SoftLanding Systems, Inc v KDP Software Ltd is an English case between a small UK software developer, KDP Software, and its long-standing US distributor, SoftLanding Systems. KDP wrote SET/TURN and DOCUMENTOR, tools used with SoftLanding’s TurnOver change management product on IBM AS/400 (System i) machines running Infor’s BPCS ERP system. After the relationship broke down, SoftLanding sued for the source code and ownership of KDP’s software. The court rejected the claim and found for KDP on its counterclaim for unpaid royalties and copyright infringement.[1]
Background
SoftLanding marketed KDP’s products to end users worldwide. Under the arrangements, SoftLanding kept 25% of the gross end user price of a SET/TURN licence and paid KDP 75% as a royalty; DOCUMENTOR royalties were 50% when sold with SET/TURN and 75% standalone, and KDP received 15% of maintenance income. A written distributor agreement of December 1995 ran for three years and expired in December 1998, but the parties kept dealing with each other.[1]
Licences were enforced by passwords. On the basis that SoftLanding declared each end user, licence type and royalty, KDP issued software passwords for properly licensed and paid-up end users. Maintenance included the use of codes generated by KDP’s software, including temporary codes for disaster recovery when an end user’s nominated system failed. An interim order in December 2008 required KDP to issue temporary passwords on request that specified the model number, processor group and serial number of the customer’s old and new computers and the date of its current annual maintenance licence.[1]
Unicom Systems bought SoftLanding in September 2006 for USD 17 million.[1]
The dispute
SoftLanding argued that the expired 1995 agreement still governed the relationship, so that KDP could end it only on six months’ notice and had to hand over the source code, or even ownership of the software, if it ceased doing business. It also alleged that royalties had been converted to fixed fees and that KDP had failed to support end users. KDP said that SoftLanding had under-accounted for royalties and granted licences and maintenance it was not entitled to grant, and it terminated the arrangements through its solicitors on 4 July 2008.[1]
Decision or outcome
His Honour Judge Wilcox found for KDP:[1]
- No continuing right to source code or ownership. After 1998 the relationship continued on terms implied from conduct. The court implied a reasonable notice period of six months for terminating SoftLanding’s non-exclusive rights to issue licences and maintenance licences, but not the onerous source code and ownership provisions, and found no agreement to fix royalties.
- Termination justified. There had been extensive under-accounting and a deliberate refusal to provide end user information. The breaches were material and warranted termination of SoftLanding’s rights to license KDP’s software. Supported end users remained entitled to support until their current maintenance period ended.
- Post-termination renewals infringed. Maintenance renewals included disaster recovery codes that authorised the end user to reproduce the software on a recovery computer anywhere in the world, so they were a grant of licence and not merely a service. Licences and maintenance agreements granted by SoftLanding and Unicom after termination infringed KDP’s copyright, and the two companies were jointly liable for breaches after 1 January 2007.
- Relief. The interim injunction was discharged because of non-disclosure of an agreement between SoftLanding and Unicom and misleading evidence. KDP obtained an injunction, a declaration that SoftLanding and Unicom had no consent or licence to grant licences or support agreements for its products, and damages to be assessed.
Significance for software licensing and SAM practice
End users in this case held licences bought through a distributor, enforced by passwords tied to their hardware, and renewed maintenance through the same distributor. When the distributor’s rights ended, the renewals it sold did not carry the owner’s authority. The judgment also treats disaster recovery rights delivered through maintenance as part of the licence grant.[1]
Lessons learned
- Where licence keys are tied to a machine’s model and serial number, a hardware change depends on the software owner issuing new keys; check who controls them before relying on a reseller. Requests for new passwords had to give the old and new machine details and the maintenance date.[1]
- A maintenance renewal can be a licence grant in its own right, for example when it carries disaster recovery codes. The court held that renewals authorised reproduction on recovery computers.[1]
- Renewals sold by a distributor after its rights end may give the customer nothing the owner recognises. Post-termination licences and maintenance agreements infringed KDP’s copyright.[1]
- Reseller royalty reporting is a core obligation; persistent under-accounting justified ending the relationship. The court found extensive under-accounting and material breaches.[1]