Whether downloadable software is goods or not?

The European Court has ruled in an important case C‑410/19 The Software Incubator Ltd v Computer Associates (UK) Ltd, which targets the issue of whether downloadable software under a perpetual licence is goods or not. The case has the following background:

Computer Associates is a company that markets application service automation software for deploying and managing applications across a data centre (‘the software at issue’). The purpose of that software is to coordinate and implement automatically the deployment of and updates for other applications across the different operational environments in large organisations such as banks and insurance companies, so that the underlying applications are fully integrated with the software operating environment.

Computer Associates granted its customers, by electronic means, licences to use the software at issue in a specified territory for an authorised number of end users.

The grant of the licence for that software was contingent upon compliance with obligations under which the customer was not authorised, in particular, to access any unauthorised portion of the software, to de-compile or modify it, or to rent, assign or transfer it or to grant a sub-license.

It is apparent from the information provided by the referring court that the licence to use the software at issue could be granted either indefinitely or for a limited period of time. In the event of termination of the agreement for material breach attributable to the other party or on account of the latter’s insolvency, that software was to be returned to Computer Associates, deleted or destroyed by the customer. In practice, most licences were, however, granted indefinitely. Computer Associates retained, in that regard, all rights, in particular copyright, title, patent, trademark right and all other proprietary interests in and to the software at issue.

On 25 March 2013, Computer Associates entered into an agreement with The Software Incubator. Under Clause 2.1 of that agreement, the latter company acted on behalf of Computer Associates to approach potential customers within the United Kingdom and Ireland for the purpose of ‘promoting, marketing and selling the [software at issue]’. Under the agreement, The Software Incubator’s obligations were limited to the promotion and marketing of that software. The Software Incubator did not have any authority to transfer property in the software.

By letter dated 9 October 2013, Computer Associates terminated the agreement with The Software Incubator.

The Software Incubator brought an action for damages, on the basis of the provisions of national law implementing Directive 86/653, against Computer Associates before the High Court of Justice (England & Wales), Queen’s Bench Division (United Kingdom). Computer Associates disputed the classification of its relationship with The Software Incubator as a commercial agency contract, contending that the supply of computer software to a customer by electronic means accompanied by the grant of a perpetual licence to use that software did not constitute a ‘sale of goods’ within the meaning of Article 1(2) of that directive.

By decision of 1 July 2016, the High Court of Justice (England & Wales), Queen’s Bench Division, granted The Software Incubator’s application and ordered that that company be awarded 475 000 pounds sterling (GBP) (approximately EUR 531 000) by way of compensation. That court took the view, in that context, that the ‘sale of goods’ within the meaning of Statutory Instruments 1993/3053 referred to an autonomous definition which had to include the supply of software.

Computer Associates lodged an appeal against that judgment before the Court of Appeal (England & Wales) (Civil Division) (United Kingdom). By decision of 19 March 2018, that court held that software supplied to a customer electronically does not constitute ‘goods’ within the meaning of Article 1(2) of Directive 86/653, as interpreted by the Court of Justice. It concluded that The Software Incubator was not a ‘commercial agent’ within the meaning of that provision and dismissed its claim for compensation.

The Software Incubator challenged that decision before the Supreme Court of the United Kingdom.

That court seeks from the Court of Justice an interpretation of Article 1(2) of Directive 86/653 which it needs in order to determine whether the concept of ‘commercial agent’ having authority to negotiate the ‘sale of goods’ applies in the case of a supply of computer software by electronic means to the customer, the use of that software being governed by a licence granted indefinitely.

In those circumstances, the Supreme Court of the United Kingdom decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)  Where a copy of computer software is supplied to a principal’s customers electronically, and not on any tangible medium, does it constitute “goods” within the meaning of that term as it appears in the definition of a commercial agent in Article 1(2) of Council Directive 86/653/EEC of December 1986 on the co-ordination of the laws of Member States relating to self-employed commercial agents (“Directive”)?

(2)  Where computer software is supplied to a principal’s customers by way of the grant to the customer of a perpetual licence to use a copy of the computer software, does that constitute a “sale of goods” within the meaning of that term as it appears in the definition of commercial agent in Article 1(2) of the Directive?’

The Court’s decision:

The concept of ‘sale of goods’ referred to in Article 1(2) of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents must be interpreted as meaning that it can cover the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software.

Whether decompiling software code is illegal?

The European Court has ruled in case  C‑13/20 Top System SA v Белгия which focuses our attention on the question to what extent decompiling software code can be legal.

Top System is a company governed by Belgian law that develops computer programs and provides IT services.

SELOR is the public body, which is responsible in Belgium, for selecting and orienting the future personnel of the authorities’ various public services. Following SELOR’s integration into the service public fPolicy and Support Federal Public Service, the Belgian State replaced that body as the defendant in the main proceedings.

Since 1990, Top System has collaborated with SELOR, on whose behalf it provides IT development and maintenance services.

In order to fulfil its tasks, SELOR has gradually put in place IT tools to enable applications to be submitted and processed online.

At the request of SELOR, Top System developed several applications which contain (i) functionalities originating from its framework software called ‘Top System Framework’ (‘the TSF’) and (ii) functionalities designed to meet SELOR’s specific needs.

SELOR has a user license for the applications developed by Top System.

On 6 February 2008, SELOR and Top System concluded an agreement for the installation and configuration of a new development environment as well as the integration of the sources of SELOR’s applications into, and their migration to, that new environment.

Between June and October 2008, there was an exchange of emails between SELOR and Top System about operating problems affecting certain applications using the TSF.

Having failed to reach agreement with SELOR on the resolution of those problems, on 6 July 2009, Top System brought an action against SELOR and the Belgian State before the Commercial Court, Brussels, Belgium seeking, inter alia, a declaration that SELOR had decompiled the TSF, in breach of Top System’s exclusive rights in that software. Top System also claimed that SELOR and the Belgian State should be ordered to pay it damages for the decompilation of and copying of the source codes from that software, together with compensatory interest, from the estimated date of that decompilation, that is to say, from 18 December 2008 at the latest.

On 26 November 2009, the case was referred to the Court of First Instance, Brussels, Belgium which, by judgment of 19 March 2013, in essence, dismissed Top System’s application.

Top System brought an appeal against that judgment before the referring court, the Court of Appeal, Brussels, Belgium.

Before that court, Top System submits that SELOR unlawfully decompiled the TSF. According to the applicant, under Articles 6 and 7 of the LPO, decompilation can be carried out only with the authorisation of the author, the successor in title of that author, or for interoperability purposes. On the other hand, decompilation is not permitted for the purpose of correcting errors affecting the functioning of the program concerned.

SELOR acknowledges that it decompiled part of the TSF in order to disable a defective function. However, it submits, inter alia, that, under Article 6(1) of the LPO, it was entitled to carry out that decompilation in order to correct certain design errors affecting the TSF, which made it impossible to use that software in accordance with its intended purpose. SELOR also relies on its right, under Article 6(3) of the LPO, to observe, study or test the functioning of the program concerned in order to ascertain the underlying ideas and principles of the relevant TSF functionalities in order to be able to prevent the blockages caused by those errors.

The referring court takes the view that, in order to determine whether SELOR was entitled to carry out that decompilation on the basis of Article 6(1) of the LPO, it is for that court to ascertain whether the decompilation of all or part of a computer program comes within the acts referred to in Article 5(a) and (b) of the LPO.

In those circumstances, the Court of Appeal, Brussels decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Is Article 5(1) of [Directive 91/250] to be interpreted as permitting the lawful purchaser of a computer program to decompile all or part of that program where such decompilation is necessary to enable that person to correct errors affecting the operation of the program, including where the correction consists in disabling a function that is affecting the proper operation of the application of which the program forms a part?

(2) In the event that that question is answered in the affirmative, must the conditions referred to in Article 6 of the directive, or any other conditions, also be satisfied?’

The Court decision is:

1. Article 5(1) of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs must be interpreted as meaning that the lawful purchaser of a computer program is entitled to decompile all or part of that program in order to correct errors affecting its operation, including where the correction consists in disabling a function that is affecting the proper operation of the application of which that program forms a part.

2.  Article 5(1) of Directive 91/250 must be interpreted as meaning that the lawful purchaser of a computer program who wishes to decompile that program in order to correct errors affecting the operation thereof is not required to satisfy the requirements laid down in Article 6 of that directive. However, that purchaser is entitled to carry out such a decompilation only to the extent necessary to effect that correction and in compliance, where appropriate, with the conditions laid down in the contract with the holder of the copyright in that program.

Private copying levies, copyrights, clouds and Advocate General’s opinion

The Advocate Genaral of the European Court G.Hogan has issued his opinion on the case C‑433/20 Austro-Mechana Gesellschaft zur Wahrnehmung mechanisch-musikalischer Urheberrechte Gesellschaft mbH v Strato AG.

In a nutshell the case concerns the question whether private copying in a cloud environment requires separate copying levy. The dispute has the following background:

Austro-Mechana is a copyright collecting society which protects, in a fiduciary capacity, the rights of use and the rights to remuneration in respect of works of music (with and without lyrics) in its own name but in the interest of and on behalf of the beneficiaries of those rights. The interests protected by collecting societies such as Austro-Mechana include, in particular, the statutory rights to remuneration provided for in Paragraph 42b(1) of the UrhG, that is, the right to remuneration in respect of the exploitation of the right of reproduction on storage media.

Austro-Mechana brought an action before the Commercial Court, Vienna, Austria against Strato, a company established in Germany, which provides a service under the name ‘HiDrive’. The service in question is described by its supplier as a ‘virtual cloud storage solution which is as quick and simple to use as an (external) hard disk’. Strato claims that its storage solution ‘offers enough space to store photos, music and films in one central location’.

Austro-Mechana sought an order allowing it to invoice for, and subsequently take payment in settlement of, the remuneration owed by Strato under Paragraph 42b(1) of the UrhG for exploitation of the right of reproduction on storage media. It contends that given that the form of words used in Paragraph 42b(1) of the UrhG is itself deliberately framed in general terms, remuneration for exploitation of the right of reproduction on storage media is payable even in the case where storage media of any kind are, in the course of a commercial activity, ‘placed on the market’ – by whatever means and in whatever form – within national territory, including in situations involving the provision of cloud-based storage space. It says that the descriptive words ‘place on the market’ do not refer to physical distribution but deliberately leave scope for the inclusion of all processes that have the effect of making storage space available to users in national territory for the purposes of reproduction for (personal or) private use. In addition, Paragraph 42b(3) of the UrhG makes it clear that it is immaterial whether the storage media placed on the market originate in national territory or in other countries.

Strato contested the application. It claimed that the applicable version of the UrhG does not provide for remuneration for cloud services and that the legislature, being cognisant of the technical possibilities available, made a deliberate choice not to take up that option. According to Strato, cloud services and physical storage media are not comparable. An interpretation that includes cloud services is not possible as storage media is not placed on the market; storage space is simply made available. Strato claimed that it does not sell or lease physical storage media to Austria but merely offers online storage space on its servers hosted in Germany. Strato also stated that it has already indirectly paid the copyright fee for its servers in Germany (as a component of the price charged by the manufacturer/importer). In addition, Austrian users had already paid a copyright fee for the devices without which content cannot even be uploaded to the cloud in the first place. The imposition of an additional charge by way of remuneration for exploitation of the right of reproduction on storage media, for cloud storage, would, according to Strato, have the effect of doubling or even tripling the obligation to pay a fee.

The Commercial Court, Vienna dismissed the action. It held essentially, that holders of copyright and related rights (‘rightholders’) are entitled to equitable remuneration in the case where storage media (from a location in national territory or another country) are, in the course of a commercial activity, placed on the market in the national territory, if an object requiring protection is by its nature likely to be reproduced for personal or private use by being recorded on a storage medium (in a manner permitted in accordance with Paragraph 42(2) to (7) of the UrhG), that is to say, in relation to storage media of any kind that are suitable for making such reproductions.

The Commercial Court, Vienna stated that Paragraph 42b(1) of the UrhG, which expressly refers to ‘storage media of any kind’, includes – internal and external – computer hard disks. It also stated that cloud services exist in the most diverse forms. The core of any such service is the assurance that the user has a certain storage capacity, but this does not include the right for the user to have his or her content stored on a particular server or on particular servers, his or her entitlement being limited to being able to access his or her storage capacity ‘somewhere in the [supplier’s] cloud’. According to that court, Strato does not therefore provide its customers with storage media but makes storage capacity available – as a service – online. It noted that in the course of the procedure for peer review of the draft of the Urh-Nov, (8) an express call was made for account to be taken of cloud storage and proposed forms of words were put forward for that purpose. However, the legislature deliberately chose not to include such a provision.

Austro-Mechana appealed against that judgment before the referring court. The referring court considers that the question whether Article 5(2)(b) of Directive 2001/29 covers the storage of copyright-protected content in the cloud is not entirely clear. In that regard, the referring court notes that in the judgment of 29 November 2017, VCAST (C‑265/16, EU:C:2017:913; ‘the VCAST judgment), the Court stated that the storage of protected content in a cloud is to be treated as an exploitation of rights in which the author alone may engage.

In the light of the above considerations, the Higher Regional Court, Vienna decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:

‘(1) Is the expression “on any medium” in Article 5(2)(b) of Directive [2001/29] to be interpreted as meaning that it also includes servers owned by third parties which make available to natural persons (customers) for private use (and for ends that are neither directly nor indirectly commercial) storage space on … those servers which those customers use for reproduction by storage (“cloud computing”)?

(2) If so: is the provision cited in Question 1 to be interpreted as meaning that it is applicable to national legislation under which the author is entitled to equitable remuneration (remuneration for exploitation of the right of reproduction on storage media), in the case:

–  where a work (which has been broadcast, made available to the public or recorded on a storage medium produced for commercial purposes) is by its nature likely to be reproduced for personal or private use by being stored “on a storage medium of any kind which is suitable for such reproduction and, in the course of a commercial activity, is placed on the market in national territory”,

–  and where the storage method used in that context is that described in Question 1?’

The Advocate’s opinion:

The terms ‘reproductions on any medium’ in Article 5(2)(b) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society includes reproduction based on cloud computing services provided by a third party.

A separate levy or fee is not payable in respect of the reproduction by a natural person for their own personal purposes based on cloud computing services provided by a third party provided that the levies paid in respect of devices/media in the Member State in question also reflects the harm caused to the rightholder by such reproduction. If a Member State has, in fact, elected to provide for a levy system in respect of devices/media, the referring court is in principle entitled to assume that this in itself constitutes ‘fair compensation’ in the sense of Article 5(2)(b) of Directive 2001/29, unless the rightholder (or their representative) can clearly demonstrate that such payment would in the circumstances of the case at hand be inadequate.

Revocation of a trademark for non-use – Italian perspective

The Court of Milan has ruled in a trademark dispute for revocation based on non-use of a sign.

The case concerns an Italian trademark “AQUA NUNTIA” registered in 2012 and equal European trademark registered in 2012. Both signs, own by an individual, target class 03 – perfumes.

Two Italian companies started to offer perfumes under brand “AQVA NVNTIA”. The owner of the earlier signs initiated lawsuits for trademark infringements. And as a logical consequence both companies filed applications for revocation of the marks based on lack of real market use.

The EUIPO revoked the European trademark.

The Italian Court did this for the Italian mark too. The owner submitted evidence for some preparation for the use of the marks such as researching perfume partners, printing brochures, registration of a domain name etc.

The Court dismissed this evidence as insufficient. The key element in order a trademark use to be proved is the consumers knowledge about the mark. The fact that some traders or distributers know about the brand is not enough for real market use in Italy.

The owner tried to warrant the lack of trademark use with her health problems throughout the years but the Court dismissed this too. The reason is that one mark can be used by third parties when this is authorized by the owner through a license. From that perspective options for use of the marks were available.

Source: Bird & Bird LLP – Federico Manstretta for Lexology.

HYDRO and HYLO are similar enough according to the General Court of the EU

The General Court of the European Union has ruled in case  T‑817/19, Olimp Laboratories sp. z o.o v EUIPO.

This case concerns an attempt by Olimp Laboratories to register the following European trademark in class 05 – Pharmaceutical preparations, Pharmaceutical preparations for the treatment of eye diseases and conditions; Medical preparations; Eye drops, Preparations for ocular lubrication, Medicated eye-washes, Eye lotions for medical use; Topical anti-infective substances for the treatment of infections of the eye; Cachets for pharmaceutical purposes, Capsules for medicines, Lozenges for pharmaceutical purposes, Lozenges for pharmaceutical purposes; Medicines for human purposes, Tonics [medicines], Medicines for medical purposes, Adjuvants for medical purposes, Medicaments in liquid form; Ointments for pharmaceutical purposes, Eye ointment for medical use; Eye pads for medical use, Eye compresses; analgesic and anti-inflammatory preparations; Medicinal herbs.

Against this application an opposition was filed by OmniVision GmbH  based on an earlier European trademark for HYLO-VISION in class 05 – Dietary supplements and dietetic preparations; Medical and veterinary preparations and articles.

Both the EUIPO Opposition division and the Board of Appeal upheld the opposition finding the signs similar enough.

The decision was appealed. Olimp Laboratories argued that the earlier mark is devoid of distinctive character. The element VISION is used by many producers of such products. On the other hand HYLO refers to sodium hyaluronate.

The General Court disagreed and dismissed the appeal.

The Court found the goods as identical. In terms of the signs, the Court considered that the stylistic elements of the mark applied for are purely decorative. The figurative element of an eye and the word HYDRO have low distinctive character. In addition, VISION is descriptive for the goods at hand.

The Court found the claim for relation between HYLO and sodium hyaluronate as not proved and insufficient.

When it comes to the comparison between the marks, the Court considered them visually and phonetically similar. Conceptual similarity was found only in regard to the VISION element but not for the signs as a whole.

The difference between the mark in the letters L and DR was not enough to overcome the similarity.

The EUIPO decision was upheld

Pirelli won a tyre dispute in the EU

The European Court has ruled recently on joined cases C‑818/18 P и C‑6/19 P The Yokohama Rubber Co. Ltd v Pirelli Tyre SpA.

The dispute at hand concerns the following figurative European trademark registered by Pirelli in 2001 for class 12 – tyres, solid, semi-pneumatic and pneumatic tyres, rims and covers for vehicle wheels of all kinds, vehicle wheels of all kinds, inner tubes, wheel rims, parts, accessories and spare parts for vehicle wheels of all kinds“:

On 27 September 2012, Yokohama filed before EUIPO an application for a declaration of invalidity of the mark at issue for the goods ‘Tyres, solid, semi-pneumatic and pneumatic tyres for vehicle wheels of all kinds’, based on Article 52(1)(a) of Regulation No 40/94, read in conjunction with Article 7(1)(b) or Article 7(1)(e)(ii) of that regulation.

By decision of 28 August 2014, the Cancellation Division of EUIPO declared the mark at issue invalid for those goods, as well as for ‘rims and covers for vehicle wheels of all kinds’, on the ground that the mark at issue consisted exclusively of the shape of the goods concerned necessary to obtain a technical result within the meaning of Article 7(1)(e)(ii) of Regulation No 40/94.

Pirelli filed a notice of appeal against that decision with EUIPO, pursuant to Articles 58 to 64 of Regulation No 207/2009.

The Fifth Board of Appeal of EUIPO upheld the appeal in part, annulling the decision of the Cancellation Division in so far as it had declared the mark at issue invalid for ‘rims and covers for vehicle wheels of all kinds’. It dismissed the appeal as to the remainder, thus confirming the invalidity of the mark at issue in respect of ‘Tyres, solid, semi-pneumatic and pneumatic tyres for vehicle wheels of all kinds’.

The decision was appealed before the General Court of the EU.

The Court overturned it concluding that the sign at hand does not perform any technical functions. The reason for this is that the mark represents only a single groove of a tyre tread and just alone it cannot has technical function. In order such a function to be achieved other elements from the tyre are necessary. What’s more the groove represents one very small part of the entire tyre.

The European Court upheld this position. Nevertheless the Court highlighted that the scope of protection of the above mark is quite limited. Other manufacturers can use similar grooves if they are part of tyres with different overall shapes.

IOC won a dispute regarding the Olympic trademark in Germany

The International Olympic Committee succeeded in a dispute in Germany on a trademark associating with the Olympic Games.

The case at hand regards the following German trademark application for classes 28, 35 and 41:

The German Patent and Trademark Office refused this trademark based on the German Law on the Protection of the Olympic Emblem and Designations (OlympSchG). According to this law, any use of  “Olympiade”, “Olympia”, “olympisch” or similar is prohibited if it is not authorized by the the National Olympic Committee for Germany or the International Olympic Committee. 

The decision was appealed and overturned. Because of this The International Olympic Committee intervened filing an opposition against this mark based on early registered mark for OLYMPIC.

This time, however, the Patent Office didn’t find similarity between the signs dismissing the opposition. In the appeal the German Federal Patent Court upheld this decision as valid.

Another appeal followed and the German Federal Supreme Court overturned the decision entirely. According to the court, the opposition was admissible. The fact that special legislation protects the Olympic Games symbols and signs doesn’t mean that they cannot be protected by the trademark law too.

When comparing the signs, the Court found enough similarities in order to upheld the opposition. The figurative element in the mark applied for would be perceived as an indication for the Olympic fire. In addition the lower court didn’t take into consideration the enormous reputation the earlier mark possesses. What’s more the first element of the mark RETRO has descriptive character.

The case has now been referred back to the German Federal Patent Court for new decision.

Source:  Yvonne Stone, Jana Bogatz – D Young & Co LLP for Lexology.