No key for the software lock

• United Kingdom

• Technology, Media and Telecoms

08-05-2018

Blade v Reynolds & Reynolds [2018] EWHC 497 (Ch)

Précis

Reynolds & Reynolds (R&R) licensed certain enterprise management software to Blade. A dispute arose regarding unpaid fees and R&R remotely applied a lock to the software, so that Blade could not use the software or associated data. Blade applied to the English High Court for an interim mandatory injunction to require R&R to remove the lock and provide access to the software and data. The application failed and the lock remained.

What happened?

Blade had licensed certain enterprise software from R&R since 2006. In 2014, the parties agreed an amendment to that agreement. In 2016, Blade entered into a new agreement with an alternative supplier of enterprise software. Blade contacted R&R and sought to terminate its agreement, R&R alleged that the 2014 amendment obliged Blade to continue paying licence fees until at least 2019. Blade refused to continue to pay, R&R alleged repudiatory breach, accepted the repudiation and terminated the agreement. In 2017, and given the unpaid fees, R&R applied a remote lock to the software, which precluded Blade’s use of the software and access to the associated data. In early 2018, Blade applied for an interim mandatory injunction for R&R to provide Blade with access to the software and the data.

Blade’s application failed. In reaching its decision, the Court considered the well-known test for interim injunctions established by American Cyanamid Co v Ethicom Ltd [1975] AC 396 and, because the application was for a mandatory injunction in particular, the test established by Zockoll Group Ltd v Mercury Communications Ltd [1997] EWCA Civ 2317, [1998] 1 FSR 354.

Applying those tests in turn, the Court found:

1. Was there a serious issue to be tried? Yes. The parties agreed that there was (i.e. whether there had been a unilateral mistake in relation to the terms of the 2014 amendment).

2. Were damages an adequate remedy? Yes. Blade produced evidence that it was being exposed to unqualifiable damage because it could not access its own data, accounting and corporate data in particular, but could not establish that it was irreparable harm that could not be compensated in damages. A factor in the Court’s determination on this point was that the data was historic. Blade could access current data through its new software.

3. Where does the balance of convenience lie? Ordinarily if damages are found to be adequate, then the Court does not need to consider this question. However, the Court went on to consider this question in case it was found, on appeal, to be wrong as to damages being adequate. The Court concluded that the least risk of injustice was in refusing the application. In order to determine the balance of convenience, the Court considered the four propositions in Zockoll (see a-d below). 

   • Which course is likely to involve the least risk of injustice of it turns out to be ‘wrong’? This was stated as being the over-riding consideration.

   • An order which requires a party to take positive action may well carry greater risk of injustice if it has been wrongly made than an order which merely prohibits action, thereby preserving the status quo. The status quo was found to be the software as locked.

   • Does the Court feel a high degree of assurance that the claimant will be able to establish its case at trial? Whilst not making a determination on the issue in dispute, the Court found that it did not have a high degree of assurance that Blade would succeed at trial.

   • Even where the Court does not feel a high degree of assurance, are there circumstances in which it is appropriate to make the order? (i.e. does the risk of injustice in refusing to grant an order outweigh the risk of injustice if it is ordered?). The Court considered here the issue of delay. The Court found that it was unacceptable that Blade waited for a period of nearly 6 months before making its application. Delay was also a fundamental consideration for the Court in Lebara Mobile Ltd and others v Lycamobile UK Ltd and others [2015] EWHC 3318 (Ch) (“Lebara Mobile”), our report on which can be found here. The Court also considered R&R’s open offer to provide access for payment of the monies owed (which could have been reclaimed in due course).

Conclusion

Remote locking of software is nothing new and proved to be an effective tool for the licensor in this case. Had the impact of the lock been more catastrophic for the ongoing operation of Blade’s business then, assuming that there was a serious issue to be tried and that this issue meant that the Court had a high degree of assurance that Blade would succeed at trial, then the Court would have likely granted the order sought.

However, plainly, a licensee does not want to be in this position and so it is important for licensees to specify in the licence agreement whether or not the licensor has a right to remotely access the software (the software in this case was on Blade’s premises) and, if it does have remote access, the terms of such access should be clear in the contract.