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Tuesday, 20 August 2013

Too many transactions, not enough forethought?

Newcastle United FC' plays
in black and white. What
a shame the licence in this
case wasn't also ...
sdfasdfasdfsdf.  The month of August provides lean fare for IP bloggers.  With so many courts closed, legislators holidaying and businesses planning for their much-hoped-for autumn-to-Christmas gold rush, suitably bloggable material is thin on the ground.  Like wild animals scavenging the Serengeti for a morsel to eat before the life-giving rains return, IP bloggers anxiously turn over any available pebble in case it might be concealing some tasty grub for a little necessary nutriment.  Thus it was that this Kat made his way to the normally unpromising terrain of the Technology and Construction Court for England and Wales, where he found Noemalife SPA v Infinitt UK Ltd [2013] EWHC 2376 (TCC) a very much fact-driven decision of Mr Justice Edwards-Stuart [Merpel finds this name perplexing: England, by itself or together with other bits of the British Isles, has had at least eight kings called Edward -- nine if you count Edward the Confessor -- but none of them have been Stuarts].  

 Staying on the theme of history, let's go back a decade.  In 2003, a company with a somewhat dubious acronym, Ferrania UK, entered into a contract with the Newcastle Upon Tyne Hospitals National Health Service (NHS) Trust [Merpel explains: local NHS Trusts were an interesting experiment in devolving incompetence in the provision of cost-effective healthcare rather than centralising it] for the provision of digital imaging and archive services using Lifeware RIS [= radiology information system] software, which it was licensed to use by its sister company in Italy, Ferrania SpA. The licence to use this software was set to run for seven years, but could be extended for a further three years in six-month blocks. After Ferrania SpA went into liquidation in 2005, the parent group set up a fresh company, Ferrania Technology SpA (FTech) to acquire its assets, including the intellectual property rights in the licensed software.

Three years later, in 2008, Noemalife -- the claimants in this action -- purchased various assets from FTech, including the IP in the licensed software, but this purchase was stated to be subject to the licence granted by Ferrania SpA to Ferrania UK in 2003. Noemalife later acquired FTech's entire share capital.  In August 2010, Infinitt -- the defendants in these proceedings -- acquired 70% of Noemalife's holding in Ferrania UK. For the sake of continuity or confusion (this Kat is not sure which), the trial judge carried on referring to Infinitt as Ferrania UK or as the defendant.

If you are still following this, the next event of note occurred in September 2010, when the licence was extended for six months, to March 2011. Then, in December 2010, the parties varied the licence terms again so as to extend the term by a further five six-month blocks, which would take us to the future, this being September 2013.

Forgetting for a moment all the twists and turns in the fate of the software licence, let's look for a moment at the law.  It was common ground that, by virtue of the Copyright, Designs and Patents Act 1988, section 90(4), FTech's acquisition of the copyright in the software was subject to the implied licence granted to Ferrania UK, which permitted the use of that software for the purposes of the NHS contract. However, a dispute arose as to the extent, if any, to which Ferrania UK's licence to the NHS Trust continued after the initial seven-year contract period.  According to Noemalife, the original licence ended with the expiry of the initial seven-year period: thereafter, from October 2010, a fresh implied licence immediately came into effect. This being the case, it was a term of the fresh licence that Ferrania UK would pay a reasonable fee for the use of the software.  No, said Ferrania UK, the original licence extended to cover any period for which the NHS contract could be extended under its terms. If this was not the case, said Ferrania UK, there was still no agreement, express or implied, by which it undertook to pay any form of licence fee between October 2010 and expiry of the three-year extension period.

Mr Justice Edwards-Stuart dismissed the claimant's action.

First, on the facts he concluded that there was no evidence that Noemalife had intended to charge a fee for the six-month extension to the NHS contract to March 2011; rather, it was apparently content to leave the position unchanged for that period. Noemalife undoubtedly knew of the possibility that the NHS contract might be extended for a further two-and-a-half years -- but did not tell Ferrania UK that it proposed to charge a fee for use of the software after March 2011.

Moreover (and here's something for first-year law students in common law jurisdictions to get their teeth into) there was no evidence of any intention to create legal relations in relation to the use of the softwarefrom the end of March 2011 to September 2013, nor any evidence to support either an implied agreement that the existing arrangement should continue beyond March 2011 or an implied agreement that a fee was to be payable. If anything could be inferred, it was that there was to be no change in the existing arrangement. Accordingly, Noemalife's claim to an entitlement to a licence fee beyond March 2011 on the basis of an implied agreement failed for want of any intention to create legal relations.

Taking a close look at the actual provisions of the NHS contract, it could only be validly extended by six months at a time, subject to the overall limit of three years. The two-and-a-half year extension made in 2010 was not therefore made in accordance with the contract's terms: the duration of the licence was no less than the minimum term of the NHS contract which could be taken to be seven years. The licence did however have to extend to include any extension of the contract that Ferrania UK was contractually obliged to accept. The original implied licence granted to Ferrrania UK in 2003 was properly extended by six months to March 2011 since that company was obliged to accept that extension: it was not, however, obliged to accept the two-and-a-half year extension to September 2013. Accordingly, the implied licence granted in 2003 came to an end in March 2011. It followed that, if Ferrania UK were to continue to license the software to the NHS trust beyond that date, it needed a further licence to do so from the owner of the copyright and, so far as Noemalife owned those rights, no such licence had been granted.

The judge concluded that it was open to Noemalife to bring a fresh claim for copyright infringement in respect of unlicensed use of the software for the period from April 2011 onwards, although it would be open to the defendant to resist such a claim on any grounds available.

At risk of being boring, this Kat feels that the facts display another of the growing number of litigated disputes in which a little more forethought at an earlier stage, and a subsequent willingness to sit down and negotiate a settlement, might have saved everyone a good deal of money and anguish.

1 comment:

Suleman said...

Re the Kat's comment in the last paragraph, perhaps we need, as has been suggested for bankers, more identification of the specific individuals whose actions lead to things going wrong, e.g. unnecessary litigation happening. That would at least mean that more thought would be given to the future consequences of their decisions.

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