Virgil Cojocaru is a JD candidate at Osgoode Hall Law School.
In BMS Computer Solutions Limited and AB Agri Limited the meaning and interpretation of a perpetual licence came under debate in an application for summary judgment. The dispute concerns an animal feed maker, AB Agri (Agri), and BMS Computer Solutions (BMS), the software developer. Agri used the software developed by BMS to operate the machines which milled its feed.
Initially, the two parties came to an Agreement for the software’s use in 1994. This gave Agri a licence to use the software, while tying it to a Support Agreement. Six years later the software license and support agreement were varied. This Variation Agreement stated “the Program Licence will be extended to be a UK-wide perpetual licence”. Afterward, Agri decided to develop its own software. It would now use this new program to mill its animal feed and the BMS software would only be used for archive purposes. Hence, Agri would no longer need the maintenance arrangements envisaged under the old Support Agreement.
This is where the dispute over contract terms arises, and the meaning of a ‘perpetual’ licence comes into question. Agri argues that given that a perpetual licence (language added in the 2000 Variation Agreement) means a licence that cannot be broken, it is impossible for it to be forced to accept BMS’s support services for as long as it uses its software. Effectively, Agri states that the variation overrides the 1994 Agreement. Its motivation is clear. In the 1994 Agreement, the licence to use is tied to BMS’s service provision. Agri had to pay for BMS’s support services as long as it used its software. However, Agri now wants a continuing licence to use BMS’s software without having to purchase their maintenance services. Predictably, BMS disagrees with this assessment and asks for a summary judgment on the meaning of the contract terms, specifically on the interpretation of ‘perpetual licence’. Its goal is to enforce the original agreement, where the support agreement is a condition to having a licence to use.
Mr. Justice Sales in the High Court of Justice, Chancery Division, England and Wales ruled in favour of BMS. His ruling ties the support agreement to the licence to use. The termination of the former means the end of the latter. He achieves this goal by defining a perpetual licence as operating without a time limit, rather than a never ending arrangement. However, the perpetual licence comes to an end at the request of either party. This definition of a perpetual licence is reached through contractual interpretation. However, given that this is a summary judgment motion its scope is quite narrow. None of the surrounding circumstances or factual matrix is examined. It is purely an exercise in the interpretation of clauses. The term ‘perpetual’ was not present in the original 1994 Agreement. Hence, the question is whether the 2000 amendment was intended to create a new contract. Given the structure of this amendment, mainly that it has no termination clauses, this could not have been the case. It would make no commercial sense to consider the Variation Agreement a new contract. Therefore, the termination clauses under the 1994 Agreement still apply.
The result of this conclusion for Agri is that the licence is still tied to the support agreement. More importantly, it means that a perpetual licence is defined based on the 1994 Agreement termination clauses, a licence that can exist indefinitely, as long as either party chooses not to terminate it.