For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

Two of our regular Kats are currently on blogging sabbaticals. They are David Brophy and Catherine Lee.

Friday, 19 March 2010

How long is forever?

This isn't such a silly question as it sounds, since the word "perpetual" crops up frequently in intellectual property licences. One recently-litigated example of this is BMS Computer Solutions Ltd v AB Agri Ltd [2010] EWHC 464 (Ch), a ruling of Mr Justice Sales in the Chancery Division, England and Wales, on Wednesday of last week.

In 1994 BMS, a computer software business, licensed its MillMaster animal feed software to Bibby. Under the termination provisions, the licence would expire after 10 years unless it was terminated earlier; it would also terminate if a parallel technical support agreement between the same parties was not kept up.


Some years later, both the licence and support agreements were varied, when Bibby was replaced by its successor in business, Agri. Under the revised agreement the licence would become a perpetual licence, for all Agri's then locations, up to a maximum aggregate annual tonnage. In respect of tonnage above the maximum, further payments to BMS would be due. Fresh licence and support agreements were to be negotiated for all non-organic tonnage growth.

In December 2008 Agri gave notice to terminate the support agreement, since it was developing its own software, but asserted that its licence to use BMS's software continued since it was "perpetual". BMS disagreed, saying that continuation of the licence was conditional on the support agreement continuing and complaining that Agri had also used BMS's software at an additional mill without negotiating new licence and support agreements -- though the annual tonnage of compound feed of Agri's operations remained less than the maximum.

In these proceedings, in which BMS applied for summary judgment in relation to two points of contractual construction, the court was asked to consider (i) whether, on the construction of the agreements, the licence had been terminated, notwithstanding its description in the variation agreement as "perpetual"; (ii) whether Agri had to obtain a further licence in respect of the additional mill.

Sales J held as follows:
* Agri's licence had been terminated. It was true that the word "perpetual" had different shades of meaning, including "incapable of being brought to an end" and "of indefinite duration, but subject to any contractual provisions governing termination". In this case, the second of those interpretations was correct. This being so, there was therefore no incompatibility between the variation agreement and the requirement to keep the support agreement in place, so that requirement continued to have effect. Accordingly, when Agri terminated the support agreement, it also terminated the licence.

* The variation agreement was plainly not intended wholly to displace the licence agreement: it stated that the licence would be extended rather than replaced. That indicated that the licence referred to in the variation agreement was subject to the same termination provisions as in the licence agreement.

* The very fact that the variation agreement did not refer to the termination provisions in the licence and support agreements indicated that those provisions were intended to continue in force.

* The termination provisions were of fundamental importance. If the parties had intended to delete them, they would have done so explicitly rather than just leaving it to be inferred from the use of "perpetual", a term of uncertain meaning. In any event, there was a clear commercial need for the termination provisions to continue to operate. If they did not, there would be no mechanism to bring potentially onerous obligations under the agreement to end.

* Use of the software to produce feed above the maximum tonnage was clearly contemplated as being authorised under the variation agreement, since additional payments were provided for. The maximum tonnage figure did not therefore limit the extent of the licence when Agri's business grew. However, it would not be commercially realistic to suppose that the parties intended that there should be no protection for BMS if Agri expanded its activities. It was possible and necessary to interpret the variation agreement by giving it its ordinary and natural meaning so as to require new licence and support agreements to be negotiated for all non-organic tonnage growth.
Says the IPKat, the meaning of the word "perpetual" in the dictionary is one thing; its meaning in the context of an ongoing commercial relationship such as an intellectual property licence is clearly another, and the meaning of any word used in the licence will be understood in the light of the intention of the parties and their commercial aspirations rather than being governed by the whim of the lexicographer. Accordingly it cannot be assumed that this meaning of "perpetual" fits other transactions in which it may be found.

Perpetual motion here
Perpetual emotion here

2 comments:

Mark Anderson said...

Licence clauses sometimes say "irrevocable, perpetual [licence]..."

In such usage, irrevocable focuses on termination, whilst perpetual focuses on duration.

Just as one could have a 5 year agreement, subject to early termination provisions. The fact that there are early termination provisions doesn't strain the language of saying it is a 5 year agreement.

Anonymous said...

You forgot "Sweet Emotion" here: http://www.youtube.com/watch?v=6yGCHPmfqT0

Subscribe to the IPKat's posts by email here

Just pop your email address into the box and click 'Subscribe':