UK: Does An Implied Licence To Use Software Continue After The Extension Of An Initial Term Of A Services Agreement?

Last Updated: 14 October 2013
Article by Mark Alsop

Noemalife SPA v Infinitt UK Ltd [2013] EWHC 2376 (TCC)

Ferrania UK Ltd ("FUK") (a company later acquired by the defendant Infinitt UK Ltd) was granted a licence by its sister company in 2003 to use certain software (known as "RIS"), for the purposes of providing services to Newcastle upon Tyne NHS Trust (the "NHS Trust") under a managed services agreement.

The term of the agreement was a period of seven years but the agreement contained provisions by which the agreement could be extended for further six month block periods up to a maximum extension period of thirty six months. The provisions of the agreement provided that any amendment to the agreement, including to the agreement term, had to be made in accordance with the change control procedures set out in the agreement itself.

The initial term of the services agreement expired on 30 September 2010 and was extended for six months to 31 March 2011 by a contract change control note. In December 2010 the agreement was extended again, this time for 30 months (expressed as five blocks of six months) to 30 September 2013 all in one change control note.

The claimant Noemalife SpA ("Noemalife") had acquired the copyright in the software from FUK's sister company and argued that, at the expiry of the initial period in September 2010, a fresh implied licence came into effect on 1 October 2010, and that it was a term of that licence that the defendant would pay a reasonable fee for use of RIS.

One issue before the court was whether the licence granted to FUK in 2003 to use RIS for the purposes of providing services to the NHS Trust continued after the expiry of the initial seven year term, and if so, for what period.

The judge ruled that the original implied licence granted by FUK in 2003 was extended by six months to 31 March 2011. However, when the agreement was further extended, but not in accordance with the provisions of the agreement, no further licence to use the software could be implied for the further extension.

Noemalife had no contractual right to recover any sum from FUK in relation to the use of RIS for the purposes of providing services under the agreement to the NHS Trust beyond 30 September 2010.

Key Points

  • The fee for first six month extension: on the basis of the evidence, the judge found that there was no intention on the part of Noemalife to enter into any agreement in relation to a licence fee for RIS for the six months extension to 31 March 2011. The judge found that Noemalife had decided to allow FUK to continue to use the licence for six months and on that basis there was no intention to create legal relations with FUK in connection with a licence fee for the six month period.
  • The fee for the second extension: the judge found that there was no evidence that Noemalife gave any indication to FUK that it proposed to charge a fee for FUK's use of RIS after 31 March 2011. The judge concluded that there was no evidence of any intention to create legal relations in relation to the use of RIS from the end of March 2011 to 30 September 2013. There was in fact no evidence to support either an implied agreement that the licence should continue beyond 31 March 2011 or an implied agreement that a fee was to be payable. Accordingly, the judge found that any claim to an entitlement to a licence fee beyond 31 March 2011 failed for want of any intention to create legal relations.
  • Extension by change control: the judge said that a request to extend the agreement was in his view a variation which fell within the scope of the change control procedure set down in the agreement. The agreement provided that a formal request for a change shall be requested and that neither party shall unreasonably withhold its agreement to any proposed change. The agreement provided that extensions to the contract should be in six month blocks and for a maximum aggregate period of 36 months. (The reference to six month blocks was quite specific and it was probable that this was included because there was a risk under Community procurement legislation that an extension of three years (almost 50% of the term) would be regarded as a material amendment to the contract and therefore open to challenge.

    The judge concluded that the NHS Trust contract could only be validly extended by six months at a time and therefore that the extension of 2 ½ years made by change control note on 14 December 2010 was not made in accordance with the terms of the contract.
  • The duration of the licence to use RIS: the judge considered whether the licence lasted a minimum of seven years or was extended automatically to any period by which the NHS Trust contract was extended. The judge found that the original 2003 implied licence covered the initial period of seven years and the extension of the agreement to 31 March 2011. The implied licence would have gone no further than the minimum necessary to enable FUK to enter into the services agreement (following Robin Ray v Classic FM [1998] FSR 622) and would have extended to include any extension of the contract that FUK was contractually bound to accept.

    Under the terms of the agreement, the NHS Trust could request FUK to extend the contract by six months and FUK could not unreasonably refuse that request.

    Since the 2 ½ year extension was not an extension made in accordance with the terms of the agreement, it was a change that FUK was entitled to refuse. The licence did not extend beyond the period for which FUK was required to provide services. Since FUK was not required to provide services after 31 March 2011, the implied licence came to an end on that date.
  • Copyright infringement: In order to provide services after 31 March 2011 to the NHS Trust, FUK required a licence from the copyright owner to use RIS. No such licence was granted by Noemalife, for want of any mutual intention to create legal relations. The judge said that it would have been open to Noemalife to claim for copyright infringement but this was pleaded too late in the proceedings. The timetable for the trial did not allow for Noemalife to be put to proof of its ownership of copyright in RIS. The judge said that his refusal to allow an amendment to claim copyright infringement did not prevent Noemalife bringing a fresh claim for infringement for the period from 1 April 2011 onwards.

Comment

The case illustrates the importance of complying with the procedures set down in an agreement when any change to terms is agreed. In this case, a failure to do so meant that the service provider (i) continued to provide services when it was under no obligation to do so; and (ii) infringed the rights of the copyright owner by continuing to use the software without the benefit of a licence to do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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