Fisher & Paykel Finance wins software case

Reverse engineering of software business rules judged legal

A long-running court action touching on copyright law’s provisions on “reverse engineering” of computer software has resulted in a victory for Fisher & Paykel Finance, the company accused of copyright and trade-secrets breach. The software provider, Californian company Karum, has, however appealed Justice Rodney Hansen’s decision.

Fisher & Paykel Finance (FPF), having taken over Retail Financial Services (RFS) from Farmers Trading Company, in 2004, was faced with integrating the software supporting RFS’s private-label credit card, the Farmers Card, with its own credit software. The software used by Farmer’s Card was CMS, created by Karum.

FPF had a licence from Karum to continue to operate CMS on RFS’s computers temporarily while FPF modified its own credit system software, called Lending and written in Ingres, to support Farmers Card functionality and allow the two business systems to be integrated.

To perform the integration, FPF accessed the business rules programmed into the CMS software by RFS (not by Karum). Karum took legal action against FPF under copyright and trade secrets law.

A provision in Section 80 of New Zealand’s Copyright Act now allows a lawful user of a software product to inspect the source code, by decompiling low-level code if necessary, “for the objective of creating an independent program that can be operated with the program decompiled or with another program.”

This could be relevant in future actions of a similar type, says Ken Moon, one of the A J Park lawyers who acted for FPF, but the case was commenced before that amendment was passed, in 2008, so Moon used the 1994 Act; “in fact there were some aspects where we were working with the 1962 version,” he says.

Moon says he is still not sure that Section 80 would protect all cases of software reverse engineering; “it would depend how far you went,” he says; so the latest judgement is still “a welcome clarification”.

The case highlights the distinction between the mode of operation of a program and its literal text. While the former is a matter for patent (currently engaged in its own controversy in Parliament) the latter is the province of copyright law. However, Karum contended it still had a case for “what’s known in US law as non-literal infringement”, says Moon.

“Having regard to the scale, duration and complexity of the project, any incidences of inspection of the CMS code by FPF were few,” Justice Hansen decided late last year. “None involved a deliberate attempt to appropriate protected information and none resulted in detriment to Karum”.

He found inspection of CMS code by FPF was permissible where it was solely for the purpose of ascertaining the relevant business rules of RFS.

After two interlocutory hearings in 2007 and 2008, the case went to trial in October 2011. Due to the number of witnesses (19) called to give the necessarily complex evidence, it ran for eight weeks, making it probably New Zealand’s longest intellectual property trial, says AJ Park. It was only the second software copyright case to go to trial and was the first for software trade secrets.

Moon and Kim McLeod, who led the AJ Park team, say the judge’s decision clarifies how far this sort of claim can be taken. More specifically, so far as computer software is concerned, the English law excluding protection for business logic, processing logic and program functionality has now been applied in New Zealand.

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