Breach of software licence in relation to IP rights and availability of the infringement action: a welcome clarification from the CJEU

Following a request for a preliminary ruling from the Court of Appeal of Paris (France), the Court of Justice of the European Union (the “CJEU”) clarified, in a judgment of 18 December 2019¹ , that the violation of a clause of a software licence agreement relating to intellectual property rights shall be treated as an “infringement of intellectual property rights” within the meaning of Directive 2004/48/EC² (the “Enforcement Directive”) which implies that the holder of the author’s rights (economic rights) over such software must be able to benefit from the guarantees provided for by the Enforcement Directive (which includes the infringement action).

This ruling should put an end to a trend resulting from certain national court decisions³  in which it was judged that a breach of a software licence agreement relating to intellectual property rights could not lead to the engagement of tortious liability (responsabilité délictuelle) and, therefore, that the infringement action was not the appropriate action for a right-holder to initiate before the courts when facing a violation of the terms of a software licence agreement by a counterparty.

In the case at hand, the software publishing company, IT Development, had granted a licence to the telephone operator, Free Mobile, for the use of a software package. Considering that Free Mobile had modified the source code of its software in breach of the licence agreement, the software publisher brought an action against Free Mobile for infringement (under French law, author’s rights infringement is based on tortious liability). In line with the case law mentioned above, the first judges declared the claims brought by IT Development based on Free Mobile’s tortious liability inadmissible. According to them, the software publisher company should have initiated an action for contractual liability.

For the Court of Appeal of Paris, the question was not so straightforward. On the one hand, the Court of Appeal acknowledged the existence of the principle of non-cumulation under French law according to which (i) one person cannot hold another person liable in contract and tort for the same acts, and (ii) tortious liability is excluded in favour of contractual liability where the damage suffered by one of those persons results from non-performance or improper performance of a contractual obligation. On the other hand, the Court of Appeal underlines that the French rules regarding the infringement action do not refer to the existence or the absence of a contract between the parties and do not differ depending on whether or not such a contract exists.

In light of this, the Court of Appeal decided to stay the proceedings and refer to the CJEU for a preliminary ruling. The question⁴  was whether the “Enforcement Directive” and Directive 2009/24/EC⁵  (the “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 the [Enforcement Directive], 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”.

This is a crucial issue as the calculation of the financial compensation will be different depending on the liability regime invoked. Indeed, pursuant to the civil liability regime (tortious liability), the claimants shall obtain full reparation of their damage. Liability caps or limitations that would be provided for by a clause of a software licence agreement would not apply⁶ . Moreover, the rules governing jurisdiction, the evidence that are available or the statutes of limitation may differ depending on the liability sought by the claimant (tortious liability or contract liability).

Responding positively to the question referred to it, the CJEU points out that the Software Directive does grant the right-holder the exclusive right to authorise or prohibit the modification of a software (in particular the adaptation or transformation of the source code) and does not make such protection dependent on whether or not the alleged violation of rights is a breach of a licence agreement.

Moreover, the CJEU underlines that the Enforcement Directive specifies that it applies to "any infringement of intellectual property rights"⁷  which shows that a breach of a contractual clause relating to the exploitation of an intellectual property right shall also be covered. The CJEU has thus clarified that the right-holder that entered into a licence agreement with a third party is entitled as any other holder of intellectual property rights to benefit from and use the measures, procedures and remedies set out in the Enforcement Directive (including the infringement action).

This ruling from the CJEU shall be approved, as the approach taken is fair and in line with the  directives mentioned above. A holder of intellectual property rights shall not be disadvantaged only because it took the decision to organise contractually the exploitation of its intellectual property rights.

It is interesting to note that the CJEU does not rule on the nature of the liability regime that shall apply in the event of a violation of author’s rights (economic rights) over a software by a licensee. The CJEU states on the contrary that such determination falls within the competence of the Member States. However, the Member States will not have much room for manoeuvre, as the liability regime applicable shall not imperil the effective protection granted to the holder of author’s rights (economic rights) over a software by the Enforcement Directive and the Software Directive.