Local Software Firm NLS Sues Kenya Commercial Bank for Copyright Infringement, Obtains Temporary Injunction
Nagalakshmi Solutions Ltd (NLS) is a Nairobi-based ICT company which specialises in provision of banking and financial innovations, which includes Nuron, its offline branch solution. One of its solutions, Tera Integration Platform (TIP) is used by a number of banks and financial institutions in Kenya including National Bank, National Industrial Credit Bank (NIC Bank), Sidian Bank and of course, Kenya Commercial Bank (KCB). According to media reports, NLS and KCB had entered into a 5-year “agreement”/”contract” between 2011 and 2016. It is alleged that negotiations to renew the contract failed and the contract was terminated by NLS in November 2016 but KCB continued to use the NLS software without permission. As a result, NLS filed suit against KCB.
In its application for a temporary injunction, NLS reportedly averred that it cancelled the contract in November after failing to agree on payment and suspecting that KCB was “replicating its products and offering negative references issued to rival firms”. As a result, NLS claimed that it incurred “huge losses from the loss of business and fraudulent use of its software” by KCB, and argued that it would suffer “irreparable loss” if an injunction stopping the bank is not issued.
It is reported that NLS obtained a temporary injunction against KCB, which states in part as follows:
“Pending the hearing and determination of this suit the defendant (KCB Bank) by themselves or their agents or servants or otherwise be restrained from using the plaintiff’s (Nagalakshmi Solutions Ltd) computer software.
“KCB Bank provides a systems audit report from an independent and credible systems auditor confirming that all of Nagalakshmi Solutions Ltd software applications and developments have been stripped out of the bank’s servers. Central processing and data recovery sites”
Since the date of termination, NLS claimed that KCB has continued to use the software without NLS permission, leading to a daily claim of $2 million or Sh268 million for the 134 days KCB has used the software. NLS has demanded a further $51.6 million (Sh5.2 billion) in lost business after KCB, its first major client, allegedly offered unfavourable referrals to other banks, leading to cancellation of deals.
Meanwhile KCB has filed a preliminary objection stating that the court has no jurisdiction to hear and determine the matter. According to KCB, the “agreement”/ “contract” in question contains a clear provision that any dispute between the parties shall be referred to arbitration. The court is yet to rule on KCB’s PO.
From a copyright perspective, the first point to note is that software are covered under copyrightable subject matter as literary works. Secondly, it is important to determine the exact nature and scope of the “agreement”/ “contract” between NLS and KCB. Traditionally, software firms enter into licenses within the meaning of section 33 of the Copyright Act which mean that their clients enjoy a legal status akin to a tenant in a lease agreement. In such an arrangement, no ownership rights in the software is passed from licensor to the licensee.
Thirdly, if proven, reverse engineering of software for purposes of creating a new computer program may properly be considered as an infringement of the exclusive rights of a copyright owner under section 26 and/or section 35(3). This infringement is quite separate from the unauthorised exploitation of the rights in the software by an unlicensed user or a user whose license has expired and/or been terminated by the licensor. Finally, NLS may be able to pursue a fresh infringement claim against KCB with respect to any software created by the latter if such software has the same structure, sequence and organization (SSO) even if such software is not a literal copy of NLS software.