IBM has won its closely watched London litigation against Swiss software company LzLabs in an IP licensing and trade secrets dispute. 

The high-profile case at the Technology and Construction Court of the High Court in London featured a nine-week trial that ran from April to July last year. 

The US tech giant had accused LzLabs, two English subsidiaries and US tech entrepreneur John Jay Moores of reverse-engineering its mainframe software, violating licensing agreements.

IBM was represented by Nicholas Saunders KC and Fred Hobson KC of Brick Court Chambers, Matthew Lavy KC of 4 Pump Court, and five juniors, instructed by Quinn Emanuel partners Kate Vernon and Gregory Pantlin. 

The case for the defendants was led by Clifford Chance partners Kate Scott and Vanessa Marsland instructing 4 New Square’s head of chambers Roger Stewart KC and 11 South Square’s Mark Vanhegan KC, along with juniors from both those sets.

IBM alleged 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. 

The defendants disputed this, contending that they had developed their own software-defined mainframe (SDM) after years of independent work, thus denying any impropriety.

LzLabs asserted that the SDM falls under protections granted by European and UK laws that encourage technological innovation and competition. They denied any misconduct, framing IBM’s lawsuit as an attempt to stifle a growing competitor in the tech market.

Mrs Justice O’Farrell delivered a 253-page judgment, largely upholding IBM’s claims. She stated that Winsopia violated the terms of IBM’s licence and customer agreement, including procuring others to engage in unauthorised activities with IBM’s intellectual property. O’Farrell remarked: “LzLabs and… [Moores] unlawfully procured [those] breaches.”

The High Court found that LzLabs and other defendants had breached various service terms by improperly using IBM’s software to develop the SDM. O’Farrell determined there had been unauthorised access replication of IBM’s proprietary materials.

However, the judge did not uphold IBM’s case against UK subsidiary LzLabs Limited and the current and former CEOs of LzLabs. She noted that the claims for unlawful means conspiracy against LzLabs UK, Mark Cresswell and Thilo Rockmann failed, stating: “There is no established unlawful means that could give rise to liability for the purpose of the conspiracy claim.”

O’Farrell also addressed arguments regarding limitation, concluding that IBM’s claims were timely and not barred by statutory or contractual limitation periods. She highlighted that IBM “could not with reasonable diligence have discovered concealment [of the breaches] before August 2020” or the unlawful means conspiracy before June 2023.

The judgment affirmed IBM’s termination of the customer agreement based on the defendants’ breaches, entitling IBM to damages and an injunction to prevent further use of its proprietary software. An upcoming hearing will determine the scale of damages and payment, and the extent of legal costs.

An IBM spokesperson welcomed the ruling against Winsopia, LzLabs GmbH and John Moores. “The court found that these parties had conspired to unlawfully breach Winsopia’s licence agreement in a deliberate, systematic and intentionally hidden effort to reverse engineer critical IBM mainframe technology,” they said, noting that the technology represented “billions of dollars of investment” for IBM.

Quinn Emanuel partners Kate Vernon and Gregory Pantlin said that they were delighted to have acted for IBM UK, noting the court had upheld its claims for systematic and deliberate breaches of contract, procuring a breach of contract, unlawful means conspiracy and its deliberate concealment.  

The partners said the case was “legally and factually complex” and “hard-fought at all stages”, adding: “[We] look forward to the next phase in the proceedings, which will deal with IBM’s entitlement to relief and remedies.”

Clifford Chance declined to comment.