Software licences and the risk of infringement

Many businesses now rely on software products to operate. These software products are usually provided by third-party suppliers by way of a licence agreement. It is critical to properly review and consider the terms of such agreements to protect against various risks (including copyright infringement).

Such matters were considered in the recent Federal Court of Australia decision in QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615. 

Facts

The applicants (QAD) own the computer program QAD 2008 SE (Software).

Sale Proprietary Co 1 Limited (SaleCo) relied on the Software to operate various aspects of its business. SaleCo were authorised to use the Software by way of a licence agreement with QAD signed in 1991 (Licence).

The Licence expressly restricted SaleCo from assigning its right to use the Software to a third party without first obtaining QAD’s consent.

Shepparton Partners Collective Operations Pty Ltd (SPC) subsequently purchased SaleCo’s business. SPC continued to use the Software to operate the business.

QAD contacted SPC on several occasions in order to negotiate the terms upon which SPC could continue to use the Software. At all times, QAD made it clear that the Licence was non-transferable and that steps had to be taken to resolve the impasse.

Eventually, it became clear to QAD that SPC was not interested in negotiating terms of the transfer, given it had set its sights on a new Microsoft software product.

SPC then sued for copyright infringement.

Copyright in software

Under the Copyright Act 1968 (Cth) (the Act), the owner of copyright in a “work” has the exclusive right to reproduce the work in a material form.
 
The definition under the Act of “work” includes a “literary work”.
 
A “literary work” includes a “computer program”, being a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.
 
This definition has been the subject of much judicial comment, however, the general position is that protection attaches to the written source/object code.
 
The code provides the “set of statements or instructions” that cause a computer “to bring about a certain result”.

It was not in dispute that:

  • QAD owned the copyright in the Software; and
  • SPC had reproduced the Software in a material form.

The key issue for determination was whether SPC held an implied licence to use the Software.

Decision

The Federal Court of Australia determined that SPC had infringed the copyright in the Software. SPC continued to use the Software without authority and could not rely on the Licence given it was non-transferable.

In addition to an order for payment of compensatory damages in the amount of $662,428.80, SPC was also required to pay $500,000.00 in additional damages given the flagrancy of its infringement.

Lavan comment

Software licence agreements are no mere formality. Particular attention should be paid to their terms, prior to and after execution.

Allowing another entity to access and use a software product, even if that entity is within your corporate group, may constitute a breach of the licence. Further, when purchasing a business, care should be taken to review software contracts to ensure those licences can be assigned smoothly (particularly those software products central to the business’ operations).

If you require further information or advice, do not hesitate to contact Iain Freeman or Andrew Sutton.