How not to get locked out of your data – Read Blade v Reynolds

04 / 07 / 2018

The judgement of Mr David Stone earlier this year in the High Court case of Blade Motor Group Limited v Reynolds & Reynolds Limited[1] has received relatively limited publicity. Yet it has much to teach us, from both the contentious and the non-contentious standpoints. With regard to the former, the judgement gives a useful demonstration of how the courts decide whether or not an application for a mandatory interim injunction should be granted; and, with regard to the latter, the case highlights the risk of software licensees being ‘locked out’ of their software and data in the absence of contractual safeguards.

In this article we review the facts and judgement, and discuss some of the lessons that may be extracted from them.

The facts

The claimant, Blade Motor Group Limited (Blade), which operates a chain of motor dealerships, licensed from the defendant, Reynolds & Reynolds Limited (R&R), a dealer management software system called KDMS. Blade used KDMS for years in order to record, store and manage information relating to its business and customers, including financial information, customer data and vehicle information. But in 2016 it decided to switch to a rival system called Pinnacle, and requested the continued support of R&R during the transition period. R&R asserted, however, that the licence terms prohibited Blade from terminating the licence until 2019, and claimed unpaid sums of more than £40,000. Correspondence failed to resolve their dispute, and R&R therefore applied a remote “lock” to the licensed software, which prevented Blade from being able to log on to the KDMS system and access its data. In retaliation, Blade sued R&R in February 2018, and applied for a mandatory interim injunction obliging R&R to (amongst other things) ‘unlock’ the KDMS system.

The judgement

Blade’s discontent at being locked out of its data was compounded by the outcome of the litigation, for Mr Stone ruled against it. His reasons for so doing derived from his application to the case of two sets of guidelines for deciding whether to grant interim injunctions – the well-known American Cynanamid[2] test, plus the Court of Appeal’s more recent guidelines in Zockoll v Mercury[3] relating to mandatory injunction applications.

The first of the three American Cynanamid questions – namely, Was there a serious question to be tried? – having been conceded by R&R, the court moved straight on to the second question, which was whether damages would be an adequate remedy for the party injured by the court’s grant or refusal to grant an injunction. Blade, naturally, argued that damages would not adequately compensate it if no injunction were granted; but that argument was ruled to be supported by insufficient evidence. The court, moreover, was influenced by the finding that the data from which Blade had been locked out was historic only; by contrast, Blade’s current data was freely accessible to it via the Pinnacle system.

But in case the court had answered the second question wrongly, it proceeded to work through the third and final question, namely Where did the balance of convenience lie?.  Acknowledging that the overriding consideration was to decide which course was likely to involve the least risk of injustice if it turned out to be ‘wrong’, the court again came down against Blade. One of the factors that influenced it was that the status quo – namely, the ‘lock-out’ – would be disturbed, not preserved, by the grant of an injunction; another was R&R’s position that Blade had contracted not to terminate the licence until 2019, which in the court’s view was “at least highly arguable“. And a third was that six months had elapsed from the date of the lock-out (in August 2017) before Blade had instituted its legal proceedings. If the data access were as vital to Blade as it had submitted, ruled the judge, it would have approached the court well before February 2018. For all of these reasons (and more), the court considered that Blade had not proved that the risk of injustice if an injunction were refused sufficiently outweighed the risk of injustice if the injunction were granted.

Lessons to be learned from the judgement…

Persuading a court to grant an interlocutory injunction is an uphill struggle, a fortiori where the injunction being requested is a mandatory one; and the judgement provides a very useful reminder of how difficult it can be for a claimant to reach the top of the hill.  Various criteria must be satisfied in order for an applicant to achieve the injunction that it seeks; and two of them, in particular, failed to be met by Blade.  One was the need not just to assert that damages would be an inadequate remedy, but to evidence it.  In that respect Blade’s assertions were considered by the court to be hollow.  For example, it submitted that its auditors would be unable to perform their functions without access to the data stored on the KDMS system; but it adduced no evidence that the results of failing to provide an audit would be unquantifiable. The other crucial criterion that Blade failed to meet was to move swiftly.  The more time that is allowed to elapse, the heavier will be the burden of persuading the court that one’s need is truly urgent.  The maxim “delay defeats the equities”, although an old one, is still very much applicable; and Blade’s six-month delay was one of the principal factors that disinclined the court to grant its application.

… and lessons to be learned from the case as a whole

In addition to the useful lessons that can be learned from the judgement about how to satisfy the criteria for the grant of an interlocutory injunction, the case as a whole provides a very valuable cautionary tale for software licensees that goes far beyond litigation procedure.

The problem that the case highlights is that a software licensee who is locked out of its data as a result of a dispute with its licensor can be very adversely affected, and cannot necessarily rely on an injunction application to sort the matter out.  Prevention is much better than cure; and any business desirous of entrusting its data to a licensed system should therefore scrutinise the proposed licence terms in order to ensure that it avoids falling down the hole into which Blade tumbled.  Do those terms oblige the licensor to continue to perform the contracted services notwithstanding a dispute between the parties?  Do they expressly prohibit the licensor from locking the licensee out of its data?  What do they have to say about the provision of replacement licence keys, and the time frame within which the licensee may extract its data? And do their payment provisions exonerate the licensee from paying disputed sums until or unless it has agreed to do so, or has been required to do so by a court order?  Ploughing through the small print of licence terms may not be the most thrilling task, but it can be vital if one wishes to avoid being held to ransom by a savvy licensor.

Conclusion

Accidentally locking yourself out of the house is bad enough. But getting locked out of your business data can be far worse.  Reading Blade v Reynolds won’t remedy the former, but it could well help you avoid the latter.

For further information please contact Jonathan Cornthwaite