Dealing With Breaches of Software Licensing Agreements: IP or Contract?

Most businesses have entered into a software agreement in one form or another, as digital tools and IT services form a key part of our business activities. But what happens if a party fails to respect the terms of the agreement, and how will the courts look at this?

If you are have ever entered into a software license agreement, you will probably be used to seeing provisions in the contract that the software cannot be changed in any way or reused in any way. Perhaps you are the software provider, or you may be the company contracting to make use of a software?

Both parties will generally understand the importance of sticking to these rules. If not, questions around the copyright of the software can arise.

In this article, we examine the EU Attorney General’s answer to the question: is breaching a software license agreement copyright infringement?

The Law 

EU laws and national laws can be disparate in this area. Directive 2009/24/EC is the EU regime which aims to protect computer programmes and intellectual property, under copyright law as literary works. It is only the expression of the program, and not any ideas or principles which underly it, that are protected.

Any computer program is protected under copyright law if it is original - in the sense that it is the author’s own intellectual creation, in this case, the author would be the software developer (albeit, depending on each case, the underlying rights may have been assigned or transferred from the developer him/herself to a company or other third party). In any case, once the software developer’s creation is capable of copyright protection, this gives him/her (or indeed, any company or party to which the rights have been assigned) the exclusive right to do or authorise any reproduction, translation or distribution of the program that it has created. Under the law, Member States are required to provide remedies against anyone infringing these rights. These rights arise as a matter of law upon creation of a copyrighted work, however, dealings in the copyrighted work, such as putting it on the market - particularly where software is concerned - often takes place by way of licence agreement.

Here is where the difficulty can arise: Across the EU, national rules can provide for different scopes of protection. In the Netherlands, Germany and the United Kingdom, the opinion seems to be that a breach of a software licence agreement could be either an IP infringement or breach of contract. Other countries such as Belgium and France prohibit the possibility of relying on both options, and seek an order of prevalence. These converging rules are what led to the Court of Appeal of Paris to refer a question concerning the breach of a license agreement to the Court of Justice of the European Union (ECJ).

The Case

In IT Development v Free Mobile, a software developer called IT Development entered into an agreement with Free Mobile, a French mobile operator, for the use of “ClickOnLine” software. This software enabled Free Mobile to organise and monitor its telephone antennas in real time. IT Development claimed that Free Mobile had modified the computer programme source code it had licensed, and brought a case against it before the French Courts arguing that this modification constituted a copyright infringement. 

The Court of First Instance of Paris examined French law. Article L122-6 of the Intellectual Property Code defined the breach as a copyright infringement, however Article L122-6-1 of the same code dictated that general contract law applied. The Court therefore dismissed the claim, finding that when parties are bound by a valid agreement and the loss suffered by one is as a result of the other not performing its obligations, tortious liability is disregarded in favour of contractual liability. 

IT Development disagreed and appealed the case to Paris Court of Appeals. Paris Court of Appeals took issue with the disparity in rules, and has asked the ECJ: 

Does non-compliance with a software licensing agreement constitute an IP infringement, or can it be subject to a different national system of legal rules?

 The Advocate General’s Opinion

In advance of the case being decided by the ECJ, the Advocate General has issued an opinion in accordance with standard procedural practice.

Assuming that the conduct of the licensee might be simultaneously classified as both a breach of contract and copyright infringement, EU law imposes no specific liability regime. The Directive includes the protection of the rightsholder within the scope of contractual relations and with regard to the relations between the rightsholder and third parties. Therefore, according to the Advocate General, it is for the national legislature to decide. 

Apparently, the crucial requirement is the Article 3 obligation for national measures, procedures and remedies to be in place to enforce IP rights. These must be fair, equitable and proportionate. They must not be complex or burdensome, and must not entail unreasonable time limits or unwarranted delays. 

What is important is not what provides greater protection in terms of the rights of recovery, but what makes the rightsholders options easy. 

Turning to address the specific case in question, the Advocate General has suggested that the disagreement over the legal basis should be considered to be contractual, since the alleged breach - modifying the source code of the program, against the terms of the agreement- is contractual in nature. 

We await the official decision from the ECJ, but the Advocate General’s Opinion ahead of these decisions are generally a strong indication of what can be expected. 

As always, if you would like any legal advice on software licensing agreements, or on any other legal matters, please get in touch!

Article by Lily Morrison @ Gerrish Legal, November 2019