The distinction between liability in tort and for contractual breach can have various implications, depending upon the jurisdiction. For example, the statute of limitations, the available remedies, the procedural rules or the calculation of the financial compensation, may all differ as between these two heads of liability. 

Navigating the Enforcement Directive

A week before Christmas, the Court of Justice of the EU handed down its judgment in IT Development SAS v. Free Mobile SAS (case C-666/18). The question, referred to the CJEU by the Paris Court of Appeal was, in short, whether the Enforcement Directive (2004/47) and the Software Directive (2009/24) are applicable to those cases in which the infringement of IP rights (the unauthorized alteration of a computer program) also constitutes a breach of contract (typically a licence agreement) between the parties. 

In the case, the plaintiff, IT Development, granted a licence to the respondent, Free Mobile, for use of a software package. The plaintiff alleged that the respondent had modified the software in breach of the licence agreement and, accordingly, it sued for "contrefaçon" (a non-contractual type of IP infringement action under French law). The Tribunal de Grande Instance dismissed the suit, arguing that there was no case of liability in tort, given that the respondent "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". 

On appeal by the plaintiff, the Paris Court of Appeal asked the CJEU--

whether Directives 2004/48 [Enforcement Directive] and 2009/24 [Software Directive] 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.

The Decision

Under French law (as explained by the Court of Justice), liability in tort and for contractual breach are mutually exclusive. In addition, contractual liability excludes tortious liability where the damage results from non-performance of a contractual obligation. 

Under Art. 4 of the Software Directive, the exclusive rights of the right holder include, inter alia, the right to authorize the translation, adaptation, arrangement and any other alteration of a computer program. Thus, the Software Directive does not make the protection of the rights of the copyright owner dependent on whether the alleged infringer is also in breach of a licence agreement. Therefore, it is applicable irrespective of a licence agreement between the parties. 

Art. 2(1) of the Enforcement Directive sets forth that the Directive applies to "any infringement of intellectual property rights". The Court of Justice stresses that the word "any" must be interpreted as also covering infringements that result from a breach of contract. It is the objective of the Enforcement Directive to ensure a "high, equivalent and homogeneous level of protection of IP in the internal market". As such, the scope of the directive is very broad. 

As a result, the Court ruled--

…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.

Thus, the Court of Justice confirms that the infringement of a clause in a licence agreement for use of a computer program falls within the ambit of "infringement of intellectual property rights" within the meaning of the Enforcement Directive. 

Enforcement of software protection

Nevertheless, the CJEU underscores that neither the Enforcement Directive nor the Software Directive lays down the "exact means of implementation of those guarantees and does not lay down the application of a specific liability regime in the event of infringement of those rights". It is for the law of each member state to set out all "specific practical arrangement for protecting those rights", as long as the requirements of both Directives are complied with. 

Even though the determination of the liability regime applicable for copyright infringement is a competence of the member states, the application of any regime must not be an obstacle to the effective protection of IP as laid out in both Directives. 

National courts are required to interpret national law in conformity with the requirements of EU law and must apply national law "so as not to produce a result contrary to that sought by EU law". In the case at hand, the CJEU finds that an interpretation of national law in conformity with the requirements of the Enforcement Directive and the Software Directive is possible, "subject to verification by the referring court".

Comment

The outcome of the case is hardly surprising, given the facts of the case: the alteration of copyrighted works without authorization of the right holder amounts to copyright infringement, whether or not the act (also) amounts to a breach of an agreement between the parties. 

For the same reason, however, it is still worth underscoring that the rule set out by the Court of Justice seems to be worded too broadly. In the case at hand, the breach of the licence agreement also amounted to a violation of IP. But this may not always be so: for instance, the breach of certain ancillary obligations of the licensee (such as the duty to disclose certain commercial information or the duty of co-operation) does not amount to an IP violation. 

Thus, instead of the broad rule that "[…] the breach of a clause in a licence agreement […] falls within the concept of 'infringement of intellectual property rights' […]", perhaps the better way to view the decision is that it merely establishes that the infringement of intellectual property rights can also amount to the breach of a licence. It is then still an infringement of an intellectual property right within the meaning of the Enforcement Directive.

Picture on the right by Gerhild Klinkow in the public domain

An interesting decision from the Patents Court (England and Wales) last week wasn't about patents at all, but rather about the interpretation of some confusing clauses in a software licence. The case, Data Direct Technologies Ltd v Marks & Spencer plc [2009] EWHC 97 (Ch), was heard by Mr Justice Floyd who gave judgment on 26 January, and picked up by the Lawtel subscription-only service.

Data Direct claimed payment of software maintenance fees which, it alleged, were due from retail giants Marks & Spencer under the terms of a software licence. Data Direct and M&S had concluded a software licence agreement which stated that a maintenance schedule and a product schedule were to be incorporated into the agreement.

* The maintenance schedule provided that, following payment of a maintenance fee, M&S would be entitled to receive extensions, enhancement and other software changes without having to pay any additional charge.

* The product schedule comprised a summary of orders for the supply of the licensed software: this was updated or varied each time M&S placed repeat orders.

In the event of any conflict between the agreement and the schedules, the agreement had priority.

Inevitably a dispute arose as to the wording of a clause governing the payment of maintenance fees, in an updated version of the product schedule. That clause provided that, "at the customer's option", annual maintenance for the relevant period would be a percentage of the licence fee.

In these proceedings Floyd J was asked whether the words "at the customer's option" meant that M&S had positively to elect (or "opt") to have maintenance and therefore incur a duty to pay the charge and whether, if M&S did not so elect, any maintenance was payable at all. According to Data Direct, under the relevant clause in the product schedule, maintenance was payable in accordance with the maintenance schedule to the main agreement, by virtue of which M&S was obliged to pay for a maintenance fee unless it gave 30 days written notice of its intention to cancel maintenance. M&S disagreed: in its view it only had to pay the maintenance fee if it exercised the option to do so which was granted to it by the use of the words "at the customer's option" in the relevant clause to the product schedule.

Floyd J held for Data Direct. In his analysis:

* The combined effect of the relevant clauses in the maintenance schedule was that, if M&S gave notice of cancellation at least 30 days before the due date, no maintenance fee was payable at all.

* Although the maintenance schedule would lead a reader to expect that the product schedules would give information about the maintenance fee, there was nothing in the maintenance schedule that would lead a reader to expect that the product schedules had anything to say about the basis upon which the maintenance fee would be paid.

* The disputed clause related only to the licence extension to which the product schedule referred. However, the nature of the software was such that the obligation to maintain it had to apply to all the licensed software -- or to none of it.

* The all-or-nothing nature of the maintenance obligation strongly supported Data Direct's interpretation of the relevant clause. This being so, a reasonable reader of the wording in the relevant clause would understand that it could not sensibly be read as creating a special option to elect for maintenance in respect of the licence extension. This being so, the maintenance fee was properly claimed and properly payable.

The IPKat still gets very depressed by cases like this.  The basic business deal between Data Direct and Marks & Spencer looks very much simpler than the words of the contractual arrangement that purported to reflect it; neither party fully understood it and even the judge rather appears to have reached a conclusion that possibly (since the full text of the decision is unavailable) neither party had understood to be the purport of the disputed clause at the time they entered the contract.  Merpel agrees and hopes that no lawyers were involved at the time the deal was done: leaving a contracting party unclear about the terms of a contract it has just entered is, for the lawyer, a bit like a surgeon letting his patient out of the operating theatre with a rubber glove neatly sewn up inside him. The damage may not be immediately noticeable but can cause great trouble at a later stage.  Tufty ponders as to how and when the parties woke up to this: was it something spotted during an IP audit, he mewses ...