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Proper termination of the Software License Agreement is not always possible

If you wish to terminate the software license agreement, you will review the agreed termination terms and send a proper notice. The Dutch court took a different view in a recent proceeding.



Issue

The Licensor has concluded a software license agreement with the Licensee for software enabling the development of its own software, including the integration of other software products, and to further provide such software to third parties.

The Licensee took advantage of this option and produced specialized business management software. The software was subsequently provided to more than 100 municipalities and towns under a similar software license agreement.

There was a disagreement between the Licensor and the Licensee on the new remuneration, when the Licensor took the view that his remuneration should also take into account the remuneration of the Licensee from those municipalities and towns.

Since the parties did not agree, the Licensor announced that it was forced to properly terminate the software license agreement what he also did. At the same time, he also added that he is ready to continue the contractual relationship if an agreement on a new remuneration is reached.

The Licensee therefore brought an action before a Netherlands court.


Preliminary injunction

The competent court issued a preliminary injunction according to which the Licensor must continue to perform the software license agreement even a proper notice was served. As a reason, the court stated that it was possible that the termination would eventually be declared invalid for being contrary to the principles of proportionality and fairness. The court also said that terminating a software license agreement would be too strict when more than 100 municipalities and towns use the software to perform their legal tasks.

The fact that the termination of the software license agreement would not mean an immediate shutdown of the software did not change anything. According to the court, municipalities and towns would not have legal software due to the absence of a license. Until the final decision of the court on the merits of the case, the Licensor must comply with the software license agreement.

If you wish to terminate a software license agreement or other similar agreement in the field of ICT, it is not enough to review the existing text of such agreement. It is clear from this case that all aspects (e.g. including the interests of third parties, especially when public bodies are involved) need to be taken into account and the right approach should be chosen.

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