Is your software licensing ready for potential disputes?
In the digital age, access to enterprise-grade software is essential for many businesses. Whether it’s for the ubiquitous word processing software that we use every day, or the highly specialised technical software that keeps industry ticking, volume licensing is an important part of the modern company.
A recent decision by the Supreme Court of Queensland has raised some valuable lessons for both licensors and licensees of software, particularly regarding how licence fees are calculated and the importance of a well-defined licence agreement. In Glencore Queensland Limited v Ventyx Pty Ltd  QSC 14, the court was required to read deeply into the text of a software licence.
The copper division of resources company Xstrata entered into a licence agreement with Ventyx, for the use of their Ellipse asset management software. The licence fee would be calculated on a per employee basis, based on the copper division’s annual headcount. Calculating licence fees in such a way is nothing new, and will be familiar to many business owners and IT administrators.
In this case, the issue arose when Xstrata was acquired by Glencore in 2013. After this acquisition, Glencore implemented a major restructure of Xstrata’s operations. The copper division was hugely impacted, with all management faculties off-shored to Glencore’s Swiss headquarters.
However, Ventyx sought to rely on a clause within the licence agreement to assert that Glencore was now bound to pay licence fees based on a head count that included the employees of companies within Glencore's own copper division. This would have seen Ventyx's licence fees increase, despite the fact that Glencore's companies did not use their software. Xstrata was compelled to include the employees of “Xstrata Copper Group Affiliates” within its headcount. The court was therefore required to determine whether the Glencore division that assumed the operational responsibilities of Xstrata’s copper division was an “affiliate” as defined in the licence agreement.
Ultimately, the court answered the question in the negative, finding that Xstrata’s copper division had essentially ceased to exist. Glencore’s copper division was held to be an entirely separate entity, unable to be affiliated with a division that no longer existed.
Lessons to be learnt
The outcome of this case should be of particular interest to organisations that rely on robust volume licencing agreements to service its employees and clients, particularly:
- medium to large businesses;
- schools; and
These organisations should take heed of the pitfalls of inadequate definitions within their software licencing agreements. While the customer was successful in this case, the cost and turmoil that arises out of ambiguous wording can be devastating for an organisation.
Licensees should consider all scenarios that may emerge in the future, including restructurings, acquisitions, mass redundancies and off-shoring.
Any licence agreement should clearly outline the metrics that will underpin the calculation of licence fees, how they will apply should the above types of scenarios eventuate. If there is an intention to bind successors of the licensee then set out how the successor will be bound even if the future use is scaled down because other software exists within a larger organisation.
This will ensure that the licensor and licensee are both on the same page, and help avoid damaging disputes.
For more information contact our Intellectual Property Team.
Ben Gouldson, Director
Samantha Davidson, Senior Lawyer
Dan Goodman, Law Clerk