Monday 8 March 2010

No soft landing for Softlanding

A week or so ago, judgment was given in Softlanding Systems Inc v KDP Software Ltd and Unicom Systems Inc. [2010] EWHC 326 (TCC), an unusual instance of a copyright dispute being heard by the Technology and Construction Court for England and Wales (Judge David Wilcox) rather than one of the usual Chancery herd. When you read the technical stuff, you'll probably that the case ended up in the right court.

What happened here was that KDP had developed two new software products which significantly enhanced the value and utility of a product which Softlanding had already been licensing for some years. KDP and Softlanding accordingly agreed that Softlanding would market all three products. Their deal specified the royalties which KDP would receive and stated that none of the rights and duties of the agreement was assignable without KDP's written consent. This was with the proviso that, if KDP ceased to do business, it would hand over its source codes and transfer ownership of its products to Softlanding. The agreement also set out a standard end-user licence, which could be modified before grant with KDP's prior consent. Additionally, under the licence, Softlanding had various maintenance obligations which depended on it having access to KDP's source code.

The agreement, for an initial period of three years, was never extended although KDP continued to allow Softlanding to enter into licences with end users. Softlanding was then taken over by Unicom. Under a further agreement, Unicom provided maintenance services to end users and received all the revenue from doing so. Unicom subsequently failed to make a number of royalty payments to KDP, claiming that there had been an agreement that such payments would be calculated differently. In fact, Softlanding had failed to disclose the amount of royalties which were due to KDP. In some cases, that disagreement led to KDP refusing to provide source codes to enable Softlanding to undertake maintenance work.

In proceedings in which Softlanding sought and obtained an interim injunction ordering KDP to provide temporary source codes, the agreement between Unicom and Softlanding was not disclosed to the court and only emerged by accident. Softlanding submitted that (i) there was an implied continuation of the clause which entitled it to the source code and ownership of the software upon cessation of business by KDP and that (ii) KDP had failed to provide either the source code or title to the software. KDP submitted that Softlanding (i) had breached implied terms as to its obligation to account to it in relation to the transactions with end users, (ii) was in breach of the agreement by purporting to license end users otherwise than under the agreed licence and (iii) was also in breach by permitting intermediaries to distribute and license KDP's software products and to issue maintenance agreements. KDP further contended that Unicom had infringed KDP's copyright because Unicom's product licensing agreement was totally different from the terms on which KDP had originally agreed to license Softlanding. KDP therefore pressed that the interim injunction should be discharged, since there had been material non-disclosure and misleading of the court by Softlanding.

The judge found that Softlanding had not shown any entitlement to the product codes. The company had no right to these valuable business assets and its claim was dismissed in its entirety because of the effect of the agreement between it and Unicom. It may have been the case that Unicom was providing end user services, but KDP owed Unicom no contractual duty.

If this wasn't bad enough for Softlanding, things just carried on getting worse. Softlanding could not be said to have suffered any loss, even if KDP had been proved to be in breach -- which had not been shown. However, significant sums remained owing by Softlanding, whose continuing lack of candour and compliance with the obligation to account warranted the termination of the agreements by KDP. Softlanding had never sought the approval of KDP for any alterations in the agreed prescribed content of the licence, though it had been required to do. Such licences as Softlanding had issued, which were unapproved by KDP or contained amendments without KDP's knowledge, were invalid licences and the use of KDP's copyright software, having been wrongfully authorised by Softlanding, looked like an infringement too.

Now this is where the fun starts. The judge concluded that it would have been feasible for KDP to offer maintenance of its products to end users if it hadn't been for the fact that Unicom had been doing so. The assignment made by Softlanding to Unicom was clearly without permission and all authorisation and maintenance agreements entered into by Unicom were infringements. Applying the IP Enforcement Directive (2004/48), KDP was entitled to 100 per cent of the amounts paid by end users after that assignment. Also, since Softlanding had offered no explanation for its failure to disclose the agreement with Unicom but had instead raised a specious and time-wasting case, this was an exceptional case in which it was appropriate to discharge the injunction against KDP and instead award injunctive relief against Softlanding and Unicom to stop them infringing KDP's copyright.


Anonymous said...

This was appealed on the 11th October 2010 at the High Court of Appeal

Anonymous said...