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1. SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128
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 SAP MALAYSIA SDN BHD & ANOR v I WORLD HRM NET SDN BHD &
ANOR
CaseAnalysis
| [2010] MLJU 2128

SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010]
MLJU 2128
Malayan Law Journal Unreported

HIGH COURT (KUALA LUMPUR)

DATO TENGKU MAIMUN BT TUAN MAT H
GUAMAN NO D5(IP)-22-1447-2003
25 February 2010

Khoo Guan Huat (Marie Julie Wan Ullok & Joshinae Wong with him) (Skrine) for the plaintiffs.
Ooi Chih-Jen (Raslan Loong) for the defendants.

Dato Tengku Maimun bt Tuan Mat H:

ALASAN PENGHAKIMAN OLEH YANG ARIF HAKIM DATO' TENGKU MAIMUN BINTI TUAN MATTHE
BACKGROUND

[1]The 1st plaintiff is a company incorporated under the Laws of Malaysia. The 2nd plaintiff is a company
incorporated in Germany and is in the business of developing, marketing and licensing software programs. The 1st
plaintiff is a wholly owned subsidiary of the 2nd plaintiff. The 1st and the 2nd defendants are both companies
incorporated under the Laws of Malaysia. The 1st defendant was established on 5.4.2000 as Magnus HRM Net Sdn
Bhd with the main shareholder being a Dutch company, Magnus Corporate Incubator B.V. while Iskandar Basha bin
Abdul Kadir (Iskandar) and Deslorieux Roger Mauclair held one share each. Iskandar was also the Managing
Director. In or around March 2001 the 2nd defendant which was wholly owned by Iskandar and his wife took over
40% of the shares in the 1st defendant. In or around February 2003, the 2nd defendant took over the 1st defendant
completely and on 17.3.2003 the name of the 1st defendant was changed to its current name.

[2]The 2nd plaintiff created a business application, Enterprise Planning software package known as SAP R/3
software, subsequent versions and upgrades thereof which is the subject of copyright protection, which extends to
Malaysia. The 2nd plaintiff owns the copyright in the said SAP R/3 software and the 1st plaintiff distributes the
software in Malaysia.

[3]The 1st plaintiff entered into an individual End User License Agreement (EULA) with one Magnus Management
Consultants Sdn Bhd (MMC) on 30.3.1999. The EULA was then assigned from MMC to the 1st defendant on
19.3.2001. The relevant provisions in the EULA are as follows. Clause 2.1(a) of the EULA provides that "..This
license does not permit the Licensee to (1) Use the Software and Third Party Database for a service bureau
application except for Customers listed in Annex A: or (ii) sublicense or rent the Software System." Annexure A
listed only one customer i.e. Motorola Malaysia Sdn Bhd but under clause 1.5 of the EULA the list of customers
may be amended by mutual agreement between the parties from time to time. Clause 7.1 of EULA defines the
maintenance services to be provided under the EULA whilst clause 7.3 provides that "Unless otherwise specified in
Appendices hereto, Maintenance Fees shall be paid annually in advance in an amount calculated as the then
current percentage factor multiplied by the ten current list price of the software licensed hereunder." Paragraph 6 of
Appendix 1 of EULA provides that "Maintenance Services for the Software licensed hereunder, for the above-
specified number of Users, shall commence on April 1, 1999 and shall be currently priced at 17% (or the then
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SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128

current factor) of DEM 473,620.00. This Maintenance Fee shall be payable annually by Licensee to SAP within 30
days of invoice date."

[4]It was an agreed statement of fact that the 1st defendant has used the SAP R/3 software to provide service
bureau application services to other companies as follows:
a. Motorola Technology Sdn Bhd
b. Motorola South Asia Pvt Limited
c. Motorola Multimedia Sdn Bhd
d. SCG Industries Sdn Bhd (ON Semiconductors)
e. Philips Semiconductors Seremban Sdn Bhd

(hereinafter will collectively be referred to as the additional customers).

[5]The 1st plaintiff had issued invoices to the 1st defendant dated 1.1.2001, 1.6.2002 and 1.1.2003 for maintenance
services for the year 2001, 2002 and 2003 respectively. The amounts for the invoices are RM145,495.66 for the
year 2001, RM139,291.71 for 2002 and RM139,291.71 for 2003. The 1st defendant has made part payment of
RM60,000 for maintenance fees for the year 2001 but had not paid the maintenance fees for the year 2002 and
2003. By reason of the non-payment of the maintenance fees and the use of the SAP R/3 software without the
authorization or consent of the 1st plaintiff for the additional customers, the EULA was terminated by the 1st plaintiff
vide a notice dated 25.8.2003.

[6]The plaintiffs had also alleged that there was an infringement of copyright in the said SAP R/3 software by the
1st defendant and the 2nd defendant. The alleged infringement relates to the Service Level Agreement (SLA)
entered into between the 2nd defendant and Alliance Bank Malaysia Berhad (ABMB) whereby the 2nd defendant
had agreed to provide, manage and maintain a Human Resource Information System (HRIS) using the said SAP
R/3 software by ABMB. It is not in dispute that no licence agreement was entered into between the 1st plaintiff and
the 2nd defendant.

[7]Vide this suit the plaintiffs are seeking for a declaration that the EULA between the 1st plaintiff and the 1st
defendant had been lawfully and effectively terminated by the 1st plaintiff; that the sum of RM364,079.08 being the
maintenance fees be paid by the 1st defendant to the 1st plaintiff; damages to be assessed for the breach of the
EULA and for other consequential orders in respect of the SAP R/3 software. There is a counterclaim by the
defendants for the loss suffered as a result of the alleged unlawful termination of EULA and for interference with the
contract with ABMB.

THE ISSUES

[8]The issues to be determined may broadly be stated as follows:-

1. whether there was a breach of the EULA by the 1st defendant
2. whether the termination of EULA by the 1st plaintiff was lawful
3. whether the sum of RM364,079.08 is due and owing from the 1st defendant for the maintenance fees for
the year 2001, 2002 and 2003
4. whether there was an infringement of the copyright by the 1st and the 2nd defendant.

FINDINGS

[9]The grounds relied on by the plaintiffs in terminating the EULA is the failure to pay the maintenance fees and the
breaches of the EULA by the 1st defendant. The issue of breach and termination is tied up with the issue whether
the maintenance fees are owing for 2001, 2002 and 2003. For convenience I will deal with those issues together.

WHETHER THE TERMINATION OF EULA WAS JUSTIFIED AND LAWFUL

[10]The defendants' case is that the maintenance fees for the year 2001 has been fully settled but admitted that the
fees are outstanding for the year 2002 and 2003. For 2003, the defendants contended that the fees ought to be
apportioned or pro-rated until August 2003.
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SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128

[11]In respect of the maintenance fees for the year 2001, the testimony of PW3 is that the 1st plaintiff attempted to
set off maintenance fees for the year 2001 against the outstanding payment owing from the 1st plaintiff to MMC. For
that purpose PW3 said the 1st plaintiff wrote to MMC in September 2001 but MMC replied that it was the 1st
defendant who should make payment as the EULA has been assigned. PW3 further said that the 1st plaintiff then
made full payment to MMC without any deductions for the maintenance fees.

[12]The oral testimony of PW3 is inconsistent with the contemporaneous document. The letter referred to by PW3
dated 5.9.2001 from the 1st plaintiff to MMC (exhibit P46) shows that the 1st plaintiff has issued a cheque on
20.8.2001 to MMC wherein the amount had taken into account the maintenance fees due for the year 2001,
meaning that the 1st plaintiff had deducted the outstanding maintenance fees for the said year. In cross-
examination PW3 confirmed that the cheque was issued. There is no evidence to show that the cheque that was
issued to MMC was returned by MMC and neither is there any contemporaneous document to show that exhibit
P46 had been overtaken by subsequent events. Exhibit P46 as it stands shows that deductions were made for the
maintenance fees. I therefore find that the maintenance fees for the year 2001 had been fully settled.

[13]As for the year 2003, the defendants' case is that the maintenance fees should have been apportioned until
August 2003, when the EULA was terminated. Clause 7.3 of the EULA provides that the maintenance fees would
be invoiced at the beginning of each year and that the maintenance fees would be paid annually in advance, in the
amount calculated as per the provided formula. Hence, there is no basis in the defendants' contention that it should
be apportioned until August 2003 or that the principle of quantum meruit should apply, as submitted by learned
counsel for the defendants. Consequently I find that the maintenance fees for the year 2002 and 2003 is
outstanding from the 1st defendant to the 1st plaintiff in the amount of RM278,583.42.

[14]Given the clear obligation on the 1st defendant to pay within 30 days of the invoice date, the 1st defendant had
undoubtedly breached the EULA in not paying the maintenance fees for the year 2002, of which there is no dispute.
The invoice for the maintenance fees for the year 2002 was dated 1.6.2002. Due to the breach, the 1st plaintiff is
entitled to terminate the EULA pursuant to clause 5.2 which provides that-

"This Agreement and the licence granted hereunder shall terminate upon the earliest to occur of the following:...(ii) thirty
days after SAP gives Licensee notice of Licensee's or its Principal's material breach of any provision of the Agreement...
including more than thirty days delinquency in Licensee's payment of any money due hereunder.."

[15]With regards to the termination of EULA, there is also the issue of whether the 1st defendant had breached the
EULA by using the SAP R/3 software for the additional customers. The evidence for the plaintiffs is that the EULA
was meant to allow the use of SAP R/3 software on an exceptional basis to only customers listed in Annexure A
and that the new customers would be updated from time to time by mutual consent. It was the evidence of PW1 and
PW2 that at all material times, only one customer i.e. Motorola Malaysia Sdn Bhd was included in Annexure A.

[16]PW1 also testified that there were negotiations for a partnership between the 1st plaintiff and the 1st defendant
for the Application Hosting provider (AH), Application Service provider (ASP) and Value Added Reseller (VAR) but
the negotiations failed and no agreement materialized. PW1 further testified that in or about February 2001 the 1st
plaintiff became aware that the 1st defendant was using the SAP R/3 software for service bureau application for
customers other than Motorola Malaysia Sdn Bhd and the 1st plaintiff had objected to the 1st defendant using the
SAP R/3 software for the additional customers.

[17]For the defendants, DW1 testified that the 1st plaintiff knew that 1st defendant was courting various customers
for the usage of SAP R/3 software and that the 1st plaintiff understood that a refusal of the additional customers
would mean that the 1st defendant would ultimately be unable to operate in the intended manner. Further, DW1
said that at the time of signing the EULA, parties agreed impliedly that more customers will be subsequently added.

[18]I accept that the parties agreed that more customers will be subsequently added in. Hence the EULA allows
Annexure A to be amended. However the amendment to Annexure A must be done by mutual agreement. The 1st
defendant wrote to the 1st plaintiff on 25.7.2001 (exhibit P6) stating that "We would like to inform SAP to update the
addendum to Annex A of our Bureau Contract dated 30th March 1999 for the following clients...". Informing the 1st
plaintiff of the additional customers does not constitute mutual agreement. Similarly, the 1st plaintiff having
knowledge that the 1st defendant was courting additional customers does not amount to mutual consent. In
accordance with clause 2.1 of the EULA both the 1st plaintiff and the 1st defendant must agree to the additional
customers. As testified by PW1, mutual agreement would be the 1st defendant discussing with the 1st plaintiff to
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SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128

get the 1st plaintiffs agreement before entering into any business usage or implementation of services with any
specific customer.

[19]The defendants alleged that there has been waiver by the plaintiff of the breach of the EULA which estopped
the plaintiffs from raising the same against the defendants as the plaintiffs have been aware of the breaches and
that there had been negotiations for a new agreement between the parties.

[20]For waiver to apply, particularly in respect of the additional customers, there must be clear evidence that the 1st
plaintiff had dispensed with the amendment of Annexure A and this dispensation must be by a voluntary conscious
and an affirmative act on the part of the 1st plaintiff (see Pan Ah Ba & Anor v Nanyang Construction Sdn Bhd [1969]
2 MLJ 181).

[21]There is no such evidence here. There is also no evidence that the 1st plaintiff had made a representation to
the 1st defendant that EULA can be used freely for other customers without the need to obtain mutual agreement
from the 1st plaintiff to have these customers included in Annexure A or that the 1st defendant could carry on its
business of providing human resource solutions to potential customers under the EULA if the ASP or the AH
agreement was not entered into between the parties.

[22]What is in evidence is that the 1st plaintiff had consistently maintained that the EULA was only for the customer
listed in Annexure A and that Annexure A which contains only Motorola Malaysia Sdn Bhd had not been amended.
This can be seen not only from the oral evidence but the documentary evidence set out below. Vide a letter dated
7.6.2001 to the 1st defendant (exhibit P5) the 1 plaintiff states that "additional customers must be agreed to by the
parties". Vide a letter dated 15.8.2001 (exhibit P7) the 1st plaintiff states that "informing SAP as per your letter
dated 25 July 2001 does not constitute mutual consent." Again on 30.8.2001 the first plaintiffs e-mail to the 1st
defendant (exhibit D24) states that "We have again confirmed verbally that the current contract will be limited to
Motorola only."

[23]It is also clear from the evidence that the negotiations between the 1st plaintiff and the 1st defendant were
carried out without prejudice to or waiving any of the plaintiffs' rights. The negotiations were with a view to
terminating the EULA and for the existing breaches of the EULA to be resolved. In light of the above, I find that
there is no waiver on the part of the 1st plaintiff and there can be no implied consent in the face of the letters
referred to. Neither is there variation of the EULA by subsequent conduct of the parties. Hence there was a breach
by the 1st defendant of clause 2.1(a) of EULA. In the circumstance and coupled with the fact that the maintenance
fees for the year 2002 and 2003 have not been paid, the termination of EULA by the 1st plaintiff is justified and
lawful.

WHETHER THERE WAS AN INFRINGEMENT OF THE COPYRIGHT BY THE 1ST AND THE 2ND DEFENDANT

[24]It is an established law that copyright subsists in a software program (see Creative Purpose Sdn Bhd & Anor v
Integrated Trans Corp Sdn Bhd & Ors [1997] 2 MLJ 429). Section 36 of the Copyright Act 1987 provides:-

"(1) Copyright is infringed by any person who does, or causes any other person to do, without the licence of the owner of
the copyright, an act the doing of which is controlled by copyright under this Act."

[25]In respect of the issue of infringement of copyright, the following facts have been agreed by the parties as found
in the statement of agreed facts signed by both solicitors for the plaintiffs and the defendants:-
1. the 2nd plaintiff created a business application Enterprise Resource Planning software package known as
SAP R/3 software and subsequent versions and upgrades thereof which are the subject of copyright
protection, which extends to Malaysia.
2. the 2nd plaintiff owns the copyright in the said SAP R/3 software and the 1st plaintiff distributes the
software in Malaysia.
3. the 1st defendant has since at least December 2002 allowed and/or enabled the 2nd defendant to use the
SAP R/3 software to develop an HRIS for ABMB.
4. the 2nd defendant has since at least December 2002 commenced development work on the HRIS for
ABMB during which time:
(i) the software was being customized/developed in the 2nd defendant's system/equipment;
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SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128

(ii) the HRIS on the SAP R/3 software platform was linked via a leased line to the ABMB LAN system and
computers and therefore accessible to ABMB;
(iii) a prototype of the HRIS on the SAP R/3 platform was presented to ABMB on 12.5.2003; and
(iv) the 2nd defendant conducted user training on the prototype for ABMB's staff, which was completed on
13.6.2003.

[26]In examination in chief, DW1 denied that the defendants had breached the plaintiffs' copyright. He states that
the 1st defendant had a licence to use, offer, provide and implement the SAP R/3 software for its purposes and also
for the purposes of its customers and the 1st defendant had done so with the knowledge and consent of the 1st
plaintiff. DW1 therefore said the defendants would not have infringed the copyright owned by the plaintiff. It is
important to note that the denial is not based on the fact that the 2nd defendant had not used the SAP R/3 software.

[27]In cross-examination, DW1 however said that it was the 1st defendant and not the 2nd defendant who had
carried out the development work in the HRIS and that the 2nd defendant had no access whatsoever to the SAP
R/3 software. DW1 further said that it was the 1st defendant who conducted user training for ABMB. This testimony
certainly is contrary to the statement of agreed facts. It is also contrary to the defence where the defendants had not
denied the use of the SAP R/3 software as part of the development work.

[28]Learned counsel for the defendants submitted that there is no evidence to show that the 2nd defendant was
using the SAP R/3 software pursuant to clause 1.26 of the EULA and that there is not an iota of evidence to show
that the SAP R/3 software had been disclosed by the 1st defendant to the 2nd defendant. Section 58 of the
Evidence Act 1950 provides:-

"(1) No fact need be proved in any proceeding which the parties thereto or their agents agree to admit at the hearing or
which before the hearing they agree to admit by any writing under their hands, or which by rule of pleading in force at the
time they are deemed to have been admitted by their pleadings:"

[29]In light of section 58 above, the submission of learned counsel could not be sustained, (see also Borneo
Housing Mortgage Finance Bhd v Personal Representatives of the Estate of Lee Lun Wah Maureen & Anor [1994]
1 MLJ 209).

[30]Further, the evidence of DW1 shows the following. That it was the 2nd defendant who had submitted the tender
for the SLA to ABMB; that ABMB can access the SAP R/3 software that had been placed in the equipment of the
defendants' premises; that the 1st and the 2nd defendant share the same premises; that the SAP R/3 software
need to be used or accessed by ABMB for testing purposes in respect of the HRIS system; that the final user
training for ABMB's staff was conducted at both the ABMB's premises and the defendants' premises; that when the
staff of ABMB completed the final user training, they were using the SAP R/3 software; that the SAP R/3 software
had been installed for developmental equipment.

[31]Even assuming that it was the 1st defendant and not the 2nd defendant who conducted the user training for the
staff of ABMB, the fact remains that ABMB was not listed in Annexure A and this supports the plaintiffs' case that
the 1st defendant never had any authority to deal in the SAP R/3 software with ABMB as no license had been
issued in respect of ABMB.

[32]It was contended by the defendants that ABMB need not be listed in the EULA as the licence was to be
obtained by ABMB directly from the 1st plaintiff. Be that as it may, there can be no doubt that even before the
licence is obtained by ABMB from the 1st plaintiff, ABMB already had access and was using the SAP R/3 software
for the training purposes. Indeed ABMB in its letter to the 1st plaintiff dated 21.7.2003 (page 745 of the Agreed
Bundle of Documents) admitted that "the developmental work on the HRIS since December 2002 was only carried
out at iWorld's premises on their system/equipment. However for testing purposes, it is linked via a leased line to
our LAN System/PCs and accessible to us."

[33]Thus, it cannot be denied from the evidence that it was the 1st defendant who had enabled the use of the said
software by ABMB, which is also an agreed fact. This is in breach of clause 6.1 and 6.2 of the EULA which prohibits
the 1st defendant from disclosing Proprietary Information (which includes all intellectual property rights, and
copyright in the SAP R/3 software) to other parties without prior written consent of the 1st plaintiff.
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SAP Malaysia Sdn Bhd & Anor v I World HRM Net Sdn Bhd & Anor [2010] MLJU 2128

[34]Learned counsel for the defendants further submitted that any implementation of the SAP R/3 software by the
1st defendant with ABMB prior to going 'live' need not have a licence. There is nothing in the EULA to support this
submission.

[35]As for the use of the SAP R/3 software, clause 1.26 of EULA defines "use" to mean 'load, execute, employ,
utilize, store or display the software'. DW1 confirms that specific folders were created in the defendants' computers
and stored in the memory for developmental and testing work using the SAP R/3 software. By DW1's own
testimony, the activities certainly involved storing. DW1 also admitted under cross-examination that at the stage of
user training for ABMB, the SAP R/3 software was used, albeit by the 1st defendant.

[36]It is an agreed fact that the SLA entered into between the 2nd defendant and ABMB was for the provision,
management and maintenance of a HRIS using the SAP R/3 software on a service bureau application basis.
'Service Bureau Application' is defined in the statement of agreed facts to mean 'use of the software or access to
the software for the purposes of operating or managing the business operations of a third party'. It is thus a fallacy
to say that the user training was conducted without using the SAP R/3 software.

[37]Looking at the evidence of DW1 in totality, I find that the acts carried out by the 1st defendant and/or the 2nd
defendant in relation to the developmental and testing works with ABMB comes within the definition of "use" in
EULA. As submitted by learned counsel for the plaintiffs, the creation of folders and storage thereof in the memory
of the defendants' computers prima facie establishes that reproduction in a material form has been performed by
the defendants without the authority of the plaintiffs (see Copyright Law in Malaysia Third Edition by Khaw Lake Tee
and Copinger and Skone James on Copyright Fifteenth Edition). I therefore find that the 1st and the 2nd defendant
are liable for the infringement of the SAP R/3 software.

[38]Insofar as the defendants' counter claim is concerned, apart from saying that when the EULA was terminated
his business came to ground zero, DW1 had not provided any proof of the loss suffered by the defendants arising
from the termination of the EULA. In any event, I have found that the EULA has been lawfully terminated. In respect
of the alleged interference of the contract with ABMB, given that the plaintiffs were merely asserting their rights
under trie EULA, there is no basis for the defendants to claim for the unlawful interference with ABMB's contract.

[39]There are side issues raised by learned counsel for the defendants in his written submission in respect of the
non-calling of Khatijah Shah to testify and on the credibility of PW1. It was submitted that the non-calling of Khatijah
who signed various documents/e-mails for the plaintiffs is ripe for the invocation of section 114(g) of the Evidence
Act. My view is that section 114(g) is not applicable in the instant situation. There had been no inconsistency
between the oral testimony of PW1 and the documents signed by Khatijah insofar as the plaintiffs' stand on the
mutual consent is concerned. As for PW1, I have no doubt of her credibility. Although she does not know the
answer to some of the questions asked of her, her evidence, particularly on the issue of mutual consent, finds
support in the contemporaneous documents.

[40]Judgment is accordingly entered against the 1st and the 2nd defendants as prayed except that the
maintenance fees to be paid by the 1st defendant to the 1st plaintiff would be in the amount of RM278,583.42. The
defendants' counterclaim is dismissed. Having regard to the submissions on costs, I am of the view that
RM200,000.00 is a reasonable amount to be paid to the plaintiffs and I so order.

End of Document