It is common for software licences to be sold to customers coupled with support and maintenance contracts. Support and maintenance contracts are important for customers as they entitle them to upgrades and resolution of faults in the software after any warranty period has expired. For IT suppliers, amongst other things, they are a source of ongoing revenue.

In BMS Computer Solutions Limited v AB Agri Limited, a case that was heard in the High Court on 10 March 2010, the court considered the construction of the wording in three related contracts - a licence agreement, a support agreement and a variation agreement amending them both.

AB Agri wanted to get out of its obligation to continue with the support agreement because it felt that it no longer needed support and did not want to pay for it any more. In fact, AB Agri was in the process of developing its own software which would eventually replace the BMS software. It therefore terminated the support agreement, intending for the licence agreement to continue unaffected - at least until its own software was ready.

BMS said that AB Agri couldn't do this and that the licence agreement and the support agreement were inter-linked. It referred to a clause in the licence agreement which stated that, in the event that the support agreement was terminated, the licence agreement would automatically terminate. In BMS' view then, the effect of AB Agri terminating the support agreement was that the licence agreement was also terminated.

The court looked at the variation agreement that the parties had signed. It made the licence agreement "a UK-wide perpetual licence" and AB Agri argued that this had the effect of overriding the existing termination provisions.

The judge said no. In his view, the existing termination provisions - including the one in the licence agreement which provided for automatic termination of the support agreement - survived and were not incompatible with a "perpetual" licence. The judge said that, if the parties had intended for the existing termination provisions not to survive or to be amended, then this should have been expressly dealt with in the variation agreement.

This may be news to some IT suppliers and their customers. Often the word "perpetual" appears in software licences. However, use of this word does not mean that the contract will last forever and no matter what. If there are other contrary clauses in the contract, wherever these appear, then all "perpetual" may mean - as in the above case - is that the contract is of indefinite duration and so remains perfectly capable of termination.

Contact Us

For more information, please contact:

Scotland
Alison Bryce
Partner
0131 228 7102
alison.bryce@mms.co.uk

Ross Nicol
Associate
0141 303 2459
ross.nicol@mms.co.uk

London
Simon Cosgrove
Associate
020 7002 8521
simon.cosgrove@mms.co.uk

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