The need for very careful wording in software licensing metrics, especially with an eye to future company mergers and acquisitions, was highlighted in a recent Queensland Supreme Court judgment.

The case of Glencore Queensland Limited v Ventyx Pty Ltd [2015] QSC 14 dealt with a claim by Ventyx (formerly Mincom) against Glencore (formerly MIM and then Xstrata) in relation to software used by Xstrata’s copper division.

In 2007, Xstrata had acquired an enterprise licence to use Ventyx’s Mincom Ellipse software. The licence fee included annual payments based on the employee count within the copper division, with this count based on a report provided by Xstrata.

In 2013, Glencore acquired Xstrata, and then proceeded to restructure the group’s operations such that the copper division ceased to exist in Queensland, and was instead managed out of Switzerland by Glencore. However, the question arose as to whether this acquisition had triggered provisions within the licence agreement that would require Glencore to include other Glencore entities employee numbers in the relevant employee report (and thus pay additional licence fees to Ventyx).

Interestingly, the original structure of the acquisition would have had Glencore’s copper operations integrated into the Xstrata copper divisions (likely to clearly trigger the additional payment), but the acquisition was restructured in a way that this did not occur. In any event, it was accepted by both parties that the other Glencore entities were not actually using the Ventyx software.

Ultimately, through careful review and interpretation of the specific wording in the licence agreement, the court concluded that, as Xstrata no longer managed the copper operations, it could not be said that the relevant Glencore entities had “joined” the Xstrata copper division. As such, the relevant clause was not triggered and no additional fees were payable.

While this seems an equitable result given there was no additional use of the software, it also serves to highlight the potential pitfalls that await customers through imprecise wording in software licensing metrics. While employee based metrics can be easier to manage than user based metrics, it also creates potential exposure in situations such as this.

Ideally, to avoid disputes such as these, the parties to licence agreements should carefully draft how the relevant metric is intended to apply across the range of potential future scenarios, especially those that involve significant changes to the original customer entity.