Friday 19 October 2012

Validity of sublicence upon lapse of principal licence

When I was perusing this summer’s judgments added to the online database of the Bundesgerichtshof (BGH), I came across two particularly interesting cases on copyright licences. In its Take Five and M2Trade decisions of 19 July 2012 (case references: I ZR 24/11 and I ZR 70/10 respectively), the BGH deliberated a hotly debated issue, namely what happens with a copyright sublicence if the principal licence lapses.

Since M2Trade concerned software and Take Five music, which I find more interesting than software, I will set out the facts of Take Five and refer to M2Trade only where there is a difference in legal reasoning:

The claimant is a music publisher that owns the worldwide copyrights in Paul Desmond’s musical composition “Take Five”. In 1960, it granted an exclusive licence in the work to a European music publisher for musical publishing in Europe. In 1961, the European music publisher granted an exclusive sublicence for the territories of Germany and Austria to the defendant’s legal predecessor, in exchange for recurrent royalty payments. In 1986, the claimant and the principal licensee agreed to terminate the publishing contract concerning the musical work “Take Five”, and that any sublicences would be terminated also.

Apparently, nothing happened for a long time afterwards, apart from the fact that the sublicensee directed its royalty payments to the copyright owner from the effective date of the termination agreement between the copyright owner and the principal licensee. Eventually, the copyright owner granted a new exclusive licence to another European music publisher, and a dispute over the German and Austrian rights ensued.

The BGH held that the sublicensee retained the German and Austrian publishing rights in spite of the termination of the principal licence. This is the next step up from the position the BGH developed in its Reifen Progressiv decision (26 March 2009, case reference: I ZR 153/06). In that case, the principal licensee had granted a non-exclusive licence to a sublicensee in exchange for a lump sum payment. The copyright owner successfully revoked the principal licence due to non-exercise in accordance with § 41 German Copyright Act (UrhG), but the sublicence was held to be valid.

In Take Five, BGH highlighted the principle of protecting the successor in title (“Sukzessionsschutz”) as an important part of intellectual property law (cf. § 33 UrhG). Therefore, the sublicensee’s interest in the continued validity of his licence will typically trump any competing interests of the copyright owner, even in case of an exclusive sublicence or a non-exclusive long-term licence.

In Take Five, United States law governed the contract between the claimant and the principal licensee and it was held that, either by implied contractual agreement or ipso iure, the claimant was entitled to cession of the principal licensee’s royalty claims against the sublicensee. Under German law, which governed M2Trade, the claim for royalty payments against the sublicensee automatically revests in the copyright owner when the principal licence lapses (in M2Trade, the court overruled its previous position established in Die Privatsekretärin, 15 April 1958, case reference: I ZR 31/57). It was held in both cases that this sufficiently takes the copyright owner’s interests into account and leaves no ground for declaring the sublicence invalid.

The reason why the principal licence lapsed (revocation due to non-exercise as in Reifen Progressiv, termination of contract by mutual agreement as in Take Five, termination of contract due to default of payment as in M2Trade, or any other reason) was also declared to be of small significance, if any.

Take Five and M2Trade have clarified the legal situation not only with regard to copyright sublicences, but to sublicences in other areas of intellectual property as well. Both judgments inform us that Senate X of the BGH, which is inter alia competent to decide patent cases, has no objections against the principle that sublicences will typically remain valid when the principal licence lapses.

1 comment:

Anonymous said...

I don't understand the reasoning here.

Aren't the rights of a licensee derivative from and limited by the rights of the principal licensee, as a general matter of law?

It seems to me like the court is manufacturing rights to be "more or less fair" and to construct some sort of ongoing business activity, rather than tracing through the actual implications of the contracts.

I really would like to know what the concept is here.