There have been a number of recent cases1 in which software licensors have been held liable for differences between customer expectations and delivered software. Armchair viewers might be forgiven for thinking that now is not a good time (legally speaking, leaving aside downturns in the IT sector) to be a software licensor. However, the tides do seem to be turning.
In MLW Technology v May & Ors2 the licensee claimed that the licensor had repudiated the licence because:
- not all source code for the software had been provided on the commencement date (although it was provided within a number of months)
- the software would not operate with the compiler the licensee was using, and to purchase a copy of the compiler that the licensor used would have cost about $10,000. Instead, the licensee revised the software, so that it would work with a different compiler
- the licensor allegedly did not own the copyright in licensed software. The software was developed by a company related to the licensor. While there was no formal written assignment of the copyright, those two entities had entered into an agreement in which each acknowledged that the related company did not own any intellectual property, and the licensor owned the underlying source code
- the licensor was in breach of anti-competition and exclusivity clauses because:
- it marketed another product which included some of the source code for the licensed product. However, the source code was not unusual, and the second product did not fall within the scope of exclusivity. Moreover, the licensee had acquired a copy of the second product from the licensor.
None of these grounds were established. The licensee also unsuccessfully claimed that the licensor made representations in negotiating for the licence agreement that were misleading and deceptive.
Instead, the licensee was found to be in breach of the licence, as it had warranted that on 5 September 2002, certain shares that it had arranged to be issued to the licensor as partial consideration for the licence, would be worth not less than $2.3 million. In fact, at that time, the shares were worth very much less than that amount.
This case confirms that software licensors who can demonstrate that they have not made misrepresentations, and who have moved quickly to correct errors should feel more comfortable about where they stand. Good practice is of course, not to make misleading representations, and to comply with contracts, but best practice is to be able to demonstrate that you have done so.
Footnotes1 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Limited and ors  FCA 50, RACV Insurance Pty Ltd v Unisys Australia Limited,  VSC 300 , Memorex Telex Pty Ltd v National Databank Ltd  NSWSC 1111.
2 MLW Technology Pty Ltd v May & Ors (No.2)  VSC 199 (13 June 2003).
For further information please contact Irene Zeitler, Partner - email: email@example.comThis article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.