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Tuesday, 3 February 2009

Avoidable dispute resolved

An interesting decision from the Patents Court (England and Wales) last week wasn't about patents at all, but rather about the interpretation of some confusing clauses in a software licence. The case, Data Direct Technologies Ltd v Marks & Spencer plc [2009] EWHC 97 (Ch), was heard by Mr Justice Floyd who gave judgment on 26 January, and picked up by the Lawtel subscription-only service.

Data Direct claimed payment of software maintenance fees which, it alleged, were due from retail giants Marks & Spencer under the terms of a software licence. Data Direct and M&S had concluded a software licence agreement which stated that a maintenance schedule and a product schedule were to be incorporated into the agreement.

* The maintenance schedule provided that, following payment of a maintenance fee, M&S would be entitled to receive extensions, enhancement and other software changes without having to pay any additional charge.

* The product schedule comprised a summary of orders for the supply of the licensed software: this was updated or varied each time M&S placed repeat orders.
In the event of any conflict between the agreement and the schedules, the agreement had priority.

Inevitably a dispute arose as to the wording of a clause governing the payment of maintenance fees, in an updated version of the product schedule. That clause provided that, "at the customer's option", annual maintenance for the relevant period would be a percentage of the licence fee.

In these proceedings Floyd J was asked whether the words "at the customer's option" meant that M&S had positively to elect (or "opt") to have maintenance and therefore incur a duty to pay the charge and whether, if M&S did not so elect, any maintenance was payable at all. According to Data Direct, under the relevant clause in the product schedule, maintenance was payable in accordance with the maintenance schedule to the main agreement, by virtue of which M&S was obliged to pay for a maintenance fee unless it gave 30 days written notice of its intention to cancel maintenance. M&S disagreed: in its view it only had to pay the maintenance fee if it exercised the option to do so which was granted to it by the use of the words "at the customer's option" in the relevant clause to the product schedule.

Floyd J held for Data Direct. In his analysis:
* The combined effect of the relevant clauses in the maintenance schedule was that, if M&S gave notice of cancellation at least 30 days before the due date, no maintenance fee was payable at all.

* Although the maintenance schedule would lead a reader to expect that the product schedules would give information about the maintenance fee, there was nothing in the maintenance schedule that would lead a reader to expect that the product schedules had anything to say about the basis upon which the maintenance fee would be paid.

* The disputed clause related only to the licence extension to which the product schedule referred. However, the nature of the software was such that the obligation to maintain it had to apply to all the licensed software -- or to none of it.

* The all-or-nothing nature of the maintenance obligation strongly supported Data Direct's interpretation of the relevant clause. This being so, a reasonable reader of the wording in the relevant clause would understand that it could not sensibly be read as creating a special option to elect for maintenance in respect of the licence extension. This being so, the maintenance fee was properly claimed and properly payable.
The IPKat still gets very depressed by cases like this.  The basic business deal between Data Direct and Marks & Spencer looks very much simpler than the words of the contractual arrangement that purported to reflect it; neither party fully understood it and even the judge rather appears to have reached a conclusion that possibly (since the full text of the decision is unavailable) neither party had understood to be the purport of the disputed clause at the time they entered the contract.  Merpel agrees and hopes that no lawyers were involved at the time the deal was done: leaving a contracting party unclear about the terms of a contract it has just entered is, for the lawyer, a bit like a surgeon letting his patient out of the operating theatre with a rubber glove neatly sewn up inside him. The damage may not be immediately noticeable but can cause great trouble at a later stage.  Tufty ponders as to how and when the parties woke up to this: was it something spotted during an IP audit, he mewses ...

2 comments:

Anonymous said...

Its not a decision of the Patents Court

Peter Groves said...

It is now on Bailii, http://www.bailii.org/ew/cases/EWHC/Ch/2009/97.html. I don't think it does indicate that the judge concluded that neither party understood the contract: he seemed to think that in context it was pretty clear what it meant: "In my judgment the all or nothing nature of maintenance for the software strongly points in favour of the claimant's construction. The reasonable reader of clause 7 would understand that it could not sensibly be creating a special option to elect for maintenance in respect of the licence extension. That fact, coupled with the reference back in the first sentence of clause 7 to the Maintenance Schedule, combine in my judgment to indicate that the parties intended the provisions of the Maintenance Schedule to continue to apply to all maintenance. The option referred to in clause 7 is merely the option (in the sense of the right to cancel) provided by clause 1(c) of the Maintenance Schedule."

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