Software Agreement also applies to upgrades to programs
The Ontario Superior Court of Justice has concluded that a loss of profits resulting indirectly from upgrades to a computer program were not a compensable source of loss under a contract between the parties with its decision in MediaLinx Printing Ltd. v. United Parcel Service Canada Ltd. Medialinx was a printing and graphics company which also provided processing, labelling, warehousing and shipping services to its clients. It entered a contract (the “Software Agreement”) with UPS, allowing it to ship products for its clients using the UPS service: it added a 0.7% mark-up on UPS’s rates in order to still make a profit while doing so. Technologically, this was achieved by two steps. First, UPS upgraded Medialinx to a program called “UPS Worldship”. Second, UPS created custom programming integrating UPS Worldship into the processes used by MediaLinx, which allowed for the automatic addition of the 0.7% mark-up. The two parties drew up a second agreement (the “Master Consulting Agreement”) covering this further work.
Several years later UPS upgraded the system installed at Medialinx, because of the need to switch from Windows XP to Windows 7. Subsequently Medialinx had some problems with the software not performing properly, and a UPS technician made further repairs. For purposes of the case it was accepted that during these later repairs the technician deleted the 0.7% mark-up, though Medialinx did not notice that at the time. It was only close to two years later that the deletion was noticed, by which time Medialinx had lost about $450,000 in profits by not charging the mark-up.
The central issue in the case related to the Software Agreement, which included a limitation of liability clause which applied to claims for lost profits arising from negligence claims. Medialinx’s argument was that that limitation clause did not apply, because it related to the Software Agreement: the losses were caused by the actions relating to work on the custom software, which they argued was not bound by that clause. UPS brought an application for summary judgment dismissing the claim, and was successful.
The application judge was unpersuaded by the argument that the Software Agreement applied only to the original software, and therefore did not include the custom work done to allow for the automatic mark-up. The judge noted:
 Reading the Software Agreement as a whole, I find that the Software Agreement encompassed the mark-up capability. The purpose of the Software Agreement was to grant MediaLinx a non-exclusive licence to use UPS’s proprietary software. Section 1 of the agreement identifies the “Licensed Program” as “Maxiship or other UPS-provided Software System and any updates to it provided by UPS to Customer.” Based on this broad language, it is clear that the Software Agreement applied to MediaLinx’s ongoing use of UPS’s software systems, irrespective of whether this was the version that existed at the time the parties entered into the agreement or to upgraded versions.
Once it was concluded that the exclusion clause continued to apply, it was not difficult for the judge to conclude that the summary judgment application should be granted.