Software Licence Maintenance: The Questionable Customer’s Option

February 8, 2009

In Data Direct Technologies Ltd v Marks and Spencer plc [2009] EWHC 97 (Ch), Mr Justice Floyd was required to interpret a software licence agreement which also covered ongoing maintenance of the software in question. The case is essentially run of the mill, but any judgment on a software licence has its minor points of interest to IT lawyers.


The essential question was whether the customer (M&S) continued to be liable for the maintenance fee where it no longer required that maintenance but had not given a formal notice to that effect within the terms of the agreement.


Clause 7 of Product Schedule 8 read ‘Maintenance shall be provided in accordance with the Agreement and the Maintenance Schedule appended to the Agreement. At the Customer’s option, annual maintenance for the licence extension (including upgrade) contained herein for the period 26th October 2007 to 25th October 2008 shall be 17.5% of £750,000 i.e. of the licence fee paid and will be subject to an annual RPI increase.’ (emphasis added).


The claimant’s case was that the effect of clause 7 is that maintenance was payable in accordance with the Maintenance Schedule of the Main Agreement, under clause 1(c) of which the defendant was obliged to pay for maintenance unless it gave 30 days’ written notice of its intention to cancel maintenance. As the defendant never served a valid notice in writing terminating maintenance in accordance with the Maintenance Schedule, the maintenance fee remained payable.


The defendant’s case was that it was obliged to pay for the maintenance only if it exercised the option granted by clause 7 to purchase it and that reflected the natural and ordinary meaning of the expression ‘at the Customer’s option’. As it never exercised the option, the maintenance charge was not payable. Moreover, if the claimant’s construction were accepted, the words ‘at the Customer’s option’ were unnecessary. If the intention had been to refer to the right to cancel maintenance, words such as ‘subject to the right to cancel under clause 1(c)’ would have been more apt.


Mr Justice Floyd found the claimant’s interpretation the more attractive in the circumstances. His full judgment can be read here.


One aspect of the case perhaps deserves highlighting. The dispute between the parties began no earlier than October 2007 so all involved acted very promptly to make it to a Chancery Division judgment by January 2009.