A ruling in a long-standing legal dispute could have big ramifications for companies that use third parties to maintain packaged mainframe applications.
The US Court of Appeals in Philadelphia ruled that Grace Consulting violated copyright laws by providing add-on software and maintenance services to users of Geac Computer's mainframe applications.
The appeals court claimed that Grace misappropriated trade secrets as part of providing its maintenance services.
"In essence, what the [appeals] court is saying is that the modification of code without the owner's explicit consent constitutes copyright infringement," said John Trent, legal counsel for Geac.
The same copyright laws apply here Australian solicitor Martin McEniery of Freehills said, making it a "sleeping issue" for Australian business.
Many enterprises alter software to suit their business environment, he said, which is why there is such an interest in open source over proprietary software.
Maxwell Blecher, Grace's attorney, said the verdict creates a dangerous precedent.
"It's a little scary to suggest that somebody with a copyright has the prerogative to refuse any third-party from servicing its software," said Blecher, a partner at Blecher & Collins in Los Angeles. "It gives such people a monopoly on their service business."
The copyright case dates back to 1994, when the former Dun & Bradstreet Software filed suit against Grace. D&B Software, which was acquired by Geac in 1996, claimed that Grace illegally copied, sold and modified its software while providing third-party maintenance services to users.
Grace admits to using add-on software systems that interoperate with Geac's software through the use of Cobol CALL and COPY commands. To make that work, Grace developed a program that extracts data from one of Geac's human resources applications and executes the code.
But the development work was aimed solely at making Geac's software more interoperable, claimed Anthony Ilutzi, Grace's president. At no point did Grace modify the applications or create derivative products from Geac's code, Ilutzi said. He contended that the lawsuit is an attempt by Geac to stop lower-cost rivals from stealing services business.
However, Gartner Australia analyst Daniel McHugh said modifying source code is one thing, but to on-sell it is another story.
"Grace Consulting altered the code and used it for its own purposes to leverage itself into a market it wouldn't have gotten into so quickly; most IT shops modify software, but they don't then sell it," he said.