A licence to use software usually authorises the terms of use of the products by an end user. These types of licences are usually entered into by express agreement and the passing of consideration (Dundas Lawyers previously discussed software licence agreements here). However, there are circumstances where a licence to use software may be implied from the surrounding circumstances. This article discusses the recent Federal Court case of QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615 which considers factors which might give rise to an ‘implied licence’.
The case of QAD Inc v Shepparton Partners Collective Operations Pty Ltd
QAD creates and licenses enterprise resource planning (ERP) software. This software had been licenced to SaleCo. Shepparton Partners Collective Operations Pty Ltd (Shepparton) purchased SaleCo’s assets and continued to use QAD’s software, which was licenced only to SaleCo, without securing a transfer of the relevant software licence agreement. Importantly, SaleCo was unable to transfer the licence and the onus was on Shepparton to pay a transfer fee and take it over.
Shepparton refused to do so and instead attempted to negotiate with QAD regarding the terms of the licence. During the negotiations, QAD did not object to the continued use of the software, without licence, by Shepparton. Shepparton considered that on the basis QAD had not objected to the continued use, at least during the negotiation period, that an implied licence to use the software arose.
Implied licence to use software
Section 36(1) of the Copyright Act 1968 (Cth) provides that the word ‘licence’ is taken to mean ‘consent’ or ‘permissions’ and that such a licence may be ‘given orally or be implied by conduct’.[1] A licence may be granted by ‘a positive permission or consent being implied from the circumstances of a particular case’.[2]
In the case of Computermate Products (Aust) Pty Ltd v Ozi-Soft Pty Ltd & Ors [1988] FCA 383 the Full Court considered that a licence may be a gratuitous or a bare licence, holding at [12]:
“A bare licence may be revoked at will, or at least, on giving the licensee reasonable notice. However, where the bare licence has been acted upon by the licensee to the detriment of the licensee, in an appropriate case there may be an estoppel against the licensor preventing the revocation of the licence, either at all or otherwise than upon notice.”
[emphasis added, footnotes omitted]
Where a gratuitous or bare licence is established, it does not necessarily follow that such will be revocable at will and instead terminating such licence will depend on the circumstances.[3] It can be seen then, that should an implied licence arise the licensee in such a scenario enjoys ongoing and relatively secure access to the software in questions. Thus, it is important to consider whether it could be found that an implied licence exists by the Courts.
When does an implied licence arise?
The question to ask when considering whether an implied licence arises is ‘whether in the circumstances of the Court may properly infer from the evidence the existence of consent to what otherwise would be an infringement of copyright.”[4] From this starting point, the Court considered various principles which appear to negate the finding of an implied licence. They are that:
- a licence will only be implied where it is necessary to do so;[5]
- ‘mere silence’ is not sufficient to create an implied licence;[6]
- reasonable and temporary collaboration between parties does not involve the grant of a gratuitous licence;[7]
- an implied licence is ‘at large’ and must have ‘some terms and conditions’;[8]
In applying these principles to the facts of this case, the Federal Court was of the view that Shepparton was utilising the software without an implied licence from QAD.
The Federal Court’s decision
Ultimately, the Federal Court saw fit to award a substantial amount of damages on three main grounds:
- the flagrancy of the non-authorised use of the software;[9]
- the need for specific and general deterrence;[10] and
- that Shepparton ought to have purchased the transfer of the licence for $662,428.80.[11]
In total, the Federal Court saw fit to order Shepparton to pay in excess of $1.1 million in compensatory and additional damages as a result of its unlicensed use of QAD’s software.
Takeaways
The Federal Court will not be quick to find that an implied licence arises out of a given set of facts. There are various principles of common law which negate such a scenario and some set of facts which make the finding of an implied licence necessary must be seen before the Federal Court will rule this way. Businesses need to take care, particularly in light of the damages awarded in this case as a deterrent, to ensure that they are using software under an express licence.
Links and further references
Legislation
Cases
Acohs Pty Ltd v Ucorp Pty Ltd (2012) FCAFC 16
Chhabra v McPherson (as trustee for the McPherson Practice Trust) [2018] FCA 1755
Chhabra v McPherson (as trustee for the McPherson Practice Trust) (2019) 147 IPR 399
Computermate Products (Aust) Pty Ltd v Ozi-Soft Pty Ltd & Ors [1988] FCA 383
Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225
Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534
Powerflex Services pty Ltd v Data Access Corporation (No 2) (1997) 75 FCR 108
QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615
Trumpet Software Pty Ltd v Ozemail Pty Ltd (1996) 34 IPR 481
Further information about software licencing
If you need advice on software licencing, contact us for a confidential and obligation-free discussion:
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
[1] Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 at 539.
[2] Computermate Products (Aust) Pty Ltd v Ozi-Soft Pty Ltd & Ors [1988] FCA 383, 12.
[3] Chhabra v McPherson (as trustee for the McPherson Practice Trust) [2018] FCA 1755 [137]; Chhabra v McPherson (as trustee for the McPherson Practice Trust) (2019) 147 IPR 399 [92].
[4] Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225, 234.
[5] Acohs Pty Ltd v Ucorp Pty Ltd (2012) FCAFC 16 [145].
[6] Powerflex Services pty Ltd v Data Access Corporation (No 2) (1997) 75 FCR 108.
[7] Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225, 242.
[8] Trumpet Software Pty Ltd v Ozemail Pty Ltd (1996) 34 IPR 481, 499.
[9] Case [167].
[10] Ibid.
[11] Ibid [168].
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