Separate extensions to software licensing deal transferred in liquidation deemed valid and invalid by High Court

Out-Law News | 20 Aug 2013 | 9:18 am | 4 min. read

A software licensing arrangement transferred as a result of a voluntary liquidation continued to apply for six months beyond the end of the initial contract period but an additional longer extension to that contract could not be implied, the High Court has ruled.

Mr Justice Edwards-Stuart ruled that the decision by Infinitt UK and the Newcastle upon Tyne Hospitals NHS Trust to extend a seven year contract, which included a sub-licensing arrangement for the use of software, for six months was legitimate.

However, because the initial contract only permitted the contract to be extended in six month blocks up to a total of 36 months, the judge ruled that a subsequent decision to extend the contract to cover the period from the end of the first six month block by two and a half years until the 36 month "long stop" deadline applied was not made "in accordance with the terms of the contract" and could not otherwise be as "an agreement of the parties acting outside the contractual machinery".

Mr Justice Edwards-Stuart made the ruling in a case brought by Spanish-listed company Noemalife. Noemalife has claimed that it owns the copyright in the software Infinitt has licensed for use by the Newcastle Trust.

Noemalife argued that Infinitt should have been paying it a "reasonable fee" to compensate it for the licensing of its software to the Newcastle Trust from the period beginning around 11 May 2011. However, the judge rejected to hear Noemalife's claim for infringement of copyright on the basis that the company had failed to lodge such a claim in accordance with proper court procedure.

The dispute between Noemalife and Infinitt stems from a chain of events that has seen the ownership of rights in the software change hands since the original contract permitting Newcastle NHS Trust to make use of the software was created.

According to the judgment, the original contract with Newcastle NHS Trust was agreed by a company called Ferrania UK (FUK). FUK's sister company in Spain owned the software in dispute, called the Trust of Lifeweb software (RIS). FUK held a licence from its sister company to use the software.

FUK entered into a seven-year contract with an NHS Trust in Newcastle from October 2003 to provide digital imaging and archiving services and, under this agreement, sub-licensed the use of the RIS software for the Trust's purposes. The contract allowed for the licence to be extended in six month blocks after the seven-year period ended, up to a total of three years.

In 2004/05 the Spanish sister company to FUK went into voluntary liquidation and its assets were bought over by Ferrania Technologies (FTech) SpA, another company set up within the Ferrania group. FTech's acquisition of the assets meant that it owned the RIS software at this time but the previously licensing arrangements with FUK still stood by way of a licensing arrangement which Mr Justice Edwards-Stuart deemed could be implied.

FUK was not charged a licence fee by FTech to use RIS and this remained the case for the remainder of the seven year contract between FUK and the Newcastle Trust after Noemalife purchased the intellectual property rights in RIS from FTech in May 2008, according to the ruling.

Noemalife bought all the issued share capital available in FUK in June 2008 before selling a 70% stake in FUK to another business, Infinitt Healthcare, in 2010. FUK was subsequently renamed Infinitt UK.

At the end of its seven year contract, the Newcastle NHS Trust requested to extend its agreement with Infinitt by a further six months until 31 March 2011. However, prior to that deadline the parties varied the arrangements again so as to extend the agreement until 30 September 2013.

 

Because Noemalife had "given no indication that the licence for RIS would not continue for a six months' extension to 31 March 2011" and because the terms of the deal on the table from the Trust were such that Infinitt could not "reasonably have refused" to accept the extension, Mr Justice Edwards-Stuart said that the original implied licensing arrangements could be said to have been extended until 31 March 2011.

The original contract between FUK and the Newcastle NHS Trust set out that neither party could "unreasonably withhold its agreement to any change" to their agreement.

However, the judge said that the subsequent extension of the contract from 31 March 2011 to 30 September 2013, as agreed by Infinitt and the Newcastle NHS Trust in December 2010, was not agreed within the bounds of the original contract because a single extension of the contract beyond a six month block was not permitted under the terms of the agreement.

"Since I have concluded that the 2 ½ year extension [agreed between the parties] was not an extension made under the contractual machinery, it was a change that FUK was entitled to refuse, whether reasonably or unreasonably, because [the terms of the contract] did not apply", Mr Justice Edwards-Stuart said. 

Mr Justice Edwards-Stuart said that it was "highly probable" that concerns about the application of EU procurement laws had specifically driven the Newcastle NHS Trust and FUK to originally place a six month block limit and 36 month "long stop" barrier on the extension of the initial contract.

Unpicking the rationale behind the decision to frame the contract in this way helped the judge interpret the meaning of the contract and determine the validity of the contract extensions made by Infinitt and the Newcastle NHS Trust in 2010.

Although the judge rejected Noemalife's bid to raise a copyright infringement claim against Infinitt in these proceedings, he said it was open to the company to "bring a fresh claim for breach of copyright for the period from 1 April 2011 onwards". He said, though, that Infinitt would be free to defend itself against such claims if they were brought against it.