Does your organization hold software licences? This recent case from Quebec is a cautionary tale about ensuring that you include accurate wording about the scope of any licence, and consider and address the issue of revocability. Can the licence be revoked? If so, under what circumstances?     

In 1984, then-student Elizabeth Posada developed a DOS computer program called Ceres to allow users, such as university students or business executives, to vary certain inputs to produce reports and learn business concepts. In December 1984, Posada incorporated a company called Planification-organisation-publications Systèmes (POPS) Ltée, of which she is the sole officer and shareholder.           

In 2007, Posada joined long-standing friends Philippe Chapuis and Benoît Bazoge as a shareholder and employee of their company, 9054-8181 Québec Inc. (IDP). The three had been doctoral students together and all had used Ceres while they were professors or lecturers at the Université du Québec à Montréal (UQAM). (In 1989, for $2,000, Benoît Bazoge had purchased a user’s licence for Ceres on behalf of UQAM. Philippe Chapuis had done the same on behalf of the École Supérieure de Commerce in Tours in 1990.)           

When Posada joined IDP in 2007, she effectively ceased POPS’ commercial operations, and even gave IDP the right to use the POPS trade name. Posada was hired to develop the adaptations of and enhancements to Ceres that IDP wanted. She was responsible for completing work on the software called Omega – the Windows version of Ceres – on which she, Chapuis and Bazoge had collaborated since 1998, and for developing the software that would become known as Epsilon and Comex. These two were scaled-down versions of Omega.           

In October 2008, Posada resigned as a shareholder of IDP because of a dispute over compensation, and left the company. She demanded that IDP stop using Ceres, Epsilon and Comex. IDP refused, and POPS sued IDP. The case went to the Federal Court in April 2009.           

In its April 2013 judgment, the Federal Court found that copyright subsisted in the Ceres software products and subsequent versions, POPS was at least one of the rightful owners of that copyright, IDP had at least an implied licence to use the products (including access to the source code and future adaptations that IDP might develop), POPS was not entitled to revoke that licence, and IDP had not infringed POPS’ copyright, so was not liable for any damages.           

POPS appealed the judgment, arguing, among other things, that Chief Justice Crampton had erred in his decision about the revocability of IDP’s licence, as well as about the scope of it, claiming that, following Posada’s departure, IDP did not have rights to the software, all future adaptations, and the source code – including the right to modify the code.           

See below to discover how the Federal Court of Appeal untangled this case.

Answer

The Federal Court of Appeal decision in Planification-organisation-publications Systèmes (POPS) Ltée v. 9054-8181 Québec Inc., 2014 FCA 185, which ultimately found for IDP, reminds us again that litigation is a poor substitute for clear and unequivocal language in contracts and agreements. Perhaps a more subtle lesson is to maintain a firm focus on legal rights and responsibilities, even – and some would argue, especially – when entering into business arrangements with ‘friends’. Expect the unexpected and plan for the end of the relationship, as you would for any contract.           

Posada made several claims. Among them, she claimed that the trial Court had failed to apply the correct principles of law in determining the scope of the software licence, and that, with respect to IDP’s access to the source code, the trial Court had acted ultra petita, meaning that the Court granted more than IDP had asked for (it had not in fact asked for access to the source code, or the right to modify it). With respect to the revocability of the licence, Posada argued that the trial Court had made several errors in law – including not taking a systematic approach from English case law – and that it was not reasonable or fair for IDP to hold a non-revocable licence after Posada and IDP went their separate ways, since (Posada claimed) the licence had been conditional on IDP and Posada working together.           

The Court found that IDP had indeed never asked for access to the source code or for the right to modify it in the future, so it limited IDP’s software licence to all versions of Ceres, Omega, Epsilon and Comex that existed at the end of the IDP/Posada collaboration, without IDP access to the source code.           

With respect to the revocability of the licence, the Court rejected Posada’s argument that the trial Court should have followed English case law. The appeal Court instead used the ‘intention of the parties’ test that is the standard of review under Canadian law. The appeal Court found that the trial Judge had not erred in this, so reaffirmed the trial decision that the licence was non-revocable. Further, the Court found that a non-revocable licence was reasonable and fair, given Bazoge’s and Chapuis’ early purchase of licences to use Ceres, and their later investments of money and staff resources to develop the software. In the Court’s opinion, and in the absence of explicit language to the contrary in the agreement, the licence was not therefore conditional on IDP and Posada working together.           

Although the Court held that IDP was the primarily successful party, each party was responsible for its own costs. The appeal was dismissed, except for a revision to the wording of the trial Court’s decision with respect to the scope of the licence, and specifically to the source code. 

Reprinted from The Legal Edge Issue 109, January – March 2015