October 2010 – When ‘Perpetual’ Is Not For Ever …

When ‘Perpetual’ Is Not For Ever… (October 2010)

Many people would assume that a perpetual software licence would inevitably last forever – but that is not always the case.

In the 2010 case of BMS Computer Solutions Ltd v AB Agri Ltd, BMS licensed its feed mill management software to Agri for a term of 10 years, and Agri could end the licence earlier by12 months’ notice. The Licence Agreement also contained an undertaking by Agri to enter into a Technical Support Agreement (and Agri did so) and provided that if the Technical Support Agreement was terminated for any reason the Licence Agreement would also terminate automatically. The Technical support Agreement also provided for termination by Agri by 12 months’ notice. This is a fairly common arrangement where the software supplier is seeking to generate revenue from the provision of support services as well as from a licence fee. If the Licence Agreement was terminated, Agri had to stop using the BMS software and return all copies to BMS.

In 2000 the parties varied the Licence Agreement, and in particular extended the Licence Agreement to a ‘UK-wide perpetual licence’. The Variation Agreement also provided that the existing Agreements would continue in force ‘subject to these variations’.
In 2008 Agri gave notice to terminate the Technical Support Agreement, but claimed that the Licence Agreement remained in force as a perpetual licence and that the change to a perpetual licence overrode the clause that required the licence to end if the Technical Support Agreement was terminated. Not surprisingly, BMS challenged this.

The Court found for BMS. It held that ‘perpetual’ could have two possible meanings, one ‘never ending’ and the other ‘without limit of time, but subject to any contractual provisions for termination’ , and that in this case the word ‘perpetual ‘ had the second meaning. Reasons for reaching that conclusion included:

(a) The 2000 Variation Agreement made it clear that the parties intended the same licence to continue (albeit extended) and so it was reasonable to infer that the parties intended the same termination provisions to apply (including that for termination if the Technical Support Agreement was terminated);

(b) It was reasonable to assume that if the parties had intended to exclude the termination clauses in the original Licence Agreement they would have done so expressly;

(c) There was a commercial need for the termination provisions to continue to apply, as the Licence Agreement included onerous obligations upon Agri; and

(d) The obligation in the Technical Support Agreement to return the software on termination of the Technical Support Agreement was inconsistent with the argument that the Licence Agreement would survive the termination of the Technical Support Agreement.

And the moral is? If you have a perpetual licence, make sure that it is quite clear which meaning of ‘perpetual’ is intended.

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