Mr. Justice Edwards-Stuart:
Introduction
- On 1 October 2003 a company then known as Ferrania UK Ltd ("FUK") entered into a contract with the Newcastle upon Tyne Hospitals NHS trust ("the Trust") to provide digital imaging and archiving services. This was for a period of seven years, but there were provisions by which it could be extended for a further three years in six month blocks.
- The services to be provided included the provision by FUK to the Trust of Lifeweb RIS software ("RIS"). FUK did not own the software, but it had a licence to use it.
- The software was developed, according to the Claimant's evidence, between 2001 and 2005 by companies within the Ferrania group in Italy, with input from the University La Sapienza in Rome. The Claimant's case is that the software was originally owned by Ferrania SpA, a company in the same ownership or control as FUK. It seems that they were sister companies with a common parent.
- In 2004/05 Ferrania SpA was put into voluntary liquidation. Three commissioners were appointed to deal with its assets and, if possible, sell the company's business activities as a going concern and thereby preserve the jobs of its employees - of which there were apparently several hundred.
- A company called Ferrania Technologies SpA ("FTech") was set up by the Ferrania group in early 2005 as a special purpose vehicle to acquire the assets of Ferrania SpA. This was effected by an agreement dated 2 July 2005, by which FTech acquired the assets of Ferrania SpA, including its intellectual property rights in RIS.
- In September 2010, the Trust contract was varied so as to extend its term by six months to 31 March 2011. In December 2010, it was varied again so as to extend the term by a further five six month blocks to 30 September 2013.
- It is now common ground that, by virtue of section 90(4) of the Copyright, Designs and Patents Act 1988, the acquisition by FTech of the copyright in RIS in 2005 was subject to the implied licence granted to FUK in 2003 which allowed it to use RIS for the purposes of the contract with the Trust.
- The central issue in the claim as originally put is to what extent, if at all, the licence granted to FUK in 2003 to use RIS for the purposes of the contract with the Trust continued after the initial seven year period.
- The Claimant says that the licence came to an end at the expiry of the initial seven year period and that thereafter a fresh implied licence came into effect on 1 October 2010 (immediately following the expiry of the seven year term) and that it was a term of the fresh licence that FUK would pay a reasonable fee for the use of RIS.
- The Defendant's case is that the original licence extended to cover any period for which the Trust contract was extended pursuant to its terms. Alternatively, if it is wrong about that, it denies that there was any agreement, express or implied, by which it undertook to pay any form of licence fee between 1 October 2010 and the expiry of the three year extension period.
- In August 2010 Infinitt Healthcare Co Ltd acquired 70% of the Claimant's holding in FUK. FUK's name was subsequently changed to Infinitt UK Ltd. That company is the Defendant in this action. However, I shall refer to it as either FUK or the Defendant.
The procedural issues
- Until a very late stage in this litigation there was no issue between the parties about the fact that RIS was owned by a company in the Ferrania group. The Claimant's case, as originally pleaded, was that:
"At the time of the Trust Contract, FTech owned the intellectual property rights in RIS and was the parent company of FUK. It is understood that no written or express license was granted by FTech to FUK at that time or at all. FUK, however, sub-licensed the use of RIS to the Trust under the Trust Contract. In the premises, the Claimant avers that an implied licence was granted by FTech to FUK in relation to the use of RIS under the Trust Contract."
- In paragraph 4 of the Defence this was admitted. However, in a letter before action written on 8 July 2011, the Claimant said this:
"As you are aware, in 2003, in order to undertake and develop its commercial activity in the UK, Ferrania SpA granted - de facto and without any written agreement - the right to use one of its products, namely the software called LifeWeb RIS (hereinafter the "RIS"), to Ferrania UK Ltd - now Infinitt UK Ltd - ("Infinitt UK").
The above [sic] in order to allow Infinitt UK to enter into, in October 2003, a Managed Service Contract with Newcastle upon Tyne Hospitals NHS Trust ("Newcastle"), which contract indeed (i) includes inter alia a sub-licence to use the RIS and (ii) provides for an initial duration of 7 years.
It must be noted that, at the time the Management Service Contract was entered into between Infinitt UK and Newcastle:
a) Infinitt UK was 100% owned by Ferrania SpA which subsequently sold all the relevant shares, together with a part of Ferrania SpA's undertaking (including all the rights over the RIS), to Noemalife SpA ("Noemalife").
b) in this context, being Infinitt UK's sole shareholder, neither Ferrania SpA in 2003 nor subsequently Noemalife entered into a specific licence agreement in order to regulate the terms and limits relating to the use of the RIS by Infinitt UK (and also no royalties/fees for the licence of the RIS were requested).
Nevertheless, in the light of the fact that Ferrania SpA, as well as subsequently Noemalife, was the sole shareholder of Infinitt UK - and therefore (1) they were ultimately able to receive the revenues relating to the RIS by way of the profits of Infinitt UK or (2) in the events (sic) that Infinitt UK incurred losses, they did not have to finance the latter in order to enable it to pay for the license of the RIS - consideration was duly provided to the licensor (Ferrania SpA and subsequently Noemalife) for the licence of the RIS."
- Neither of these versions of events is quite accurate. In fact:
i) FTech was not in existence in 2003. It was formed in early 2005.
ii) Ferrania SpA did not own FUK. It appears that both companies were subsidiaries of Ferrania Lux SARL.
iii) FTech acquired the intellectual property rights of Ferrania SpA in July 2005.
iv) The Claimant asserts and, until recently it did not appear to be disputed, that those intellectual property rights were transferred to FTech on 2 July 2005.
- Thereafter, the following events occurred:
i) On 30 May 2008 the Claimant purchased various assets from FTech, including its intellectual property rights in RIS.
ii) On 30 June 2008 the Claimant purchased the entire issued share capital of FUK. To the extent that it acquired the copyright in RIS, that was subject to the licence granted by Ferrania SpA to FUK in 2003.
iii) In 2010:
a) discussions took place between the Trust and FUK about extending the Trust contract by six months in accordance with its provisions; and
b) the Claimant and Infinitt Healthcare Co Ltd agreed that the latter should purchase 70% of the Claimant's holding in FUK; and
c) the proposed share sale was preceded by the usual due diligence exercise.
- In the course of that due diligence exercise there was no mention by the Claimant that if there was to be an extension of the Trust contract beyond the initial seven year term, FUK would no longer have the benefit of the right to use RIS without paying a fee.
- By a Contract Change Control Note dated 24 September 2010 the Trust contract was varied so as to extend its term to 31 March 2011. On 14 December 2010 it was varied again, this time by 30 months (expressed as five blocks of six months), so as to extend its term to 30 September 2013.
- On 1 August 2012 the Claimant issued proceedings against FUK, now renamed Infinitt UK. As I have already recorded, that claim was based on an assertion that FTech granted the licence to FUK to use RIS in the Trust contract in 2003.
- On 25 September 2012 the Defendant applied to strike out the claim and/or for summary judgment on the ground that the Particulars of Claim disclosed no reasonable cause of action against the Defendant and/or that the Claimant had no real prospect of succeeding in its claim for the reasons set out in the witness statement supporting the application.
- In that witness statement, which was by a Mr. Robinson and was dated 20 September 2012, Mr. Robinson said this:
"5. At paragraph 7 of the particulars of claim the claimant asserts that at the time of the Trust Contract RIS was owned by Ferrania Technologies SpA ("FTech") which at the time was the defendant's parent company. The claimant further asserts that at that time the Trust Contract was entered into an implied licence was granted by FTech to the defendant in relation to the use of RIS under the Trust Contract ("the FTech licence"). Those assertions are not challenged by the defendant for the purposes of the Application.
6. At paragraph 3 of the particulars of claim the claimant contends that it acquired RIS from FTech in May 2008 and the entire shareholding of the defendant in about June 2008. It goes on to assert at paragraph 8 of the particulars of claim that at the time the claimant acquired RIS and the shareholding in the defendant there was no transfer of the FTech licence whether by novation or otherwise. It also alleges that a new implied licence was granted by it to the defendant which included various implied terms, including an obligation for the defendant to pay the claimant a licence fee in respect of RIS.
7. The claimant's entire case is predicated upon their having been no transfer of the FTech licence at the time the claimant purchased RIS and its shareholding in the defendant. However, the case fails to take account of s 90(4) of the Copyright, Designs and Patents Act 1988. The defendant has no reason to believe that the claimant was not a successor in title to the copyright with actual or constructive notice of the implied licence from FTech to the defendant. Accordingly, by virtue of section 90(4) the FTech licence was all material times binding on the claimant."
(My emphasis)
- Faced with this application the Claimant amended the Particulars of Claim to deal with the points raised by Mr. Robinson, but the original text of paragraph 7 of the Particulars of Claim remained unchanged, although a further sentence was added. Paragraph 4 of the Amended Defence, admitting paragraph 7 of the Particulars of Claim, also remained unchanged.
- Neither the Particulars of Claim nor the Amended Particulars of Claim made any alternative claim for damages for infringement of copyright. Indeed, I understand that at a hearing in April 2013, when directions were given for this trial, the Claimant made it clear to the court that its claim was in contract, or a gratuitous licence, but was not based on infringement of copyright.
- Similarly, at no time up to this hearing in April 2013 had the Defendant indicated that there would be any challenge to the assertion that FTech was the owner of the copyright in RIS. It was not until preparation for the trial that it was appreciated that FTech did not exist in 2003 with the result that the initial licence must have been granted by Ferrania SpA, not FTech. In the Claimant's written opening for the trial it was submitted that this made no material difference to the dispute, although amendments to the Particulars of claim would have to be made. Draft Re-Amended Particulars of Claim were produced on the day before the hearing.
- A proposed Amended Reply was also produced at the same time, which said this:
"Further or alternatively, the Claimant seeks damages in respect of the Defendant's infringement of the Claimant's copyright in RIS software."
- The Defendant's written opening for this trial included the assertion, for the first time, so far as I am aware, that the burden was on the Claimant to show that it owned the copyright in RIS and that it had failed to discharge that burden.
- It therefore became clear on the first day of the trial that two new potential issues had arisen. First, whether the Claimant ever had any proprietary right in RIS and, second, whether the Claimant should be permitted to add an alternative claim for infringement of copyright.
- Since the trial was fixed for two days and there were four witnesses, two of whom had come from Italy, I indicated that I would reserve consideration of the applications to pursue these arguments until after I had heard the evidence. I will return to this later.
The witnesses
- The Claimant called two witnesses, Guiseppe Cortesi and Marco Budini. Mr. Cortesi was the managing director of FTech, a position which he had held since July 2006. He joined FTech and the Ferrania group in July 2005 and so he had no first-hand knowledge of the development of RIS, although he dealt with it in his witness statement.
- In cross examination he said that from July 2005 onwards FUK was effectively under the control of FTech until its shares were bought by Noemalife in 2008. This evidence was challenged.
- Until January 2013 Mr. Budini was Products Senior Director at Noemalife. He joined the company in 2008. Noemalife is a software company. Mr. Budini said that at the time of and after the sale of the majority of the Claimant's shares in FUK to Infinitt, FTech and Infinitt were planning to work together to market both RIS and Infinitt's PACS product with a view to increasing their market presence in the UK. He referred to a business plan which showed a projected income from licence fees for the use of RIS.
- Mr. Cortesi explained that FTech did not charge a licence fee to FUK because it was a wholly owned and loss-making group company and that to do so would have been pointless. However, in the final paragraph of his second witness statement he said this:
"If I had been asked at the time of granting of the original licence to FUK whether Ferrania Technologies would have expected to receive a licence for FUK's use of RIS if Ferrania had sold FUK, my answer would certainly have been yes."
- In his second witness statement, Mr. Budini said, at paragraph 12:
"… in the circumstances where we were working together through FUK/IUK I was not initially concerned about recovering the licence fee to which Noemalife was entitled if only a 6 month extension was potentially being granted on the basis that there was a wider understanding being developed between Noemalife and Infinitt. I therefore did not take steps at that time to recover the licence fee for the initial 6 month period."
At paragraph 13 he said:
"At the end of September 2010 I became aware that there was a possibility that Infinitt was intending to replace Noemalife's RIS system with its own system at the Trust. I was copied in to an email from Diego Pastorino to Graeme Russell which indicated his concerns with that approach dated 30 September 2010. I considered that replacing Noemalife's RIS system at the Trust would be against the spirit of mutual cooperation we had reached with Infinitt. Use of Noemalife's RIS at the Trust was the main mechanism by which we would continue to build our brand in the UK."
- In cross examination he said:
"The spirit was that it was not important what was going to happen in Newcastle for a 6 month period, when we were looking to develop the business."
- On the basis of this evidence I find as a fact that there was no intention on the part of Noemalife to enter into any form of agreement in relation to a licence fee for RIS for the six months extension to 31 March 2011. It is quite clear that, to the extent that Noemalife thought about it, it decided to do nothing and to allow FUK to continue to use the licence for six months. Thus there cannot have been any intention on its part to create legal relations with FUK in connection with the licence fee for that six month period.
- In relation to the second extension, Mr. Budini said that he did not know whether Noemalife could claim a licence fee, which is why on 17 December 2010 he asked his colleagues to look into it.
- Mr. Budini explained that by this time he had become angry because he felt that the spirit of the agreement of mutual cooperation had been broken. That was why he felt that he was entitled to ask "for what was due to us".
- Finally, in cross examination he accepted that
"… the licence fee was not a discussion matter whilst we were thinking of doing business together. There was no reason for thinking that Infinitt would understand that they would have to pay a licence fee if the contract was extended."
- The Defendant called two witnesses. The first was Mr. Graeme Russell. In 1999 he became Technical Manager for FUK, and was appointed managing director in September 2006 - a post which he retained following the acquisition of FUK by Noemalife in 2008.
- He explained in his witness statement how FUK's cash flow difficulties were such that it could only continue to trade with the support of Noemalife. The position changed once Noemalife began to consider selling its shares in FUK: it was no longer so willing to fund FUK. He confirmed in his witness statement that FUK had never been charged a licence fee.
- Mr. Russell explained how employees of Noemalife were included in the circulation list of the minutes of meetings between FUK and the Trust. He said, at paragraph 51 of his witness statement, that Mr. Budini never said anything to him about the payment of a licence fee at any time.
- He was asked about a spreadsheet that he prepared in early 2010, described as a business plan, which showed revenues from the Trust contract through to September 2013. Against "Cost of sales" there were payments to Noemalife in respect of RIS licence fees from 2011 onwards. In an email dated 5 January 2010 Mr. Russell said that:
"There were currently no agreed RIS licence fees, or annual service agreements in place."
- Mr. Russell said in evidence that the revenue shown in the spreadsheet in relation to RIS was solely attributable to anticipated new business. He said that he thought that the market would open up in 2012/13, which was why the figures in the spreadsheet were lower for 2011/12. No licence fee was shown for 2010. He said that the level of licence fees shown in the spreadsheet was fixed after internal discussions about what they thought they could obtain in the UK market. In cross examination Mr. Russell denied that the business plans showed any revenue from the Trust contract. He maintained his position that the revenue figures shown were solely attributable to new business and were not intended to and did not show any revenue by way of licence fee for RIS used for the Trust contract.
- There is no way of resolving this issue by reference to the documents alone. Mr. Russell's explanation was entirely plausible and I see no reason not to accept it. If there had been any intention to change the financial arrangements for the licence to use RIS for the Trust contract, I would have expected to see some reference to it in the contemporaneous documents, but there is nothing.
- The second witness was Mr. Ki-Sup Cho, who became managing director of the Defendant in June 2011. He joined Infinitt Healthcare Co Ltd, a Korean company, in June 2010 and was appointed a director of the Defendant on 20 September 2010. He was not involved in the negotiations for the two extensions of the Trust contract, but he was responsible for signing off the second extension. His witness statement suggested that he gave no thought to the question of a licence fee for the use of RIS until he received an email from Robyn Tolley of Noemalife dated 10 May 2011. This was confirmed in cross examination when he said that he had never heard about the licence before May 2011.
The evidence of any agreement in relation to the licence fee
- I have already found that there was no intention to charge a fee for the six month extension to 31 March 2011 and, indeed, that Noemalife was content to leave the position unchanged for that six month period. I find that that is what happened.
- There is no doubt that Noemalife knew of the possibility that the Trust contract might be extended for a further 2½ years. In an email from Mr. Pastorino, the Radiology Business Manager of Noemalife, to Mr. Park, of Infinitt, copied to Mr. Russell, dated 5 November 2010, Mr. Pastorino stated:
"I've heard from Graeme that Newcastle upon Tyne NHS Foundation Trust has expressed its willing to extend present Manage Service with Infinitt UK by 3 years and I'd like to congratulate with you and your team for the great job done over there to achieve this very important result; I also understand that maybe Infinitt intention to develop an ad-hoc RIS for completing the PACS proposal to the Trust.
In relation to this topic, you may remember my mail sent on 30th Sept to Graeme (copied to yourself and Marco Budini - here attached for your convenience) where I raised my concerns about rumours on using a different RIS from Noemalife RIS (presently installed in the Trust and managing over 25 years of data); unfortunately I haven't received any feedback to that mail so I'm wondering if you can share with me Infinitt view on this topic, for this specific customer but also for UK market in general.
Also, being this a "not ordinary" business but a very strategic decision, I put in evidence that this matter shall be discussed in a dedicated board meeting."
This email was copied to Mr. Budini on the following day.
- There is no evidence whatever that Noemalife gave any indication to Infinitt that it proposed to charge a fee for FUK's use of RIS after 31 March 2011. If that was really what it had in mind, then it is surprising that there is no hint of it in this e-mail. In fact, it is clear from Mr. Budini's evidence that by the end of 2010/early 2011 he had not thought about the position.
- The position is no different on FUK's side. Mr. Russell appears to have assumed that the previous arrangements would continue: that conclusion follows from my acceptance of his evidence about the figures in the business plan and the absence of anything that points to a different intention. Looking at the conduct and state of mind of each party, I find that prior to 31 March 2011 there was nothing to put a reasonable businessman in the position of the Defendant on notice that he would be expected to pay for the use of RIS after that date.
- Mr. Kulkarni submitted, and I did not understand Mr. Moody-Stuart to disagree, that whether one can imply a contractual licence – which is a form of contract – depends on whether the party contending for the implied contract can demonstrate that there was, viewed objectively, an intention to create legal relations: see Modahl v British Athletics Federation [2002] 1 WLR 1192; Chitty on Contracts, Vol.1 (30th ed), paragraphs 1-096 and 2-163 – 2-164.
- Assuming that the original implied licence does not cover the extended period to 30 September 2013, a point to which I will turn later, I find that there is no evidence of any intention to create legal relations in relation to the use of RIS from the end of March 2011 to 30 September 2013. There is no evidence to support either an implied agreement that the existing arrangement should continue beyond 31 March 2011 or an implied agreement that a fee was to be payable. I find that neither side addressed the question at any time before the extension to 30 September 2013 was agreed on 14 December 2010. As I have already indicated, I cannot see how an implied contract can be inferred from their conduct. To the extent that anything could be inferred, I think that it would be that there was to be no change in the existing arrangement: but even that is not a safe inference given that by late 2010 the parties had begun to question whether or not they still had a common interest.
- Accordingly, any claim by the Claimant to an entitlement to a licence fee beyond 31 March 2011 on the basis of an implied agreement reached before 14 December 2010 must fail for want of any intention to create legal relations. Similarly, FUK cannot show that there was any intention to create legal relations by way of an implied agreement that the licence should continue on the same terms beyond 31 March 2011.
- It must follow from this conclusion that there cannot be a gratuitous licence from 30 March 2011 either. Even if I had concluded that there was such a licence, I would have held that it would have been for the full period of the extension to 30 September 2013. I do not believe that any businessman in the position of FUK could be taken to have impliedly agreed to a licence that could be terminated at will: it would have been a wholly unsatisfactory arrangement.
- Subject to the question about the period of the original licence - but assuming for these purposes that it came to an end in September 2010 - the effect of these conclusions is therefore:
i) That the Claimant has no contractual claim to a licence fee beyond 30 September 2010.
ii) The Claimant permitted FUK to use the RIS software for the purposes of the Trust contract up to 31 March 2011.
iii) There was no bare or gratuitous licence from 1 April 2011 onwards.
iv) The Claimant therefore has no contractual right to recover any sum from FUK in relation to the use of RIS for the Trust contract beyond 30 September 2010.
- However, the conclusions in the previous paragraph do not in themselves preclude the Claimant from bringing a claim for infringement of copyright or a restitutionary claim to the extent that any such claim is now open to it. This is a point to which I shall return.
The relevant terms of the Trust contract
- Clause 6.2 is entitled "Change control". It provides:
"The control of change hereunder shall be in accordance with the change control principles and procedures laid down in schedule H. For these purposes, a change includes any proposed amendment to the contract, including the proposed assignment or sub-contracting of the contract, whether in whole or in part. For each such change, which is agreed by the authority and the contractor, the current contract shall be amended using the form of amendment set out in schedule H."
- Clause 17.3, which concerns the duration of the contract, provides:
"Unless terminated earlier in accordance with clause 17.2 or otherwise in accordance with clause 10, the provision of the managed services shall continue until the expiry date stated in schedule A or for the period stated therein. If no such date or period is stated in schedule A, managed services shall continue for seven (7) years from commencement of the managed services, in accordance with clause 17.1."
- Clause 21.1.2 concerns intellectual property rights. It provides:
"The contractor warrants that it has authority to grant to the authority any rights to be granted hereunder and owns or has obtained valid licences to any intellectual property rights necessary for the fulfilment of all its obligations under the contract."
- Schedule A1.3, entitled "Duration of the contract", provides:
"The contract shall expire 7 years from the commencement of the managed service. Thereafter the contract may be extended in 6-month blocks for a maximum period of 36 months".
And clause A2.1.2.1 - RIS provides:
"The Contractor agrees to provide a web-based integrated RIS solution in compliance with the authority's OBS and appendix A3."
- Clause H1.1, which is under the heading "Change control principles and procedure", provides:
"H1.1.1 Where the authority or the contractor, during the term of the contract, see the need for change (as defined in clause 6.2) to the functions or performance of the managed services, the environment in which the managed services are performed or the transition project, or to any details of the contract, the authority or the contractor may at any time request such change and propose an amendment to the contract in accordance with the formal change control procedure (CCP) as set out in H1.2 below.
H1.1.2 Neither the authority nor the contractor shall unreasonably withhold its agreement to any change.
H1.1.3 Unless the authority or the contractor otherwise agree in writing there shall be no presumption that the obligations undertaken by either party in connection with the contract are in any way changed until an amendment to the contract has been effected in accordance with the CCP.
H1.1.4 No amendments to the contract shall be valid unless they have been agreed in writing on behalf of the authority and the contractor by on behalf of their respective authorised officers."
Extensions to the term of the Trust contract
- It is difficult to see any purpose in the last sentence of clause A1.3 of schedule A unless it is intended to confer some enforceable obligation: otherwise the words would be redundant because the parties are generally free at any time, subject to any relevant legislation, to vary a contract by mutual agreement.
- A request to extend the contract is in my view a variation and so comes within the scope of the change control procedure in clause 6.2, and therefore within the procedures laid down in schedule H. The latter provides that neither party shall unreasonably withhold its agreement to any proposed change. Thus a party wishing to extend the contract by six months must make a formal request for a change and the other party must not unreasonably withhold consent to that change.
- Clause A1.3 expressly refers to extensions to the contract being in six month blocks and for a maximum aggregate period of 36 months. As I have said, it is reasonable to assume that these words are there for a purpose. Mr. Moody-Stuart submitted that the provision can be justified on the basis that six months is a suitable minimum period for any extension and that the maximum total of 36 months provides a long stop, but that it would be contrary to commercial sense to prevent the parties from agreeing to extend for a multiple period of six months if it was commercially desirable to them to do so.
- However, if this is correct, one asks why does the clause not say "up to 36 months with a minimum of 6 months", or words to similar effect? The reference to six month blocks is quite specific: unless there is a commercial or regulatory purpose behind it, it would just be an unnecessary inconvenience.
- During the course of the hearing I raised the possibility that this provision may have been inserted in order to prevent any extension of the term of the contract being struck down for breach of Community law. I therefore gave the parties an opportunity to make further submissions on this following the hearing. Both parties have done so, for which I am grateful.
- In his supplementary submissions Mr. Moody-Stuart helpfully referred me to the decision of the ECJ in Pressetext Nachrichtenagentur GmbH v. Republic Osterrich Case C-454/06. At paragraphs 34-36 of its judgment the court said this:
"34. In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract (see, to that effect, Case C-337/98 Commission v France [2000] ECR I-8377, paragraphs 44 and 46).
35. An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.
36. Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered. This latter interpretation is confirmed in Article 11(3)(e) and (f) of Directive 92/50, which imposes, in respect of contracts concerning, either solely or for the most part, services listed in Annex I A thereto, restrictions on the extent to which contracting authorities may use the negotiated procedure for awarding services in addition to those covered by an initial contract."
- But the third question that the court had to consider in that case was whether a clause by which the parties undertook not, for a given period, to terminate on notice a contract concluded for an indefinite period was open to challenge. The court noted that it was not automatically considered to be unlawful under Community law governing public procurement.
- However, the court held that whether it constituted a new award of a contract would depend on whether or not the clause amounted to a material amendment to the initial contract.
- I can see no difference in principle between a restriction upon a party's right to terminate on notice a contract of indefinite duration and a contractual right to extend the term of a fixed term contract for a particular period. Both provisions could restrict competition.
- For the purposes of this judgment it is not necessary for me to decide what length of extension to the term of the Trust contract would constitute a material amendment to it but, in the context of a seven year term, I consider that it is at least arguable that an extension of 3 years - almost 50% of the term - would amount to a material amendment to the contract.
- In these circumstances it seems to me highly probable that those who drafted the Trust contract, which was one that fell within the ambit of the Community procurement legislation, were concerned at the possibility of an extension to the term of the contract being regarded as a material amendment to the scope of the contract and therefore open to challenge. The risk of this could be reduced by permitting extensions for short periods only. This would explain both the six month blocks and, perhaps, the overall limit of three years (although such a long stop could be justified on purely commercial grounds).
- Both as a matter of construction and for the reasons that I have just given, I consider that the Trust contract could only be validly extended by six months at a time, subject to the overall limit of three years. It follows that the extension of 2½ years made by the Change Control Note dated 14 December 2010 was not made in accordance with the terms of the contract.
- This conclusion does not mean that this variation of the Trust contract was unenforceable, but only that it was not a variation made under the contractual machinery. Whether or not it would have been open to challenge under Community law is academic because no-one has made such a challenge.
The duration of the 2003 implied licence
- The issue here is whether the licence lasted only for the minimum term of seven years, or was extended automatically to any further period by which the Trust contract was extended either:
i) pursuant to its own contractual machinery; or
ii) by the mutual agreement of the parties acting outside the contractual machinery.
- The Defendant accepts Noemalife's proposition that the 2003 licence "… would have gone no further than the minimum necessary to enable [FUK] to enter into the Trust contract". In my view this concession is clearly correct: see Robin Ray v Classic FM [1998] FSR 622, at 642, sub-paragraph (8).
- It must follow from this that the duration of the licence must be no less than the minimum term of the Trust contract which, for present purposes, can be taken to be seven years. It must follow also, in my view, that the licence must extend to include any extension of the contract that FUK was contractually obliged to accept. As I have already noted, the Trust could request FUK to extend the contract by six months beyond the seven year term, and that would be a request that FUK could not unreasonably refuse.
- Since:
i) Noemalife had given no indication that the licence for RIS would not continue for a six months' extension to 31 March 2011;
ii) the Trust was apparently prepared to pay a fee for the services for that six month period that was acceptable to FUK; and
iii) FUK was in principle willing and able to provide the services for that six months,
I can see no basis upon which FUK could reasonably have refused the request for a 6 month extension.
- Accordingly, I consider that the original implied licence granted by FUK in 2003 was extended by 6 months to 31 March 2011. This coincides with my earlier conclusion that this would have been the position, by implication of a further licence, if the original licence was not extended to this date.
- If the same procedure had then been followed for a further six month block commencing on 1 April 2011, then the same conclusion would almost certainly have applied. However, that is not what happened.
- Since I have concluded that the 2½ year extension made by the Change Control Note dated 14 December 2010 was not an extension made under the contractual machinery, it was a change that FUK was entitled to refuse, whether reasonably or unreasonably, because schedule H did not apply. FUK was free to do what it liked. For the reasons that I have already given, the implied licence did not extend beyond the period for which FUK was required to provide the services under the terms of the Trust contract. In the absence of a request for a six month extension that complied with the procedure laid down in schedule H, FUK was not required to provide its services beyond 31 March 2011.
- Accordingly, the implied licence granted in 2003 came to an end on 31 March 2011. If FUK was to provide RIS to the Trust beyond that date it needed a further licence to do so from the owner of the rights in RIS. So far as those rights were owned by Noemalife, I have held that no such licence was granted (for want of any mutual intention to create legal relations).
- It is therefore unnecessary to determine the question of whether or not the Defendant should be permitted to challenge Noemalife's title to the copyright in RIS. But in view of the manner in which the action has been conducted to date, I would have been reluctant to allow it to take this point at such a late stage.
The potential claim for infringement of copyright
- The final paragraph of Noemalife's Reply was in the following terms:
"In the alternative to the Claimant's primary claim, therefore, the Defendant became obliged to pay a reasonable licence fee in respect of its continued use and/or sub-licensing of the RIS software to the Trust from or about 11 May 2011 or within a reasonable period thereafter pursuant to the contractual licence that thereafter came into being and/or pursuant to the Claimant's restitutionary entitlement to be paid a reasonable sum representing the value of the benefit received by the Defendant at the Claimant's expense and/or pursuant to a quantum valebat."
- Leaving aside the general rule that any claim, even one made in the alternative, should be made in the Particulars of Claim and not in a Reply, it is unclear precisely what form of claim is being relied on in this paragraph. It is not clear to what expense Noemalife has been put in providing the licence or how there can be an entitlement to compensation on the basis of a quantum valebat when no goods or materials have been supplied. In any event, I have already concluded that prior to 31 March 2011 there was nothing to put a reasonable businessman in the position of the Defendant on notice that he would be expected to pay for the use of RIS after that date. Mr. Moody-Stuart submitted that this was in truth a claim for infringement of copyright and should be advanced as such or not at all. He submitted that it would be contrary to equity to allow Noemalife to sidestep the requirements of a copyright infringement claim (such as proving title, identifying the acts of infringement complained of and the parties carrying out such acts) by relying on an unparticularised restitutionary claim.
- I accept Mr. Moody-Stuart's submission. Indeed, it was to some extent implicitly accepted by Mr. Kulkarni because on the day before the trial he proffered an Amended Reply to plead infringement of copyright.
- In these circumstances it seems to me that it would be wrong in principle to allow a new claim for infringement of copyright to be introduced at this stage. As Mr. Moody-Stuart pointed out, the Defendant would be entitled to put Noemalife to strict proof of its ownership of the copyright and to investigate such matters as whose work product the RIS software represented. These are not issues that can be accommodated within the current hearing.
- I have therefore concluded that I should refuse permission for Mr. Kulkarni's proposed amendment. However, I should make it clear that this refusal is not in itself to operate as a bar to Noemalife's ability to bring a fresh claim for breach of copyright for the period from 1 April 2011 onwards, although it would be open to the Defendant to resist such a claim on any grounds available (including, if appropriate, any arguments based on the principle in Henderson v Henderson).
Conclusion
- For these reasons Noemalife's claim fails and so the action must be dismissed.
- I will if necessary hear counsel on costs and on any other any matters arising out of this judgment.
