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Meaning of a “Perpetual” Licence

DATE: 24.06.2011

 

In a recent case, BMS Computer Solutions Limited v AB Agri Limited, the UK High Court considered the meaning of the term “perpetual” in the context of a software licensing agreement. The Court held that a perpetual licence is subject to termination provisions unless those provisions are expressly excluded. The case also highlights the need for clear and explicit drafting when modifying an existing agreement in order to give effect to the parties intentions.

In this case the parties had entered into a software licence agreement and a software support agreement. The licence agreement provided that if the support agreement was terminated for any reason then the licence agreement would also terminate in accordance with the termination provisions therein. The parties subsequently entered into a variation agreement. The variation agreement provided that the original software licence would be extended to be a “UK-wide perpetual licence”. The variation agreement also provided that the original agreements would remain in full force and effect subject to the variations contained in that agreement.

The defendants then terminated the support agreement but claimed that they still had a licence to use the software on the basis that the variation agreement provided for a “perpetual licence”. The defendants argued that given that the licence was perpetual, the termination provisions of the licence agreement no longer applied and had been superseded by the variation agreement.

The Court determined that the issue was one of contractual construction and it held that:

  • “perpetual” can carry different shades of meaning. It can mean “never ending” or it can mean “operating without limit of time”. The Court held that the latter meaning was appropriate in this case and it was a grant of a licence of indefinite duration, but subject to any contractual provisions governing termination of the licence;
  • the Court noted that the omission of the variation agreement to refer at all to the termination provisions in the licence agreement and the support agreement indicates that those terms were intended to continue in force. The judge stated that if the parties had intended that those provisions be deleted, it is natural to suppose that they would have referred to them in terms to make that intention clear rather than leaving it to be inferred from the use of a term of uncertain meaning (“perpetual”);
  • the Court accepted the plaintiff’s submission that there was a clear continued commercial need for the termination provisions to operate since, otherwise, there would be no mechanism to bring ongoing, potentially onerous obligations under the licence agreement to an end. The Court stated that the modification of an agreement containing such terms would have required clear and explicit language to indicate any intention to delete such terms.

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