When a customer got into a dispute with the software vendor about the license fees, the resulting case reads like a cautionary tale about software licensing. In ProPurchaser.com Inc. v. Wifidelity Inc., 2017 ONSC 7307 (CanLII), the court reviewed a dispute about a Software License Agreement. The customer, ProPurchaser, signed a license agreement with Wifidelity for the license of certain custom software at a rate of $6,000 per month. Over time, this fee increased and at the time the dispute commenced in 2017, ProPurchaser was paying a monthly fee of about $42,000. The customer paid this fee, but apparently had no way of telling what it was paying for.
Detailed invoices were never submitted and so it was impossible to tell objectively how this fee should be broken down between license fees, support fees, expenses, or commissions. The customer had formed the impression that this increase was due to support fees at an hourly rate, since the original license of $6,000 per month remained in effect and had never been amended in writing.
The software vendor, on the other hand, gave evidence that the license fee had increased under a verbal agreement between the parties. “Based on the conflicting evidence,” the court mused, “it seems that the parties, much like ships passing on a foggy night, proceeded for several years unaware of the other’s different understanding about what was being charged by Wifidelity and paid for by ProPurchaser.”
Under the Software License, either party was entitled to terminate without cause, by providing 14 days’ written notice to the other party. Eventually, the software vendor, Wifidelity, exercised the right of termination, triggering the lawsuit. ProPurchaser immediately sought a court order preserving the status quo, to prevent the software vendor from shutting down the software. In August, the court granted that order for a period of six months, subject to continuing payment of the $42,000 monthly license fee by ProPurchaser. In November, ProPurchaser again approached the court, this time for an order extending the order until trial. Such an order could, in effect, be tantamount to a final resolution of the dispute, forcing the license to remain in effect. However, this would fly in the face of the clear terms of the agreement, which permitted for termination on 14 days’ notice.
While the dispute has yet to go to trial, there are some interesting lessons for software vendors and licensees:
– From a legal perspective, in order to succeed in its injunction application, ProPurchaser had to convince the court that termination of the license caused “irreparable harm”. However, the agreement itself allowed each party to terminate for no reason on very short notice, making it difficult to argue that this outcome – one that both sides had agreed to – would cause harm. If it caused so much harm, why did ProPurchaser agree to it in the first place? And in any event, any harm was compensable in damages and therefore not “irreparable”.
– That was a problem for the customer, when making a fairly narrow legal argument, but it’s also a problem from a business perspective. If the licensed software supports mission-critical functions within the licensee’s business, then make sure it’s not terminable for convenience by the software vendor.
– If changes are made to the software license agreement, particularly regarding the essential business terms like license fees and support fees, make sure these amendments are captured in writing, through a revised pricing schedule, or detailed invoicing that has been accepted by both sides.