AFD Software Ltd v DCML Ltd was English litigation between AFD Software, which supplies software giving access to the Post Office postcode address database, and DCML, a business that provides software and support to car dealerships. AFD claimed that DCML had used its software far beyond what DCML had licensed, invoiced it for more than GBP 12 million plus VAT and sued for about GBP 3 million. The High Court dismissed the claim after finding that DCML had told AFD exactly how it would use the software, and in 2016 the Court of Appeal refused AFD permission to appeal.[1] The case is a reminder that the scope of a licence can be decided by what was said when it was sold, not only by the licence paperwork.
Background
DCML’s product helped dealerships manage courtesy and replacement car fleets, including recording and checking insurance for each driver. Part of the package was a postcode address lookup. In 2006 DCML learned that its existing postcode software would no longer be available, and its senior manager Mr Flaherty contacted AFD.[1]
DCML delivered its service centrally: dealerships anywhere in the country logged in through a password system to one main server on which DCML’s software, including the postcode package, ran. AFD understood it was licensing software to sit on one internal network accessed by individuals logging on to that network, and charged accordingly, less than GBP 2,000 a year including VAT. AFD’s business model had at least two higher-priced variants: one for public websites where the public look up addresses, and one, priced by the number of terminals, for many terminals logging in to a single server. AFD’s case was that DCML’s real use fell into the expensive category.[1]
The contract was made in two telephone calls in early 2006, the first with AFD’s senior sales representative Mr Johnson, followed by a trial version and a second call. AFD then sent a CD on which the user clicked twice to accept extensive terms, with a licence certificate that said: “This licence certificate confirms your licence to use the product named below on the number of licenced computers set out below”. The number of licensed computers was “1”.[1]
The dispute
AFD realised the extent of DCML’s use in 2010 and sent an invoice for GBP 12 million plus GBP 2.1 million VAT. The claim tried in the High Court was reduced but was still in the order of GBP 3 million. AFD alleged that DCML had misdescribed its intended use to obtain a cheaper licence, and that its use breached the contract and AFD’s copyright.[1]
Decision or outcome
High Court (2015)
After a four-day trial, Mr John Baldwin QC, sitting as a deputy judge of the Chancery Division, dismissed the claim in a judgment handed down on 2015-03-02.[1] Neither witness really remembered the calls. The judge found Mr Johnson the less reliable witness and Mr Flaherty “an honest and responsible person”, and rejected the allegation that DCML had deliberately misled AFD. He found it “much more likely than not” that Mr Flaherty “described to Mr Johnson fully and clearly what use DCML would make of the AFD software”. He also found that no one at AFD explained to Mr Flaherty that the product could only be used on “public Internet Websites” or what that term meant in AFD’s licensing conditions.[1]
As summarised by the Court of Appeal, the judge concluded that AFD had been told correctly what DCML intended, that Mr Johnson had advised on the pricing that would apply and DCML had accepted it, and that AFD therefore could not assert a contract to the contrary or show that DCML had acted in breach of copyright.[1]
Court of Appeal (2016)
Lord Justice Kitchin refused permission to appeal on the papers on 2015-07-29. AFD renewed the application orally. AFD argued that no seasoned salesman who had heard the real scale of use could have priced it as he did, so there must at least have been an innocent misunderstanding the judge did not consider. On 2016-03-08 Lord Justice McFarlane refused permission. He noted that AFD, as claimant, bore the burden of proving the terms agreed in the telephone calls, that no satisfactory record of the calls was kept and the key call was not followed up in writing, and that AFD “have not helped themselves in terms of business practice”. The appeal turned on findings of fact that were open to the judge and had no reasonable prospect of being overturned.[1]
Significance for software licensing and SAM practice
The decision is unusual because the vendor lost a large scope claim against a customer whose use plainly exceeded what the vendor thought it had sold. It turned on evidence of the sales conversation rather than on the wording of the licence terms:
- Pre-sale disclosure matters. Because the court found the customer had fully described its centralised, multi-site use and the vendor had priced it, the customer was not in breach even though the certificate named one licensed computer.[1]
- Records protect both sides. The vendor lost largely because it had no record of the calls; a customer without a credible witness could equally have lost.[1]
- Architecture drives the metric. The gap between under GBP 2,000 a year and a claim in the millions came from the difference between one internal network and many terminals on one central server.[1] See concurrent and device licensing.
The Court of Appeal’s judgment is a permission decision and sets no precedent on the law; it records and leaves undisturbed the trial judge’s findings of fact.
Lessons learned
- A vendor that sells on the basis of a phone call bears the risk of what was said; write down the intended use and the metric that prices it. The Court of Appeal pointed to AFD’s failure to keep a record of the calls or follow up the key call in writing.[1]
- A licence certificate stating one licensed computer did not override the court’s finding of what the buyer told the vendor before purchase. The judge found DCML had described its use fully and AFD had priced it, so AFD could not assert a contract to the contrary.[1]
- Customers should describe deployment architecture (central server, remote sites, terminals) when buying, and keep a record that they did. DCML succeeded because the judge accepted its manager’s account of the call.[1]
- Licence models that price public web, internal network and multi-terminal use differently need the buyer’s architecture to be confirmed before sale. AFD’s three price tiers were the source of the dispute.[1]