A recent Queensland Supreme Court case provides an important reminder to carefully consider the detail when drafting enterprise software licences (and contacts generally), and in particular to have an eye to the future.

When negotiating any software licence, it is important to pay particular attention to the specific wording defining the scope of the licence, in order to ensure that:

  • the licence appropriately deals with the way in which the software is intended to be used (eg should the licence fee be calculated on employee head count, or based on the number of actual users of the software?), and
  • the licence will remain appropriate in the event of a restructure or reorganisation within the University or a particular department.

Why is this relevant to universities?

Large organisations such as universities often acquire software on an enterprise licence basis. A single enterprise licence allows for software to be used across the whole organisation but typically will either cap the number of individuals who can install or use the software, or provide for additional licence fees if the organisation grows.

What was the dispute about?

In Glencore Queensland Limited v Ventyx Pty Ltd [2015] QSC 14, Ventyx (formerly Mincom) claimed that Glencore (formerly MIM, then Xstrata) was required to pay additional licence fees for software used by Xstrata's copper division.

The enterprise licence agreement allowed Xstrata's copper division to use the software, and was accompanied by a separate software support agreement.

As well as an initial upfront licence fee, annual incremental licence and support fees were payable based on the employee count of Xstrata Queensland and any other entity which met the definition of an "Xstrata Copper Group Affiliate". The licence provided that any company which joined Xstrata's copper division was to be added to the list of Xstrata Copper Group Affiliates.

In 2013, Glencore acquired Xstrata, which meant that companies in the Glencore group became affiliates of Xstrata. Glencore restructured the Xstrata copper division, so that it ceased to exist and management responsibility was transferred to Glencore International plc in Switzerland.

How did the Court interpret the contract?

Ventyx claimed that the pre-existing Glencore entities' employee numbers were required to be included in the calculation of the annual incremental licence and support fees after the acquisition (notwithstanding that none of those employees used the licensed software). Glencore argued that the pre-existing Glencore entities had not joined the cooper division, because it had ceased to exist.

The Court agreed with Glencore. Justice McMurdo held that because Xstrata no longer managed the copper operations, it was not accurate to describe the pre-existing Glencore entities as having joined Xstrata's copper division. Accordingly, the pre-existing Glencore entities' employees were not included in the employee count, and no additional licence fees were payable.

The scenario addressed by the Court in this case is not the only example of licensors seeking to claim additional licence fees from users.

For example, in 2009 the Full Federal Court considered whether Racing & Wagering WA was entitled to test a back up copy of software licensed from German software vendor Software AG (Software AG (Australia) Pty Ltd v Racing & Wagering Western Australia [2009] FCAFC 36).

The Court held that the licence, which granted Racing & Wagering WA the right to use the software on a single machine at a designated location and to copy the system for archival or emergency restart purposes, must also permit the off-site installation, storage and testing of the DR copy of the software.

What do Universities need to look out for?

These cases highlight the potential pitfalls which can result from imprecisely worded software licence agreements. And the stakes can be high: Software AG was claiming $3.2 million in additional licence fees from Racing & Wagering WA, and although the precise figures were not disclosed in the Court's judgment, the nature of the acquisition of Xstrata suggests that Ventyx was seeking a significant sum in additional licence fees from Glencore.

Further, notwithstanding that the customer was successful in each case, Glencore and Racing & Wagering WA would have both incurred substantial out of pocket legal fees (even after any costs orders made in their favour). The successful defence of the litigation would also have required significant management time, and distracted from their day-to-day business operations.

In order to best protect themselves against this potentially significant exposure, universities should pay particular attention to the specific wording of licence agreements in relation to, among other things:

  • whether employee count based licence calculations, while typically easier to predict and manage, should be avoided in favour of user based metrics;
  • the circumstances in which back-up copies of software can be created, tested and used; and
  • the way in which the licence fee calculations might operate in a range of potential future scenarios such as restructures or reorganisations.