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Malaysia – IT Companies Battle Over Intellectual Property (Prevention is better than cure!)

A recent contention between two IT companies in Malaysia stresses the importance to intellectual property agreements in business contracts. Such contentions may be avoided by proper accounting of intellectual property (IP), periodic audits and IP due diligence. In this article, we discuss the contention between Netripples and Knowlegebase over IP rights for a software product.

Netripples software ltd, a public listed Indian IT company, recently filed a lawsuit against employees of a Malaysian IT company, Knowledgebase Sdn Bhd for infringement of its IP rights. The lawsuit was filed to prevent the defendants from modifying and selling further versions of a software package to which the plaintiff contend to have proprietary rights. What makes this case more interesting is that the defendant was honored with “Infocom technology product of the year 2006” award for the contended software product. The software product in contention is a blood-bank information management system.

The Dispute

The plaintiff, Netripples Software Ltd is a public listed Indian company, known for its expertise in IT products for the health-care industry. The defendant, KnowledgeBase Sdn Bhd, a Malaysian company which is principally involved in providing information technology technical consulting and integration solutions. The defendant is also well known for providing IT solutions for the health-care industry. Based on the published company profiles, both companies claims to have developed blood bank information management systems.

The case grabbed public attention when Malaysian news-website Star Online highlighted Netripples’ discontentment with the award to KnowledgeBase. Netripples claimed that KnowledgeBase did not deserve the recognition, because it did not develop the system. In a press statement issued by the President of Netripples,

Mr. Mazhar Pasha, it was claimed that the system was developed in India by an Indian research team. That being the case, it was argued that KnowledgeBase had not fulfilled a criterion for the award, which substantially required a product to be developed by its owner. Based on this claim, Netripples requested that the authority withdraw the award presented to KnowledgeBase.

Mr. Pasha further asserted that Netripples exclusively owned all the intellectual property rights to the RM2.5mil [approximately USD 660, 000] blood bank information system. He filed a legal action at the Kuala Lumpur High Court against three KnowledgeBase employees to restrain them from infringing Netripples’ intellectual property rights and from modifying the software, which he claims was developed and installed by Netripples at the National Blood Bank. The persons are reported to be Netripples’ former employees. The suit is currently pending at the high court.

KnowledgeBase however argued that the claims filed by Netripples were baseless. The Director of KnowledgeBase, Mr. Datuk Subra Suppiah, explained that the product was developed locally for their client, i.e. the National Blood Bank, based on the client’s request. KnowledgeBase also claims to have evidence to verify that all intellectual property rights with regards to the system belong to the National Blood Bank and not Netripples. Mr. Suppiah further stressed that Netripples was merely appointed to develop the product on behalf of KnowledgeBase. Mr. suppiah claims that some modules for the product were developed by KnowledgeBase but all intellectual property rights belong to the National Blood Bank, as stated in the agreement that was signed by both parties. In view of that, he was confident that neither Netripples nor KnowledgeBase could claim proprietary rights to the product.

This dispute revisits many of the contentious issues relating to client-vendor relationships, work-for hire contracts, ownership of future IP and maintenance of trade secrets. Currently, in Malaysia, software programs, per se, are not eligible for patent protection. Only protection available is by means of copyright. As copyright protects only the exact manifestation of the ideas, it becomes difficult to enforce IP rights when the employees jump ships and develop an alternative version. On the other hand, it is equally difficult to maintain trade secrets in IT industry where inventing around is relatively easy.

Nonetheless, the risks of such contentions can be minimized by putting in place a proper IP agreement before outsourcing work to a vendor. It is equally important to periodically conduct IP audits to assess current IP assets and to devise a strategy to make best use of the assets.

The dispute in this case may be resolved easily if there was an IP agreement between Netripples and National Blood bank on ownership of IP. If there was a work-for-hire contract, National Blood Bank may be the sole owner of the IP. It is equally possible that the two parties had agreed to share the IP.

At present, the outcome of this case is anybody’s guess; but the take home lesson is always establish an IP agreement before entering into a business contract.

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