Blade Motor Group v. Reynolds & Reynolds is a decision of the High Court of England and Wales of 23 February 2018 on an application by Blade Motor Group Limited, a group of about 20 motor dealerships, against its former software supplier Reynolds & Reynolds Limited (R&R). After Blade moved to a new dealer management system, a dispute arose over whether it could end its agreement with R&R before a five-year minimum term, and R&R applied a remote lock to the R&R software that held Blade’s historic business data. Blade sought a mandatory interim injunction requiring R&R to restore access. The court refused it.[1]
Background
R&R provides software and IT services to the automotive industry. Around 1995 Blade acquired R&R’s dealer management system, KDMS, which Blade said was central to its business and was used to record financial information, customer data and vehicle information. KDMS was installed on Blade’s own server.[1]
The written agreement before the court was dated 26 June 2006. It contained no term expressly dealing with termination of any software licence. Blade’s case was that, on its true construction or by an implied term, it could reduce the number of software licences on reasonable notice without terminating the whole agreement.[1]
In 2014 Blade decided to look for alternatives and, it said, was open with R&R about its plans. The parties signed an amendment around 5 August 2014, under which R&R would provide the software support services until either party gave at least 90 days’ written notice “not to expire before the fifth anniversary of this Amendment”. R&R relied on an exchange of e-mails in July and August 2014 in which it offered “a Five year agreement including an RPI clause & the provision of 20 KDMS licenses at £167.40 each (a 75% reduction on the normal price…)”, and Blade asked for a five-year agreement with the first two years at current costs.[1]
The dispute
In April 2016 Blade contracted with Pinewood Technologies Limited for a new system, Pinnacle, which it had been running since about that time. In July 2016 it asked R&R for continued support during the transition. R&R replied in August 2016 that the amended agreement could not be terminated before 8 August 2019. After almost a year of correspondence, on 16 June 2017 R&R said it would suspend performance unless more than GBP 40,000 that it said was owed was paid, which Blade disputed.[1]
On or about 1 August 2017 R&R applied a remote “lock” to the software, which prevented Blade from logging on to the system and so from accessing its data. Blade said the data was on its own server but could not be read without R&R’s software.[1]
Blade filed proceedings on 12 February 2018 seeking specific performance of the agreement and rectification of the 2014 amendment for unilateral mistake, on the ground that it had not understood the amendment to limit its termination rights for five years. It applied for an order that R&R immediately provide the software licences it had requested, remove the remote block on the KDMS software, or reinstate access to the historic data. R&R’s position was that the amendment was clear, that Blade had repudiated it, and that R&R had accepted the repudiation and ended the agreement. R&R’s legal counsel stated that, when similar licences are terminated, R&R provides access to the software only for 90 days after termination.[1]
Decision or outcome
The court applied the American Cyanamid test together with the stricter approach to mandatory interim injunctions. R&R conceded there was a serious issue to be tried.[1]
- Damages adequate. Blade relied on harm from being unable to access its data: its auditors could not complete audited accounts, it had received a Companies House letter about late accounts for a group company, it could not answer HMRC requests, a manufacturer warranty claim of GBP 1,782 had been refused, it faced possible manufacturer penalties, and it could not answer some customer requests. The court found the evidence on the effect of a qualified audit was assertion only, that the other losses could be quantified if records were kept, and that the data was historic because Blade had used Pinnacle since mid-2016. Blade had not shown damages would be inadequate.[1]
- Status quo. The status quo was the position when the application was filed, when Blade had no access, so an order to unlock the software would change rather than preserve it.[1]
- Strength of Blade’s case. The court did not have a high degree of assurance that Blade would succeed. It was not clear that a term would be implied into the negotiated contract, and the 2014 e-mails made it “at least highly arguable that Blade asked for and was given a 5 year agreement”.[1]
- Delay. The dispute had begun in mid-2016 and access had been blocked in August 2017, yet Blade waited about six months before applying for urgent relief. The court said that if access were as vital as Blade claimed, it would have come to court sooner.[1]
- Open offer. R&R had offered, the day before the hearing, to provide access in return for payment of the money it said was owed. The court gave this some, though not heavy, weight: Blade could pay, obtain access to its data and reclaim any overpayment later.[1]
The court also noted R&R’s argument that an injunction would effectively give Blade the result it sought at trial, and a better result than other customers ending their contracts amicably. It concluded that the risk of injustice if the injunction were refused did not sufficiently outweigh the risk if it were granted, and refused the application. No later judgment in the case was found on Find Case Law.[1]
Significance for software licensing and SAM practice
The decision concerns a customer leaving a long-standing on-premises system, rather than a licence audit, but it shows how support terms, licence quantities and access to data interact at the end of a software relationship.[1]
- Discounts and lock-in. The five-year minimum term arose from a 2014 amendment that came with heavily discounted licences, signed at a time when Blade was already considering alternatives.[1]
- Reducing licences. The 2006 agreement did not say whether the customer could reduce the number of software licences without ending the whole agreement, which became part of the dispute.[1]
- Technical enforcement. The vendor could disable the software remotely even though it ran on the customer’s server, and the court declined to order it unlocked pending trial.[1]
- Data held in proprietary formats. Blade held its data on its own server but could not read it without the vendor’s software, so losing the licence also meant losing practical access to its records.[1]
Lessons learned
- Check minimum-term and termination clauses before signing amendments or discount offers. The court found it highly arguable that Blade had agreed a five-year minimum term in exchange for discounted licences.[1]
- Before leaving a system, secure an export of historic data in a readable form or continued read-only access. Blade’s data stayed on its server but was unreadable once the software was locked.[1]
- A vendor may remotely disable software in a payment or termination dispute, and the courts may not order it restored on an interim basis. The court refused the mandatory injunction and treated the losses as compensable in damages.[1]
- Delay in going to court weighs against urgent relief. A six-month wait after the lock was applied counted against Blade.[1]