A High Court judgment in a software licensing dispute underlines the dangers lurking from pre-contract sale representations. Richard Osborne reports on the case and suggests a strategy for minimising the dangers.
More than once statements made by the over-zealous sales representatives of companies have returned to haunt their lawyers years later. A recent case in the High Court, AFD Software v DCML Ltd  EWHC 453 (Ch), has provided a sobering example in the context of a software licensing dispute.
Facts and Judgment
In 2006 the Claimant licensed software enabling access to the Royal Mail's database of postcodes. It granted a licence to the Defendant to use the software in its business offering services to the motor industry. The cost of the annual licence was less than £2,000 per year, and the Defendant proceeded to use the software for several years without incident. In 2010 the Claimant checked with the Defendant the use to which it put the software and, on the basis of the answers it received, concluded that it was not being used for the purposes of a 'public internet website' within the terms of the licence. Accordingly, the Claimant presented the Defendant with an invoice for £14.1m, which was the sum which it stated would have been payable had the Defendant been properly licensed. Upon a refusal to pay, the Claimant sued for breach of copyright and breach of the licence terms. The Defendant's defence relied heavily upon its case that, in making initial enquiries about the Claimant's products in 2006, it had contacted the Claimant, described its business and been told that the product ultimately selected was suitable for that intended use by the salesman to whom it spoke.
The Claimant disputed that conversation, but the judge rejected its account. Notwithstanding that it had kept a file note of the conversation, its contents did not unambiguously support the Claimant's account, and the judge accepted that the Defendant's employee was honest and had no interest in misleading the Claimant as to its intended use. He accordingly accepted that a truthful account of the intended use had been provided, and that the Claimant's salesman had represented that the relevant software would be licensed to meet that intended use for the quoted fee. Thereafter a demonstration of the software was provided and, being satisfied, the Defendant had placed its order.
However the Claimant's fall-back position was that, even if its salesman had made such a representation, it was irrelevant given that full licence terms were subsequently provided to the Defendant by post and then expressly accepted when the Claimant checked a box when installing the software.
Accordingly, the case not only raised the issue of the extent to which a pre-contractual recommendation could temper the effect of contractual terms, but also provided the court with the opportunity to express a view on the issue of click-wrap acceptance of terms, a matter of considerable interest to IT lawyers, but on which there is not yet any substantial English case-law.
On the facts, the judge found that the Claimant's salesman's statement gave rise to an estoppel in favour of the Defendant, as it had been relied upon to the Defendant's detriment (ie the deprivation of the opportunity to identify other products which it could license for a much lower sum). The judge accepted that the effect of this was to prevent the Claimant from contending that the Defendant was not properly licensed.
One particular argument made by the Claimant was that, as it had provided full licence terms to the Defendant and these had been accepted, the burden of checking that it was acting in compliance with those terms (and as such was properly licensed) fell on the Defendant. Although one can imagine many licensors having sympathy for such a position, the judge was unimpressed, observing that the terms relied upon themselves appeared to be ambiguous. He also stated in reference to the 'consent' to the Defendant's use established by the initial salesman's conversation that:
'I do not think that consent is withdrawn by the what is now established practice of clicking acceptance to (usually) long form terms and conditions unless there is some unambiguous statement to that effect to which attention is properly drawn. There was no such statement made in this case.'
What lessons can be drawn from the case? An obvious one might be the great care which sales staff must take in dealing with potential customers, conscious of the fact that years later long-forgotten statements may severely limit the right to rely on licence terms notwithstanding their communication and the customer's subsequent acceptance of them. The dangers are obvious: salespeople are inherently in a position where they are likely to be called upon to make assessments of a product's suitability for the potential client's business. Further, licensors frequently find themselves at an inherent disadvantage in subsequent disputes as to whether particular recommendations were made. Salespeople may be dealing with dozens of potential licensors each week: without clear written records a court is likely to greet with scepticism the claim that one particular sales conversation has stuck in the mind. As such, the safest option may be to change processes rather than to rely on training. Ensuring that potential clients themselves identify in a durable medium the use to which they intend to put a product may be of particular value. Had the Defendant in this case been expressly required to confirm in writing the manner in which the software was to be used a great deal more certainty would have been provided to all parties from the outset.
Richard Osborne is a barrister at 4 Pump Court. He has a general commercial practice, with particular experience in Information Technology, Insurance, Commercial, Professional Negligence, Construction and Common law. He is also a member of the SCL London Group committee.