LZLabs v IBM: Court of Appeal refuses permission to appeal intellectual property breach

The Court of Appeal of England and Wales has refused LZLabs GmbH and others permission to appeal against IBM UK Limited's comprehensive trial victory, delivered on 4 July 2025 in LZLabs GmbH and Ors v IBM UK Limited [2025] EWCA Civ 842.

The case originated from IBM's allegations that LZLabs, Winsopia Limited, and John Jay Moores breached their Independent Contractor Agreement (ICA) through unlawful procurement and reverse engineering of IBM software. The appellants had attempted to develop a software platform enabling IBM mainframe applications to operate without original IBM hardware.

Following a 33-day trial, Mrs Justice O'Farrell delivered judgement in March 2025 heavily favouring IBM. The appellants' subsequent application for permission to appeal encompassed over 35 grounds, spanning ICA interpretation, copyright issues, and ethical implications of the alleged practices.

Lord Justice Coulson and Lord Justice Males conducted a detailed assessment of each proposed ground of appeal. The Court emphasised the substantial burden faced by appellants when challenging findings based on extensive factual evidence presented at trial. Lord Justice Coulson praised the trial judge's "industry and skill" in reaching her conclusions, noting that such findings should not be revisited without compelling evidence of factual error.

The appellants contended that the lower court incorrectly found no copyright violation permitting reverse engineering. However, the Court of Appeal found no substantial evidence undermining the original findings. Despite LZLabs' references to the Software Directive and EU laws regarding programme interoperability, the judges confirmed that the original findings were stringent and grounded in clear contractual breaches.

Lord Justice Coulson highlighted the appellants' difficulty in advancing tenuous revisionist interpretations of the ICA. The Court concluded that many arguments constituted attempts to re-litigate previously decided points. The appellants' contractual construction was deemed wholly inadequate to support their claims, whilst extensive evidence demonstrated persistent disregard for terms concerning reverse engineering and alterations to IBM's software.

The Court of Appeal's decision affirmed IBM's entitlement to injunctive relief and delivery up of unlawfully derived works. The judges emphasised that the appellants misused their position to cultivate unlawful advantages, corroborating IBM's claims for damages, including significant financial losses resulting from LZLabs' actions.

The ruling represents a robust adherence to intellectual property protections and contractual obligations within the software development sector. The case demonstrates the severe consequences of breaching software licensing frameworks and reinforces the necessity for compliance with contractual terms governing proprietary technology.

The decision also underscores the Court of Appeal's reluctance to interfere with comprehensive first-instance judgements based on extensive factual findings. The appellants' failure to demonstrate compelling grounds for appeal reflects the strength of the original decision and the thorough judicial consideration of complex technical and contractual issues.

This case establishes important precedent regarding the interpretation of independent contractor agreements in technology contexts and the boundaries of permissible reverse engineering activities. The judgement reinforces that contractual restrictions on software manipulation will be strictly enforced, regardless of arguments based on interoperability or competition law considerations.