The implied licence for software and the Haviltex formula
Software developers and dealmakers, take note! As in any industry, doing business using simple contracts can sometimes go ‘properly’ wrong. This was also the case with software developer WorkRate, which sold its business to “PayingIT”. In this legal case – in which the parties have appealed to the Supreme Court – the question at stake is whether the copyright in WorkRate’s original software had been transferred or not, and whether this contravenes EU law.
The run-up to the sale of the private limited company and the software
Since 2008, WorkRate had, amongst other things, developed the software application “Workmate” (hereinafter the Software), which it later licensed to customers through a separate private limited company. The Software and that private limited company – which was later given the trading name “PayingIT BV” – were sold as a single entity, or so it seemed. However, with regard to the Software – or rather, the copyright in it – the parties are now litigating all the way to the Supreme Court.
What was the problem? = > licence or no licence?
PayingIT sought to prohibit WorkRate from using the Workmate software after all, as it considered itself the sole rights holder to the Software. In contrast, WorkRate argued that it held a tacit (implicit) software licence for the Software, which had been granted to it by the new owner (copyright holder) of the Software. Furthermore, only part of the Software was identical, i.e. there were ‘overlapping source code components’, and WorkRate wished to continue using these.
Copyright or no copyright?
The parties were therefore in dispute over the question of who held the copyright in the Software.
Unclear contract
Had WorkRate transferred the Software to PayingIt as a result of the share acquisition, or not? The Software was still in use by both parties, at least in part.
This case therefore centred on the question of the extent to which WorkRate was permitted to use those common parts of the Software following the sale and the granting of the licence. The answer to that question depended on what the parties had agreed in their sale and licence agreements. This had to be determined by the courts’ interpretation of these agreements.
The outcome
The District Court – due to the lack of clarity regarding what the parties must have understood of each other’s intentions when entering into their agreement (the so-called Haviltex formula from case law) – ruled as follows. Both the District Court and the Court of Appeal ruled that, in hindsight, PayingIT had granted WorkRate a tacit (implicit) licence to the Software, at least to continue using the overlapping source code components in the context of the Software’s operation. Consequently, the purchaser – PayingIT – lost its case. The Court of Appeal broadly confirmed this.
A further consideration was that the parties operate in different sectors (WorkRate in security, PayingIT and others in, amongst other things, payroll services), meaning they had no reason to fear direct competition from one another. This naturally also makes a commercial difference.
The matter is now before the Supreme Court to determine whether the concept of the ‘implied licence’ is not contrary to EU law – that is to say, whether it constitutes an unauthorised restriction on PayingIT’s copyright due to a conflict with Article 5(5) of the Copyright Directive, the Software Directive and the EU Charter. In other words: is an unwritten licence – that is, an implied one – not an unlawful erosion of copyright?
What lessons can be learnt from this?
– A transfer of shares in a private limited company does not necessarily also constitute a transfer of copyrights in software where the sales contract is unclear, meaning that a seller may sometimes ‘retain’ an implied licence.
– In the case of copyright, one must precisely define what is being licensed or actually transferred. This is because, in the event of ambiguity, there is a risk that the court will draw its own conclusions using the Haviltex method of interpretation.
The former owner, ‘WorkRate’, was granted a ‘retroactive licence’ (retro-licence) for the ‘Workmate’ software by the new owner, Payingit BV, at the time, but this was not properly documented. A problem arose.
Questions
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