VLM Holdings Ltd v Ravensworth Digital Services Ltd

A sub-licence does not automatically end when the head licence ends. Its survival depends on the scope of the authority granted by the head licensor, construed from the head licence, the sub-licence and the surrounding circumstances. Where the copyright owner authorises the sub-licence, expressly or impliedly, ordinary agency principles may make the permission effective against the owner despite termination of the intermediate licence.

A term that a licence ends on the licensee’s winding-up should not be implied unless necessary to make the contract work. Materiality of a breach is assessed by considering the breach, its consequences, the explanation, the agreement’s context, and the consequences of termination or continuation.

VLM Holdings owned copyright in software used by estate agents and permitted its subsidiary, VLM (UK) Ltd, to exploit it informally. VLM (UK) granted Spicerhaart a six-year licence, including a business-resilience right to host and use the software independently.

After VLM (UK) became insolvent, Holdings purported to terminate its informal licence and granted Ravensworth an exclusive licence. Ravensworth later discovered the Spicerhaart licence and purported to terminate its agreement with Holdings, alleging that the continuing licence destroyed exclusivity. Holdings relied on Ravensworth’s failure to pay royalties and claimed that its own termination was effective. The issues concerned survival of the Spicerhaart licence, materiality and remediability of any breach.

1. Sub-licence. The Spicerhaart licence survived both the Holdings board resolution terminating VLM (UK)’s informal licence and VLM (UK)’s winding-up. The effect of termination depends on the terms of the original grant, the sub-licence and the scope of the termination. It is not determined automatically by the maxim nemo dat quod non habet ([53]-[61]).
2. Holdings’ directors knew of and approved the Spicerhaart arrangement. Holdings impliedly authorised VLM (UK) to grant a licence capable of continuing despite termination of the informal head licence. Applying ordinary agency principles, and alternatively principles of estoppel, the permission operated as permission from Holdings as well as VLM (UK) ([63]-[71]). Section 106 of the Copyright, Designs and Patents Act 1988 did not affect the issue ([58]).
3. No term should be implied that VLM (UK)’s winding-up terminated the Spicerhaart licence. Such a term was not necessary to make the contract work. The fact that the licence expressly addressed Spicerhaart’s insolvency, but not VLM (UK)’s insolvency, was a reason against implying the proposed term ([73]-[78]).
4. The continuing Spicerhaart licence made the Ravensworth licence non-exclusive and constituted a breach. Applying the materiality checklist drawn from Phoenix Media Ltd v Cobweb Information, Gallagher International Ltd v Tias Enterprises Ltd and Crosstown Music Company v Rive Droite Music, the breach was plainly material. Spicerhaart was a major customer, the software was the means of securing its business, and the licence enabled it to move its printing business elsewhere while continuing to use the software ([79]-[90]).
5. The breach was theoretically capable of remedy, but there was no realistic prospect of Spicerhaart surrendering its licence and it remained unremedied ([91]). Ravensworth was therefore entitled to terminate. The claim failed and the counterclaim succeeded; further argument on relief was reserved ([92]).

not stated in the judgment.