England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		10 May 2018

1. MR JUSTICE NORRIS: Ferryfast Ltd's business was the supply of fresh produce and the provision of management software for the production and transport of fresh produce. The latter activity was something it sought to develop in about 2005. It entered into a software engineering agreement with Robert Graham Barrett ("Mr Barrett") on 15 August 2005 for the development of that side of its business activity. Mr Barrett was already involved in the production of management software. The agreement entered into on 15 August 2005 therefore provided that the intellectual property in the systems that were to be developed in the exploitation of this field would remain with Mr Barrett but that Ferryfast would have a perpetual licence to use it. This led to developments of a software program called ProFresh.
2. After about five years, it was decided that this joint venture, (which depended on that 2005 agreement), should be incorporated and so on 6 April 2010, iTech IT Limited was incorporated with the participators in Ferryfast and Mr Barrett becoming the shareholders in that venture. Because the project was now being carried on by a separate incorporated entity, on 13 September 2010 Mr Barrett entered into a deed of assignment by which he assigned the benefit of the IT in the ProFresh software to iTech IT Limited. The software employed a platform known as the Merlin Toolkit. That has also been developed by Mr Barrett but the IT in the Merlin Toolkit was not transferred under the deed of assignment but remained in the ownership of Mr Barrett. He, however, granted a non-exclusive perpetual royalty free licence to iTech IT Limited to use that platform in the provision of the ProFresh software. The Merlin Toolkit contains what has been called a "timebomb" by means of which Mr Barrett could, effectively, terminate the licence, (though the licence itself was, as I have explained, a perpetual royalty free licence).
3. The ProFresh program was developed into a management system called iFinity. The business of iTech IT Limited was the development of that iFinity software, its licencing and the provision of general software support services alongside software support for the iFinity software. The iFinity software was supplied to customers in return for a premium to cover the costs of initial installation and training, plus a monthly royalty fee. There is a dispute between the present participators in the business carried on by iTech IT Limited on the one hand and Mr Barrett on the other hand about whether the software so provided to customers was provided outright with support services tagged on, (as Mr Barrett says), or was provided on a licenced basis, with the licence extending for so long as the compulsory software support services specific to iFinity were supplied to the customer (as the claimants in the action assert). Ruling upon the difference does not matter for the purposes of the application now before me.
4. There were disputes between Mr Barrett on the one hand and the remaining shareholders in iTech IT Limited on the other hand which at one time prompted Mr Barrett to threaten to trigger the "timebomb" in the Merlin Toolkit. But, he gave an undertaking that he would not do so without giving 28 days' notice. The event of the threat to trigger the "timebomb" and the undertaking not to do so demonstrates the degree of tension that had come about within iTech IT Limited.
5. On 7 March 2018, iTech IT Limited, resolved to go into administration. It is Mr Barrett's belief that this was engineered by the other shareholders in iTech IT Limited. But that circumstance does not affect the issues I have to decide; though it does illuminate the enhanced tension that existed and continues to exist between the former participators in iTech IT Limited.
6. On 12 March 2018, an administrator was appointed of the affairs of iTech IT Limited. The administration proceeded by way of a sale of that company's undertaking and assets. There were significant negotiations before the administrator was able to conclude a sale. On 19 March 2018, Mr Barrett incorporated iTech Information Technology Limited. His objective was plainly to start another business using the skills which he had deployed since 2005 in co-operation with Ferryfast and since 2010, as a shareholder in and employee of iTech IT Limited. The similarity in the name will be obvious. On 9 April 2018, the other participators in iTech IT Limited formed their own company (Keyfresh Limited), and it emerged as the purchaser of the undertaking and assets of iTech IT Limited from the administrator. The sale was completed at 9.14 am on 12 April 2018.
7. Included in the sale was the goodwill and the intellectual property of iTech IT Ltd and the right to use the name "iTech IT Limited". All of this passed to Keyfresh as successor. Fourteen minutes after completion of the sale, an employee of iTech IT Limited, Mr Neal Lewis, a friend of Mr Barrett, changed some key passwords on the systems of iTech IT Limited. Following those changes, emails originally intended for iTech IT Limited and which should have reached Keyfresh have, on the evidence, found their way to iTech Information Technology Limited. Customers of iTech IT Limited have found that their support contracts had been transferred to iTech Information Technology Limited and iTech Information Technology Limited has canvassed both the former company's customers of iTech IT Limited and others as, in effect, the successor to iTech IT Limited.
8. In those circumstances, Keyfresh, as successor in title to iTech IT Limited, to its goodwill and its intellectual property, seeks injunctive relief against iTech Information Technology Limited, Mr Barrett and Mr Lewis in respect of alleged infringements of legal right. Before me three, out of the many, causes of action set out in the Particulars of Claim have been relied on. The first is passing off. It is accepted that a serious issue arises for trial in relation to passing off. The names of the companies (providing very similar services) bear a marked similarity. The former website, "itechit.co.uk", which was used by iTech IT Limited has been, effectively, re-registered in the name of Mr Barrett and it is through this re-registration that emails sent to that domain were originally diverted to the new company. Mr Barrett has now put in place a re-direction restoring the original position; but the domain, itself, remains in his control. It is also the case that he has circulated former customers of iTech IT Limited under an email with the subject 'Our New Location' advertising the services formerly provided by iTech IT Limited, now to be provided by iTech Information Technology Limited, saying that they propose to offer "the opportunity to continue receiving the same great managed IT services together with continued support for iFinity from the same great team". It is accepted that this is potentially confusing for customers.
9. The second cause of action relied on is infringement of copyright. As I understand it, the case on infringement of copyright is put in two ways. First, the ability of Keyfresh (as successor to iTech IT Limited) to terminate the licences of customers who cease to pay the compulsory monthly support fee has been disabled by a change in some of the key passwords. The alteration of the passwords, by which this is facilitated, involves a breach of the copyright in the licenced program. Secondly, it is said that because iTech Information Technology Limited offers support of the same sort as was offered by the original company (namely, ongoing remote iFinity support, telephone support, visits when required, updates and enhancements of IFinity and a backup of IFinity data for recovery purposes) there is an inherent breach of the copyright in the software. It should be noted that it is Mr Barrett's position that it is possible to provide the support services without in any way interfering with the underlying code, even as regards enhancements and updates of iFinity; but, in my judgment, there is plainly a serious issue. Whether it is possible to provide those support services without infringing the copyright, it seems to me that the alteration of the passwords disabling the cancellation facility in licences provided to customers also raises a serious issue that copyright has been infringed.
10. The last cause of action relied on is breach of confidential information. Both in the Particulars of Claim and in the application for the injunction, there was a regrettable lack of clarity in precisely what confidential information it was being said Mr Barrett and his new company has employed.
11. I was referred by counsel for Mr Barrett and for his new company to the familiar judgment of Laddie J in Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289, in particular the passage at page 360 which reminds any judge involved in this field that it is possible, by reason of a lack of specificity, to give a claimant a weapon to harass a competitor or ex-employee. During the course of submissions, the scope of the claim has been significantly narrowed. What is said is that the customer log-in details for the user accounts on the iFinity software and in relation to the other support services (which are held on a database known as the Zoho Database) are found to have been copied onto Mr Barrett's computer in unencrypted form. There had been an attempt to wipe that computer but this copy of the Zoho Database survived. It is said that, from this, an inference may be drawn that it is that material that was used to alter the log-in details, thus enabling the diversion of emails from the original company to Mr Barrett's new company. Mr Barrett says that that was unnecessary because the numbers of the customers are small and he knew them.
12. In the latest round of evidence, Mr Barrett's analysis has, in some measure, been confirmed in that it appears that the appropriate access would be obtained by the use of a universal password applicable to all customers and simply remembered rather than being recorded on the database. But the mere fact that a piece of information is remembered rather than recorded on a database does not deprive it of the character of "confidentiality"; and the necessary password to enable alterations in customer accounts to be made seems to me to be strongly arguably confidential. I, therefore, think that there is a serious issue to be tried as to breach of confidence, notwithstanding the conflicting accounts given in evidence and the fact that, to some extent, the claimant's case is dependent upon inference, given the wiping of some of the computer records.
13. In my judgment, therefore, the claimant has cleared the first hurdle and established that there are serious issues to be tried in this case.
14. The second issue, and one where Mr Reed placed considerable emphasis, is whether if those serious arguments are made good at trial, damages would be a sufficient remedy. Mr Reed submits that the number of present customers is small in number, that the terms on which they do business are known, that it would be possible to work out what licence fees have been lost by Keyfresh as successor to iTech IT Limited and that, accordingly, damages must be an adequate remedy. I do not accept his submission. If what the claimants say is established at trial then they will have suffered some quantifiable financial loss, but they will also have suffered some unquantifiable loss - both in relation to potential new customers and in relation to the establishment in the market place of a competitor who has unlawfully used copyright material, confidential information and the goodwill of iTech IT Limited to establish his competitive position. That loss is, as I have said, difficult to quantify. Moreover, it is not possible on the evidence as it stands to be satisfied that either iTech Information Technology Limited or Mr Barrett, personally, would be good for any of the damages which might be awarded. In this field, it seems to me that injunctive relief is important precisely because damages are difficult to quantify and difficult to recover from new companies.
15. On the other hand, if I grant an injunction and iTech Information Technology Limited is wrongfully prevented from trading under that name and wrongfully prevented from using information which its principals carry in their heads, or are restrained from undertaking activities which do not, in truth, infringe the original company's copyright, then would compensation under a cross-undertaking in damages suffice? There is no doubt in the instant case that the claimant would be good for any compensation so awarded because its cross-undertaking is fortified by the support of two substantial companies. But I think the same difficulties would arise in relation to whether the first or second defendants would be able to quantify what loss they suffered. A competitive position might have been improperly restricted. They might have been unable to obtain the custom of former iFinity customers or to provide support services in a way they wished.
16. So, the matter comes down, I think, to the balance of convenience and, here, I must take into account the impact of granting relief upon a new company. As Mr Reed put it, if I were to wrongly grant relief, it might spell the end for the new company and its embryonic business. The simple fact is that the administrator sold the goodwill and intellectual property of iTech IT Limited to Keyfresh. Somebody, to the advantage of iTech Information Technology Limited, has accessed Keyfresh's purchased systems, has diverted emails, has taken control of the domain name and has held itself out as the newly relocated business providing exactly the same services as were provided by iTech IT Limited. In my judgment, the purchaser of the business is entitled to be protected against conduct as to which there is a serious question as to its lawfulness in circumstances where it cannot be properly compensated in damages. This will impact upon an embryonic business but that business has only been trading for about four weeks. If it has to change its name, if it has to restrict its use of some material, it is at a sufficiently early stage to be able to create a new image or brand for itself and if it wins the action, may either resort to its original preference or maintain its revised brand.
17. What Mr Reed submitted was that customers really know Mr Barrett and it is Mr Barrett's connection which attracts them. If that is so, then the name, "iTech Information Technology Limited", has a lesser significance than might otherwise be the case. Mr Barrett can give his name and his personal connection, provenance which will draw former customers of the original business to him and, indeed, some of his marketing material seeks to emphasise that it is he and the team he has assembled around him formerly with iTech IT Limited which will be providing the services. In my judgment, the balance of convenience comes down to preserving the status quo as it was at 9.14 am on 12 April 2018. I shall accordingly grant the much more limited injunctive relief which is now sought.

Epiq Europe Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof.

This transcript has been approved by the Judge