LZLabs GmbH & Ors v IBM UK Ltd

Factual and Procedural Background

This opinion concerns an application for permission to appeal following a lengthy trial and subsequent consequential hearing. The original trial lasted 33 days, culminating in a main judgment delivered on 10 March 2025 by Judge O'Farrell in the Technology and Construction Court. The judgment found in favour of Company A and against the appellants, comprising Company B, Company C, and an individual, collectively "the appellants". The case concerned alleged breaches by Company C of a standard form contract ("the ICA") with Company A, specifically relating to the misuse and reverse engineering of Company A's licensed software programs. The appellants were found to have unlawfully procured these breaches and engaged in unlawful means conspiracy.

Following the main judgment, a further hearing was held in April 2025, resulting in a consequential judgment which granted injunctive relief and ordered the delivery up and destruction of the contested software programs by 16 July 2025. The appellants sought permission to appeal this decision, leading to the current application which was refused.

Legal Issues Presented

1. Whether permission to appeal should be granted against the findings of fact and law made by the trial judge concerning breaches of the ICA and related torts.
2. The proper interpretation and application of the ICA, including definitions of "ICA Program" and the scope of prohibited acts such as reverse engineering.
3. The applicability and effect of the Software Directive (implemented in English law by the CDPA 1988) on the contractual provisions and alleged breaches.
4. The sufficiency of the appellants' knowledge and intention in relation to unlawful procurement and unlawful means conspiracy.
5. The validity of the consequential relief granted, including injunctive orders and costs allocation.
6. The proper approach to limitation periods and issues of deliberate concealment in the context of the claims.

Arguments of the Parties

Appellants' Arguments

• Contended that the judge erred in her interpretation of copyright law, particularly the idea-expression dichotomy and the scope of protection for software interfaces.
• Asserted that the Software Directive permitted acts such as observation, study, and testing of the licensed software, which should have exempted their conduct from breach.
• Challenged the judge's factual findings as unsupportable or irrational, particularly regarding the nature of the reverse engineering and the extent of breaches.
• Argued that the judge applied an unduly narrow interpretation of exceptions under the Software Directive, including Articles 5(3) and 6(1).
• Maintained that certain contractual provisions, including definitions and limitation clauses, were wrongly construed or applied.
• Raised points on the mens rea element of unlawful procurement and conspiracy, claiming the appellants believed their conduct lawful under the Software Directive.
• Contended that the injunctions and delivery up orders were excessive or unjustified.
• Asserted errors in findings related to audit requests and termination of the ICA.

Company A's Arguments

• Maintained that the appellants breached express contractual prohibitions against reverse engineering and unauthorized use of licensed software.
• Argued that the Software Directive did not override clear contractual terms prohibiting reverse engineering and that the appellants' conduct fell outside permitted exceptions.
• Supported the correctness of the judge's extensive factual findings, including those based on expert evidence.
• Asserted that the appellants' challenges to the judge's fact-finding were impermissible and failed to meet the high threshold for appellate intervention.
• Contended that the appellants lacked the requisite knowledge and intention for unlawful procurement and conspiracy claims.
• Defended the validity of the consequential relief, including injunctions and costs orders, as properly exercised judicial discretion.
• Argued that limitation and concealment issues were correctly addressed by the judge.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fage UK Limited & Another v Chobani UK Limited & Another [2014] EWCA Civ 5	High threshold for appellate intervention on findings of fact; trial judge's role is primary.	Applied to emphasize the reluctance of appellate courts to re-evaluate extensive fact-finding from a lengthy trial.
Re Sprintroom Limited [2019] EWCA Civ 932; [2019] BCC 1031	Appellate court must identify an identifiable flaw (e.g., gap in logic) to overturn evaluative decisions by a trial judge.	Used to reinforce the high hurdle for appeals against evaluative judgments of the trial judge.
Thompson v Christie Manson & Woods Limited & others [2005] EWCA Civ 555	Appellate courts should be cautious in interfering with findings involving complex expert evidence intertwined with factual findings.	Applied to support the trial judge's extensive reliance on expert evidence and caution against appellate re-examination.
Wheeldon Brothers Waste Limited v Millennium Insurance Company Limited [2018] EWCA Civ 2403	Particular difficulties in appealing specialist tribunal decisions; high permission hurdle for fact and expert evidence challenges.	Reiterated the reluctance of appellate courts to disturb detailed factual and expert findings in specialist courts such as the TCC.
Lifestyle Equities (authoritative principles on mens rea in procurement/unlawful means conspiracy)	Knowledge of unlawfulness focuses on knowledge of essential facts, not necessarily knowledge of legal unlawfulness.	Applied to reject appellants' argument that belief in the Software Directive negated their knowledge or intention.
Said v Butt	Principle relating to liability of ultimate beneficial owners and agents.	Rejected as inapplicable to the individual appellant due to lack of evidence and procedural timing.
Perry v Raleys Solicitors [2019] UKSC 5; [2019] 2 WLR 636	Standard for appellate review of findings of fact: no evidence or no reasonable judge could have reached the conclusion.	Cited to emphasize the high standard required to overturn factual findings.
InfoPaq (cited by trial judge)	Exceptions to copyright protection should be construed narrowly.	Applied to support narrow interpretation of Software Directive exceptions.

Court's Reasoning and Analysis

The court undertook a comprehensive review of the trial judge's extensive factual and legal findings, emphasizing the specialist nature of the Technology and Construction Court and the complexity of the evidence, including expert testimony. The court highlighted the well-established principle that appellate intervention on findings of fact and evaluative judgments is only warranted in limited circumstances, such as identifiable errors of law or logic or findings no reasonable judge could make.

The court noted that the appellants' application for permission to appeal was a broad "kitchen sink" approach, challenging nearly every adverse finding over 35 grounds with numerous sub-grounds, many of which were repetitive or lacked coherent legal analysis.

Regarding the Software Directive, the court accepted the trial judge's approach that it could only override contractual terms in limited circumstances and that the appellants failed to demonstrate any such overriding effect. The court agreed with the trial judge that the appellants' acts of reverse engineering and disassembly breached clear contractual prohibitions, regardless of whether literal reproduction of code occurred.

The court rejected the appellants' attempts to recharacterize their conduct as permissible observation, study, or testing under the Software Directive, distinguishing these from prohibited reverse engineering. It found no error in the trial judge's narrow construction of copyright exceptions and confirmed that the contractual terms were properly interpreted.

The court also upheld the trial judge's findings on unlawful procurement and unlawful means conspiracy, emphasizing that knowledge of unlawfulness relates to knowledge of essential facts rather than legal conclusions. The appellants' belief in the Software Directive did not negate their liability.

Issues relating to limitation periods and deliberate concealment were addressed with the court endorsing the trial judge's detailed factual analysis and rejecting the appellants' arguments as unarguable and impermissible attacks on findings of fact.

Finally, the court confirmed that the consequential relief, including injunctions, delivery up orders, and costs allocations, were proper exercises of judicial discretion based on the findings of breach and misconduct.

Holding and Implications

Permission to appeal was refused.

The court concluded that the appellants failed to surmount the particularly high hurdle required to obtain permission to appeal given the extensive fact-finding and expert evaluations by the trial judge. None of the grounds raised arguable errors of law or principle sufficient to justify appellate review. The appellants’ broad and repetitive challenges were characterized as attempts to re-litigate the trial rather than raise distinct legal issues.

The direct effect of this decision is to uphold the trial judge’s findings of breach of contract, unlawful procurement, and unlawful means conspiracy against the appellants, as well as the consequential relief granted to Company A. No new precedent was established; the ruling affirms established appellate principles regarding the limits of appellate review of factual and expert determinations in complex specialist litigation.