White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
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White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - July 2006

Failure to renew a Software Reseller Agreement

When a party applies to the Court for an injunction, which for example may seek to prevent ongoing conduct of another party, they must be able to show that, amongst other things, there is a serious question to be tried.

Serious Issue to be Tried

In the matter of Mincom Ltd v Oniqua Ltd, the Supreme Court of Queensland considered an application by Mincom for an injunction restraining Oniqua from providing certain software goods and services to a list of companies, which were Mincom’s customers, except in accordance with a contract between Mincom and Oniqua.

Mincom, amongst other things, resells software and support services obtained from third party suppliers and Oniqua is a software retailer which had entered into a reseller agreement with Mincom that governed the licensing of software and the provision of support and consulting services by Oniqua to Mincom.

The reseller contract was initially for a term of two years and was renewed for a further two years, but had not been renewed at the end of the second two year period. Oniqua argued that they were no longer bound by the reseller agreement as it had expired with the effluxion of time in accordance with the terms of the agreement.

Mincom argued that the parties had continued to perform their obligations as if the contract remained on foot after the end of the second renewal period, while a further extension was being negotiated.

Negotiations about the proposed terms for the renewal of the reseller agreement broke down, after several months and at that time, Mincom informed Oniqua, amongst other things, that it would instruct its sales force to immediately suspend Oniqua and its products from all of Mincom’s proposals and Oniqua replied noting the termination of the ‘already expired’ reseller agreement.

Mincom and Oniqua then both wrote to Mincom’s customers who used Oniqua goods and services previously supplied by Mincom. Oniqua stated that they would provide the goods and services immediately, but not invoice the customers until after their contracts with Mincom had expired.

Mincom claimed that Oniqua’s writing to Mincom’s customers was in breach of an express term of the reseller agreement and that the parties were still bound by the reseller agreement in which case, Oniqua had to give Mincom 180 days notice prior to terminating the agreement. Oniqua had not given Mincom such notice.

The Court stated that if suitable terms for a formal extension of the contract period could not be agreed, the informal or ad hoc extension of the reseller agreement beyond the two year term would simply expire when negotiations ceased and therefore Oniqua’s obligation to give Mincom 180 days notice was not necessary.

The Court therefore considered there was not a serious issue to be tried in relation to the breach of an express term of the reseller agreement by Oniqua alleged to have occurred when Oniqua wrote to Mincom’s customers.

Mincom also argued that Oniqua’s supplying goods and services to Mincom’s customers directly, was in breach of confidence. Oniqua’s response to this claim was that much, if not all of the information they used was in the public domain or independently known to Oniqua and therefore not confidential. The Court considered that the alleged misuse of confidential information did appear to give rise to serious questions of fact and law to be tried.

Balance of Convenience

Having found that there is a serious question to be tried on the breach of confidence obligation which can arise and subsist independently of the agreement, the Court then had to consider where the balance of convenience lies. The balance of convenience favours the granting of an injunction where the party applying for the injunction can show that unless the injunction is granted, they will suffer irreparable injury for which damages would not be an adequate compensation. In this matter, the Court considered that any loss to Mincom by Oniqua using its confidential information could be readily quantifiable if Oniqua were obliged to keep records of all relevant sales and the profits made from them.

When the Court considered where the balance of convenience fell, the width of the injunction being sought was also examined. The detail of the confidential information varied from customer to customer and for most of the listed customers, there had been no attempt to detail what was said to be the confidential information used by Oniqua. A breach of an injunction can give rise to penal sanctions therefore, the Court considers that a party against whom an injunction is granted is entitled to know precisely what they may or may not do. The Court viewed that Mincom had failed to define the alleged information with sufficient precision and therefore Oniqua’s obligations, were the injunction be granted, would be too uncertain.

The Court also took into account the fact that if the injunction were granted, third parties who were not parties to the litigation, namely the customers using Oniqua’s goods and services, would be adversely affected.

For these reasons, the Court decided to refuse the injunction being sought, but it directed Oniqua to keep a list of all commercial dealings it has with the customers listed by Mincom.

Whether or not confidential information was used would be decided by the ultimate resolution of the proceedings.

Conclusion

When parties have a fixed term contract, that does not include a provision for automatic renewal of the contract at the end of the term, care needs to be taken that negotiations regarding the renewal of the contract are concluded before the initial term expires

Alternatively, the parties should seek to ensure that key terms survive the termination of the contract. This is particularly relevant when seeking to continue to protect confidential information revealed during the term of the contract.

Trade Marks in Australia

July 2006 marks the 100th anniversary of the first Australian federally registered trade mark.

A trade mark can be a word, phrase, letter, number, sound, smell, shape, logo, picture, aspect of packaging or a combination of these.

Trade marks are used to distinguish the goods and services of one trader from those of another and can form an important part of the marketing strategy for your goods and services.

An Australian trade mark application can be used as a basis for applying for trade mark registration in many countries around the world, which can be an important way of building the value of your business and protecting your goodwill.

Please contact our office if you would like information about registering a trade mark, or alternatively, you can obtain information at IP Australia’s website www.ipaustralia.gov.au .


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