Contracts and intellectual property – a decision by the European court

pexels-photo-169573The European court has ruled in case C‑666/18 IT Development SAS срещу Free Mobile SAS. The case concerns the following:

By a contract of 25 August 2010, amended by an addendum of 1 April 2012, IT Development granted a licence to and concluded a maintenance agreement with the company Free Mobile, a mobile phone operator offering mobile phone packages on the French market, for the ‘ClickOnSite’ software package, centralised project management software designed to enable Free Mobile to organise and monitor in real time the progress made by its teams and external technical service providers in deploying all its radiotelephone antennae.

By document of 18 June 2015, IT Development brought proceedings against Free Mobile before the tribunal de grande instance de Paris (Regional Court, Paris, France) for infringement of the copyright of the ClickOnSite software package and seeking compensation for its loss. IT Development alleged that Free Mobile had modified the software, in particular by creating new forms. In addition to the substantive nature, in IT Development’s opinion, of those modifications, it argued, in particular, that Free Mobile did not have the right to make such modifications because the provisions of Article 6 of the licence agreement, entitled ‘Scope of the licence’, stated, in essence, that the customer expressly undertakes not to reproduce, directly or indirectly, the software package, to decompile and/or carry out retro-engineering operations on it, as well as to modify, correct, adapt, create second works and add, directly or indirectly, to that software.

Free Mobile brought a counterclaim for abuse of process and argued that IT Development’s claims were inadmissible and unfounded.

By judgment of 6 January 2017, the Tribunal de grande instance de Paris (Regional Court, Paris) declared the claims brought by IT Development based on Free Mobile’s tortious liability inadmissible, dismissed Free Mobile’s claim for damages and interest for abuse of process and ordered IT Development to pay the costs. That court held that there are two separate sets of rules relating to liability in intellectual property matters, one being tortious liability in the event of infringement of the exploitation rights of the author of the software, as determined by law, the other being contractual liability in the event of infringement of a copyright reserved by contract, and that, in the present case, Free Mobile was clearly alleged to have failed to perform its contractual obligations, providing a basis for an action for contractual liability, and not for the tortious act of infringement of software copyright.

IT Development brought an appeal against that judgment before the cour d’appel de Paris (Court of Appeal, Paris, France), requesting the latter to refer a question to the Court of Justice for a preliminary ruling, to set aside the judgment at first instance and to declare the infringement proceedings which it had brought to be admissible. IT Development also seeks a declaration that the modifications to the software made by Free Mobile constitute copyright infringements, that Free Mobile be ordered to pay IT Development the sum of EUR 1 440 000 as compensation for the damage suffered and, in the alternative, that Free Mobile be ordered, on a contractual basis, to pay IT Development the sum of EUR 840 000 as compensation for that damage. It also requests, in any event, that Free Mobile and its subcontractor, Coraso, be prohibited from using the software and from extracting and reusing the data from it.

Free Mobile requests the cour d’appel de Paris (Court of Appeal, Paris) in particular, to uphold the provisions of the judgment at first instance, to order IT Development to pay it the sum of EUR 50 000 euros by way of damages and interest for abuse of process and to declare all IT Development’s claims inadmissible and in any event unfounded.

The referring court states that French civil liability law is based on the principle of non-cumulation, which means that, first, one person cannot hold another person liable in contract and tort for the same acts, and that, second, tortious liability is excluded in favour of contractual liability where those persons are bound by a valid contract and the damage suffered by one of them results from non-performance or improper performance of a contractual obligation. In addition, the referring court states that, under French law, copyright infringement, originally a criminal offence, is based on tortious liability but that, under that law, there is no provision under which such an infringement cannot exist where there is a contract binding the parties. In that respect, for example, infringement proceedings could be brought against a licensee who has infringed the limits of his contract in patent and trade mark matters.

However, the referring court points out that Article 2 of Directive 2004/48, which defines the scope of that directive, provides in general terms that the measures, procedures and remedies which it provides for are to apply to any infringement of intellectual property rights, without distinguishing between whether or not such infringement results from the non-performance of a contract.

In those circumstances, the cour d’appel de Paris (Court of Appeal, Paris) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Does a software licensee’s non-compliance with the terms of a software licence agreement (by expiry of a trial period, by exceeding the number of authorised users or some other limit, such as the number of processors which may be used to execute the software instructions, or by modifying the source code of the software where the licence reserves that right to the initial rightholder) constitute:

–   an infringement (for the purposes of Directive [2004/48]) of a right of the author of the software that is reserved by Article 4 of Directive [2009/24] on the legal protection of computer programs,

–  or may it comply with a separate system of legal rules, such as the system of rules on contractual liability under ordinary law?’

The Court’s decision:

Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights and Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the breach of a clause in a licence agreement for a computer program relating to the intellectual property rights of the owner of the copyright of that program falls within the concept of ‘infringement of intellectual property rights’, within the meaning of Directive 2004/48, and that, therefore, that owner must be able to benefit from the guarantees provided for by that directive, regardless of the liability regime applicable under national law.

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