(Summer 2010, Update IP/IT Law)
The High Court has recently held that a licence which had been amended to be “perpetual” could still be terminated pursuant to the termination provisions in the original licence, in the absence of clear wording to the contrary. Decision
BMS Computer Solutions ("BMS
"), a computer software business, licensed software to J. Bibby Agriculture Limited ("Bibby
"). The licence was for a period of 10 years unless it was terminated earlier and provided the accompanying technical support agreement was not terminated. Both agreements were varied in 2000 (when Bibby was replaced by its successor in business AB Agri Ltd ("Agri
")) to make the licence perpetual. In December 2008 Agri gave notice to terminate the support agreement but asserted that the licence to use the software continued on the grounds that it was perpetual.
BMS asserted that the continuation of the licence was conditional on the continuation of the support agreement and applied for summary judgment in relation to the contract terms. Agri argued that the following the verification, Agri could not be forced to take the support services for as long as it used its software as this was not possible with a ‘perpetual licence’, that is, one that could not be broken.
Mr Justice Sales allowed a summary judgment holding that “the word ‘perpetual’ can carry different shades of meaning.” It can mean ‘never ending’ (as in, incapable of ever being brought to an end) or can mean ‘operating without limit of time’. In this case, the latter interpretation was appropriate and the licence was of indefinite duration, but subject to any contractual provisions governing termination under the licence as originally drafted.
The High Court held that when Agri terminated the support agreement it also terminated the licence. Further, the term ‘perpetual’ referred to and extended the licence as originally drafted and did not create a new one. The absence of termination provisions in the variation discussions, a fundamental issue in any commercial contract, indicated that the parties did not intend to create a new licence and that the termination provisions in the licence as originally drafted were intended to continue in force. Further, if the parties had intended that those provisions should be deleted, it is natural to suppose that they would have referred to them in the variation discussions rather than leaving it to be inferred from the use of the term 'perpetual'. What this means for businesses
This case highlights the need for clear and explicit drafting to give effect to the parties’ intentions. Both licensors and licensees should ensure there is no ambiguity in the terms on which business-critical software is granted, either as to the duration of the licence or the scope of the end users who will be covered. It should also be noted that a ‘perpetual’ licence is still subject to termination provisions unless clear wording to the contrary is used.
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