Canada: Federal Court Of Appeal Grants An Implied Software Licence To Former Business Partners

On July 25, 2014, the Federal Court of Appeal released its decision in Planification-organisation-publications Systèmes Ltée v 9054-8181 Québec Inc, 2014 FCA 185 in relation to software copyright. The decision affirmed, in part, the decision of the Federal Court granting an implied software licence to the former business partners of the appellants. The unanimous decision was written by Justice Gauthier.

The litigation related to ownership and licencing of copyright in the computer programs Ceres, Omega, Comex, and Epsilon. In 1984, Elizabeth Posada began developing Ceres, a DOS computer program to help students and business executives learn business concepts. Omega, Comex, and Epsilon are the updated Windows versions of Ceres.

In or around 2007, Posada joined 9054-8181 Québec Inc. (IDP), a company formed by her friends Philippe Chapuis and Benoît Bazoge, as an employee and shareholder for the purpose of developing Omega, Comex, and Epsilon. On October 20, 2008, following a dispute regarding compensation, Posada stopped working for IDP, resigned as a shareholder, and demanded that IDP stop using the software.

At trial, the judge confirmed that Planification-organisation-publications Systèmes Ltée (POPS) (Posada's company, of which she was the sole officer and shareholder and which she had created to licence the software) was at least one of the rightful owners of the copyright in Ceres, Omega, Comex, and Epsilon, and that IDP had an implied non-revocable licence to the software, which included access to the source code and future adaptations developed by or on behalf of IDP.

On appeal, POPS and Posada (the appellants) asserted, among other things, that the Trial Court had erred in its determination of the scope of the licence, and in its finding that the licence was non-revocable.

The appellants argued that the Trial Court made two errors warranting the intervention of the Court of Appeal with respect to the scope of the licence for future adaptations and access to the source code. First, the appellants asserted that the trial judge failed to apply the correct principles of law to determine the scope of the licence. The Appellants claimed that the trial judge should have used the systematic approach from the English case Griggs Group Ltd. v. Evans.¹ Second, the appellants asserted that the trial judge had acted ultra petita. According to the principle of ultra petita, a judge cannot grant more than is sought in the proceedings.

Justice Gauthier found that IDP, Chapuis, and Bazoge (the respondents) had never requested access to the source code or a right to future adaptations. Consequently, the Court of Appeal restricted IDP's licence to the use of Ceres, Omega, Epsilon, and Comex to the forms in which they existed when Posada stopped working for IDP, without access to the source code.

With respect to the issue of whether the licence ought to be interpreted as being revocable, the appellants argued that the trial judge had made a number of errors in law in determining that the licence was non-revocable. They asserted that the trial judge should have relied on the systematic approach from Griggs v. Evans. Further, they argued that granting a non-revocable licence was not reasonable or equitable given the absence of consideration now that the respondents were no longer collaborating with the appellants. Finally, the appellants argued that the licence was conditional on the continued collaboration between the parties.

Rejecting the test from Griggs v. Evans proposed by the appellants, Justice Gauthier insisted instead on determining the revocability of the licence using the standard rules for interpreting contracts in the civil law — that is, according to the intention of the parties. Justice Gauthier noted that the standard of review for determining the intention of the parties was palpable and overriding error. Concluding that the appellants had been unable to establish any palpable or overriding error in the trial judge's assessment of the parties' intentions, Justice Gauthier affirmed the decision at trial that the licence was non-revocable.

Citing past consideration, such as the $2,000 paid to POPS for the licence and the significant investment of time and money by IDP in the development of the Windows versions of the software, Justice Gauthier found nothing unreasonable or unfair about a non-revocable licence in the absence of current or ongoing consideration. And noting again IDP's investment in the development of Omega, Comex, and Epsilon, Justice Gauthier said it would not have made sense for IDP to leave itself vulnerable to having its licence unilaterally revoked by Posada. Therefore, the Court of Appeal concluded that the licence was not conditional on the continued collaboration between the parties.

Finally, the appellants asserted the trial judge erred in law by not applying the principle that "a software licence supported by consideration that does not expressly state the tenor of the licence, may include an implied term that as long as the licensee does not misconduct himself, he can continue to use it."² The appellants claimed that the respondents had repudiated the licence by their misconduct. Justice Gauthier rejected this argument as well, having found no misconduct in the actions of the respondents.

This decision highlights the importance of having clear and unequivocal language in licence agreements, particularly with respect to the scope of what the licence permits a licensee to do, and with respect to revocability of the licence.

Footnotes

1 [2005] EWCA Civ 11 at para 13 [Griggs v Evans].

2 See Planification-organisation-publications Systèmes Ltée v 9054-8181 Québec Inc, 2014 FCA 185 at para 38.

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