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White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter September 2004

Termination of exclusive Software License Agreements

The Federal Court matter of Quanta Software International v Quanta Systems Ltd [2004] FCA 1182 was decided this month. It involved a dispute between an Australian company ( “Quanta Software” ) which had been granted an exclusive perpetual licence to use, copy, publish, translate and sub-licence rights in “Eunice” software, in al countries except New Zealand and the New Zealand corporation ( “Quanta Systems ”) who was the copyright owner for that software.

Quanta Systems claimed that the exclusive perpetual licence had been terminated and so it was able to sell and distribute the Eunice Software in the Australian marketplace.

Quanta Software claimed that the licence remained on foot and so Quanta Systems actions amounted to a breach of that licence entitling Quanta Software to seek orders restraining Quanta Systems from breaching the licence and to recover damages.

Quanta Systems successfully claimed that Quanta Software was stopped from saying that the licence was still on foot.

Quanta Systems relied on correspondence from Quanta Software that claimed that a Settlement Deed executed in 1993 by several Australian and New Zealand companies (but not Quanta Software or Quanta Systems) had cancelled Quanta Software's obligations to pay Quanta Systems under the licensing agreement.

Quanta Systems relied on that correspondence as meaning that the licensing agreement was no longer on foot and later proceeded to develop and market the Eunice and other software products in Asia and Australia. It also did not take steps to exercise its rights under the licence or terminate the licence (if it was on foot).

Almost ten years later, Quanta Systems approached Quanta Software with a proposal for Quanta Software or a company in its group of companies to act as a reseller for Quanta Systems. software in Australia.

Quanta Software, on the other hand, claimed that there had been many acts known of or done by Quanta Systems that indicated that the licensing agreement was still in operation and that instead of agreeing to terminate the licensing agreement, the parties had actually only agreed to go their separate ways with respect to research and development, retaining the original licence.

The Court held that by not pursuing payments due under the licence or exercising its rights to require remedy of breaches of the licence and developing the Eunice Software further, Quanta Systems had incurred a detriment or material disadvantage and so, whether the Deed of Settlement had actually operated to extinguish the licence or not, Quanta Software had claimed that it did and Quanta Systems acted upon that claim to its detriment. This finding meant that Quanta Software was not able to claim that the licence is still on foot and, amongst other things, prevent Quanta Systems from selling the Eunice Software in Australia.

One thing that the case highlights is the importance of good consistent correspondence and making contemporaneous notes of meetings and discussions to be used as evidence, should the need arise. Wherever possible, these notes should be confirmed in a letter or another document supplied to the other parties present, soon after the meeting or discussion took place. Written contemporaneous notes will often hold greater weight than the oral testimony of a witness years after the event in question, as you cannot usually expect a witness to have perfect recall of what was said and done years earlier.

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