A ‘perpetual’ licence might not be forever

02 November 2010

Helen Dyson, Francesca Liebling

Software licensees might expect that a ‘perpetual’ licence is never ending. However in a recent case a ‘perpetual’ licence, while held to be of indefinite duration, was also found to be terminable.

Background

In 1994 BMS entered into a licence with the defendant’s predecessor company for the use of its animal feed management software. The licence was tied into a parallel technical support agreement and contained provisions that it would expire after 10 years, or on 12 months’ notice, or be terminated at any point if the parallel support agreement between the parties was terminated at any time.

In 2000, the licence and support agreement were assigned to the defendant, AB Agri, by a variation agreement which provided that "the Program Licence will be extended to be a UK-wide perpetual licence".

In December 2008, AB Agri gave notice to terminate the technical support agreement, but asserted that the software licence would continue because it was perpetual. It argued that the variation agreement supplanted the termination provisions contained in the original software licence and, therefore, it had a continuing licence to use the software notwithstanding the termination of the support agreement.

BMS disagreed and applied for summary judgement on the meaning of the contractual terms.

Decision

Granting summary judgment in favour of the licensor, 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, the licence also terminated in accordance with the terms of the original licence agreement.  The use of the word perpetual in the variation agreement did not negate the termination provisions in the licence agreement, but simply changed the licence from a limited duration (of 10 years) to an indefinite duration.

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

Key messages

While many people may assume that the natural meaning of "perpetual" is never ending, this case makes clear that the courts will not always agree.  It is therefore important when drafting perpetual licences to clearly identify the intentions of the parties. In particular, if the parties intend that the licence should not be capable of termination, then this should be stated expressly. 

Case reference: BMS Computer Solutions Ltd v AB Agri Ltd [2010] EWHC 464 (Ch)

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