Industry Number Management Services Ltd. v. Objectif Telecommunications Ltd. [2001] NSWSC 97

1.5 This Deed ensures that the Intellectual Property Rights specifically created by the Subcontractor in the context of the Subcontractors Agreement are assigned to INMS or its nominee.

DEFINITIONS & INTERPRETATIONS 2.1 In this Deed:

Development & Services Agreement means the Agreement entered into between INMS and I-Tel on 21 December 1999.

Freephone service means a carriage service in which: (a) the person to whom a number is issued is charged for calls to the number; and (b) the call charge for calls made from a standard telephone service (other than a public mobile telecommunications service) is zero.

INMS Materials means all things, materials and information specifically developed, created or generated by the Subcontractor (whether alone or with I-Tel, its employees or other contractors) as a part of, or to supply, the Services, including without limitation, all inventions, software, databases, models, drawings, plans, artwork, designs, logos, reports, proposals and records.

INMS System means the hardware, the software, the interfaces, the documentation, used by INMS to provide Freephone and Local Rate number portability.

Intellectual Property Rights means all intellectual property rights, including without limitation: (a) patents, copyright, rights in circuit layouts, registered designs, trade marks and the right to have confidential information kept confidential; and (b) any application or right to apply for registration of any of those rights.

Local Rate service means a carriage service: (a) that is capable of voice telephony; (b) that, for a call, involves the translation of the number dialled in making the call to a number that identifies a point of termination for the call; (c) that is not a local service; and (d) for which: (i) the call charge for calls made using a standard telephone service (other than a public mobile telecommunications service) is equal to, or less than, the call charge for local calls; and (ii) responsibility for the residual charge for calls (if any) lies with the person to whom the number is issued.

Services means all the services that the Subcontractor is required to supply to I-Tel under the Subcontractor Agreement.

Subcontractor Agreement means the agreement entered into between I-Tel Pty Limited and Subcontractor on 31 January 2000

2.2 Headings are for ease of reading only and do not affect the interpretation of this Deed.

2.3 A reference in this Deed (except in clauses 1.1 and 1.3) to INMS includes a nominee of INMS.

RELATIONSHIP BETWEEN THE PARTIES 3.1 The Subcontractor: (a) acknowledges that: (i) the Subcontractor is an independent contractor; (ii) this Deed does not create a relationship of employer and employee, principal and agent, joint venture or partnership between INMS or I-Tel and: (A) the Subcontractor; (B) any subcontractor of the Subcontractor; or (C) any of the Subcontractor's, or any subcontractor of the Subcontractor's, employees; (iii) this Deed does not give the Subcontractor, its subcontractors or their employees, authority to bind I-Tel or INMS; and (b) must not, and must ensure its subcontractors and its own and its subcontractors' employees do not, directly or indirectly, assume or create or attempt to assume or create, any obligation on behalf of or in the name of I-Tel or INMS.

3.2 Nothing in this Deed makes INMS liable to the Subcontractor for any payments. I-Tel is responsible for all amounts due, payable or arising under this Deed or any other agreement, including for any claim, dispute, loss, damages or costs.

INTELLECTUAL PROPERTY RIGHTS 4.1 INMS and I-Tel do not claim ownership of any Intellectual Property Rights of the Subcontractor that are not developed, created or generated specifically for I-Tel or INMS or its nominee as part of supplying the Services.

4.2 INMS must own all INMS Materials. Accordingly, the Subcontractor: (a) presently assigns to INMS all present and future title and Intellectual Property Rights in the INMS Materials; and (b) must at its own cost do all things reasonably requested by I-Tel or INMS to enable INMS to assure further the title and rights assigned under clause 4.2(a);

4.3 On request by I-Tel or INMS from time to time, the Subcontractor must supply to I-Tel or INMS a copy of the INMS Materials, in their then current state.

4.4 The Subcontractor grants to INMS a perpetual, irrevocable, royalty free, non-exclusive licence to use, sub-licence and copy the software of the Subcontractor for use in connection with the INMS System.

4.5 The Subcontractor agrees to support and maintain its software during the term of the Development and Services Agreement and any disengagement period under the Development and Services Agreement and following the expiration or termination of the Development and Services Agreement.

4.6 The Subcontractor grants to INMS or its nominee a perpetual, irrevocable, royalty free, non-exclusive licence to use, modify and adapt the software of the Subcontractor but only if the Subcontractor is unwilling or unable to provide support or other services to maintain, modify and adapt the software of the Subcontractor.

4.7 On the expiration or termination of the Development and Services Agreement the Subcontractor will assign to INMS all of the licences granted to I-Tel for the software of the Subcontractor to fulfil I-Tel's obligations under the Development and Services Agreement.

4.8 For the purposes only of the licence granted under clause 4.6, I-Tel will ensure that the Subcontractor will deliver to INMS on Acceptance as that term is defined under the Development and Services Agreement at the election of INMS, either or both an electronic copy or, at I-Tel's cost, a hard copy of the source code of the software of the Subcontractor, and keep it up to date within 30 business days of any material change or as requested by INMS.

4.9 If and when the Subcontractor procures software of third parties (Third Party Software) after the date of this Deed solely for the purposes of providing the Services and that Third Party Software cannot be reasonably procured by INMS upon the expiration or termination of the Development and Services Agreement then the Subcontractor must use its reasonable endeavours to negotiate with the third party a right to assign that Third Party Software to INMS. Unless otherwise agreed between I-Tel and the Subcontractor, I-Tel will bear the cost of the assignment.

4.10 The Subcontractor warrants that: (a) in supplying the Services it will not infringe the Intellectual Property Rights of any person; (b) it has all necessary rights and authorities to make the assignments under clauses 4.2 and 4.7.

4.11 Notwithstanding the provisions of clause 3.2, I-Tel will make any payments for INMS and INMS agrees to reimburse I-Tel to cover the cost referred to in clauses 4.8 and 4.9 in so far as INMS is responsible for payment of those.

EACH PARTY AGREES TO COOPERATE FURTHER Each party must do or cause to be done all acts and things necessary or desirable to qive effect to, and refrain from doing all acts and things that could hinder performance by any party of, this Deed.

THE LAW THAT GOVERNS THIS DEED This Deed is governed by the law applicable in New South Wales and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of that state. 24 On 29 September 2000, I-Tel issued a certificate that a systems test of the INMS System had been completed and that it met the criteria stipulated in the DSA. It appears that that was fully completed and tested on 29 November 2000, which appears to be 13 days after the intended commencement date for the system. 25 During the preparation of the system, Objectif had been delivering releases making amendments or adjustments to the software it was providing for the system. On 30 November 2000 it delivered Releases 37 and 38 and it appears that Release 37 was then installed. 26 On 5 December 2000, I-Tel was placed into voluntary administration. 27 It seems that drafts of the disengagement plan contemplated by the DSA had been prepared, and a further draft was apparently prepared on 8 December 2000. However, no such plan reached the stage of final agreement, and it seems clear that INMS has not sought to put any such plan into operation. 28 On 11 December 2000, Objectif terminated the subcontract. 29 On 12 December 2000, there was an agreement between INMS and Objectif whereby Objectif was to provide temporary support services for the system for $3,000 per day. This agreement continued until 24 December 2000. It was terminated on that day by reason of 48 hours notice being given on 22 December 2000. 30 On 15 December 2000, Objectif delivered Release 39 of the software. Releases 38 and 39 have not yet been installed. 31 About the time that it terminated the agreement for temporary support services to which I have referred, INMS required Objectif to deliver up to it certain source codes and run time codes relating to certain of the software. When Objectif did not do this, these proceedings were commenced on 27 December 2000. 32 At around the end of December 2000 or the beginning of January 2001, Paradigm One Pty Ltd bid for and was granted the right to acquire the benefit of I-Tel's contractual arrangements pursuant to the DSA. 33 On 4 January 2001, an agreement was made between INMS and Paradigm, similar in terms to the DSA, except that this agreement did not include provisions relating to the testing of the INMS System, which had effectively been completed by the 29 November 2000. ISSUES 34 In general terms, INMS contend that the system is not working satisfactorily at present, that INMS and Paradigm cannot do the work necessary to correct faults or "bugs" in the system without the source codes which Objectif refuses to hand over, and that even though the installation of Releases 38 and 39 might improve the performance of the system to a satisfactory level, that would be a major undertaking and they would prefer not to do this unless they have the source codes which would enable them to anticipate and/or correct any problems that might arise from the installation. 35 Objectif says, in effect, that INMS is not entitled to the source codes, that the system will be satisfactory with Releases 38 and 39 installed, and that Objectif is prepared on reasonable terms to give support to the system. 36 There is reference in the various agreements to source codes, and I should say briefly what those codes are. They are codes in a programming language which computer programmers use to write computer programmes, being an English-like language, that can be understood by people as well as being capable of machine manipulation. There has been reference in the evidence also to what are called run-time codes. They are codes for computer programmes which are more directly understood by computers, and which are actually executed by the computers in carrying out their operations. 37 It appears to be common ground that 'INMS System' referred to and defined in the IPA Deed includes both the 'Application Software' defined in the subcontract and also the 'Objectif Software' as defined in the subcontract. It appears also to be common ground that 'INMS Materials' referred to and defined in the IPA Deed includes 'Application Software' as defined in the subcontract but excludes 'Objectif Software' as defined in the subcontract. 38 It seems therefore that clauses 4.2 and 4.3 of the IPA Deed mean that INMS is entitled to delivery up of both source codes and run time codes for the Application Software as defined in the subcontract, and I will proceed on the assumption that this is so. 39 There may be some factual dispute as to whether Objectif has complied with this obligation. It appears that Objectif claims that a certain piece of software called the workflow engine is Objectif Software as defined in the subcontract. The plaintiff may be claiming that the workflow engine is not Objectif Software as defined in the subcontract, but rather is Application Software as defined in the subcontract. If this claim is made, I will need further submissions in order to be able to deal with it. 40 Again, it seems to be common ground that INMS is entitled to delivery up of the run-time codes for the Objectif Software as defined in the subcontract. I am not entirely sure whether it is common ground that Objectif has complied with this. If there is a claim that Objectif has not complied with this, I would need to hear more submissions. 41 The principal matter of dispute that has been debated before me, and about which I have received extensive submissions, is whether INMS is entitled to delivery up of the source codes for the Objectif Software as defined in the subcontract. It is I think common ground that Objectif has not done this. There may be some dispute as to precisely what would be required if it is obliged to do this. I am not in a position to make any determination on that at this stage. If there is a dispute, that too would require further submissions. 42 On that basis, the issue that I will proceed to determine is the one I have identified, namely whether INMS is entitled to delivery up of source codes for the Objectif Software as defined in the subcontract.

DECISION 43 I have been provided with extensive written submissions on this point which I will leave with the papers. I will not repeat those submissions. I will from time to time in these reasons just refer very briefly to points put by Counsel on either side. 44 Mr Archer for the plaintiff submitted that clause 4.4 of the IPA Deed entitled INMS to delivery up and use of the relevant source codes. He submitted that the evidence showed that ongoing satisfactory use of the software provided by Objectif required modification and adaptation to deal with faults or bugs as they arose, and that could not be achieved without the benefit of the relevant source codes. He submitted that the reference to use of Objectif's software in clause 4.4 meant practical and efficacious use, which could only be achieved in that way. 45 In my opinion, clause 4.4 does no more than remove an obstacle that might otherwise exist to using, sublicensing and copying software, arising from Objectif's intellectual property rights in that software. It does no more than make permissible what would otherwise be a breach of those rights. 46 That seems to me to be the natural meaning and effect of the words, and it is confirmed both by the circumstance that the license referred to in clause 4.4 is perpetual, irrevocable and royalty free, and also by the circumstance that the matters on which Mr Archer relied to support the other view are expressly addressed, so it seems to me, in clause 4.6. 47 Mr Archer then submitted that clause 4.6 entitles INMS to be given the means to modify and adapt Objectif's software, and that requires access to the source codes. He relied also on clause 4.8, which requires delivery up of the source codes for Objectif's software for the purposes of the license under clause 4.6. He submitted that, on the evidence, Objectif was unwilling or unable to provide the support or other services referred to in clause 4.6, so that INMS had a present entitlement to use the source codes. He submitted that, even if that was not the case, clause 4.8 required delivery up of the source codes to be held by INMS but only to be used if and when the condition under clause 4.6 was satisfied. 48 Dealing first with that last point, I note that Mr Jacobson for Objectif submitted that clause 4.8 would require delivery up of source codes only if the license in 4.6 was actually activated by reason of the relevant unwillingness or inability of Objectif. Mr Archer submitted that the requirement in clause 4.8 that this take place on acceptance was inconsistent with the position put by Mr Jacobson. 49 I should mention one other argument of Mr Jacobson in relation to clause 4.8, namely that it does not directly impose an obligation on Objectif to deliver the source codes but only an obligation on I-Tel to ensure that the subcontractor, that is Objectif, does this. 50 Dealing first with the point as to whether the obligation under clause 4.8 is activated only if the license under 4.6 is activated, it seems to me relevant to look at similar provisions in the DSA and in the subcontract. Clause 11.7 of the DSA imposes a similar obligation as between I-Tel and INMS, but sets it out in a way which in my opinion makes it clear that the item referred to in clause 11.7(d) is to be delivered up on acceptance at the same time as the items referred to in paragraphs (a), (b), (c) and (e) of that clause, but in the case of subparagraph (d), the item is not to be used in any way unless the license referred to in clause 11.5 is activated. It seems clear that what then is required is that the source code be treated by INMS as confidential and not used in any way at all unless, within the meaning of clause 11.5, I-Tel becomes unwilling or unable to provide relevant services. 51 In the subcontract there are very similar provisions as between Objectif and I-Tel, and similar comments apply. In my opinion, when one reads clause 4.8 of the IPA Deed, having regard to those other provisions contained in agreements that are expressly referred to in the IPA Deed, the interpretation put forward by Mr Archer is the preferable one. 52 The other point raised by Mr Jacobson does raise a curious question about the clause in question. The objective of the IPA Deed appears to have been, at least in part, to impose obligations on Objectif which could be directly enforced by INMS, yet in that particular clause no obligation of Objectif to INMS is directly expressed. However, when regard is had to the circumstance that the relevant source codes were required on acceptance, which in fact occurred in September 2000, to be delivered by Objectif to INMS under the subcontract, and having regard to the circumstance that clause 4.6 of the IPA Deed contemplates that INMS will have the facility to modify and adapt the software, this requiring access to the relevant source codes, it seems to me that clause 4.8 should be considered as imposing an obligation on Objectif. 53 The next question I need to consider is whether clause 4.6 has been activated. Although on the view I have taken, Objectif is required to deliver up copies of the source code, plainly the plaintiff is contemplating making use of that source code, and the question whether the plaintiff is entitled to do so has been fully argued before me. 54 As I understand it, Mr Archer has accepted that the onus of proving activation of clause 4.6 lies on INMS. I think it is clear that this is so. INMS would have no freedom to modify and adapt Objectif's software unless the condition in clause 4.6 is satisfied. I think it is clearly incumbent on INMS then to prove satisfaction of that condition. 55 The question of whether that condition is or is not satisfied depends very much on how one is to understand what is meant by "unwilling or unable to provide support or other services". Mr Archer has submitted that since the provision of such services was to be done under the subcontract, and since that subcontract has been terminated, Objectif must from that circumstance alone be considered as unwilling or unable to provide the services. Alternatively, as I understand it, he submits that unless Objectif is willing and able to provide the services for no remuneration, then it is unwilling or unable to provide the services. 56 Mr Jacobson submits that the Objectif is not unwilling or unable to provide the services so long as it is prepared to negotiate bona fide for terms on which it would provide those services, or alternatively if it is prepared to provide such services at market rates, or alternatively, if it is prepared to provide such services at the rates provided for in the subcontract. 57 In my opinion, these terms of clause 4.6 mesh with the obligation placed on Objectif by clause 4.5. The wording is not quite the same. Clause 4.5 refers to supporting and maintaining the software, whereas clause 4.6 refers to providing support or other services to maintain, modify and adapt the software. However, in my opinion there is no relevant difference in meaning. It seems clear that supporting and maintaining software does involve modifying and adapting it to deal with bugs; and on the other hand, I do not read "modify and adapt" in clause 4.6 as requiring any more than making such modifications and adaptations as are appropriate to fulfil an obligation to support and maintain. 58 Mr Archer submitted that clause 4.5, when read with clause 3.2 of the IPA Deed, made it clear that Objectif's obligation under clause 4.5 to support and maintain was not conditional on any payment to be made to it by INMS, so that in circumstances where it was not now going to receive payment from I-Tel, Objectif had to provide these services for no cost. 59 In my opinion, this matter has to be considered in the light of the overall contractual situation as it existed when the IPA Deed was made, and also in the light of subsequent events. 60 Under clause 3.3 of the subcontract, Objectif promised I-Tel to perform these same services during the term, that is until 16 November 2005 or earlier determination, for the rates set out in schedule 4, relevantly about $15,000 a month. Under clause 22.3 of the subcontract Objectif promised I-Tel to perform disengagement services during the disengagement period for the rates provided for additional services in schedule 4. In clause 11.2 of the subcontract, Objectif promised I-Tel to perform these services after the disengagement period "on terms to be mutually agreed with INMS or its nominee". 61 I note incidentally that clause 4.5 of the draft IPA Deed, which is schedule 6 to the subcontract, also contemplates that services performed after the disengagement period would be "on terms to be mutually agreed with INMS". There is no evidence before me as to why the wording changed in the final version of clause 4.5. 62 That consideration of terms of the subcontract shows that, under the subcontract, Objectif was obliged to do what clause 4.5 of the IPA Deed requires in return for payments by I-Tel, or after disengagement on terms mutually agreed with INMS. It is also clear from the terms of the subcontract and the DSA that these services to be provided by Objectif were part of the Bureau Services to be provided by I-Tel to INMS, for which INMS was to pay I-Tel about $120,000 per month. Presumably the $15,000 per month for Objectif was to be funded from that $120,000 per month. 63 The DSA provides that on the termination of that agreement there should be a disengagement plan. However, as I have said, no such plan was ever finalised or agreed, and INMS chose not to proceed by way of a disengagement plan, but rather to enter into a new contract with Paradigm to provide essentially the same services as I-Tel was to provide. The agreement with Paradigm, which is in evidence, indicates that the services to be provided by Paradigm include the support for the system that was to be provided by Objectif and which Objectif essentially agrees to provide in clause 4.5 of the IPA Deed. 64 In my opinion, if Objectif were indeed obliged by clause 4.5 of the IPA Deed to perform these services for nothing, that would mean that it was obliged for no payment to perform part of what Paradigm is to perform under its contract with INMS for a payment to Paradigm, the amount of which is not disclosed in the evidence but which presumably bears some relationship to the $120,000 per month provided in the I-Tel contract. 65 In my opinion, for Objectif to be obliged by clause 4.5 to do this would involve some kind of unjust enrichment either for INMS or for Paradigm or both. INMS is seeking equitable relief in these proceedings, and in my opinion in seeking that relief it must do equity. In my opinion, in seeking, in substance, to enforce an obligation under clause 4.5, INMS should do equity by offering, in return for the services required by clause 4.5, the same payment to Objectif as would have been made by I-Tel under the subcontract. 66 Then, applying that approach to the construction and application of clause 4.6 in the present circumstances, it seems to me that, if such an offer is made and Objectif is not then willing and able to provide the services upon those terms, then the condition in clause 4.6 would be triggered and INMS would be free to use the source codes; but otherwise it would not. 67 In the light of those reasons, it seems to me that INMS is entitled to a declaration and possibly an order giving effect to the view I have taken of clause 4.8 of the IPA Deed. However, I think Objectif is entitled to some declaration or order which will ensure that the software in question is only used if the condition in clause 4.6 is in fact satisfied. 68 I will stand the matter over to 9.30 next Wednesday.

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