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[2015] ZAGPPHC 568
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Quill Associates (Pty) Ltd v Randfontein Local Municipality and Others (36264/2013, 36265/2013) [2015] ZAGPPHC 568 (31 July 2015)
IN THE HIGH COURT
OF SOUTH AFRICA
(GAUTENG DIVISION,
PRETORIA)
DELETE
WHICHEVER IS NOT APPLICABLE
(1)
REPORTABLE: YES / NO.
(2)
OF INTEREST TO OTHER JUDGES: YES / NO.
(3)
REVISED.
DATE
SIGNATURE
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 1
st
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 28
th
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 25
th
and 26
th
of August 2012, they were not reached as they had switched off their
cellphones. At the meeting held on the 27
th
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 31
st
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 1
st
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 1
ST
AND 2
ND
DEFENDANTS: ADV. C.
GEORGIADES
INSTRUCTED
BY: Matseke Attorneys
DATE
OF JUDGMENT: 31 July 2015