Software Company Fails to Lock Out Customer

June 19, 2018

Software Company Fails to Lock Out Customer

One aspect of intellectual property (IP) rights that is often not given much thought, but which can be extremely important indeed, is what happens when a licence to use comes to an end.

Much computer technology is supplied by licence (it is quite rare for the software to actually be 'sold' to an end user) and because such technology is often critically important in business, contracts for the use of software or other IP need to be considered with extreme care.

Recently, a motor dealership found itself locked out of its own database following a dispute with its software provider.

The 20-branch dealership depended completely on a business software package, and was in the process of switching to alternative software. As is normal for data transfer and so on, it continued to require access to the original package during the transitional period.

The software provider argued that an amendment to its licensing agreement with the dealership meant that it was tied in to its package for a further five years. When the dealership stopped paying, the provider locked it out of the system.

The dealership launched proceedings, seeking rectification of the agreement on the basis that the apparent five-year obligation to continue using the package amounted to a unilateral mistake. It argued that the remote lock was causing irreparable and ongoing harm to its business and sought an injunction requiring the provider to unlock the software until the trial of the action.

The High Court acknowledged that the dealership had raised a serious issue to be tried. However, in refusing to grant the injunction sought, it found that the dealership had failed to establish that damages would be an inadequate remedy for any harm caused to its business.

The software provider had made an open offer to unlock the system in return for payment of sums it claimed it was owed. Its position was that it had accepted the dealership's repudiation of the agreement, which had thus come to an end. In those circumstances, the Court accepted that it would be wrong to reinstate a one-sided version of the agreement by requiring the provider to give free access to its software. The balance of convenience therefore fell in favour of maintaining the status quo.

So, in order to unlock the system, the dealership must pay the software provider, and then sue to recover the cost of gaining access to its data if it chooses.