Koger Inc. and Koger (Dublin) Ltd v O'Donnell & others, [2013 IESC 28 (2013)
THE SUPREME COURT[Record No: 422/2010]
Koger Inc. and Koger (Dublin) Limited Plaintiffs/Appellantsand
James O’Donnell and Roger Woolman and David Gross and HWM Financial Solutions Limited Defendants/Respondents
Judgment of Mr. Justice Clarke delivered the 18th June, 2013.
1.1 Intellectual property rights provide a significant part of the legal framework within which the knowledge economy operates. In the context of the software business, copyright in newly developed programs can be a vital business asset. At the same time, senior employees often generate or have access to highly confidential information held by their employer. Such employees frequently must have access to highly confidential information as part of their job. Separate from intellectual property rights as such, the law gives a certain degree of protection to employers to ensure that improper use is not made by present or former employees of such confidential information. At the same time, the law seeks to protect employees by ensuring that, when leaving employment, they retain the freedom to take up alternative employment and exercise their skill and knowledge in such new employment, even though much of that skill and knowledge may have been obtained while working for their former employee. When these proceedings were originally brought, issues of both alleged copyright breach and alleged breach of obligations in respect of confidential information formed the basis of the allegations made.
1.2 The first named plaintiff (“Koger Inc.”) is incorporated in Slovakia and developed a highly successful software program designed for use in the financial services industry. The program in question was called NTAS. The plaintiffs (collectively “Koger”) own copyright in that program. The first three defendants/respondents (“the personal defendants”) were former employees of Koger while the fourth defendant/respondent (“HWM”) is a company established by the personal defendants. Having left the employment of Koger and established HWM, a rival software called ManTra was developed. In essence, when these proceedings were commenced, Koger alleged that the personal defendants had acted in breach of their duties as former employees by allegedly making improper use of confidential information and, in addition, that ManTra breached the copyright which Koger held in NTAS. The case was at hearing before the High Court (Feeney J.) for 34 days with judgment being delivered on the 8th October, 2010, (Koger Inc. & anor v.O'Donnell & ors,  IEHC 350). Each of Koger’s claims was rejected. On this appeal, Koger did not seek to go behind the decision of Feeney J. on the question of breach of confidential obligation or allied matters. Koger confined itself to an appeal against the findings in relation to copyright. However, a major issue arose between the parties stemming from what was said by the defendants to be an attempt on the part of Koger to run the appeal on a basis wholly inconsistent with the case made in the High Court. That question, together with any consequences which might flow from this court being satisfied that the defendants' contentions in that regard were correct, was, therefore, logically the first issue which this court had to consider. In order to better understand that issue, it is appropriate to start by making some reference to the background facts.
2.1 The NTAS programme at the centre of the dispute was jointly developed by George Sipko and Paul Piringer, the founders of Koger Inc. Initial development occurred in the late part of 1995, 1996 and the early part of 1997, with the product being launched in 1997. Thereafter, the product was continuously updated and revised. At paragraph 4 of his judgment, Feeney J. outlined the functionality of the programme and its market prominence in the following terms:
“The NTAS software product provided back office software for fund administrators, fund managers and fund advisers and in particular the NTAS program provided an information technology system and software program to facilitate the processing, storing and categorisation of business data. The NTAS product was successful and Koger became the industry leader in the provision of back office software for fund administrators, fund managers and fund advisers. NTAS is used in the fund administration industry in a number of countries and had established itself as market leader to the extent that by 2006 it had over 50% market share in the relevant market.”
2.2 Koger Inc. opened an office in Dublin in 1998 in an attempt to develop and service the European market for the NTAS product. The second named plaintiff/appellant, (“Koger (Dublin)”) was incorporated on the 4th January, 2002, to take over the business of the Dublin office. Koger Inc. holds 99% of the shares in Koger (Dublin) with the remaining 1% owned by George Sipko. Koger Inc. also established a Slovakian office in 2001, which worked closely with the Dublin office in meeting their client’s requirements and resolving technical glitches in the NTAS program. As will become clear, a significant proportion of the later development of NTAS occurred at the Slovakian office.
2.3 The first named defendant/respondent, James O’Donnell (“Mr. O’Donnell”) first came into contact with NTAS and Koger Inc. when working in the Cayman Islands between 1995 and 1998. He was directly involved in the procurement and the testing of the then new NTAS system for his then employer, who became Koger Inc.’s then largest client. When Mr. O’Donnell left that employment, he agreed to act as a consultant for Koger Inc. and operate from their recently opened Dublin office. Mr. O’Donnell became an employee of Koger (Dublin) in 2002, following its incorporation, and a director of that company in January 2003. This employment and directorship continued until the 30th April, 2006, when he resigned. Feeney J. described Mr. O’Donnell as being “in effect, during the years of his employment, the senior person employed by the company and was responsible for the running of the Dublin office”.
2.4 The second named defendant/respondent, Roger Woolman (“Mr. Woolman”), worked with Mr. O’ Donnell for the same employer in the Cayman Islands. Mr. Woolman returned to Ireland in 1999 and was then offered a consultancy role in Koger Inc.’s Dublin office by Mr. O’Donnell, which he initially refused. However, in 2001, Mr. Woolman commenced providing accountancy services for Koger (Dublin) on a part-time basis. Mr. Woolman served as a director of Koger (Dublin) from its establishment in 2002 until the beginning of 2003, at which point he resigned and Mr. O’Donnell took up that position. Mr. Woolman continued to provide services to Koger (Dublin) on a consultancy basis until September 2006, albeit with a break in service for a period between 2003 and 2004.
2.5 The third named defendant/respondent David Gross (“Mr. Gross”), also worked in the Cayman Islands, at the same time as Mr. O’Donnell and Mr. Woolman, and all three knew one another. Mr. Gross returned to Ireland in 2000 and was approached by Mr. O’Donnell with an offer to work in the Dublin office. Mr. Gross accepted and began working for Koger Inc. as a senior analyst in April 2001. His employment transferred to Koger (Dublin) after its incorporation in 2002. In 2004, Mr. Gross ceased working for Koger.
2.6 A number of others who worked extensively with the NTAS program in Koger’s Slovakian office are also said to have been involved in the alleged wrongdoing, but are not parties to the proceedings. Marian Klco (“Mr. Klco”) worked for Koger from 1998 until March 2006. His evidence was that he was the driving force behind the redesign of the NTAS code over this period. Jana Potocnakova (“Ms. Potocnakova”) was another senior employee in the Slovakian office. By 2005, she was responsible for co-ordinating the NTAS programming work among the software developers. She handed in her resignation in February 2006 and was directed to depart immediately. Martin Madej and Ivan Mesarc were other former Koger employees who are also alleged to be involved.
2.7 The personal defendants together with Mr. Klco, Ms. Potocnakova and other former employees of Koger were involved in the creation and establishment of HWM. In December 2005, Mr. O’Donnell and Mr. Woolman registered the domain names www.hmwps.com and www.hwmsolutions.com. Feeney J. also noted that a meeting took place between the personal defendants in January 2006 where the possibility of setting up an independent company was discussed. In February and March 2006, more work was carried out by Mr. Woolman and Mr. Gross, including the preparation of a preliminary business plan and the obtaining of legal advice as to whether former employees of Koger would be restricted from establishing a rival firm or product.
2.8 At the beginning of June 2006, a meeting occurred in Slovakia, which has been described as a brainstorming session, at which the development of the NTAS competitor product, ManTra, was discussed. Present at this meeting were Mr. O’Donnell, Mr. Klco, Ms. Potocnakova, Martin Madej and Dylan O’Brien (another former employee of Koger (Dublin) who had resigned from Koger (Dublin) prior to the meeting but then recommenced working for Koger (Dublin) for a number of months after this meeting). This meeting lasted a number of days. Feeney J. described the next stages of the development process at paras. 67 and 68, where he stated:
“The evidence establishes that there was no further significant development of the ManTra product in the months following June 2006 meeting until the meeting in October of that year. In the intervening months there had been progress in relation to the business plan, the circulation of that plan and the raising of limited finance. By October 2006 HWM had progressed to the extent that there was certain finance in place and some persons were...
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