Sales ‘recommendation’ affected licence terms
AFD SOFTWARE v DCML [2015]
A software licensing dispute highlighted the dangers of representations made by staff during the sales process and their effect on the licence terms which were subsequently accepted by the customer.
Facts:
- In 2006 AFD Software (A) licensed software to DCML (D) enabling it to access the Royal Mail's postcode database for one of the services it offered. D used the software for several years without any problem for a licence fee of just under £2,000 per year.
- In 2010 A checked D’s use of the software and decided that it was not being used for a 'public internet website' in accordance with the terms of its licence. Consequently, A sent an invoice for £14.1m to D which was the amount A considered which would have been payable for the actual use made by D of the software.
- D refused to pay this sum and A made a claim against D for breach of copyright and breach of the licence terms.
- D maintained that when it initially enquired about A's software products in 2006, having described its business and its intended use for the software, A’s salesperson had told D that its proposed use of the product ultimately selected was permitted for the licence fee quoted.
- A disputed that conversation but in any event, it said that even if its salesman had made such a recommendation, it was irrelevant given that full licence terms were subsequently provided to D by post and then D expressly accepted A’s terms when it ticked the applicable box when installing the software.
Decision:
- The Court agreed with D and found that A’s salesperson had represented that D’s licence would be appropriate for its actual intended use within the quoted fee. The judge rejected A’s argument that D had accepted its terms and that the burden of checking that it was properly licensed in accordance with those terms rested on D.
- Although A had kept a file note of the conversation, it did not clearly support A's version of events. The Court accepted that D's employee was honest and had no interest in misleading A with respect to its intended use for the software. It therefore concluded that A's salesman had represented to D that the software would be licensed for its intended use for the stated amount.
- A was unable to take action for breach of the licence because it would have been inequitable or unfair for it to have done so (the so-called principle of ‘estoppel’), as the ‘representation’ made to it had been relied upon by D.
Points to note:
- This is a pertinent reminder to suppliers to ensure their sales personnel do not make representations (either express or implied) before a contract is concluded which are inconsistent with the supplier’s licence terms.
- Many suppliers exclude liability for pre-contractual misrepresentations in an entire agreement clause. If A’s licence terms had done so this may have assisted its case although, even then, if the Courts consider that the end result would be unfair, they have typically found ways of avoiding the impact of entire agreement clauses.