Quinn Emanuel and Clifford Chance advise as IBM’s high-stakes court battle with Swiss software company begins

Nine week trial in London’s Technology and Construction Court could impact EU’s Software Directive
TOKYO, JAPAN - 17 March 2021:IBM sign

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London’s Technology and Construction Court has today begun to hear the trial of proceedings between US tech giant IBM and Swiss software company LzLabs and connected individuals over claims the Zurich-based company reverse-engineered one of IBM’s foundational technologies. 

The case, being heard by Mrs Justice O’Farrell, concerns businesses’ legitimate or otherwise use of essential software programs independent of IBM’s foundational mainframe computers. 

Quinn Emanuel represents IBM UK, which has instructed partners Kate Vernon, Greg Pantlin and David Lancaster, alongside a three-silk team of Nick Saunders KC and Fred Hobson KC of Brick Court Chambers and one of IBM’s regular counsel, Matthew Lavy KC, of 4 Pump Court. They are assisted by juniors from Serle Court, 4 Pump Court and IP set 8 New Square.  

LzLabs has instructed Clifford Chance partners Kate Scott and Vanessa Marsland with 4 New Square’s head of chambers, Roger Stewart KC and 11 South Squares Mark Vanhegan KC, along with juniors from both those sets.

IBM alleges that a 2013 licensing deal for mainframe software between IBM and LzLabs subsidiary Winsopia enabled the Swiss company to reverse-engineer one of its significant software programs and use it for its benefit. 

IBM, a leading player in the mainframe computer market, argues that the defendant’s software enables customers to run applications developed for IBM mainframe computers using a ‘software defined mainframe’ (SDM) developed by LzLabs. 

According to IBM UK, LzLabs and Winsopia reversed-engineered IBM’s mainframe software without permission in developing the SDM. The system enables existing mainframe software to be transferred to modern computing platforms like Linux in the cloud, potentially reducing reliance on IBM’s proprietary hardware and systems.

Court documents seen by GLP show that LzLabs will counter IBM’s allegations by asserting that the SDM falls under protections granted by European and UK laws that encourage technological innovation and competition. They deny any misconduct, framing IBM’s lawsuit as an attempt to stifle a growing competitor in the tech market.

The Swiss company argues that the SDM would reduce the costs and risks associated with migrating from traditional mainframe setups to more contemporary platforms. 

IBM, however, denies this, saying Winsopia is the latest in a series of linked entities that have, for more than a decade, sought to reverse engineer proprietary IBM mainframe software for their commercial gain, leading to related proceedings in Texas due for trial in Spring 2025 at the latest.

An IBA spokesman said the UK subsidiary “breached a contract that IBM UK entered in good faith and then delivered IBM technology for its parent company, LzLabs, to use in a product of its own”. 

The spokesman added: “This case has nothing to do with restricting competition. The issue is the unlawful exploitation of technology that represents billions of dollars of investment, and IBM UK will vigorously protect itself against Winsopia and LzLabs’ actions.”

EU and other competition regulators will follow proceedings closely for any precedent that affects the EU’s Software Directive of 1991, now part of UK law, which restricts copyright protections to foster competition. 

The directive permits the analysis and improvement of products by smaller companies, provided no direct copying of source code occurs.

A ruling against LzLabs could challenge the directive’s validity, which IBM’s competitors believe might significantly affect competitor protections against dominant global players, although IBM robustly denies this. The case continues.  

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