BMS v AB Agri

Out-Law Guide | 02 Nov 2007 | 8:31 am | 3 min. read

This High Court decision provides a useful reminder as to the meaning of "perpetual" in the context of a software licence. Parties to such a licence should take care to be very clear as to what is meant by "perpetual" because it will not automatically be taken to mean that the licence will last forever.

BMS Computer Solutions Ltd v. AB Agri Ltd

  • [2010] EWHC 464 (Ch)

Facts

In 1994 BMS and J Bibby (which later became AB Agri) agreed a licence for the use of MillMaster software developed by BMS by J Bibby. This licence was tied into a support agreement and contained provisions that it would be terminated either after 10 years, or if the parallel support agreement between the parties was not kept up.

The terms of the licence and support agreement were revised in 2000 by a variation agreement containing the clause "the Program Licence will be extended to be a UK-wide perpetual licence".

AB Agri gave the required 12 months notice in December 2008 to terminate the parallel support agreement but asserted that the software licence would continue because it was perpetual. AB Agri argued that the new agreement supplanted the termination provisions contained in the original agreement and therefore AB Agri would have a continuing licence to use the software.

BMS disagreed and applied for summary judgement on the meaning of the contractual terms. Sales J. granted a summary judgement, ruling that the factual background and context to the contract which would require a full hearing were irrelevant. The point to be considered by Sales J. was which meaning of "perpetual" applied in this case.

Judgment

Sales J. held that the licence had been terminated.

The judge stated that perpetual has "different shades of meaning" and while it can mean that something is "never ending (in the sense of incapable of being brought to an end)", it can also mean that a thing is "of indefinite duration, but subject to any contractual provisions governing termination". In this case it was the latter meaning which applied. Therefore when AB Agri terminated the support agreement it also terminated the licence.

It was held that the variation agreement was not intended to replace the whole licence agreement but simply to extend it. This indicates that the licence in the variation agreement was intended to be subject to the same termination provisions as in the original agreement. The fact that the variation agreement failed to specifically vary the termination provisions indicates that the intention of the parties was that these provisions were to continue in force.

Furthermore the judge found that the termination provisions were of fundamental importance and as such if the parties had intended to delete them this would have been done explicitly. The would not have relied on their deletion being implied from the use of the word "perpetual", the meaning of which is generally uncertain.

Sales J. determined that there was a clear commercial justification for the termination provisions continuing to operate. Without them the new contract would not have made commercial sense, one party would have been left with particularly onerous obligations under the agreement with no simple mechanism to bring these to an end. It was widely anticipated that a finding in favour of BSkyB would herald a significant review of IT companies' sales processes.

Commentary

The meaning of "perpetual" in the context of a licence is frequently discussed. As Sales J. highlighted in this case there are two generally understood meanings of "perpetual":

  1. something which is "never-ending", in the sense of incapable of being brought to an end; and
  2. something which is of indefinite duration but is subject to any contractual provisions which govern termination.

While many people may assume the former is the natural meaning of "perpetual", this case makes clear that the courts will not always agree. However, there are lots of instances in practice in which perpetual licences are stated to be subject to rights of termination, therefore it is perhaps not surprising that Sales J. reached the conclusion he did.

The effect of this judgement is to highlight that when drafting perpetual licences it is important to clearly identify the intentions of the parties. If the parties intend the licence to be capable of termination then express rights to this effect should be included for the avoidance of doubt. Furthermore, if the scope of the main agreement is wider than the licence (for example under a supply contract) it would be prudent to set out that on termination of the main agreement, the licence will also terminate.