Post mortem of black box tracking product licence reveals no ambiguity
Computer software – exclusive licence – construction – ambiguity in payment provisions – extrinsic evidence – commercial sensibility.
Black Box Control Pty Ltd v TerraVision Pty Ltd  WASCA 219
Black Box Control Pty Ltd (Black Box) provides various integrated land based vehicle and mobile asset tracking services. To provide a real time tracking and reporting service, Black Box’s service must incorporate various components, including hardware, firmware, a data centre and reporting modules.
In June 2006, Black Box entered into an agreement (Agreement) with TerraVision Pty Ltd (TerraVision) pursuant to which Black Box was granted an exclusive licence to use TerraVision software, hardware and services when providing Black Box’s services to its customers. The Agreement was based on earlier draft agreements, but changes made along the way resulted in some internal contradictions and circular definitions, which the trial judge observed gave rise to some difficulties in interpretation.
The Agreement provided that Black Box pay a “Price” (set out in a defined “Price List”) whenever Black Box entered into a “Sale Transaction” that included the provision of TerraVision hardware (clause 10.1), software (clause 10.2) or a TerraVision service (clause 10.3). Critically, clause 10.4 also provided that for a “sale or service” (as opposed to a “Sale Transaction”) that did not include providing a TerraVision hardware product, software or service, Black Box was still obliged to pay the Price in the Price List. The relevant entry in the Price List was “15% of gross profit” for “Black Box services not incorporating a TerraVision Product”.
The dispute between the parties ultimately centred on what precisely was the Price to be paid by Black Box under clause 10. Specifically, by reference to what transactions, or components of transactions, was Black Box obliged to pay the Price? That issue was complicated by the fact that by the time the Agreement was executed, Black Box no longer used TerraVision hardware as part of its solution, nor did it on-sell TerraVision services. Further, not all services offered by Black Box necessarily required the use of TerraVision products. Alternatively, individual components (such as certain in-vehicle units) could be separately delivered and invoiced, even though such components were useless to the customer without the remainder of the integrated solution.
At first instance, the trial judge held that in light of the background circumstances when the Agreement was executed, and in order to make sense of the ambiguities present in its drafting, the terms “Sale Transaction”, “sale or service” and “transaction” carried relatively broad meanings informed by Black Box’s standard form of transaction with its customers at the time. The consequence was that clause 10.4 would extend to “the whole of a transaction or series of connected transactions between Black Box and its customer by which Black Box provides the whole or a part of an integrated land-based vehicle and mobile asset tracking services solution including associated services”, and under clause 10 generally Black Box was obliged to pay the relevant Price for any or all of “the transactions or series of connected transactions between Black Box and a customer by which Black Box provides the whole or part of an integrated land-based vehicle and mobile asset tracking services solution”. The trial judge noted that given the exclusive nature of the licence granted to Black Box, the only benefit TerraVision can gain from use of its products was the Price payable under the Agreement, and TerraVision could not itself sell its products if Black Box used a third party’s software (or other products otherwise available from TerraVision).
Black Box appealed those findings. Black Box accepted that the Agreement was ambiguous such that it was legitimate to adduce extrinsic evidence as an aid to construction, but such material should not take primacy over the text of the Agreement itself. It submitted that the proper construction of clause 10 was that calculation of the Price in the various situations was by reference to just that part of a Sale Transaction that relates to hardware, software or a service, not the transaction as a whole. Black Box submitted that TerraVision was not entitled to be paid for (for example) third party hardware provided to a customer, or for services not specifically supported by TerraVision software.
The Court of Appeal (Newnes and Murphy JJA, Beech J) disagreed. There was no cause to read down the generality of terms such as “product or service”, nor to read into clause 10 limitations of the nature urged upon the Court by Black Box. Nor would it be commercially sensible for the Price to be affected by the manner in which Black Box happened to invoice its customers (that is, for individual components or the complete solution). In contrast, there was an “evident commercial rationale” for payment to TerraVision of 15% of Black Box’s revenue on its provision to a customer of an integrated tracking services solution, because TerraVision’s software was integral to the whole of that solution – a “mutually known fact” when the Agreement was executed.
So far as clause 10.4 (dealing with Black Box services that do not include a TerraVision product), the Court’s reasoning was similar to that of the trial judge. The purpose of clause 10.4 was to address the risk to TerraVision that Black Box might develop or obtain alternative software in circumstances where the exclusivity of the licence in the Agreement would preclude TerraVision from exploiting its software itself. The Court held that, “Given this purpose, the court should be slow to read into cl 10.4 and the associated second item of the Price List words of limitation that are not found in the text”.
In the event, Black Box’s appeal was allowed in part, but the Court held that the correct construction of clause 10 and its subclauses was broader than that found by the trial judge, and should extend beyond the form of transactions Black Box entered into at the time with its customers.
The case highlights, once again, the need for licensees and licensors to pay particular attention to the manner in which key licensing provisions are drafted. The authors suggest that in information technology licensing agreements, the parties may be well served by setting out examples of the manner in which payments are to be calculated and paid.