witness was based on genuine mistrust between the parties, rather than part of a deliberate strategy to delay. It had been reasonable for the defendant to disclose the source code to an independent expert instead.
The claimants argued that the defendants had financially benefited from their infringement by marketing and selling Beating the Blues, which had become a well-established app with strong market recognition, and were able to do so for longer by their delay in admitting infringement.
The Court, though unable specifically to quantify the benefit to the defendants, accepted this and found that the defendants would not have marketed Beating the Blues, “a stable and existing” product with an existing customer base of NHS trusts, if it did not gain any benefit in doing so.
Further, the Court noted the significant distress caused to the claimants, who had invested time and money in developing the IDEA System. Individual directors of the claimant company were described by the judge as being “worn down and aggrieved” and personally insulted by the defendants’ infringement and denials.
The Court ultimately found the infringement to be flagrant under section 97(2) CDPA and granted the claimants’ recovery of additional damages. The case serves as a helpful reminder that the Court will consider all of the circumstances of a case to determine whether additional damages for copyright infringement will be awarded. In particular, the effect of the defendants’ denials of infringement were integral to the judge finding that the claimants would not be adequately remunerated by standard damages alone. Further, the case highlights that the specific actions taken by individuals to substantiate a belief in infringement, or non-infringement, are crucial in assessing flagrancy.
The practical lesson for defendants involved in copyright infringement cases, both current and potential, is therefore to be diligent when responding to allegations of infringement by ensuring that investigations are sufficiently thorough, well documented, and undertaken at a sufficiently early stage, such that any concessions and any points in defence can be raised in good time before trial. Of course, this is good practice in any event, but this case shows that defendants who are perhaps not as diligent as they might have been could find themselves on the receiving end of an award for additional damages under section 97(2) CDPA.
Read a previous blog post here.