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Brisbane
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The Full Federal Court has confirmed the first instance decision of McKerracher J in Software AG (Australia) Pty Ltd v Racing & Wagering Western Australia [2009] FCAFC 36, finding that Racing & Wagering WA was contractually entitled to create, install remotely, maintain and test a disaster recovery copy of licensed Software AG software.
The decision is important as it provides guidance on the extent to which a licensee is permitted to use licensed software, in the context of a standard software licence. It also considers the scope of one of the exclusions to infringement of copyright in computer programs under the Copyright Act.
Impact of the decision
The Full Court’s decision makes the following important points:
- if a licence allows the creation of a copy of software for disaster recovery purposes, it would be unreasonable and inconvenient not to allow the licensee to install and test that copy, and
- the statutory exception to infringement of copyright programs provided by s47F of the Copyright Act only protects testing the security of original licensed program/s, not back-ups or copies.
Background
Since 1980, Racing & Wagering WA (and its predecessors) licensed proprietary software for its mainframe computer from Software AG.
The licence agreement granted Racing & Wagering WA a licence to use the software on a single machine at a designated location, and authorised Racing & Wagering WA to copy the system for “archival or emergency restart purposes”.
The software was installed at Racing & Wagering WA’s head office. Racing & Wagering WA subsequently made a disaster recovery (DR) copy of the software, which was stored offsite on a system hosted and maintained by a third party. In the event of a disaster affecting its head office systems, Racing & Wagering WA could quickly activate the off-site system, including the DR copy. The DR copy had only been used four times, for the purpose of testing.
Software AG sought $3.2 million in additional licence fees and maintenance fees from Racing & Wagering WA to cover the DR copy. It claimed the existing licence agreement between the parties did not allow for the installation or testing of an offsite DR copy.
First instance decision
Racing & Wagering WA instituted Federal Court proceedings seeking a declaration that it was not in breach of the licence agreement, and that its use of the DR copy was permitted by the Copyright Act. Software AG cross-claimed for the money it claimed it should have received by way of additional licence and maintenance fees.
At first instance, Justice McKerracher found in favour of Racing & Wagering Western Australia (see [2008] FCA 1332). He held that the licence permitted the creation of the DR copy, and that the off-site installation and storage of the DR copy was not “use” of the software requiring separate authorisation or licence (nor the payment of separate licence or maintenance fees), because it was not being used in the ordinary course of Racing & Wagering WA’s business. He also held that Racing & Wagering WA was entitled both under the licence agreement, and pursuant to the Copyright Act, to test the off-site DR copy.
Full Court’s decision
On appeal, the Full Court was asked by Software AG to revisit the trial judge’s decision that Racing & Wagering WA was entitled (either contractually or under the Copyright Act) to install the DR copy onto a mainframe computer at the DR Site in order to conduct disaster recovery testing.
Software AG argued that while the licence authorised the making of the DR copy, it did not allow for it to be installed or used. The Full Court agreed with Racing & Wagering WA’s submission that the licence had to be given a sensible commercial meaning. It would be unreasonable and inconvenient if Racing & Wagering WA was not permitted to test the DR copy in order to ensure that it could be used for the purpose of the authorisation granted by the licence. Accordingly, the Full Court confirmed the trial judge’s interpretation of the licence agreement.
The Full Court did however find that McKerracher J had erred in concluding that Racing & Wagering WA was also entitled to test the DR copy pursuant to section 47F of the Copyright Act 1968 (Cwth). The Court held that s47F permits reproduction of the original (licensed) copy of the software for the purpose of testing the security of that original copy only. Testing the DR copy to ensure that it will enable the primary system to be restored in a disaster does not fall within the limited s47F exception.