An extraordinary legal battle is shaping up in the Federal Court, with a multinational software company suing NSW Police for wide-scale copyright piracy.

UK software company Micro Focus is demanding at least $10 million in damages from NSW Police.

It claims NSW Police has been using pirated copies of their computer software for more than a decade to run their COPS (Computerised Operational Police System) - the largest criminal intelligence database in the country.

It was a routine request from the NSW Ombudsman's office back in August 2010 that first set off alarm bells for Bruce Craig, the Australasian managing director of Micro Focus.

"Our team was out at the Ombudsman's and in a conversation they said they were accessing the COPS database using our software," he told 7.30.

"And we said what software - you don't own our software?"

The software in question is called ViewNow. It is a mainframe computer program NSW Police began using in 1998 to access the COPS database, which holds the highly confidential details of just about every citizen in the state.

Cybercrime investigator Michael Speck says the COPS database operates like the "nervous system" of the NSW police and holds critical intelligence on everything from criminal histories to victims of crime.

Micro Focus says after the Ombudsman's query they started investigating and were astounded to discover police had been duplicating their software, then sharing the stolen booty with other law enforcement agencies.

And not just the Ombudsman's Office, but two other state untouchables - the Department of Correctives Services and the Police Integrity Commission.

"When someone pirates your software you think who am I going to call, the police?" Mr Craig said.

"In this case, they're the pirates."

Mr Craig says Micro Focus' contract with police was very specific.

He says police were allowed to use up to 6,500 ViewNow licences and if they wanted any more, they would have to pay for them.

"The licences were for police only. Yet police were out there handing out our software like confetti," he said.

'Out of control'

But it gets worse. Micro Focus say when they asked police just how many of the 6,500 ViewNow licences they were using, a police employee allegedly told them: "Oh f--k. We've rolled out 16,000 devices".

"They did not pay for those extra licences," Mr Craig said.

"It's incredible. It shows an organisation that's completely out of control."

Mr Craig says police have spent the past 18 months stalling.

At first, he says, police claimed they had lost the contract. He says they then told him it was impossible to tell exactly how many of the 20,000-strong police workforce had been using the software over the past decade.

Mr Speck, a former NSW detective, says the idea that NSW Police - the fifth largest police force in the world - cannot track every piece of software they are using seems extraordinary.

"Can't find the licence is the pirates' equivalent of the dog ate my homework," he said.

"Let's just get that out in the open straight away.

"A lot of money - a lot of the public's money - is being spent here defending what appears to be indefensible."

'Investigating the investigators'

But according to former police computer forensics investigator, Clinton Towers, trying to "investigate the investigators" is going to be a major challenge for Micro Focus.

When Micro Focus asked to come in and do their own audit - one of the conditions of the contract - police refused, and called in their lawyers instead.

"They said if we wanted to audit them we would require a court order," Mr Craig said.

"The minute we advised police there was an issue they began de-installing our software. They de-installed it without keeping records."

In essence, the NSW Police defence is that it has all been a terrible misunderstanding.

In its statement of defence before the Federal Court, NSW Police say on their reading of their contract, Micro Focus had not limited them to 6,500 ViewNow licences. Rather, it gave them the right to reproduce as many licences as they wanted.

"No software company would give away their IP forever for unlimited use," Mr Craig said.

"In this case its quite clear what their usage limit is, it's 6,500 and they have clearly gone way beyond that number."

Mr Speck agrees the idea any company would give away its copyright for free is "just implausible".

"You think about copyright like a hire car agreement," he said.

"When the agreement runs out you can't continue to drive the car and you certainly can't give it to your mates. And that's what happened here."

When the case first landed in the Federal Court last July, the Police Integrity Commission settled out of court almost immediately.

It was quickly followed by the NSW Department of Corrective Services and the NSW Ombudsman's Office. But so far NSW Police have refused to blink.

"This is the first time in 30 years we've ever required a lawyer," Mr Craig said.

"I would estimate they have probably spent over $1 million in taxpayers' money so far in the legal system and all they have done is delay the inevitable."

Mr Speck says Micro Focus has "nobody to go to but the court".

"This is potentially a crime that has to be handled as a civil matter because everybody's got their hands dirty," he said.

"The victims can't go to police - it's the police who are doing the stealing."

This case has attracted surprisingly little attention so far.

Fresh lawsuit looms

But it is about to get even uglier. Micro Focus plans to launch yet another lawsuit, this time accusing the police of trying to replace the first batch of pirated software with another batch of pirated software which also belongs to Micro Focus.

The company claims this latest version of pirated software - a NetManage Applet - was provided by NSW Police to Corrective Services last year as they were scrambling to delete the ViewNow software.

But what Micro Focus now wants to know is how widely the pirated Applet is being used to run the COPS system.

"What's incredible is that they've gone to any length to try and avoid discovery of what's being used in there," Mr Craig said.

"They've been continually deleting our product, they need to replace it with something.

"And that they've replaced it with another licence they have no right to use, its just astonishing. It's madness."

NSW Police have denied the latest allegations by Micro Focus, and have vowed to "vigorously defend" any future court action.

But Micro Focus says Police already face a bill of at least $10 million if they lose the case in lost earnings, legal costs and damages.

In a statement from NSW Police to 7.30, they said even if Micro Focus did have damages awarded to them, the $10 million figure did "not concur with the company's calculation of costs to the Force should [the] company be successful with its civil action".

NSW Police followed that statement with another that relates to the fresh accusation against them.

"NSW Police denies these fresh claims in relation to the NetManage Applet and will vigorously contest the matter," the statement said.