Skype Technologies SA v Joltid Ltd v Kasesalu & Ors

The Skype Group offers software which can be downloaded from the internet for free and allows users to communicate through free voice and video calls, by sending instant messages, SMS (text messages) or files, and by making or receiving low-cost calls to and from landline and mobile numbers. Skype has proved very successful: as at 31 December 2008, Skype had 405.3 million registered users throughout the world. The Claimant, Skype Technologies SA, is a member of the Skype Group. It is domiciled in Luxembourg.

The Defendant, Joltid Ltd, is a company incorporated in the British Virgin Islands. It is the owner of the copyright in certain software called the Global Index software. This software is fundamental to Skype’s business. On 20 November 2003 Skype Technologies and Joltid entered into a written licence agreement. The License Agreement recorded the terms upon which Joltid would grant to Skype Technologies a world-wide licence to use a compiled object code form (in essence, a form of software which is machine-readable rather than human-readable) of the Global Index software. It is referred to in the License Agreement as the “Joltid Software”. The object code is to be distinguished from the source code which is a human-readable form of the software. Under the License Agreement Joltid retained sole control over the source code.

Clause 19.1 of the License Agreement contained a jurisdiction clause which stated:

“Governing Law and Jurisdiction. Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws of England and Wales and the parties submit to the exclusive jurisdiction of the English courts.”

Joltid claims that, in breach of the License Agreement, Skype Technologies had possessed, used, accessed, and modified the source code for the Global Index Software. On 12 March 2009 it purported to terminate the License Agreement on that ground. On the same day Skype Technologies began proceedings in this court claiming declarations that Joltid’s purported termination of the License Agreement was invalid and that the License Agreement continues in force. Subject to one point, Skype Technologies accepts that it has used and accessed the source code. But it says that its use of the source code was not a breach of the License Agreement. Although the express terms of the License Agreement only covered the use of the object code, Skype Technologies OÜ says that Joltid supplied Skype Technologies with the source code rather than the object code. Joltid thus intended Skype Technologies to use the source code as if it were the object code. As a result, it puts its case in a number of ways. It says that the conduct of the parties amounted to a variation of the License Agreement. Alternatively it says that Joltid is estopped from alleging a breach of the License Agreement. Alternatively it says that Joltid has waived compliance with the strict terms of the License Agreement. All these allegations, except possibly the defence based on waiver, rely on the continued effect of the License Agreement. The one point that I mentioned is that Skype Technologies has applied to amend its statement of case to allege that a different company in the Skype Group (Skype OÜ) was in fact the company which carried out the activities of which Joltid complains.

Because Skype Technologies alleges that the License Agreement has not been validly terminated, the Skype Group continues to use the software.

On 12 May 2009, Joltid served its Defence and Counterclaim. Joltid alleges that insofar as Skype Technologies has used, copied, modified, and disclosed copies of the GI Source Code since around 2007, Skype Technologies has repudiated the License Agreement, infringed Joltid’s UK and Estonian copyright in the GI Source Code, and misused confidential information belonging to Joltid. Joltid seeks declarations to the effect that the License Agreement was validly terminated on 12 March 2009, as well as injunctions and financial remedies. Paragraph (2) (b) of the prayer for relief claims an injunction restraining Skype Technologies from misusing Joltid’s confidential information; and paragraph (2) (d) claims an injunction restraining Skype Technologies from making any further use of the Joltid Software, the GI Source Code or any versions or modifications of them that Skype may have developed. If granted, these injunctions would have world-wide effect.

The trial of the action has been listed to begin on 8 June 2010.

On 1 September 2009 eBay Inc (the owner of the Skype Group) announced its agreement to sell a 65% stake in Skype to a group of investors. In particular, eBay Inc and Skype Inc (a wholly owned subsidiary of Skype Technologies) entered into a purchase agreement with a number of investors: Silver Lake Management Company III LLC, Index Ventures Management SA, Andreessen Horowitz LLC, and Canada Pension Plan Investment Board (collectively, the “Investors”). Joltid says that the terms of the purchase agreement made it clear that the new owners were required to continue operating Skype in the normal course of business, consistent with Skype Technologies’ past practice, including reproducing the GI Source Code. Joltid says that it follows that the terms of the purchase agreement contractually required Skype Technologies to continue to infringe (and indeed expand the infringement of) Joltid’s copyright throughout the world. On the same day Joltid registered its copyright in the source code with the US Copyright Office, and a fortnight later, on 15 September, registered its copyright in a modified version of that source code.

On 16 September 2009, Joltid began proceedings in the United States District Court for the Northern District of California against Skype Technologies, eBay Inc, Skype Inc, the Investors, and Michaelangelo Volpi, a partner at Index Ventures Management SA.

The Complaint in the US proceedings recites the License Agreement, the alleged breach and Joltid’s termination of it. It goes on to allege that despite that termination Skype continues to promote the downloading of Joltid’s software. It then alleges that Joltid is bringing the action for copyright infringement against Skype, eBay and the Investors. Paragraphs 35 to 38 of the Complaint amplify the facts alleged surrounding the making of the License Agreement, the breaches of the agreement and its termination. Paragraph 39 refers to the proceedings in this court. Paragraphs 53 to 62 deal with the sale of part of eBay’s shareholding in Skype to the Investors. The first head of relief is a claim for copyright infringement as a result of the Skype Group copying the software. The second is a claim that the Skype Group has infringed copyright by modifying the software. The third is a claim that the Skype Group has infringed copyright by distributing the software and derivative works based on the software. The fourth is based on an allegation that end users are also infringing copyright and that all the Defendants are liable for inducing that infringement. The fifth is an allegation that all Defendants are liable for materially assisting and facilitating direct infringement by end users. The sixth is a claim that all Defendants are vicariously liable for direct infringement by end users. In all cases Joltid claims damages and an injunction to restrain further infringement. In addition Joltid also claims statutory damages under US Federal copyright legislation; and in the alternative actual damage plus an account of profit. Joltid has also made a demand for jury trial, as it is entitled to do under Californian law. The essence of a claim of copyright infringement under US law, as Professor Menell explains, is an unauthorised reproduction or infringement of one or other of the exclusive rights granted to a copyright owner under US law. The consent of the copyright owner (such as through a licence) may be raised as an affirmative defence that must be proved by the defendant.

Skype Technologies claims that in so far as the US proceedings make claims against it, the claim is a breach of clause 19.1 of the License Agreement, and seek an anti-suit injunction to restrain any further steps being taken against it in the USA.

Article 23 of Council Regulation (EC) No 44/2001 (“the Judgments Regulation”) provides:

“1.

If the parties, one or more of who is domiciled in a Member State, have agreed that a court or the courts of a member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”

Since Skype Technologies is domiciled in Luxembourg, there is no doubt that this article applies. Since clause 19.1 of the License Agreement confers exclusive jurisdiction on the courts of this country, there is equally no doubt that this court has jurisdiction to determine all claims between Skype Technologies and Joltid arising under or relating to the License Agreement. That gives rise to two questions:

Whether a claim falls within an agreed jurisdiction clause is a question of interpretation of the clause in question. That question is to be decided according to national law, even in the context of the Judgments Regulation (see Benincasa v. Dentalkit Srl [1997] E.T.M.R. 447; Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008] FSR 30). In my judgment there is no distinction to be drawn between the approach to the interpretation of a clause in an agreement which confers jurisdiction on the courts of a particular territory and a clause in an agreement which confers jurisdiction on a particular tribunal, such as an arbitrator. Both types of clause represent the parties’ agreement about how disputes are to be resolved. Both should be interpreted in accordance with the same principles. The correct approach to the interpretation of arbitration agreements has been considered recently by both the Court of Appeal and the House of Lords. In Fiona Trust & Holdings Corporation v Privalov [2007] 2 Lloyd’s Rep 267 a charterparty contained a clause which referred “any dispute arising under this charter” to arbitration. Longmore LJ said (§ 17):

“Ordinary businessmen would be surprised at the nice distinctions drawn in the cases and the time taken up by argument in debating whether a particular case falls within one set of words or another very similar set of words. If businessmen go to the trouble of agreeing that their disputes be heard in the courts of a particular country or by a tribunal of their choice they do not expect (at any rate when they are making the contract in the first place) that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of the particular phrase they have chosen in their arbitration clause.”

He added (§ 18):

“As it seems to us any jurisdiction or arbitration clause in an international commercial contract should be liberally construed. The words “arising out of” should cover “every dispute except a dispute as to whether there was ever a contract at all”…”

It will be noticed that Longmore LJ approached both jurisdiction clauses and arbitration clauses in the same way. In the House of Lords Lord Hoffmann said ([2008] 1 Lloyd’s Rep 254 § 13):

“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction.”

Although Lord Hoffmann’s discussion of arbitration clauses did not expressly include jurisdiction clauses, he applauded Longmore LJ’s judgment; and Lord Hope clearly regarded jurisdiction clauses and arbitration clauses as serving similar purposes with the result that their interpretation should be approached in the same way. However, Mr Calver QC, appearing with Mr Brandreth for Joltid, lays stress on that part of clause 19.1 which speaks of any “claim” rather than any “dispute”. He says that Joltid’s claim in the US proceedings does not arise out of the License Agreement. On the contrary it is predicated on the assumption that the License Agreement has been terminated. Mr Calver says that his proposition can be tested in the following way:

“[Had] the UK litigation been concluded in Joltid’s favour before the commencement of the US proceedings, could [Skype Technologies] claim that Joltid’s US copyright infringement claims relating to acts done after the termination of the Agreement arose under or were related to the Agreement? The answer must be: plainly not.”

If the question is put in that way, then Mr Calver may be right, although Mr Hollander QC, appearing with Mr Singla for Skype Technologies, would dispute that. But the heart of the current dispute between the parties is whether the License Agreement has or has not been validly terminated. That issue has not been determined, and it is the issue which this court will decide. The fact is that if Skype Technologies is right in saying that the License Agreement remains in force and that it has the effect that it says it has, then Joltid’s claims against Skype Technologies in the US proceedings will fail. It is only if Joltid succeeds in this court that the claims made in the US proceedings get off the ground against Skype Technologies. Mr Calver relied on part of the speech of Lord Scott of Foscote in Donohue v Armco Inc [2002] 1 Lloyd’s Rep 425 § 60 in which his Lordship appeared to distinguish between a clause which covered “any dispute” between the parties and one which covered “any claim against” one of the parties. But this was both hypothetical and obiter, and none of the other Law Lords associated themselves with it. More to the point, Lord Scott’s observations were made five years before the House of Lords in Fiona Trust drew a line under the authorities and made a fresh start (per Lord Hoffmann § 12). In Fiona Trust Lord Scott himself said that he was in complete agreement both with Lord Hoffmann’s conclusion and his reasoning (§ 36).

Mr Calver’s argument is, in my judgment, based on an unduly narrow reading of the clause. It is exactly the kind of fine distinction that both Longmore LJ and Lord Hoffmann deplored in Fiona Trust. Whether the contention that the License Agreement is still in force is pleaded by way of Complaint or by way of defence is, in my judgment, irrelevant. Rational businessmen would not envisage that their choice of jurisdiction would depend on who issued proceedings first, or whether an ingenious pleader could frame a cause of action without actually mentioning the License Agreement.

Accordingly, in my judgment the claims against Skype Technologies made in the US proceedings fall within the scope of clause 19.1 of the License Agreement.

Mr Hollander says that that is the end of the matter. He says that:

The first step in this argument is established by article 23 itself; and I agree with it. The second step is said to flow from the decision of the ECJ in Owusu v Jackson [2005] QB 801. In that case the parties (both of whom were domiciled in England) entered into an agreement about the hire of a holiday villa in Jamaica. While on holiday the claimant was seriously injured; and he brought an action in England for damages. In addition to the English domiciliary, there were a number of Jamaican defendants to the claim. The defendants invited the court to decline jurisdiction on the ground of forum non conveniens, saying that Jamaica was the right place to try the claim. The ECJ ruled that a court which had jurisdiction under article 2 of the Brussels Convention (which corresponds to the Judgments Regulation) could not decline to exercise that jurisdiction by the application of the discretionary doctrine of forum non conveniens. The principal justification for the decision was that it promoted legal certainty, and that legal certainty would be undermined if discretionary doctrines could defeat the allocation of jurisdiction under the Convention. I am inclined to agree with Mr Hollander that the decision of the ECJ in Owusu has now removed discretionary considerations (such as those relating to forum non conveniens) from playing any part in the decision of a court in a Member State from staying its own proceedings. I am also inclined to agree that the court should not, under the guise of case management, achieve by the back door a result against which the ECJ has locked the front door (cf. Equitas Ltd v Allstate Insurance Company [2008] EWHC 1671 (Comm) § 64).

However, in Owusu the ECJ did not rule on the question whether a court having jurisdiction under the Convention could or should grant an injunction preventing the taking of proceedings in another jurisdiction. Mr Hollander’s third point (that the test for staying domestic proceedings and granting an anti-suit injunction is the same) is not in my judgment borne out by authority.

In relation to disputes which may become the subject of proceedings in two or more Regulation States, the ECJ has set its face against the grant of anti-suit injunctions. In Turner v Grovit [2005] 1 A.C. 101 the question was whether an English court could restrain proceedings in Spain where the Spanish proceedings were being pursued in bad faith. The ECJ said “No”. In the course of their judgment they said (§ 27):

“A prohibition imposed by a court, backed by a penalty, restraining a party from commencing or continuing proceedings before a foreign court undermines the latter court's jurisdiction to determine the dispute. Any injunction prohibiting a claimant from bringing such an action must be seen as constituting interference with the jurisdiction of the foreign court which, as such, is incompatible with the system of the Convention.”

In West Tankers Inc v Allianz SpA [2009] 3 W.L.R. 696 it was alleged that proceedings had been begun in Sicily in breach of an arbitration agreement. The ECJ ruled that it was inappropriate for the court in England to have granted an anti-suit injunction. It was for the court in Sicily to rule on its own jurisdiction and it was not for the English court to pre-empt its decision. The ECJ said (§ 29):

“that an anti-suit injunction, such as that in the main proceedings, is contrary to the general principle which emerges from the case law of the Court of Justice on the Brussels Convention, that every court seised itself determines, under the rules applicable to it, whether it has jurisdiction to resolve the dispute before it.”

Accordingly, in my judgment the proposition that a court which has jurisdiction under the Judgments Regulation must exercise that jurisdiction does not entail the further proposition that it can (let alone must) prevent a court in another jurisdiction from considering its own jurisdiction to decide a dispute between the parties. If anything, I would be inclined to draw the conclusion that the court should not grant an anti-suit injunction, at least where both courts are in Regulation States. It is for the court second seised to rule on its own jurisdiction. It is true that both Turner v Grovit and West Tankers were concerned with litigation in two Regulation States, whereas the USA is not bound by the Judgments Regulation. Mr Hollander says that this makes all the difference. In the case of two Regulation States the two states are part of a single market and are to be treated no differently from, say, a court in London and a court in Manchester. If one of the rival jurisdictions is not a Regulation State, the same overriding principle of trust does not apply. But the foundation of Mr Hollander’s argument is that in Owusu v Jackson the ECJ drew no distinction between a Regulation and a non-Regulation state. If that is right, then on this approach the ECJ’s approach to anti-suit injunctions must be equally applicable in the case of non-Regulation states.

Moreover even in domestic law the test for the grant of a stay of domestic proceedings on the one hand, and the restraint of foreign proceedings on the other, is not exactly the same. No question of comity arises in the first case; but comity plays an important part in the second: Donohoe v Armco Inc [2002] 1 Lloyd’s Rep 425 § 24 citing Société Nationale Industrielle Aérospatiale v Lee Kui Jak [1987] AC 871, 896.

Accordingly I do not consider that Mr Hollander’s conclusion can be sustained.

I turn, then to the question whether as a matter of discretion an anti-suit injunction should be granted to restrain a breach of clause 19.1. Let me make three points at the outset. First, there is no dispute that the License Agreement was a valid contract even if it has been terminated. On the view I have formed of the US proceedings, there has been a breach of contract. Accordingly, I am only called upon to decide the appropriate remedy for a breach. Second, if I refuse the equitable remedy of an injunction, Skype Technologies will have a remedy in damages. Those damages might include, for example, the legal costs of a successful defence of the US proceedings, since costs are not usually recoverable in US litigation. Third, where parties agree that the courts of a particular country have exclusive jurisdiction over certain kinds of disputes they are necessarily agreeing that they will not litigate those kinds of disputes anywhere else.

The classic approach of a court of equity to the enforcement of a negative obligation by injunction is encapsulated in the speech of Lord Cairns LC in Doherty v Allman (1877-78) LR 3 App Cas 709, 719-20:

“My Lords, if there had been a negative covenant, I apprehend, according to well-settled practice, a Court of Equity would have had no discretion to exercise. If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury—it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.”

This a simple approach (probably too simple). As both Mr Hollander and Mr Calver agreed, the grant of an anti-suit injunction is a discretionary remedy; and the court has a real discretion to exercise. Nevertheless the parties’ contractual bargain is the starting point; and it is no doubt for that reason that the courts have said that a strong reason would be needed before the court would exercise its discretion to decline to enforce it by injunction (Donohoe v Armco Inc § 24).

The strength of the exclusive jurisdiction clause in the present case is reinforced by a number of considerations:

It follows, in my judgment, that what one might call the standard considerations that arise in arguments about forum non conveniens should be given little weight in the face of an exclusive jurisdiction clause where the parties have chosen the courts of a neutral territory in the context of an agreement with world-wide application. Otherwise the exclusive jurisdiction clause would be deprived of its intended effect. Indeed, the more “neutral” the chosen forum was the less the importance the parties must have placed on the convenience of the forum for any particular dispute. If the standard considerations that arise in arguments about forum non conveniens were to be given full weight, they would almost always trump the parties’ deliberate selection of a neutral forum. This coincides with the tentative view of Teare J in Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm), § 37; and the view expressed by Raphael on The Anti-Suit Injunction § 8.06 fn 10, with which I agree. Perhaps it also harks back to the more traditional approach to the enforcement of negative contractual obligations by injunction. I might add that damages would, in my judgment, be an inadequate remedy for breach of the clause. Quite apart from anything else, Joltid has demanded trial by jury, and it would be quite impossible to estimate what effect that had on the outcome of a trial.

One consideration, however, which continues to play an important part in the exercise of the discretion to enforce (or not to enforce) an exclusive jurisdiction clause by injunction is whether the outcome of the decision (either way) will enable all disputes between the parties to take place in the same forum. Allied to this consideration is the question whether there are other parties (who are not entitled to the benefit of the exclusive jurisdiction clause) who are involved in the same or closely related disputes. The reason underpinning these considerations is the understandable desire of the English court to avoid parallel proceedings and the possibility of inconsistent decisions: Donohoe v Armco Inc § 27. It was considerations of this kind which ultimately persuaded the House of Lords not to enforce the exclusive jurisdiction clause by injunction in Donohoe v Armco Inc, since the only forum in which a single composite trial could take place was New York (§ 36). That was the strong reason which justified the decision.

In the present case the English proceedings will continue. Skype Technologies is entitled to bring them here because of the exclusive jurisdiction clause; and consistently with Owusu the court will not stay those proceedings. Equally, this court has no jurisdiction to prevent Joltid from bringing proceedings in California against parties who do not have the benefit of the exclusive jurisdiction clause. Accordingly the goal of a single forum cannot be achieved, whichever way I decide this application. It follows therefore that the existence of parallel proceedings and the possibility of inconsistent decisions cannot amount to a strong reason not to enforce the clause by injunction. Whatever I decide that possibility will remain. On the contrary, enforcement of the clause by injunction does at least have the merit that all disputes between the parties to the exclusive jurisdiction agreement itself will be decided in the same forum. Again this coincides with the decision of Teare J in Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd and also with the earlier decision of Rix J in Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767.

The factors on which Mr Calver relies as the strong reasons for not enforcing the exclusive jurisdiction clause by injunction are:

All of these factors were eminently foreseeable when Skype Technologies and Joltid agreed the exclusive jurisdiction clause. They are no more than the standard considerations that arise in arguments about forum non conveniens. In my judgment they do not (whether individually or collectively) amount to a strong reason for refusing to enforce the exclusive jurisdiction clause by injunction. Indeed it may be that in the context of an exclusive jurisdiction clause they are matters which Joltid is simply not entitled to rely upon at all: UBS AG v HSH Nordbank AG [2009] 2 Lloyd’s Rep 272 § 100, citing British Aerospace plc v Dee Howard [1993] 1 Lloyd’s Rep 368, 376.

Joltid has proposed undertakings which, it says, should tip the balance. The undertakings are:

It is common ground between the experts (Professor Menell for Skype Technologies and Mr Hadley for Joltid) that Joltid’s claim for statutory damages against Skype Technologies, in so far as it is based on allegations of direct copyright infringement, is based on the number of works infringed, rather than on the number of infringements. There is only one award per work, regardless of the number of infringements. It follows, therefore, that Joltid’s claim against Skype Technologies for direct infringement cannot be split into pre- and post-12 March 2009 segments. In addition, whether Joltid is entitled to recover damages for copyright infringement after 12 March 2009 is the question to be decided in the English proceedings, and depends on whether the License Agreement is still in force.

In my judgment these undertakings are no more than an attempt by Joltid to wriggle out of its contract. I do not consider that they should tip the balance against the grant of an anti-suit injunction. In principle, therefore, I shall grant the anti-suit injunction.

The first order sought is an order that Joltid must not pursue or take any further step in the US proceedings against Skype Technologies. I will make an order in those terms. The third order sought is an order requiring Joltid to discontinue the US proceedings as against Skype Technologies. That is the logical consequence of the grant of the first order; and I will make an order in those terms. The second order sought is an order that Joltid:

“shall not commence or pursue or procure or assist in the commencement or pursuit of any further proceedings against [Skype Technologies] arising under or relating to the Joltid Global Index Software License Agreement … before any court or tribunal other than the High Court of Justice of England and Wales …”

Mr Calver says that if I were to make an order in these terms I would be fettering for all time the discretion of any court to determine on the facts of a particular case whether it was appropriate to prevent proceedings being brought in another jurisdiction by way of injunctive relief. That is not appropriate in circumstances where the court always retains a discretion as to whether or not to grant such relief depending upon the facts of a particular case, see Donohue v Armco Inc § 24. In principle I agree with this submission. However, paragraph 3 of the draft order (unusually for a final injunction) gives Joltid liberty to apply to discharge or vary the order on 24 hours’ notice. The real question, therefore, is: who should bear the burden of showing that a particular action that Joltid wishes to begin or pursue in the future should or should not be allowed to proceed? As the same paragraph in Donohue v Armco Inc makes clear the burden is on the person who seeks to displace the exclusive jurisdiction clause; in other words Joltid. In those circumstances, I do not consider that the mechanism for which the draft order provides is unfair or oppressive in, in effect, requiring Joltid to come back to court for a variation of the order if there are particular proceedings which it asserts ought to be allowed to be commenced or continued; or if there is a dispute about whether particular proceedings fall within the ambit of the exclusive jurisdiction clause.

I propose, therefore, to make an order in the terms of the draft.