June 2009

01 Jun 2009

Disaster Danger! Is Your Software Licence Ready for a Disaster?

The terms of a software licence may seem to be a peripheral concern when contemplating a disaster recovery plan for your business. However, a recent Australian case, Software AG (Australia) Pty v Racing & Wagering Western Australia (the RWWA Case) illustrates the importance of having a clear provisions in a software licence agreement allowing for the creation, use and testing of back-up copies for disaster recovery purposes. Without such provisions, New Zealand's copyright legislation may leave licensees vulnerable to paying further licence and maintenance fees or even a large legal bill. 

Background

Racing & Wagering Western Australia (RWWA) was the licensee of database management software provided by Software AG (SAG) for use in relation to RWWA's betting business. RWWA made a copy of the licensed software for disaster recovery purposes (the DR Copy) and entered into an agreement with a third party to store a copy of the software on its system. The DR Copy was used a total of four times for testing purposes. The licence agreement granted RWWA a non-transferable licence to use the software on a single machine at a designated location. However, RWWA was authorised to copy the software for "archival or emergency restart purposes". 

The Litigation

SAG claimed that the licence agreement did not allow RWWA to install or test the DR Copy and that the use of the DR Copy was not permitted under Australia's copyright legislation, and sought over $3 million in damages and further licence and maintenance fees. At first instance, the Court rejected SAG's claim and held that RWWA's conduct was permitted under the licence agreement and under s 47C of Australia's copyright legislation SAG appealed.

On appeal, the Full Federal Court agreed that the licence permitted the creation, installation and testing of the DR Copy. The Court took into account the commercial purpose of the licence, and observed that it would have been an unreasonable and inconvenient result if RWWA was not able to take the sensible steps of testing the DR Copy to maximise the chance of a restart in an emergency. It was also sensible that a third party with appropriate skills provide this service to RWWA. However, the Court found that RWWA's actions were not permitted under s 47C of Australia's Copyright  Act 1968. Section 47C permits the reproduction of an original copy for the purpose of testing the security of that copy. The Court found that RWWA was testing the functionality of the DR Copy, not testing the security of the original copy. In the Court's view testing security means testing to ascertain its security from unauthorised access or against electronic or other invasion. What would the position be in New Zealand?

New Zealand Law

Section 80(1) of the Copyright Act 1994 permits the making of a back-up copy of software if the copy is made for the sole purpose of preserving the original copy in case it is lost or destroyed, or for use instead of the original to safeguard the original copy. The testing of a back-up copy of software will usually and unavoidably create transient copies of the software, meaning that more than one copy is made. The Copyright (New Technologies) Amendment Act 2008 introduced new provisions that may go some way towards addressing this. A new provision (s 43A) expressly provides that transient copies will not infringe copyright provided such copies are an essential part of a technological process enabling the use of the work, and the transient copies have no independent economic significance. Yet, there is still the question of whether occasional testing for disaster recovery purposes is an 'essential part' of a technological process enabling use of the software.

Section 80B creates a new right for licensees to copy or adapt a computer program if necessary for lawful use. However, a licensee can only rely on this section if a properly functioning and error-free copy of the program is not available within a reasonable time at an ordinary commercial price. There is much uncertainty as to whether copying a computer program for disaster recovery purposes is necessary for the lawful use of the software, however desirable it may be. Further, the licensee would need to overcome the barrier of showing that a copy of the software is not available at an ordinary commercial price. 

In addition, a new s 80C acknowledges that a licensee does not infringe copyright in a software program by testing the functioning of the program to determine the ideas and principles that underlie any element of the program. Again, it is unclear whether the reference to "determine the ideas and principles that underlie any element of the program" in s 80C allows testing for disaster recovery purposes.

Mitigating the Uncertainties

The RWWA case shows that a licence agreement that gives licensees the right to make back-up copies is likely to be interpreted in a commercially sensible way to allow licensees to create a copy, and install and test that copy. However, under New Zealand law, a licensor can explicitly contract out of s 80 and s 80C (but not s 80B). Where a licensor takes this step, if it does not want to incur additional licence fees, a licensee will be forced to argue that creating a back-up copy is necessary for the lawful use of the software under s 80B. It is by no means clear that such an argument would succeed, and the RWWA case suggests any uncertainties may be resolved by resorting to the plain meaning of the section (which may be a strict interpretation). Further, often disaster recovery copies are made or used by third party service providers, rather than the licensee itself. Sections 80, 80B and 80C all only apply to 'lawful users'. Unless a licence specifically provides for it, a licensee will not be able to engage a third party to make or test a back-up copy. 

The plain message is that it is crucial that licensees of software ensure they have appropriate terms in their licence agreement. At a minimum, a licensee should ensure that its licence agreement allows: 

• The creation and testing of disaster recovery copies of software; 
• Third parties to carry out disaster recovery testing; and 
• A right to use, test or store software at different locations (and an option to change the location at which the software can be used or stored).

Authors

Earl Gray

Partner - Intellectual Property

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Karen Ngan

Partner - Corporate & Commercial

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Mobile: +64 21 648 977

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