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Metro Bank sued over 'magic money machines'

Metro Bank is being sued by US software company Arkeyo over allegations that it leaked the company's coin counting technology to a rival firm.


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Metro Bank sued over ‘magic money machines’ - Legal Commentary in the UK

By Rodrigo Zepeda, CEO, Storm-7 Consulting Limited

It has very recently been reported that the United States (US) software company ‘Arkeyo, LLC’ (Arkeyo), has commenced legal proceedings in the English High Court against Metro Bank PLC (Metro), alleging claims that Metro had leaked trade secrets for its ‘magic money machines’. Full details of the legal claims asserted by Arkeyo against Metro have not yet been disclosed. However, details of proceedings already heard in 2021 in the US do indicate the underlying substance of the case. These will be used here to elucidate briefly upon the potential case that is to be heard in the English High Court.

In essence, Arkeyo will likely claim that it had a legal agreement with Metro to supply magic money machines to Metro branches located in Great Britain, that was supposed to last for 10 years. However, Metro terminated that legal agreement early. Furthermore, Metro subsequently entered into an agreement with a different software company, Saggezza, Inc. (Saggezza), to replace Arkeyo as its software vendor.

The case will turn upon whether or not Metro breached its existing legal agreement with Arkeyo as a result of these events. Arkeyo will likely allege that Metro breached the terms of the legal agreement by instructing Saggezza to reverse engineer and copy Arkeyo's software used in its 'magic money machines' that had been provided to Metro, i.e., breach of agreement, breach of copyright. Saggezza will likely contend that it terminated its legal agreement with Arkeyo lawfully and did not breach any of the terms in doing so.

BACKGROUND 

Magic Money Machines

The term ‘magic money machines’ refers to money counting machines (i.e., coin deposit machines) that were designed to allow children to deposit spare change for free for use at certain bank branches. Arkeyo originally created the coin counting system software that was used in the money counting machines (small footprint bins) manufactured by Cummins-Allison Corporation (Cummins). These machines were connected to an Arkeyo-supplied computer which housed additional software that Arkeyo had created for communicating with the machine. It is this system that was installed at bank branches that was referred to as the magic money machines.   

The Metro Agreement

The English High Court case is likely to centre around the contract that was made between Arkeyo and Metro that was effective as of 20 April 2010 (the Metro Agreement). This provided that Arkeyo would supply magic money machines for Metro locations in England for a period of 10 years (i.e., due to expire on 19 April 2020). Under the Metro Agreement:

(1) Arkeyo was to be paid service and licence fees for all the Cummins coin counting machines that were installed in Great Britain for 10 years; and

(2) Metro was legally prohibited from making derivative works from, or reverse engineering any of the software that Arkeyo had licenced to Metro for the purpose of developing any other coin counting machines (Judgment, p.2).

Arkeyo, LLC (Plaintiff) v. Saggezza, Inc. (Defendant) (decided June 3, 2021) (the Judgment), Franklin U. Valderrama, United States District Judge

In the case of Arkeyo, LLc v. Saggezza, Inc. heard in the US District Court for the Northern District of Illinois Eastern Division, Arkeyo filed suit against Saggezza alleging that:

(1) Saggezza had misappropriated Arkeyo’s trade secrets; and

(2) Saggezza had infringed Arkeyo’s copyrights in Arkeyo’s proprietary software.

Saggezza then moved to dismiss the complaint pursuant to:

(1) Federal Rules of Civil Procedure 12(b)(7) (failure to join a party under Rule 19); and

(2) Federal Rules of Civil Procedure 12(b)(6) (failure to state a claim upon which relief can be granted).

Arkeyo filed a complaint against Saggezza asserting claims for:

(1) misappropriation under the Defend Trade Secrets Act of 2016 (DTSA) (Count I);

(2) conversion (Count II);

(3) tortious interference with contractual relations (Count III);

(4) tortious interference with prospective contractual relations (Count IV);

(5) copyright infringement (Count V); and

(6) contributory copyright infringement (Count VI).

In a public statement, Metro had previously stated that it believed that Arkeyo’s claims were without merit (Turner, 2022). In the US case however, the Court ultimately denied both of Saggezza’s motions to dismiss.

This would tend to counter the preliminary assertion by Metro that Arkeyo’s claim were completely without merit. Indeed, upon a reading of the judgment, it becomes clear that Saggezza seems to have been badly represented in the proceedings, as there were a broad range of elementary substantive and procedural mistakes made.

For example, Saggezza cited First Weber Grp., Inc. v. Horsfall, 738 F.3d 767, 773 (7th Cir. 2013) for the elements of a conversion claim, but this case was held to be inapplicable because it involved Wisconsin law, instead of Illinois law which was instead clearly in issue. Another example of an elementary mistake was that Saggezza had argued that Arkeyo could not state a claim for tortious interference with prospective contractual relations; however, the Court found that Saggezza’s memorandum had completely failed to plead any legal authority whatsoever which discussed this cause of action. This was a significant legal oversight. Indeed, the Court further stated:

"Instead, Saggezza comingles its position with its arguments addressing Arkeyo’s claim for tortious interference with contractual relations, and does not provide an independent basis for challenging this claim." (Judgment, p. 8).

In detailing the facts, the Court found that in January 2016, Metro had met with personnel from Saggezza and Cummins to discuss how to duplicate Arkeyo’s software to enable Metro to replace Arkeyo with Saggezza, as Metro’s software vendor.

In March 2016 the Court stated that Saggezza had asked Metro to provide Saggezza with one of the touch screen computers that were loaded with Arkeyo’s software, and that at some point in March 2016, Metro had provided Saggezza with a touchscreen computer with Arkeyo’s software. Finally, the Court stated that on or about 11 May 2016, Metro terminated the Metro Agreement which was intended to run until 19 April 2020.

The English High Court Claim

The English High Court Claim is potentially likely to allege at least inter alia copyright infringement, conversion, and tortious interference with contractual relations. There are a number of challenges that can be briefly identified that Metro will likely face when defending this claim.

First, given the specific timeframe identified on the facts, and the sophisticated nature of the parties in question (i.e., a well-established bank and advanced software vendor firms), Arkeyo should be able to seek very precise and extensive discovery of all relevant documentary evidence (e.g., emails, memos, notes, correspondence, digitised voicemails, digitised telephone messages, SMS messages) pertaining to the alleged meetings between Metro, Cummins, and Saggezza.

Second, if Arkeyo can prove that Metro did provide Saggezza with a touchscreen computer loaded with Arkeyo’s software, the case may then rest on the extent to which it can be proved that Saggezza did in fact reverse engineer Arkeyo’s software (i.e., comparison of the software and the software code), as this may constitute:

(1) a copyright infringement (i.e., Arkeyo’s copyright in its software loaded on the touchscreen computer was infringed);

(2) a prima facie breach of the Metro Agreement by Metro (i.e., Metro was prohibited from making derivative works of Arkeyo software or of reverse engineering Arkeyo software, whether directly or indirectly at the time); and

(3) a tortious interference with contractual relations (i.e., Saggezza may have committed the tort of interference with contractual rights that existed at the time between Arkeyo and Metro under the Metro Agreement).  

Third, at this stage Metro may have underestimated the potential negative ramifications that may arise from these legal proceedings with respect to reputational risk in the UK. For instance, if Arkeyo can prove in Court that Metro intentionally procured Saggezza and Cummins to reverse engineer Arkeyo’s software, the facts may unequivocally demonstrate behaviour on the part of Metro that is both highly unethical and dishonest. This will surely prima facie breach a broad range of principles relating to governance and integrity contained throughout the United Kingdom (UK) Corporate Governance Code 2018 that is applicable to UK listed companies such as Metro. In actuality, such findings, combined with the resultant negative publicity, may in turn potentially result in a significant loss in value of Metro’s publicly listed share price. Clearly this is a significant risk that Metro should not overlook when assessing the merits of Arkeyo's action.

Fourth, much may depend on the applicable law and jurisdiction that the Metro Agreement is held to be subject to.

For example, a conversion claim in the US under Illinois law requires actions to involve physical property, and computer software, which is intangible property, is thereby not amenable to conversion (for such a claim under Illinois law). However, in the UK commoditised software has been held to constitute goods (The Software Incubator Ltd v Computer Associates Ltd [2016] EWHC 1587). Consequently, given that Arkeyo’s software was supplied via a touchscreen computer (i.e., physical property), it is theoretically possible that an action in conversion for this physical property may be entertained by the High Court.

In addition, in the UK, mere recklessness as to whether contractual rights are disturbed may be insufficient to found the tort of interference with contractual relations (OBG Ltd v Allan [2007] UKHL 21; Mainstream Properties Ltd v Young and others [2005] EWCA Civ 861). Saggezza may contend that it did not intend to harm any contractual relations (that existed between Metro and Arkeyo), but was simply hired to perform a task to reach a pre-determined result (Judgment, p.8). On the one hand, this might tend to show, that at most, Saggezza was merely reckless as to disturbance of contractual rights set out in the Metro Agreement. This would be insufficient to found a claim of interference with contractual relations against Saggezza.

However, if the pre-action discovery by Arkeyo identifies evidence that proves that individuals within Saggezza and/or Cummins actuallly knew of the Metro Agreement (which is likely), this may suffice to go beyond mere recklessness on the part of Saggezza and/or Cummins. Indeed, there may be sufficient direct and circumstantial evidence uncovered to prove that Saggezza and/or Cummins had the requisite intent to induce Metro to breach its contract with Arkeyo.

For example, the evidence may show that it was obvious that Saggezza and/or Cummins knew of the Metro Agreement, and that they knew that they were reverse engineering Arkeyo’s software in order to potentially secure a future software supply contract with Metro (which was what ultimately occurred on the facts). If this can be proved, then Arkeyo may be able to proceed with arguing a prima facie case of intereference with contractual relations by Saggezza vis-a-vis Arkeyo and Metro under the Metro Agreement.

Future Developments 

As you can see, the 'magic money machines' saga in the UK seems to be getting ready to provide juicy inside details of the potential machinations that may or may not have existed between Metro, Saggezza, and Cummins. As this tale unfolds in the High Court, it may or may not prove to have unwanted negative reputational repercussions on the part of Metro and its business dealings with Saggezza and/or Cummins. The fact that Arkeyo has been pursuing this case for many years now shows that Arkeyo is highly determined to have its day in court. As a publicly listed company, as it stands, Metro seems to be the party which has the most to lose if the case ultimately goes against it in the English High Court.  

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Rodrigo Zepeda
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Rodrigo Zepeda

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Storm-7 Consulting Limited

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