Actuate Canada Corporation v Symcor Services Inc, 2016 ONCA 217
Parties entering licensing agreements should try to use explicitly clear language to define the scope of such agreements. This is particularly important when conflicts arise between parties, as any ambiguity in the language will be resolved by a motions judge, who’s decision is then owed deference in future appeals. In this case, the Ontario Court of Appeal (“ONCA”) accepted the motion judge’s interpretation of the licensing agreement at issue, however, it set aside the dismissal of Symcor Services Inc.’s (“Symcor”) defence of estoppel and referred this issue, along with a limitation period defence and assessment of damages, to trial. [10]
The Licence, Services and Support Agreement
In 2001, Xenos Partnership IP’s (“Xenos IP”) software, referred to as “d2e Software”, was licensed to Symcor when the two parties signed a Licence, Services and Support Agreement (the “LSSA”). [2] In 2012, Xenos IP commenced an action against Symcor, alleging copyright infringement. Xenos IP’s interest in this action and its copyright were transferred to Actuate Canada Corporation (together “Xenos”). Xenos asserted that Symcor had violated the LSSA in three ways:
- By using the d2e Software on more than one production server and more than two non-production servers;
- By employing the d2e Software on operating systems other than IBM’s AIX operating system; and
- By using the d2e Software in association with database systems other than IBM’s CMOD system. [2]
Symcor admitted to these assertions, but claimed that the LSSA did not restrict these activities. [3] Symcor also raised the defences of estoppel and the expiry of limitation periods and argued that Xenos consented to Symcor’s activities. [3]
Xenos moved for summary judgment on the issues of liability and requested an order directing a reference or trial on damages. [4] The motion judge found that the LSSA did not restrict Symcor’s use of the software to one server per licence. However, he determined that the LSSA was breached by Symcor’s use of the software on operating systems other than AIX and with database systems other than CMOD and concluded that these breaches constituted copyright infringement. [5] Symcor’s defence of estoppel was rejected and the limitation period defence was directed to proceed as a component of the trial on damages. [6]
Xenos appealed and Symcor cross-appealed the motion judge’s decision. The issues to be determined by the ONCA were:
- Did the motion judge err in interpreting the LSSA as not restricting Symcor’s use of the d2e Software to one server per licence?
- Did the motion judge err in interpreting the LSSA as restricting Symcor’s use of the d2e Software to the AIX operating system?
- Did the motion judge err in rejecting Symcor’s estoppel defence and not referring this issue to trial with the limitation period and damages issues?
- Did the motion judge err in declining to award Xenos its costs of the completed liability phase of the action and in deferring the award of costs of the motion until after the damages trial?
- Did the motion judge err in fixing costs in favour of Xenos without regard to the divided success of the motion? [34]
1. No “One Server Per Licence” Restriction: Affirmed
The motion judge’s decision in interpreting the contract was entitled to deference and required a palpable and overriding error to warrant appellate interference. [39] The motion judge considered the broad terms of the LSSA and its schedules and found that it contained terms that were inconsistent with any restriction on the number of servers that could be deployed. [51] The ONCA noted that the motion judge made a misstatement in his analysis, however it did not reveal a misapprehension of the evidence and was not significant. [63] It was further noted that the motion judge was not required to determine a reason for why more than one licence was acquired by Symcor before rejecting Xenos’ “one licence equals one server” argument. [68] The court concluded that there was no extricable error of law or palpable and overriding error of fact in the motion judge’s decision that the LSSA did not contain a server restriction. [69]
2. AIX Operating Restriction: Affirmed
The ONCA found that the Product Schedules of the LSSA are an integral part of the agreement that define or specify the software to be licensed and the motion judge properly construed its terms to limit Symcor’s rights to use on the AIX platform. [76] Additionally, the Disabling Event provisions of the LSSA include using the d2e Software on hardware other than AIX. [80] While Symcor argued this means use on another operating system is merely a Disabling Event rather than a breach, the ONCA found the provision supports the argument that the software was licensed for use with particular hardware. [81]
3. Estoppel Defence: Issue Referred to Trial
The motion judge stated in his decision there was no evidence that anyone at Xenos with authority over licensing matters knew of Symcor’s breaches prior to 2011. [89] The ONCA, however, found that there was in fact evidence of Symcor’s breach in the record of communications that included responsible account managers of Xenos in 2005 and 2007. [99] It was determined that this evidence was material and amounted to a palpable and overriding error on behalf of the motion judge. [101] The ONCA was, therefore, unable to accept the motion judge’s rejection of Symcor’s estoppel defence and referred the issue, along with the limitation defence and determination of damages, to trial. [103]
4 & 5. Costs Order Set Aside
The motion judge found Xenos to be entitled to partial indemnity costs of $280,000, but should not be awarded any costs until determination of the damages trial was complete. [105] As Symcor had made an offer to settle the action, they had a right under rule 49.10(2) of the Rules of Civil Procedure to seek a cost consequences benefit, which would be determined at the damages trial. [105] The ONCA found that there was no error in the motion judge’s approach to issuing such costs, as it permitted the necessary flexibility in the event Xenos was eventually awarded lesser damages than what was provided for in Symcor’s offer. [108]
Symcor argued that Xenos’ costs should have been reduced due to the divided success of the motion. The ONCA denied that argument, however, it set aside the costs order in light of Symcor’s partial success on its cross-appeal. [110]