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[2015] ZAGPPHC 557
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Quill Associates (Pty) Ltd v Randfontein Local Municipality and Another (36264/2013, 36265/2013) [2015] ZAGPPHC 557 (31 July 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
(GAUTENG DIVISION,
PRETORIA)
DATE: 31 JULY 2015
Case Number: 36264/2013
and 36265/2013
In the matter between:
QUILL ASSOCIATES (PTY)
LTD
.............................................................................................
Plaintiff
And
RANDFONTEIN LOCAL
MUNICIPALITY
...............................................................
First
Defendant
WESTONARIA LOCAL
MUNICIPALITY
.............................................................
Second
Defendant
JUDGMENT
POTTERILL J
[1] The plaintiff is claiming that the
defendants infringed the copyright of the plaintiff in the computer
software program known
as BIQ. The plaintiff’s relief thus
arises from the provisions of the Copyright Act, Act 98 of 1978
(hereinafter referred
to as “the Act”) and was formulated
as follows:
1.1 The plaintiff claimed the following
interdictory relief:
1.1.1 That both the defendants be
interdicted and directed to remove from their computer system all
components of the computer program
known as BIQ.
1.1.2 That the plaintiff be mandated to
inspect the computer system of each of the defendants after the
removal of the computer
program BIQ to confirm that such computer
program has indeed been completely removed.
1.1.3 That both the defendants be
interdicted and prevented from again installing and/or using the
computer program known as BIQ,
unless by prior written agreement with
the plaintiff or its successors in title.
1.1.4 That the plaintiff also be
mandated to within twelve (12) months after his first inspection at
each of the defendants to conduct
a further inspection to confirm
that such computer programs have not been reinstalled and/or are in
use.
1.2 The plaintiff also sought the
following monetary relief:
1.2.1 That the first defendant be
ordered to pay to the plaintiff the amount of R4 731 000.00.
Furthermore a monthly rate of R57
000.00 from the time from date of
summons until the date that the defendant ceases to infringe on the
plaintiff’s copyright.
1.2.2 That the second defendant be
ordered to pay the amount of R5 130 000.00. Furthermore a monthly
rate of R57 000.00 from the
time from date of summons until the date
the defendant ceases to infringe on the plaintiff’s copyright.
1.2.3 Interest on the said amounts at a
rate of 15,5 % per annum ad tempore more.
[2] In the summons the plaintiff also
had claims for payments of certain invoices. These claims were
however settled between the
parties. The only order made therein by
agreement between the parties was that Westonaria Local Municipality
is ordered to pay
interest on that settled claim from 29 January
2015, as well as the costs.
[3] The defendants raised the following
defences:
3.1 That they are entitled to use the
BIQ under a licensed extension concluded between the plaintiff and
the West Rand District
Municipality (hereinafter referred to as “the
WRDM”).
3.2 The WRDM is, on termination of the
agreement with the plaintiff, entitled to continue using the version
of BIQ installed on
its server for as long as it pleases. This fact:
i.e. WRDM ad infinitum usage was by extension also conferred onto
the defendants.
The termination of the WRDM agreement did not bar
the defendants from using the BIQ program.
3.3 The defendants are entitled to use
BIQ by virtue of the written agreement between WRDM and the plaintiff
which resulted in one
agreement and one licence of which the terms
are extended to include the defendants.
3.4 The defendants are accordingly not
liable for payment for the BIQ program or for any maintenance/licence
fees.
[4] The following common cause facts
set out the background to the matter:
4.1 During the trial the defendants
admitted that the plaintiff is a company and has locus standi.
4.2 In 1998 the plaintiff was awarded a
tender by Die Westelike Gauteng Diensteraad (hereinafter referred to
as “the WGDR”).
In terms of this tender the plaintiff
and the WGDR entered into a written agreement whereby the WGDR bought
the BIQ computer software
program (“BIQ”) which included
all enhancements and improvements. The WGDR requested that the
purchase price of R240
000.00 be divided into two equal amounts of
R120 000.00 each due to financial constraints.
4.3 A further term of the agreement was
that the WGDR was entitled to the necessary support and maintenance
for one year after commissioning
of BIQ.
4.4 After one year after commissioning
the WGDR chose to enter into a support and maintenance agreement.
The WGDR elected to enter
into such agreement orally for the support
and maintenance services renewable in March of every year.
4.5 The WGDR in 2004 underwent a name
change to the West Rand District Municipality (“WRDM”).
Another contract [“the
contract”] had to be signed and
inter alia this contract had the following relevant terms and
conditions:
4.5.1 “7. Licence
7.1 Quill grants the commission and the
Council accepts from Quill, with effect from the date of
commissioning, a non-exclusive,
irrevocable personal and
non-transferrable licence for the System. This licence entitles the
Council to
7.1.1 use the System on the computer;
7.1.2 make and retain only one copy of
the System in machine readable form for back-up purposes; and
7.1.3 use the System documentation in
support of the Council’s needs as regards the System.”
“8.2.2 Since Council bought BIQ,
Council may continue to use the version of BIQ installed on Council’s
server for as
long as Council may wish to do so.”
“9. Proprietary rights
9.1 Title to all intellectual property
rights, including patent, trademark, copyright and trade secret
rights in and to the System
and associated documentation on all
copies thereof is and shall continue to be the property of Quill.”
“10.1 Following the expiry of the
warranty period, the Council may enter into a software systems
support and maintenance agreement
with Quill.
10.2 In terms of this agreement,
support and maintenance of BIQ municipal management system will be
provided at a cost of 15 % of
the purchase price of the System per
annum, escalating yearly by the consumer price index as published by
the Reserve Bank.”
4.6 The WRDM did not need to pay for
the BIQ system again. They did however proceed to pay the licence
fees as they had done in
the previous years.
4.7 The plaintiff was informed by the
WRDM that the South African Government advised that resources and
services within a district
were to be shared and to achieve this the
future plan were to unite the towns in the West Rand into a Uni-City.
The WGDR informed
the plaintiff that when the Uni-City has been
formed the plaintiff’s software computer program would be the
system of choice
for this Uni-City. The respondent therefore gave
permission that the Westonaria Local Municipality [“Westonaria”]
could utilise this computer software program in terms of an extended
licence.
4.8 An implementation plan to achieve
this was forwarded to a Mr. Dawie Viljoen of Westonaria as well as
the licence fee payable
under this extended licence. In January of
each year the maintenance and support agreement in respect of
Westonaria had to be renewed.
The Telkom cables were stolen
rendering Westonaria unable to utilise the BIQ program. As this was
very disruptive both Westonaria
and the WRMD requested that a second
hand server be bought for Westonaria to run the BIQ system on this
server and so divorce them
from WRDM’s server. Services
provided by WRDM declined to such an extent that Westonaria proceeded
to purchase a new server
to replace the second hand one purchased by
them previously. Westonaria then utilised BIQ on this new server.
4.9 Randfontein Local Municipality
[“Randfontein”] also approached the plaintiff to
implement the BIQ system on the
same basis as Westonaria. The WRDM
and Randfontein were situated on adjacent sites in Randfontein.
Randfontein and WRDM installed
an optic fibre cable underneath the
public road separating the two properties to provide communication
facilities to WRDM’s
server. Randfontein thus also obtained an
extended licence with the consent of the plaintiff. Later
Randfontein informed the
plaintiff that they did not trust WRDM
anymore and asked whether they could install BIQ on a training
server. The plaintiff agreed
thereto.
4.10 The relationship between the
plaintiff, WRDM and Westonaria and Randfontein existed from 1998
until July 2011.
4.11 On 29 July 2011 the plaintiff
received a letter from the WRDM with the following heading:
“WEST RAND DISTRICT MUNICIPALITY
(WRDM): DETERMINATION OF TERMINATION DATE OF CONTRACT FOR THE
ENHANCEMENTS AND APPROVEMENTS
OF THE BIQ SOFTWARE PROGRAMS”
In this letter the WRDM avers that
there was no specific termination date provided and that the contract
continued on a month to
month basis. The plaintiff was given notice
of termination as from 31 August 2012.
4.12 The plaintiff reacted by sending a
letter wherein the three different scenarios pertaining to WRDM,
Westonaria and Randfontein
was set out. Pertaining to WRDM the
plaintiff informed WRDM that the termination date is in fact 29
February 2012. If any support
was needed from the plaintiff then a
monthly licence agreement will have to replace the contract as from
29 February 2012. After
29 February 2012 plaintiff may continue to
use BIQ without any support.
4.13 Pertaining to Westonaria the
plaintiff set out that since the contract was cancelled by WRDM, the
arrangement could no longer
be allowed and Westonaria should be
informed that they should now purchase their own copy of BIQ. The
termination date for Westonaria
was also 29 February 2012.
4.14 Pertaining to Randfontein it was
stated that as was the case with Westonaria WRDM purchased an
extension to the BIQ licence
to accommodate Randfontein. Since WRDM
cancelled the contract the plaintiff could no longer allow this
arrangement and that Randfontein
would also have to purchase a copy
of the BIQ program. Randfontein’s termination date was also 29
February 2012.
4.15 The plaintiff then attended a
meeting with the representatives of WRDM on 19 December 2011. The
plaintiff was handed a copy
of a letter dated 8 December 2012. In
this letter it was recorded that the agreement between WRDM and the
plaintiff be extended
for a period of 24 months, effective from 1
March 2012 to 28 February 2014. The agreement was to be on the same
terms and conditions
that were inclusive of the “four”
[sic] local municipalities and that WRDM and its constituent local
municipalities
enter into a service level agreement with the
plaintiff. At this meeting the plaintiff was also requested to
submit quotes and
conditions for a new contract that had to come into
existence from 1 March 2012.
4.16 On 21 December 2011 the plaintiff
submitted its new proposal. Under option 1 the situation was
sketched in view of the cancellation
letter; so option 1 set out
cancellation without any support. Options 2 and 3 related to the
conclusion of a new contract wherein
WRDM used BIQ with support and
would then pay a licence fee.
4.17 On 10 February 2012 the WRDM
submitted a counter-proposal. Once again this letter emanated from
the Municipal Manager, Mr.
Mokoena.
4.18 The plaintiff rejected this
counter-offer. WRDM was also informed that there were less than 2
weeks remaining to 29 February
2012 on which date BIQ would be
disabled at Randfontein and Westonaria should the councils not accept
the plaintiff’s terms
and conditions in writing.
4.19 The WRDM, Westonaria and
Randfontein then proceeded to launch an urgent application against
the plaintiff wherein they sought
an order that the plaintiff be
interdicted and prohibited from disabling, discontinuing,
incapacitating the BIQ software system
or in any way or manner
whatsoever disabling, hindering or preventing the continued
functioning of the BIQ software system at operation
at these
municipalities. The plaintiff was also to be ordered to continue to
provide support services in respect of the BIQ software
system. The
urgent application was never finalised and by agreement between the
parties the plaintiff would render the three municipalities
services
until the end of August 2012.
4.20 Despite further proposals and
counter-proposals no new agreements between the plaintiff and
defendants were concluded.
4.21 The plaintiff had built into the
BIQ software program a function that the program could be disabled
when the licence expires.
This entails that the data base structure
remains, but that all the executional programs are removed and the
program becomes dysfunctional.
This function is an inherent portion
of the program through its licence key and the program does the
disabling itself; one need
not go to the premise to disable the
program. The date for the disabling at Westonaria was the 1st of
September 2012. Randfontein’s
licence key was February 2013
and that is when it should have become dysfunctional. WRDM had no
self-destruction date as the contract
was open-ended. The programs
were accordingly disabled at Westonaria and Randfontein.
4.22 Pursuant to a request to inspect
the premises, Mr. Van Heerden inspected Randfontein and Westonaria to
ascertain whether the
BIQ system was still in use at these two
municipalities. In Randfontein there were four usernames with over a
million financial
postings. In Westonaria there was one username
still utilising the program, this belonged to a “Betsie”
and Betsie’s
access could be used by all the staff.
4.23 The contents of exhibit “B”,
a report by Comperio Forensic Services (Pty) Ltd (“Comperio”)
was admitted
by the defendants as evidence before this court. In
terms of this report Comperio was mandated during August 2012 by the
Municipal
Manager of Westonaria to assist in securing the BIQ system
for future reference and to manage the risk within the municipality.
Westonaria further extended the mandate of Comperio on 31 August 2012
through a communique from the office of the Municipal Manager
for
Comperio to secure the AS400 Environment and BIQ applications to
enable the municipality to access historical financial data.
It was
agreed between Westonaria and Comperio that they would follow the
following procedures to comply with their mandate:
4.23.1 They planned the migration of
the data from the old AS400 to a Power 720 series machine;
4.23.2 Obtained a serial number of the
machines to understand the configurations of the machines and also
the inventory list from
the IBM services;
4.23.3 Designed the solution for the
virtual environment;
4.23.4 Performed a system save 21 and
23 before the implementation of the designed solution;
4.23.5 Performed a system restore on
the new virtualised server environment; and
4.23.6 Performed a system test.
4.24 On 3 September 2012 Comperio was
informed that the BIQ application at the Municipality was not working
and users could log
on, but could not perform any functions on the
application. They secured an additional resource with expertise to
ensure that
the Municipality was put back on line and able to access
the application for historical purpose as agreed in the procedures
above.
Comperio compared the last successful back-up of BIQ with the
program on the Municipality’s computers and found that 660
files were missing.
4.25 The following was recorded as
being the final outcome of Comperio’s services:
“a. Comperio created the two (2)
environments to run parallel on the old AS400 and Power 720 machines
to enable redundancy;
b. The systems were tested using Mannie
Van Brakkel’s profile on 11 September 2012 and the user
acceptance testing was successful;
c. Comperio changed all the passwords
on the security profiles and the passwords were given to the IT
Manager;
d. Comperio trained the IT
administrator on the BIQ application for him to perform the following
functions:
• How to start and run scheduled
jobs for the system backup and postings;
• How to change and update
profiles for users on the BIQ application.”
4.26 Randfontein also appointed
Comperio and their scope was set out as follows:
“The scope of the project will
entail the mirroring of the BIQ system and the analysis of the system
to ensure continuity
for the next twelve (12) months.”
4.27 Exhibit “C” is a
minute of the Financial Management System Meeting held between the
Municipal Managers, Chief Financial
Officers and ICT Managers held on
the 28th of August 2012. The defendants admit that the minute is
accurate and during the trial
it was admitted as evidence. Inter
alia the following were recorded as matters for consideration:
“Comperio was supposed to have
mirrored the data over the weekend of the 25th and 26th of August
2012, they were not reached
as they had switched off their
cellphones. At the meeting held on the 27th of August 2012, they
indicated that this specialist
was supposed to assist to mirror the
data dropped them at the last minute.”
“Comperio was supposed to upgrade
the server for Westonaria and that was not done as well. They were
requiring some serial
number and it was provided to them. An
indication was given that the Municipality would do their closing of
the system today.”
This meeting was specifically called to
deal with the letter from Quill to Randfontein. In terms of this it
was suggested that
data be secured in case Quill switches off the
system by the 31st of August 2012. In order to achieve this, the
following would
be put in place:
“- Mirror data request and
request MUNSOFT to check if the server can be upgraded.
- Get a second hand server.
- Temper with data – what will
happen if the mirror does not come right?”
Furthermore Randfontein was to
renegotiate with Quill in order to buy time. The proposal was given
to Mokoduo Attorneys to “instead
of paying R2.5 million for 3
months or 6 months the amount would be paid, rather look at it being
a rental or monthly payment.
The licence will still be paid even if
municipalities opt for rental”.
4.28 The defendants’ expert
admits that the defendants are using the BIQ system albeit limited
use.
[5] Mr. Van Heerden, the plaintiff’s
expert and Mr. Van der Merwe, the defendants’ expert submitted
a combined report
in the matter herein. It was Mr. Van der Merwe’s
opinion that the Councils should be charged a reduced licence
purchase
fee and monthly licence fee.
[6] Evidence on behalf of the plaintiff
On behalf of the plaintiff, Mr. Daniël
van Heerden testified. He is the Managing Director of the plaintiff
since its inception
in 1993 and is the only director. The
plaintiff’s main function is software computer solutions for
Local Government.
[7] BIQ was developed for the client’s
needs. He himself did the functional design in 1993 and then
proceeded with the technical
design in July 1994. Mr. Boot was
employed at Brits Municipality and he later went to Unisa where he
was a professor. Mr. Boot
published a book of what he thought
municipalities needed. Mr. Boot was involved in the BIQ program in
that he gave guidance as
overseer while working at the Brits
Municipality. This program was first utilised by Brits Municipality.
It started as a partnership
between Brits Municipality, Quill and
IBM, hence the name BIQ. He denied that Mr. Boot was the owner of
the program, he was only
a consultant. It was put to this witness
that Mr. Hay will testify that Mr. Hay understood that Mr. Boot was a
co-owner or a partner
in the program. The witness denied that Mr.
Boot was a co-owner and testified that after Brits Municipality
withdrew in 2004 Quill
took complete control of the program.
[8] In providing BIQ to the defendants
it provided an integrated intangible asset to the Municipalities. To
achieve this the plaintiff
must retain the Municipality’s
previous data and import that data into the BIQ system. The
plaintiff would thereafter do
a parallel run whereby the two systems
are compared. The staff of the Municipalities were trained
whereafter on the final implementation
date the old system is
discontinued and the new system is implemented. The plaintiff then
supported the staff and program for
a year. The BIQ program
installed at the defendants consisted of 16 modules. The information
(source code) is put onto the server
and the compiler renders this
source code into executable format. In layman’s terms the
Municipality is supplied with functionality
on its computer system,
i.e. a computer language rendering the Municipalities to fulfil all
its functions.
[9] The plaintiff had traded with
Mogale, Carletonville, Bothaville, Royal Bafokeng, Upington and
outside South Africa with Namibia
and Zimbabwe. The relationship
with a Municipality always starts with an open tender. One would be
awarded a tender if the functionality
and price is right. The
relationship with WRDM through its predecessor also started by means
of a tender being awarded to the
plaintiff. No tender for the two
defendants before court was awarded to the plaintiff because WRDM
promoted BIQ to the two municipalities.
[10] As an astute businessman he
granted an extended licence to Westonaria and Randfontein of the BIQ
program for which WRDM had
paid. He did so gratuitously. He did so
to show goodwill with and promises of servicing the Uni-City. He
testified that with
“gratuitously” he meant that they did
not have to pay for the BIQ program as long as BIQ was not loaded
onto separate
servers. When confronted with the definition of
“gratuitously” he reiterated that Westonaria and
Randfontein were
allowed to use BIQ without a licence; it was thus
gratuitously allowed. This was done in terms of a verbal agreement
concluded
in 2002 pursuant to Westonaria requesting the plaintiff to
grant them a temporary solution as they had no finances to replace
the
system they had prior to BIQ. To address this solution that they
sat around a table, the witness came up with this solution and
everybody agreed to this solution. Even though he was a precise and
astute businessman this arrangement was not put into writing
because
he trusted Mr. M. van Braakel of Westonaria and Mr. D. Viljoen of
WRDM. The Municipalities accepted this arrangement,
in fact was
thankful for this arrangement, and had paid his invoices in terms of
this oral agreement. He also had the written
contract setting out
the true position pertaining to the non-transferability of the
licence. Although this was a temporary arrangement
this relationship
went on in terms of the oral agreement for 10 years. This oral
contract had no financial impact for the Councils
and that is why it
was not reduced to writing. He had however learnt his lesson and he
now puts everything in writing. At that
stage he only put everything
in writing once there was a problem. He denied that because the
agreement was not in writing, there
was no such agreement. When
confronted that Mr. Hay would testify that Mr. Hay thought that
Westonaria had bought a licence, he
retorted that Mr. Hay can testify
as he wants to because there was no such agreement. Mr. Hay was not
a party to the oral agreement.
[11] All the problems started when
management changed and when Mr. Viljoen was transferred. Randfontein
did not trust WRDM anymore
and they also approached him to use BIQ
not having to go through WRDM. He again agreed that BIQ could go on
their server on their
own premises. This agreement could have
persisted ad infinitum as long as WRDM did not cancel its agreement
with Quill. This
witness never knew that Westonaria had put BIQ on a
new server; he found the new server when he did his inspection.
[12] He was thus shocked and disgusted
when after 10 years he out of the blue received an ill-fated letter
that highhandedly and
unilaterally cancelled the agreement. He felt
betrayed and the defendants should have consulted with him.
[13] As set out in the common cause
facts some negotiations took place but it ultimately resulted in the
urgent application. Pursuant
to the urgent application agreement the
plaintiff made proposals to the two defendants, because despite his
dismay he still wanted
to retain them as clients. He offered them a
discounted price for the purchase of BIQ as one option. This price
was not market
related, but a generous concession. When the
defendants did not accept the proposals the plaintiff did not want to
further pursue
the defendants as clients and the price for the BIQ
was then market related.
[14] He inspected the premises of the
defendants and found that they were using the BIQ system. Westonaria
had just one user access,
but he could not determine how many people
in fact were using this. He was shocked because the licence key
should have triggered
the destruction of the program. It is akin to
one buying a Word program from Incredible Connection and when the
licence expires
the program will not work and you would need to buy a
new program or an update. He also saw that Westonaria did purchase a
new
server and had reinstalled BIQ on the new server. He then
discovered that Comperio had illegally hacked his system in order to
bypass the licence expiries. Upon his inspection he found that BIQ’s
security key was changed twice. Comperio had hired
a Mr. Kennedy
Chirombo to illegally regenerate a security key because the
securities in the BIQ had kicked into place and the Municipalities
could not use the program. Comperio in fact at Westonaria reinstated
the BIQ program and made a copy of it and transferred it
to the Power
720. At Westonaria the master file changed and as a result of that
the full BIQ program was available to them. At
Randfontein they
changed the expiry date to a period 7 months after the original
expiry date. Comperio referred to BIQ’s
securities as
“malicious objects” and Comperio changed the security
key. Comperio generated a new activation code
to only expire on 3
December 2013 in order for the Councils to access the BIQ program.
[15] This witness referred to exhibit D
reflecting that of the 16 modules of the BIQ program the defendants
used 12 to access historical
data. So even if the defendants were
only using the BIQ system to extract historical data, they were still
utilising 75 % of the
BIQ program.
[16] This witness’ expertise was
not challenged. He had 22 years’ experience in the pricing of
his product. He took
into account the number of the users of a
client and the number of accounts as factors in pricing. He also
took into account the
costs in his office, for example how many
support staff he had to employ to assist the client.
[17] The plaintiff’s claim is
based on a royalty and monthly payment which is common in the
industry. He testified that exhibit
C reflected tenders he put in,
but were not awarded due to National Treasury Circular 57. He
testified that the initial price
to WRDM was a reduced, very good
price because they actively promoted BIQ to Westonaria and
Randfontein. In August 2012 he was
prepared to accept ± R2
million as a purchase price for BIQ because he still wanted to retain
the Municipalities as a client.
His price was based on economic
reasoning due to a relationship that influenced the price. When the
plaintiff issued the summons
it had no special relationship with the
defendants and the price prayed for reflects the market related
price. Randfontein was
slightly bigger than Westonaria, but because
of practicality he claimed the same monthly fee based on Westonaria’s
size.
He denied that the initial server of Randfontein was not big
enough and the second training server was used to help with the data
storage. He denied that the source code belonged to Randfontein or
Westonaria.
[18] Mr. Hay was called to testify on
behalf of the defendants. He was the IT Manager of Randfontein for
34 years. He knew Mr.
Van Heerden and two other employees of the
plaintiff. The system installed used prior to BIQ was Promus, but
the financial people
were not happy with the system because it was
not an integrated system. Prior to BIQ being installed Mr. Van
Heerden would phone
him once or twice a year to how things was going
and presumably to keep an open channel with a possibility of
Randfontein purchasing
BIQ. Randfontein acquired BIQ on the server
of WRDM. Due to disputes between Randfontein and WRDM they obtained
an optical cable
under the road which provided them with BIQ.
Problems ensued with the optic fibre being stolen and the BIQ was
placed on a training
server. He did not know whether Mr. Van Heerden
had put BIQ on the second server.
[19] He “lived with the idea”
in his head that the system belonged to Randfontein since 2004. He
realised he got the
idea from a proposal that he kept in a file along
with the 2004 contract. He conceded that this proposal was made in
1998 and
that that proposal did not result in the concluded contract.
He attended a meeting to solve a problem pertaining to the expiry
of
BIQ, a proposal was made, this proposal was placed on the Council’s
agenda, but was withdrawn by the counsel and was never
discussed.
Randfontein is now utilising the system Munsoft. He was aware of
Comperio and he gave them access, but was not involved
in their
technicalities. He was unaware that Comperio had effectively
mirrored the BIQ software. He did not know that Comperio
had adapted
the software. He did not know that Comperio had made two back-up
systems of BIQ. He had no personal knowledge of
IBM, Quill and Brits
Municipality’s agreement pertaining to ownership of BIQ. He
testified that Randfontein and Westonaria
were still using BIQ for
enquiry purposes and only read historical data.
[20] Despite exhibit B being common
cause between the parties the defendants called Mr. N.O. Sekololo, as
Director and shareholder
of Comperio. He understood that there was a
dispute whether Westonaria should buy a licence for the BIQ system or
not. This dispute
resulted in Westonaria not being able to send out
accounts and customers could not pay. Westonaria thus needed access
to the historical
information, but could not gain same because there
was a message on the screens of the computers stating that on 31
August 2012
the program will stop functioning. Their instructions
were to secure the environment and stop outside remote access to the
system.
Westonaria gave them full access and supplied them with a
username and the administrator password. They used this password to
extend the date until after 31 August 2012. There was remote access
to BIQ, but they cut it off.
[21] On 2 September 2015 they logged
onto the A5400. They logged onto the A5004, but they could not
access the system and therefore
they did a back-up and saved it on an
IBM storage tape. They made two copies of which they held one and
they gave one to the Municipal
Manager. The system was compromised
because 660 logical files were removed. They loaded the back-ups on
the Power 720. They
were enabled to do this by using the terminal of
the superuser; she had the code and key as an administrator. There
were two
servers at Westonaria in the same room.
[22] At Randfontein they practically
did the same. He denied that they did any hacking because they were
given the master key and
they did not bring a third party to hack in.
They never changed the source code.
[23] He was not a programmer and also
had no legal qualifications. He did however have regard to the
contract and saw that clause
8.2.2 granted a perpetual licence and he
concluded it entitled Westonaria to perpetual use. He did however
state that he did not
understand copyright.
[24] He conceded that on 31 August 2012
they made two “copies” twice which was a complete
mirroring of the BIQ program.
To do this Mr. Chirombo had to log
into BIQ and change the expiry date to stop the program from
disabling. They accordingly had
to run a script to change the date,
but this extended date did not achieve its purpose because of the
missing logical files. He
resisted to admit that they had to fix the
loss of data, but in the end conceded that they did do this to store
a workable BIQ
system. He admitted that they put a second version of
the restored BIQ on the Power 720. On 3 September 2012 Comperio had
managed
to provide the defendants with four functional copies of the
BIQ of which two were back-ups for any disasters that may occur.
[25] Mr. Van der Merwe testified as the
expert witness for the defendants. He obtained a diploma in
Information Technology at the
Tshwane University of Technology. He
is the Chief Technical Officer of SA Outsourcing (Pty) Ltd. He has
held this post for the
past six years, and was with the company for
14 years. This company’s main function was to take over the IT
of large companies.
These functions interfaced with the case at hand
rendering him fit to testify because he understood the technical
terms, licencing
and what the client was doing with the system after
the “marriage broke down”.
[26] He testified that neither him nor
his company work for local governments. He never inspected BIQ, he
only talked to Mr. Du
Toit from Westonaria. As he understood it
Westonaria and Randfontein were only using BIQ for retrieving
historical information
because they had a new system, Munsoft, in
place.
[27] It was his opinion that Comperio
did not hack because for hacking you need to breach the security.
Comperio only did social
engineering.
[28] He based his opinion pertaining to
the perpetual licence of the defendants on instructions. He did not
come to court to provide
the court with an objective view pertaining
to whether the defendants in fact had a perpetual licence. He had no
basis to contradict
the amounts as claimed by the plaintiff. He did
not investigate what other service providers were charging local
governments.
[29] Is the plaintiff the owner of the
copyright in the BIQ computer program?
This question must be answered in terms
of the Copyright Act. In terms of section 1 of the Act the copyright
is conferred on the
author of the program. The author is the “person
who exercised control over the making of the computer program.”
[section 1]. Section 21 of the Act confers the ownership of the
copyright on the author.
[30] Mr van Heerden’s evidence
that he himself did the functional design of BIQ in 1993 and the
technical design in 1994 was
never put in dispute. The plaintiff
exercised control over the making of the computer program. Mr van
Heerden as the managing
director of the plaintiff is the author and
the ownership of the copyright thus vests in the plaintiff. Mr Hay
in cross-examination
admitted that he had no personal knowledge of
the relationship between Brits Municipality and the plaintiff
pertaining to the BIQ
program. Mr van Heerden most definitely did
not obfuscate as to how the program came about. He from the outset
testified that
Mr Boot was involved in the program as an overseer
while working at the Bits Municipality. After the Brits municipality
withdrew
in 2004 the plaintiff took complete control off the program.
No matter what the contractual relationship between Quill and Brits
municipality was, there is nothing to gainsay the evidence of Mr van
Heerden that he did the design and exercised control over
the making
of the program. The plaintiff proved the ownership of the copyright
in the BIQ computer program.
[31] Did the defendants through the
extended license flowing from the contact concluded between the
plaintiff and WRDM obtain a
perpetual licence entitling them to use
the BIQ program after the termination of the contact between the
plaintiff and WRDM?
Mr van Heerden made a very good
impression on the court. His evidence was chronological and logical.
His evidence was in the main
common cause, but despite this he was
cross-examined thereon at length. He did not contradict himself and
there is nothing inherently
improbable in his version. It was argued
on behalf of the defendants’ that there was a contradiction in
his evidence in
that in the urgent application in par. 11.4 of his
affidavit he stated that: ”The licences therefor granted to
Second and
Third applicants…” It was thus argued that
licences were in fact granted to the defendants and Mr van Heerden
was
at a loss when confronted with this version. This submission
does not help the defendants’ version, because it is not their
case that the defendants were awarded their own independent licenses.
It does not impact on the plaintiff’s case because
a prudent
counsel should of course quote the whole sentence which reads as
follows: “The Licenses therefore granted to Second
and third
Applicants [defendants herein] are generally referred to as “extended
licenses”. I repeat that it was at
all times within the
contemplation of all parties involved, that the moment the agreement
with First Applicant was terminated or
Second and/or Third Applicants
purchased their own servers, the extended licence agreement would
immediately come to an end and
Second and Third Applicants would be
required, should they wish to continue to use the BIQ System, to
purchase their own individual
BIQ Licensed system.” If the
first part of the sentence could thus create the impression that the
defendants had their own
licences then the next part of the sentence
qualifies this assumption immediately. Mr van Heerden testified that
if the first
part of the sentence gave the impression that the
defendants had their own licences then the sentence was wrong. The
full quoted
sentence is 100% on par with the version of the plaintiff
and there is no contradiction.
[32] His reason to extend the licence
to the defendants gratuitously made good business sense in view of
possible big business with
a Uni-City. The fact that he gave this
“gratuitous” concession to use BIO under an extended
licence is not improbable;
the defendants did not buy BIQ for the
extended licences rendering it gratuitous. The fact that WRDM paid
for the purchase of
BIQ is, not as argued by the defendants,
irreconcilable with his gratuitous concession because he had no
gratuitous concession
with WRDM. This concession only came about
after WRDM purchased BIQ and the defendants also needed BIQ. It is
common cause that
he never extended this gratuitous concession to
WRDM.
[33] He extended the licenses orally
because he had a good relationship with Mr van Braakel and Mr Viljoen
of the defendants. The
arrangement to extend the licenses was not in
writing, but this does not render the plaintiff’s version
improbable. It is
common cause that such arrangement was made to
solve the problems of the defendants who could not to afford to pay
for BIQ. Due
to problems with theft of Telkom cables at Westonaria
the plaintiff consented to Westonaria to run the program on a second
hand
server. At Randfontein the optic cables under the road were
stolen and again the only option was to run the program on a training
server. The plaintiff was prepared to extend the license to the
defendants as long as they utilised BIQ not on their own servers
with
independent copies of BIQ. However when the contract with WRDM was
cancelled the defendants were required to purchase the
BIQ program
for their independent use. In cross-examination he likened it to the
parents kicking the child out of the house and
the child having to
make its own bed. The defendants could use BIQ as long as it was an
extension of the licence of WRDM and not
utilised as if they had
their own licenses. If a copy was put onto their own servers then
they had to purchase BIQ.
[34] Only here did the dispute arise
with the defendants relying on the fact that they “thought”
that they had a perpetual
licence versus the plaintiff’s
version that they did not have a perpetual licence. Mr van Heerden
testified that in retrospect
he should have put the agreement in
writing, but the written contract expressed the fact that the license
was non-transferable
and that this license entitled WRDM to use BIQ
on one server and make and retain only one copy in machine-readable
form for back-up
purposes. He did not foresee that van Braakel and
Viljoen, the representatives of the defendants, would be transferred
leaving
behind a new problematic management. The fact that Mr van
Braakel and Mr Viljoen’s names were not mentioned in the
pleadings
or urgent application is irrelevant to the statutory claim
of the plaintiff and was not in any way contradicted by the
defendants.
The basis of the plaintiff’s cause of action is
the infringement of copyright by the defendants because they did not
have
the right to use BIQ when the contract with WRDM terminated and
not the oral agreement.
[35] The defendants chose not to call
Mr du Toit who was present at court as a witness for Westonaria. Mr
Hay was called on behalf
of Randfontein. It would be amiss of me not
to remark on the defendants calling a witness to rebut the version of
the plaintiff
that Randfontein did not have a separate licence with
“I lived with the idea in my head that this system belonged to
Randfontein.”
This averment can in no-one’s
contemplation set up a version! In cross-examination he conceded
that the proposal from which
he got this idea was a 1998 proposal as
part of negotiations leading up to the 2004 contract. He conceded
that this proposal did
not result in the 2004 contract. He testified
to the common cause fact that Brits municipality, IBM and the
plaintiff started
with the BIQ program, but conceded that he had no
personal knowledge of the agreement between these parties and the
ownership of
the computer program. This was the totality of the
evidence of the defendants on whether they owned a licence or not.
[36] I was asked to recuse myself and
one reason was that I had after days of cross-examination requested
counsel to put the defendants’
version to Mr van Heerden.
Well, at that stage it had not been put and when at last put, it was
this negligible version. Parties
have the right to run their case as
they wish, but local municipalities have a duty not to waste
taxpayers’ monies. Both
the defendants’ legal officers
were present during the whole trial and they have a duty to ensure
that in terms of The Constitution
of the Republic of South Africa
local government in its public administration is governed by the
democratic values and principles
enshrined in the Constitution.
Paramount thereto is that a high standard of professional ethics must
be promoted and maintained
and efficient, economic and effective
resources must be promoted [s195].
[37] Did the defendants infringe the
copyright of the plaintiff?
In terms of section 23 of the Act
copyright is infringed by any person who without the licence from the
owner does or causes another
person to do any act which the owner has
the exclusive right to do or to authorize.
[38] The plaintiff testified that the
defendants infringed his copyright by reproducing the computer
program by making copies of
his program. They further infringed his
copyright by making adaptations to the program for the continued use
thereof. They are
also still using the program thus infringing on
the copyright of the plaintiff. This evidence is in fact
substantiated by Exhibit
B. Mr Hay confirmed that they were still
using BIQ.
[39] The evidence of Mr Sekololo did
the defendants no favour and never could, in view of the evidence
contained in exhibit B.
He confirmed the actions taken by them led
to a complete mirroring of the BIQ programme as copies, excluding the
back-ups. They
had to fix the loss of data to store and provide a
workable BIQ system. They adapted the program to extend its
functionality.
They installed a second version of BIQ on the Power
720 server.
[40] The argument on behalf of the
defendants was that they had acquired the BIQ system and they were
entitled to give the source
code to Comperio. Comperio therefor
acted lawfully and there was no copyright infringement. In view of
my finding that the defendants
did not have a licence, this argument
is rejected. The actions of the defendants are indeed worrisome; full
well knowing that there
is a dispute over the licence they employ an
entity to change the expiry date of the licence, not once but twice!
This is not Public
Administration governed by the values and
principles enshrined in our Constitution.
[41] The plaintiff in terms of its
copyright had the exclusive right to reproduce the computer program
in any manner or form. The
copyright also gave it the exclusive
right to make an adaptation of the program and in doing, in relation
to the adaptation of
the computer program, any of the acts specified
in relation to the computer program as set out in section 11B of the
Act. The acts
of Comperio on the instructions of the defendants
infringed the copyright of the plaintiff enabling the defendants to
use the computer
program without licenses from the plaintiff. The
defendants are in fact still using the program.
[42] The defendants also pleaded and
argument was presented in writing by counsel for the defendants that
“even if the plaintiff
should succeed in its claim the
defendants pleaded that they were not aware nor did they have
reasonable grounds to suspect that
copyright subsisted in the BIQ
software on their system. This was borne out by the evidence of Mr
Hay.” Mr Hay never testified
that he did not know that
copyright existed in BIQ. In fact he testified that he had it in his
head that they could use BIQ because
they had a licence. As the IT
manager of Randfontein he was searching for the basis of his idea
that they could use BIQ because
he knew they could not use it without
a licence. They would only be barred from using it if there was
copyright attached to BIQ.
He had a copy of the contract and was thus
aware of the clause 9 that copyright existed on BIQ. Westonaria also
had a copy of the
contract. The defendants were thus aware of the
copyright and/or had reasonable grounds to suspect that copyright
existed and Section
24(2) of the Act does not bar the plaintiff from
claiming damages. In any event the plaintiff is not claiming damages
in terms
of section 24(1) of the Act but a reasonable royalty in
terms of section 24(1A).
[43] The defendants did infringe the
copyright of the plaintiff and the plaintiff is thus entitled to the
interdictory relief as
claimed.
[44] What is a reasonable royalty?
Mr. Van Heerden testified that a
royalty and monthly payment is common in the industry. He provided
the court with exhibit “C”
reflecting tenders in response
to advertisements to supply computer programs to Municipalities in
2012. In terms of these tenders
Lydenburg would be a good example of
what a cost structure for BIQ would entail. The reason for this is
that although Lydenburg
is a bit smaller than Westonaria it would
just have a few less users and consumers. In terms of this price
summary the royalty
would be R4 million and the licence fee would be
R90 000 per month. He also testified that the price for BIQ of R240
000 in 1998,
R440 000 in 2004 and R2 736 000 in 2012 were not
market-related but based on economic reasoning. He explained this to
mean that
he wanted the defendants as clients, or wanted to retain
them as clients and therefore the prices were not market-related. In
1998 and 2004 he also still had the promise of securing the services
of the Uni-City and he also dropped the price. He also testified
that
even though the defendants may only be using BIQ for historical data
it still entails them using 12 of the 16 modules.
[45] Mr. Van der Merwe was of no help
to the court as he did not fulfil his duty as expert witness. He was
not uninfluenced as
to content by the exigence of litigation; he gave
his opinion on instructions. He did not investigate whether the
defendants had
licences and he did not even look at or inspect the
BIQ program. He could not assist the court with what a reasonable
royalty
would be as he is not an expert in pricing for programs for
Local Municipalities. He did not investigate the pricing of other
server providers to Local Governments. Mr. Van der Merwe’s
opinion thus did not measure up to the standard of an expert witness.
In PriceWaterhouseCoopers Incorporated and Others v National Potato
Co-operative Ltd
[2015] (2) All SA 403
(SCA) at 440 paragraph [98]
the court found as follows:
“[98] … ‘The duties
and responsibilities of expert witnesses in civil cases included the
following:
1. Expert evidence presented to the
Court should be and should be seen to be the independent product of
the expert uninfluenced
as to form or content by the exigencies of
litigation.
2. Any expert witness should provide
independent assistance to the Court by way of objective unbiased
opinion in relation to matters
within his expertise … An
expert witness in the High Court should never assume the role of
advocate.”…….
In Buthelezi v Ndaba
2013 (5) SA 437
(SCA) the court in paragraph [14] found that a court must rely on the
analysis of the cogency of the underlying reasoning which
led the
expert to their opinion. Mr. Van der Merwe could give no cogent
underlying reasoning pertaining to what a reasonably royalty
would
be. He only suggested that since the defendants were only using BIQ
for historically purposes they should not pay the full
monthly
license fee.
[46] In terms of section 24(1A )a
plaintiff may in lieu of damages, at the plaintiff’s option, be
awarded a reasonable royalty
calculated on the basis of a reasonable
royalty which would have been payable by a licensee in respect of the
work or type of work
concerned. In terms of section 24(1B) a court
may direct an inquiry to be held for the purposes of determining a
reasonable royalty.
I do not find this necessary because the
plaintiff is the only owner of the copyright and put the best
evidence it could, before
the court.
[47] I am satisfied that a reasonable
royalty is a substantive remedy because the plaintiff is given the
option to claim either
damagers or a reasonable royalty. It is a
statuary claim with no basis in the common law. Statutory relief
must be interpreted
to promote the spirit, purport and objects of the
Bill of Rights.
[48] In terms of section 24(1A) the
court must calculate the amount on the basis of what would have been
payable by a licensee for
the BIQ program. The court must thus make
a finding as to what a notional licensee would pay for the computer
program. It is
akin to comparative sales being used to determine the
market value of an expropriated property. Prior to the
1998-amendment the
court in assessing the reasonable royalty could
take into account “any other material considerations”.
The legislator
found it fit to exclude this with the 1998 amendment
and I cannot take into account any other material considerations.
[49] I was referred to Michael Dov
Terespolsky and Another v Morituri Restaurant (Lakeside) and 4 Others
Case No 107/2013 before
Rogers J by counsel for the defendants and
was urged to factor in that the municipalities were only using the
program for historical
data; thus a limited use and that the use
would get less and less over time. It was argued that the court
cannot take cognisance
of the settlement agreement and court order
wherein Mogale City agreed to pay the plaintiff herein the amount of
R4 925 942.00
for licence fees for the period from 1 November 2012
until 30 June 2015. I do however factor this award in because it is
not evidence,
but an order by agreement setting out an amount
reflecting what a licensee would pay for BIQ. The court did not
quantify the amount.
[50] I am satisfied that the tender for
Lydenburg and the price that Mogale City was prepared to settle for
set out a reasonable
royalty that they as licensees would have paid
for BIQ. However facts pertaining to the price must be factored in
to make it a
reasonable royalty. The size of the municipality, the
consumers and users of the municipality, must play a role in pricing;
therefor
Lydenburg is a notional licensee. It would play a role
whether all the modules of BIQ were required or not. It would play a
role
whether the plaintiff would decide to settle for a lower price
to obtain the client or not. It would be relevant to take note in
which year the licensee would have bought the program to not inflate
the price with price hikes and inflation. Taking into account
all
these factors I am satisfied that the plaintiff has proven that a
licensee would have paid between R4 and R5 million for the
BIQ
computer program. I am satisfied that the 1st defendant must
accordingly pay R4 750 million and the second defendant R5 750
million.
[51] I have factored into these amounts
a reasonable monthly rate totalling R750 000. I have not quantified
them separately because
I find a globular amount pragmatic. I factor
in that not all notional licensees would have contracted with the
plaintiff for the
monthly rate and may have contractually opted not
to do so, as did WRDM. The fact that the defendants were only using
the program
for historical data does not relate to a notional
licensee. At the trial it was not clear if VAT is payable on these
amounts ordered,
but if VAT is payable then the defendants must also
pay the VAT.
[52] I accordingly make the following
order:
It is ordered:
52.1 That both the defendants be
interdicted and directed to remove from their computer system all
components of the computer program
known as BIQ.
52.2 That the plaintiff be mandated to
inspect the computer system of each of the defendants after the
removal of the computer program
BIQ to confirm that such computer
program has indeed been completely removed.
52.3 That both the defendants be
interdicted and prevented from again installing and/or using the
computer program known as BIQ,
unless by prior written agreement with
the plaintiff or its successors in title.
52.4 That the plaintiff also be
mandated to within six (6) months after his first inspection at each
of the defendants to conduct
a further inspection to confirm that
such computer programs have not been reinstalled and/or are in use.
52.5 That the first defendant be
ordered to pay to the plaintiff the amount of R4 750 000.00.
52.6 That the second defendant be
ordered to pay the amount of R5 750 000.00.
52.7 Interest on the said amounts at a
rate of 15,5 % per annum ad tempore more.
52.8 VAT if VAT is payable on the
amounts so ordered.
52.9 The defendants are ordered to
carry the costs, jointly and severally, including the costs of senior
counsel.
S. POTTERILL
JUDGE OF THE HIGH COURT
CASE NO: 36264/2013 and 36265/2013
HEARD ON: 25 May 2015 to 29 May
2015
FOR THE PLAINTIFF: ADV. S.D.
WAGENER SC
INSTRUCTED BY: A.L. Maree
Incorporated
FOR THE 1ST AND 2ND DEFENDANTS:
ADV. C. GEORGIADES
INSTRUCTED BY: Matseke Attorneys
DATE OF JUDGMENT: 31 July 2015