RWWA (which runs the West Australian TAB). SAG granted it a non-transferable, non-exclusive licence to run the ADABAS database management software on its mainframe computer. This was the software used for its its betting business.
In addition to installing the software on its mainframe computer, RWWA arranged with KAZ to use KAZ’ mainframe for a ‘warm’ disaster recovery site: RWWA stored a mirror-image disk copy on KAZ’s mainframe computer. Although a copy was stored on KAZ’s mainframe, it was not loaded into ‘memory’ except when being used in an actual disaster recovery situation or routine testing to ensure the back-up would work. Prior to this, RWWA had used back-up tapes stored off-site.
In a 268 paragraph decision, McKerracher J has held that RWWA did not breach of its licence by doing this and, in any event, was protected from copyright infringement by ss 47C and s 47F of the Copyright Act.
The main issues were whether or not RWWA’s off-site storage and testing of the back-up and/or the involvement of KAZ entitled SAG to claim additional licence or maintenance fees (up to several hundred thousand dollars per annum). In broad summary, SAG contended that
(1) storage and, in particular, the testing of the back-up was in breach of cl. 12.3 and required further maintenance fees or
(2) the involvement of KAZ was in breach of cl. 1.5 which prohibited ‘outsourcing’.
Cl. 1.5 provided:
1.5 The Licensee shall not assign, sub-licence, sell, lease, encumber, charge or otherwise in any manner attempt to transfer this Licence or any of its rights or obligations hereunder. The Licensee may not allow any third party to operate the System(s) on its behalf as part of any outsourcing, facilities management, application service provision or similar type of arrangement.
Clause 12.3 provided
12.3 Software AG hereby expressly authorises the Licensee to copy the System(s) (in object code only) and the Documentation for archival or emergency restart purposes PROVIDED THAT no more than (3) copies made by the Licensee of the then current system version shall exist at any time and all old versions shall be destroyed.
In rejecting SAG’s claims that cl. 12.3 did not protect RWWA, McKerracher J found:
186 Clause 12.3 is intended to be permissive. Objectively viewed, its purpose is to permit the licensee to reproduce the software to the extent that may be required for emergency restart purposes. To merely copy the distribution tapes or cartridges would be of limited practical use for that purpose. This is common ground amongst all experts. To construe cl 12.3 as being confined simply to copying tapes or cartridges of the unconfigured and uninstalled System would be a construction that is at least unreasonable and inconvenient but would also be unjust.
187 It is common ground that the System as supplied does include some source code. When the source code is converted to object code and is then linked to create load modules on installation of the System, the System as installed and configured then becomes a copy ‘in object code only’ and there is a copying of the System for emergency restart purposes.
203 As there is no technical meaning, the question is one of construction of the Licence Agreement. In my view the only sensible construction is that when the Licence Agreement refers to ‘use’ it means using the System within RWWA’s ordinary business or some other business, not for occasional testing for one DR Site. This must be so, in my view, if the DR Copy at the DR Site is authorised by cl 12.3 as I conclude that it is.
205 If the use by RWWA of the DR Site is authorised by cl 12.3, then the question as to whether or not the System is otherwise in use (for cl 1.1(d)), in my view, falls away. I consider that the use is so authorised.
Further, the copy was made for the purposes of emergency restart:
209 In a business which has an extremely high turnover of transactions and a substantial financial turnover, each day of delay is significant. In my view there is no scope for the argument that emergency restart simply means that the business has sustained a disaster or emergency which will require a restart at some leisurely pace in a week or so. In my opinion the whole concept of emergency restart means that as an essential part of a highly sophisticated business environment, the restart is required as quickly as reasonably possible.
Taking into account similar considerations, his Honor found that ss 47C and 47F would also operate to protect RWWA.
Nor was there any ‘outsourcing’ in breach of cl. 1.5:
249 Mr Fink who has had very extensive experience in the mainframe industry rejects the suggestion that the arrangement or contract between KAZ and RWWA is one which constitutes outsourcing in any sense. Rather, as a matter of practice and in accordance with the nature of the arrangement between KAZ and RWWA by its contractual documents, what KAZ provides to RWWA is an environment for the equipment on which the DR Copy will be loaded should an emergency occur. RWWA retains responsibility for the DR process. There is no evidentiary basis for suggesting that KAZ is in any way involved in operating the System. Without that evidence which, had it been available, may have been the closest there was to any ‘outsourcing’, none of the other suggested actions could constitute ‘outsourcing’ as it is used in the Licence Agreement.
Racing & Wagering Western Australia v Software AG (Australia) Pty Ltd  FCA 1332 (29 August 2008)