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Not Following the Specified Contractual Procedure Fatal to Implied Software Licence
In this decision, the Court decided that an implied software licence did not continue where a separate agreement to which it related was not extended in accordance its own terms.
Infinitt had been granted an implied royalty-free licence by its sister company in 2003 to use digital imaging software to provide services to an NHS Trust under a managed services agreement. The MSA had an initial period of seven years but could be extended for further six month periods up to a maximum extension of three years. Amendments to the MSA, including its term, had to be made in accordance with its change control procedure.
The MSA expired on 30 September 2010 and was initially extended for a period of six months to 31 March 2011. It was later extended again, but this time for a period of 30 months under a single change control note. Noemalife, the owner of the digital imaging software, argued that a new implied licence arose on 1 October 2010 and that under it Infinitt had to pay a reasonable fee for its use.
In deciding whether a new implied licence had come into effect on 1 October 2010 and the conditions attaching to it, the Court held that:
Businesses should note that the Court took a very strict view as to the way in which the MSA could be extended, pointing out that terms dealing with extensions had to be respected: it could only be extended by six monthly intervals and so the attempt to extend for a period of 30 months did not comply with the terms of the agreement and was invalid.
In relation to the duration of Infinitt's implied licence to use the digital imaging software, the Court decided that the implied licence could only last for the period by which the MSA was validly extended, ie until March 2011. As Infinitt was entitled to object to the attempt by the NHS Trust to extend the MSA by 30 months, the implied licence could not continue for that period as it should go no further than the minimum necessary to allow Infinitt to provide the services under the MSA.
As Infinitt had no implied or express licence after March 2011, the Court confirmed that Noemalife could bring a claim for copyright infringement for any use of the software after that date. Noemalife's attempt to bring that claim during the initial trial was rejected on the ground that it was raised too late to be tried fairly. Noemalife are free to start fresh proceedings for copyright infringement if they wish.
The key lessons to be learned from this decision are:
John Warchus, Partner, Clarkslegal LLP
Tel: 0118 953 3980 Email: JWarchus@clarkslegal.com
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