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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Profile Software Ltd v. Becogent Ltd [2005] ScotCS CSOH_28 (16 February 2005)
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Cite as: [2005] CSOH 28, [2005] ScotCS CSOH_28
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Profile Software Ltd v. Becogent Ltd [2005] ScotCS CSOH_28 (16 February 2005)
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OUTER HOUSE, COURT OF SESSION [2005] CSOH 28 |
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A1340/03
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OPINION OF LORD KINGARTH in the cause PROFILE SOFTWARE LIMITED Pursuers; against BECOGENT LIMITED Defenders:
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Pursuers: I G Mitchell QC, Weir; Burness
Defenders: Johnston; Brodies
16 February 2005
[1] In this action the pursuers, who are the owners of copyright in certain computer software, make claims against the defenders who, it is said, have infringed the copyright and are in material breach of a licence granted in their favour. The defenders' first plea-in-law is one of "No title to sue", and the action came before me for proof in respect of that preliminary plea. Evidence was led from three witnesses, Mr Craig Baxendale, Technical Director of MGt Plc ("MGt") (of which company the pursuers are a wholly - owned subsidiary), Mr Scott Gaillie, Insolvency Practitioner with Kroll Limited and Mr Alistair Orr, Solicitor, presently a partner in Brodies and formerly a partner in Maclay Murray & Spens. A number of matters were agreed in a Joint Minute. At the end of the proof the essential factual background was not, it seemed to me, seriously in dispute. [2] Prior to July 2001 Coranta Corporation Limited ("Coranta") owned the copyright in a computer program, relating to customer relationship management, known as "Profile" (and formerly, until March 2000, known as "Call-IT"). Indeed, the intellectual property rights in that software formed the company's principal assets. "Profile" consisted of a suite of modules (one of which was known as "Call-IT") designed principally to capture and store information from and about a company's customers in a way that made such information speedily available to anyone who required, for example, to field telephone calls from such customers. In or about July 2001 Coranta went into liquidation. Fraser G Gray of Kroll Limited was appointed liquidator. The liquidator wished to realise, as soon as he reasonably could, as much of the company's assets for the benefit of the creditors as he could. Much of the day to day work was done by Mr Gaillie on his behalf. Although consideration was initially given to the disposal of the business as a going concern these efforts proved unsuccessful. A number of potential purchasers of the assets were approached, including in particular a number of companies who had been licensed by Coranta to use versions of "Profile" which had, in ordinary course, been customised to suit them. Amongst these companies were MGt and the defenders. [3] It became apparent that MGt wished to acquire the intellectual property rights for the whole "Profile" product (and indeed all corporeal media on which the software was stored, together with certain other information). This, it appeared to Mr Gaillie, was in part a defensive exercise to make sure that their own business operation was not materially affected by the liquidation of Coranta. Mr Gaillie also recognised that MGt could have contemplated future exploitation of the intellectual property rights. MGt soon became the preferred bidders. It became apparent too that numbers of other companies (including the defenders) were prepared to pay fees (in the form of a single, one off payment) for licences to use parts of the software, essentially to enable them to continue the business uses which they then currently enjoyed. Their objectives could be said to have been defensive. They also wished to be in a position, notwithstanding the demise of Coranta, who had previously carried out maintenance of the program when required under separate contracts, to be able to do, or to arrange, such maintenance themselves. Specifically the object of the defenders appeared to Mr Gaillie to relate to the continued use of part of the application for their own business for a period of six to nine months, pending a potential move to use of a different platform. MGt were asked by the liquidator if they would consent to the grant of licences to the other companies so that these other companies would not be materially disadvantaged by the proposed sale to MGt. To this they agreed. [4] It was therefore agreed that Coranta would (a) grant relevant licences to the defenders (and to Rangers FC, Response Handling Limited and Carnegie Information Systems Limited), and that thereafter, albeit as part of the same overall deal to be completed on the same date, that they would (b) enter missives agreeing to sell the assets which MGt wished to purchase and (c) formally assign all intellectual property rights in the software to the pursuers. The terms of each of the proposed licences were adjusted as a three way process between the liquidator (in particular assisted by Mr Orr), the relevant licensees, and the pursuers represented by their legal advisors (Burness). According to Mr Orr the wish of the proposed assignees was to keep the relevant licences as tight as possible. They did not, he thought, want any licensee to be able to use the software save within clearly understood parameters. [5] It was agreed in the Joint Minute that number 6/3 of process is a true copy of the Software Licence Agreement ("the Licence") entered into between Coranta ("the Company") and the defenders on the 27 July 2001. Clause 3.1 thereof provides that:-
"3.1 Subject to the provisions of this Agreement, the Company shall grant to the Licensee with effect from the Commencement Date a non-exclusive, royalty free, non-transferable licence to use such rights as the Company may have, and be entitled to license, in and to the Licensed Materials for the Purpose and no other purpose whatsoever".
The Licensed Materials are defined as consisting of a source code version of the software listed in the schedule (a CD Rom of which was to be delivered), an object code version thereof (which, it was acknowledged, the defenders already possessed) and certain relevant documentation. It appears from Clause 2 that the CD Rom to be delivered in respect of the source code was to include the documentation. As explained to me in evidence (and to a degree in submission) the source code is that part of any program written in language capable of being understood by a computer programmer. It falls to be distinguished from a machine code (or object code) version of the program, which is in language which, generally speaking, only the computer is able to understand. It is enough for the present to note that "the Purpose" is defined, as meaning, broadly speaking, use of the software by the defenders in the ordinary course of their business as currently carried on by it. It includes any necessary maintenance and correction.
[6] Clause 4.1 provides:-"4.1 The Licensed Materials constitute the proprietary and confidential information of the Company and all copyrights, trademarks and other intellectual property rights of whatsoever nature in the Licensed Materials are, and remain, the exclusive property of the Company and this Agreement shall not operate so as to transfer any right, title or interest (other than expressly herein set out) in the Licensed Materials to the Licensee."
"Without prejudice to the Company's other rights hereunder and/or in law, if a material breach of this Agreement or of any confidentiality undertaking by the Licensee and/or any Authorised Person occurs or if the Company has reasonable grounds for believing that such a breach has occurred or will occur then the Company may require the immediate return of all the Licensed Materials in the hands of the Licensee and the Licensee agrees to return same (and any and all copies of same in its possession and/or in the possession of any Authorised Person and/or otherwise under its control) forthwith and the Company may immediately take possession of such Licensed Materials and any and all analyses of same conducted by the Licensee or any Authorised Person".
"The Licensee acknowledges that the Licensed Materials are important to the Company's business, that an award in damages may be insufficient to protect such business in the event of any breach of this Agreement and that the Company shall be entitled to an order for interdict, specific implement or such other relief or other action in whatsoever jurisdiction as the Company deems appropriate to restrain any breach".
"The obligations of the Licensee under this Clause 4 are entered into for the benefit of and are enforceable at the instance of the Company and any transferee of the Licensed Materials and in this Clause 4 the word "Company" includes any such transferee".
"In consideration of the Licensed Materials to be delivered hereunder and the licence to be granted hereunder the Licensee shall make payment to the Company of the Fee".
The fee was to be a one off payment of £25,000 payable on completion of the agreement, and which was, on the evidence, paid to the liquidator of Coranta.
[11] Clause 6.1 provides:-"The Licensee hereby acknowledges and agrees that it is not entitled to any new version and/or upgrade of the Licensed Materials or any maintenance and/or support relative to the Licensed Materials in any circumstances whatsoever".
"The Licensee shall not assign or otherwise transfer all or any part of the Licensed Materials and/or this Agreement without the prior written consent of the Company. The Company shall be entitled to assign or otherwise transfer the Licensed Materials (with or without its right under all or any part of this Agreement) without the consent of the Licensee. No transferee of the Licensed Materials (with or without all or any part of this Agreement) shall be or come under any obligation of any kind whatsoever to the Licensee or any person claiming through the Licensee whether under this Agreement or otherwise relative to the Licensed Materials, but this is without prejudice to the duty of any transferee of the Licensed Materials not to interfere with the entitlement of the Licensee to use the Licensed Materials for the Purpose; and these provisions are entered into for the benefit of and are pleadable by all transferees of the Licensed Materials".
"The Assignor as beneficial owner HEREBY ASSIGNS to the Assignee absolutely and irrevocably such right, title and interest as it has and can transfer in the Copyright including all rights to reproduce, modify, adopt or develop the same but subject always to the Licenses and any other licence of the Software (or any part thereof) that may have been entered into by the Company prior to the date hereof".
"The Copyright" is defined as all copyright, unregistered design rights and rights in databases owned by the assignor as at the date of the assignation including any copyright in "the Software". "The Software" is defined as meaning, effectively, "the Company's customer relationship management software application branded as Profile". "The Licences" have the same meaning as in the Missives. Prior to the proof it appeared from the pleadings that there was a dispute between the parties as to whether, by virtue of this Assignation, there was assigned copyright in inter alia the same software which was the subject of the licence in favour of the defenders. At the outset of his submissions, when the evidence was completed, counsel for the defenders, however, informed the Court that this was now agreed (apparently after recent receipt of certain information).
[16] In their pleadings the pursuers claim that defenders have acted in breach of the Licence by decompiling, adapting and copying the software, and that such acts amounted to infringement of the copyright. This is denied by the defenders. In the first conclusion the pursuers seek, as copyright owners, an order under Section 99(1) of the Copyright Designs and Patents Act 1988 ordaining the defenders forthwith to deliver up to them all infringing copies of the software in their possession. In the third conclusion they seek, again as copyright owners, relief for infringement under Section 96 of the 1988 Act in the form of an accounting, which failing damages. In the second conclusion they seek (on the basis of the claim that the defenders are in material breach of the licence) an order, in terms of Clause 4.4 of the Licence, for return of the Licensed Materials in the hands of the defenders. At the outset of his speech counsel for the defenders conceded that the defenders no longer questioned the pursuers' title to sue in respect of conclusions 1 and 3. The sole question was whether they had title to sue in respect of the second conclusion for implement of the Licence.The Defenders' Submissions
[17] Counsel submitted that, in the present case, whatever the generality might be, the licensor's rights under the Licence were not carried to the pursuers by virtue of the Assignation. Rights under the Licence were not expressly referred to in the Assignation, and in the Missives the agreement was to transfer assets under the exclusion of any asset or right not expressly sold. It was plain from the provisions of Clause 12.3 of the Licence that it was envisaged that there could be an assignation of the Licensed Materials by Coranta with or without its right under the Licence. In these circumstances it appeared to be recognised that Coranta would still, after 27 July 2001, retain its rights under the Licence. [18] It was accepted, however, that Clause 12.3 was not entirely easy to understand, but it was perhaps possible to envisage the liquidator having an interest, as owner of the Licensed Materials, to convey them, as apparently envisaged in the clause, at least if any commercial opportunity to do so at some time arose. The fact that there was no provision for any continuing fee to be paid under the Licence calculated according to continuing use, and that there was to be no allowance for maintenance or correction by the licensor (for which purpose the source code was provided) was all indicative of a lack of intent that there should be any contractual nexus between the pursuers and the defenders. It was for the Court to construe the Licence according to its language and having regard to the evidence of the surrounding circumstances and the commercial purpose of the transaction. Reference was made to Bank of Scotland v Dunedin Property Investment Company Limited 1998 SC 657. The evidence suggested that the primary commercial objective for all parties was essentially defensive, and, so far as the defenders were concerned, apparently short-term. This was not indicative of any intention that there be a contractual nexus between the pursuers and the defenders. It was plain that Coranta were to conclude the licences before any question of assignation. [19] The right to enforce the Licence appeared thus to remain with the liquidator of Coranta, albeit the only obvious interest to enforce it rested, it was accepted, with the assignees of the copyright, namely the pursuers. In these circumstances the defenders' first plea-in-law should be sustained in relation to the pursuers title to pursue the second conclusion. Similarly, the defenders' fourth plea-in-law should be sustained to that extent.The Pursuers' Submissions
[20] Senior counsel submitted that the defenders' argument would lead to the apparent absurdity that the pursuers had interest but no title to enforce the Licence, whereas the liquidator had title but no apparent interest to do so. This could not be right. [21] It was plain that the Licence was essentially a copyright licence. The nature of such a licence was to allow that which would not otherwise be permissible, namely acts which would otherwise amount to infringements of the exclusive rights given to the owner of the property right. Reference was made to Sections 1, 2 and 16 of the Copyright Designs and Patents Act 1988, and to Cannon Kabushiki Kaisha v Green Cartridge Co (Hong Kong) Limited 1997 AC 728 and British Actors Film Company Limited &c v Glover 1918 1KB 299. It was in the nature of a computer program that any use was likely to involve copying. Reference was made to Copinger and Skone James on Copyright 15th Edition at paragraph 7 - 48, where it is said:-"One of the features of a computer program that sets it apart from other literary works is that for most practical purposes it cannot be perceived, accessed or used without being copied into computer memory, albeit invisibly to the user. Since it is made clear that reproduction of a computer program includes transient or incidental copying, as well as the storing of the program in any medium by electronic means, the restricted act of copying is likely to be committed in every form of use. Not only will the storage of a program inevitably involve its reproduction in computer memory, but even the ordinary acts of transient copying between different parts of the computer system incidental to the running of the program will do so. This approach is consistent with the Computer Software Directive, Article 4(a) of which provides that, subject to exceptions, the exclusive rights of the owner of copyright in a computer program "shall include the right to do or to authorise....... the permanent or temporary reproduction of the computer program by any means and in any form, in whole or in part. In so far as loading, displaying, running, transmission or storage of the computer program necessitates such reproduction, such acts shall be subject to authorisation by the right holder". The result is that for all practical purposes any unlicensed use of a computer program is liable to be an infringement if not subject to one of the permitted acts."
Reference was further made to Saphena Computing Ltd v Allied Collection Agencies Ltd 1995 FSR 616, the Counsel Directive of 14 May 1991 on the legal protection of computer programs (91/250/EEC), Sections 50A, 50B and 50C of the 1988 Act and paragraphs 9-132 to 9-138 of Copinger and Skone James on Copyright, 15th Edition. It was thus clear that all (or most) of the uses permitted under the Licence would otherwise amount to infringement of copyright in the relevant software but for the Licence (save insofar as these were already permitted acts available to a lawful user, such as the right to make back up copies granted by Section 50A of the 1988 Act).
[22] In these circumstances the Assignation, which was an assignation of copyright in the software which was the subject of the Licence, carried with it the assignors' rights under the Licence to enforce compliance with continuing obligations under it. This was true by operation of general law, and as a matter of construction of the Assignation. [23] As to the former, reference was made to the Section 90(4) of the 1988 Act, by virtue of which a licence granted by a copyright owner is binding on every successor in title to his interest in the copyright, except a purchaser in good faith for valuable consideration and without notice (actual or constructive) of the licence, or a person deriving title from such a purchaser. Although there was no case law, there could be little doubt that, as a generality, the right to enforce a licensee's obligations under a licence would pass with transmission of the copyright. An analogy could be drawn with leases of heritable property which were in a form such as to be binding on singular successors of the landlord. In those circumstances there was no doubt that such singular successors had right to stand in place of the landlord under the lease. Reference was made to Paton & Cameron on the law of Landlord & Tennant in Scotland where, at page 148, it is said:-"There is no delectus personae of the lessor, and the tenant cannot object to a new landlord. There is no restriction on the power of the landlord to transfer his interests in the lease to another, nor is any procedure necessary to effect the transfer other than the change of ownership of the subjects. The landlord's interest in the lease and his right to enforce it are incidents of ownership; they pass with ownership and cannot be divorced from ownership".
Discussion
[26] I have come to the clear view that the pursuers' arguments are to be preferred. [27] It is, I think, not unreasonable to start from the supposition that the three parties apparently involved in the adjustment of the terms of the Licence (the liquidator of Coranta, the defenders and the pursuers) would have been disinclined to achieve the result that no one could be said have to both title and interest to enforce the continuing obligations of the licensee, in particular to seek to ensure that the uses made of the software by the defenders did not stray beyond the terms of the permission. That, however, as counsel for the pursuer pointed out, would appear to be the consequence of the construction for which the defenders contend. In particular, while it is accepted that the pursuers, as copyright owners, have a clear interest to enforce the Licence, it is maintained that they have no title to do so; whereas the liquidator would, it was submitted, have title but, it appeared to be accepted, no obvious interest, after realisation of the company's assets (including copyright in the relevant software), to do so. [28] Against that background, it seems to me to be clear that the language of the executive clause of the Assignation (Clause 2.1) is wide enough to cover transfer of the assignor's right to enforce continuing compliance with the Licence, and that it plainly did so. There can be little doubt that the Licence is, as senior counsel for the pursuers argued, essentially a copyright licence, in the sense that it was granted by the owners of the copyright in the licensed materials, who sought commercially to exploit that right for the immediate benefit of the company's creditors (particularly in return for payment of the one off fee) by permitting continuing uses of the software which otherwise they could, as copyright owners, have prevented. No doubt copies of the licensed materials were delivered, but that was (it was accepted) necessary to enable such a licence to work. In these circumstances, when Coranta assigned not just the copyright but "such right, title and interest as it had and could transfer in the copyright" it, acting through its provisional liquidator, assigned not merely ownership of the copyright but such right as it had to enforce the continuing obligations of the licensees under those licences to which the copyright transferred was expressly subject. That, on the face of it (and in accordance with evidence given by Mr Gaillie and Mr Orr) was the interest which the pursuers had in seeking to adjust the terms of the licences. In these circumstances it is unnecessary to form a concluded view on counsel for the pursuers' proposition that this result would, in any event, have flowed from transfer of ownership in the copyright, but I found his submission on this matter to be entirely persuasive. [29] Further, there is nothing in the series of factors skilfully founded on by counsel for the defenders which would deflect me from that construction of Clause 2.1 of the Assignation. While it is, no doubt, true that there was no provision made for any fees to be paid on the basis of continuing use or for maintenance to be effected other than by the licensee, and while it may have been the case that the Licence was envisaged as a short-term, defensive measure for the defenders to enable them to continue the uses which they already had, none of these matters assists determination of the question of who was to be the person under the agreement with the right to police it and take action if there was any default. Instead there is much to be said for the view, in circumstances where the liquidator was about to divest himself of all copies of the software (see eg Clause 4.1.4 of the Missives), and of the copyright, that it could not have been thought that it would be him. Of course, technically, the Licence was granted by the liquidator first, to make it clear that the rights transferred to the pursuers would be subject to the Licences, but that again does not, in my view, greatly assist the defenders. [30] In the event, the clause which formed the starting point (and appeared to be the main foundation for) the defenders' submissions was Clause 12.3 of the Licence. It is, however, a clause which, did not successfully withstand the close scrutiny to which it was subjected in the course of the debate. If by "transfer..... of the Licensed Materials" was envisaged some transfer of the corporeal property consisting of the Licensed Materials (or ownership in them) (and it is true that a distinction appears to be drawn in Clause 4.1 between the materials themselves and copyright in them), it was not clear to either counsel (and it is not clear to me), in light of the overall deal which was completed on the day in question, what interest thereafter the liquidator would have to make any such transfer, nor indeed what interest any third party would have to obtain such a transfer in circumstances where the liquidator - no longer the copyright owner - could grant no right to use the materials. As Mr Orr indicated, the liquidator's interest, as at the date of the deal, was to sell all the assets which could generate value. In these circumstances, both counsel were driven to contemplate that what was envisaged was transfer of copyright in the Licensed Materials. Such a construction would, it seems to me, be supported by consideration of Clause 4. In that clause "the Company", which was given rights to enforce the Licence and which was referred to as the copyright owner (Clause 4.1), and to whose business the Licensed Materials were said to be important (Clause 4.5), was defined as including "any transferee of the Licenced Materials". If that is so, Clause 12.3 begs the question of whether the Assignation signed later on the same day did or did not transfer rights to enforce the continuing obligations of the licensee. Instead it might be said that Clause 4 envisaged that an assignee of copyright would have right to enforce these obligations. At best for the defenders the words in brackets in Clause 12.3 might have been an acknowledgement of the apparent intention of all parties that the liquidator would be entitled to retain his right to the fee, even if not any other rights under the Licence. Overall, however, I cannot escape the feeling that this clause might have been included without any clear appreciation of its effect in the context of the deal as a whole. As Mr Orr fairly said (unprompted), the Licence, which was adjusted as a matter of some urgency, was "not perhaps the finest flowering of the draftsman's art". In the result, consideration of Clause 12.3 of the Licence does not deflect me from the interpretation of Clause 2.1 of the Assignation which I favour. [31] In the whole circumstances I shall repel the defenders' first and fourth pleas-in-law. I shall order a further procedural hearing to be fixed in order to discuss what orders the parties wish in relation to further progress of the action.