Richard Schmidt Anita Vereb October 12 2021 Mosaic approach and restrictive interpretation of licence in IP infringement case SMARTLEGAL Schmidt & Partners | Litigation - Hungary Richard Schmidt, Anita Vereb Litigation Interactions unavailable in preview. FactsFirst-instance courtSecond-instance courtSupreme CourtCommentThe Supreme Court recently ruled in the case of a British Academy of Film and Television Arts award-winning composer who sued a French company in Hungary because of the illegal use of his music in video games distributed on online platforms. Besides the issue of the Hungarian courts' jurisdiction on a matter involving a foreign defendant and international copyright infringements, the other issue was whether the original licence granted by the claimant covered these different modes of exploitation.FactsThe claimant was a shareholder and an employee of a Hungarian video game development company (the developer) which created world-renowned video games in the late 1990s and early 2000s.In April 2001 the developer entered into a development agreement with a video game publisher (publisher one) in relation to creating a real-time, space-strategy game. The development agreement provided that the developer exclusively granted all copyrights in perpetuity to publisher one.In August 2001 the claimant entered into a service contract with the developer regarding the music composed for the game. According to the service contract, 60% of the service fee was "the remuneration of the unrestricted use of the end product". The game was released in 2002.Publisher one assigned their rights to another publisher (publisher two), who entered into a development agreement with the developer in April 2003 in relation to the game's add-on. According to the development agreement, publisher two acquired all of the copyrights regarding the add-on.In May 2003 the claimant entered into a service contract with the developer regarding the music composed for the add-on. The content of this service agreement, as regards the licence, was the same as that of the earlier service contract. The add-on was released in 2003.Publisher two assigned their rights regarding the game and the add-on to a French video game publisher (the defendant), which made ported(1) versions of the game available on different online platforms, such as:Good Old Games;Steam;iTunes; andGoogle Play.First-instance courtThe claimant sued the defendant in Hungary, relying on article 7(2) of the Brussels Ia Regulation(2) and relevant European Court of Justice case law as regards IP rights infringement.(3)Based on the above case law, which is often described as the "mosaic approach", if copyright-protected works are placed online on a website accessible in different countries, the courts of a member state have jurisdiction to hear an action for any damages caused within their jurisdiction, even if the defendant is seated in a different member state.Relying on the mosaic approach, the claimant argued that given that the defendant offered the game for sale in Hungary, the Hungarian courts had jurisdiction to rule on the damages caused within Hungary.The claimant argued that by using the music that he had composed in the ported versions, the defendant had infringed the claimant's copyright, as the licence originally granted by the claimant in the early 2000s did not cover this different mode of exploitation.The claimant argued that at the time of the original contract's conclusion, the use of the music for the ported versions of the game was an unknown form of exploitation.(4) Further, the claimant argued that the licence does not cover the current use:as this mode of exploitation was not required for the purpose of the service contracts;(5) andas based on the principle of in dubio pro auctore,(6) the service contract should be interpreted in the claimant's favour.The defendant raised a jurisdictional objection, claiming that the claimant did not prove any actual use which was carried out in Hungary.The defendant disputed that the use of the music in games ported for online platforms was an unknown form of exploitation at the time that the service contracts were concluded; the defendant argued that the term "unrestricted use of the end product" covers all modes of exploitation, without limitation.The first-instance court partially dismissed the jurisdictional complaint of the defendant since the online platforms were widely accessible and, therefore, the games could be downloaded in Hungary.The court, based on opinion of the Council of Copyright Experts, found that the current use of the music – making the work available to the public(7) – was not an unknown form of exploitation in 2001. However, considering the level of technological development and the usual distribution methods used when the service contracts and development agreements were concluded, the claimant and the developer could not have realistically envisaged the use of the music in games ported for online platforms.Therefore, including the act of making the work available to the public as a mode of exploitation was not absolutely necessary for the service contract's purpose. Thus, the "unrestricted use of the end product" covered only the reproduction and the distribution. As such, the developer could not sublicence the right to make the work available to the public to third parties (like the publishers), consequently the defendant had infringed the claimant's copyright.Second-instance courtThe defendant appealed; the second-instance court modified the first-instance court judgment and dismissed the claimant's action.The second-instance court established that given that making video games available to the public was not an unknown form of exploitation in 2001, granting a licence which allowed for making the music created for the game and the add-on available to the public was absolutely necessary in order for the service contracts' objectives to be fully realised at the time of their conclusion. Further, the court held that such licences are indispensable for real-time computer games that are developed for the digital environment and the music created for such games.According to the second-instance court, the judge's decision was corroborated by:Artisjus's announcement of tariffs in 2000, which provide for remuneration to be paid in consideration of the licence for making works available on demand;(8) andthe defendant's proper reference that at the beginning of the 2000s, bandwidth was already fast enough to download such games from the Internet to personal computers, and that file sharing on the Internet was attainable in 2001 and 2003.Supreme CourtIn the request for judicial review, the claimant argued that:the second-instance court had wrongfully created a concept that if a mode of exploitation (in this case, making the work available to the public) was not unknown at the time of the licence contract's conclusion, that mode of exploitation will also be considered as absolutely necessary for achieving said contract's objectives; andthe second-instance court had supported this concept with evidence that the judge could not then consider for procedural reasons, and, even if he were allowed to consider the evidence, he had incorrectly evaluated it.The Supreme Court established that given that the content of the service contracts as a licence contract was not clear enough as regarded the modes of exploitation and the licenced extent of use, in order to decide the licence's scope, two principles needed to be considered:the maxim of in dubio pro auctore; andthe rule that the licence will be restricted to:the mode of exploitation; andthe extent of use indispensably necessary to realise the contract's objectives.By carefully reviewing the content of the service contracts and the development agreements, the Court established that the contractual purpose of the claimant, the developer and the publishers was to place the game on the market by the usual distribution methods at that time. According to the Court, at the time of the service contracts' conclusion, making the game available to the public was not yet an absolutely necessary mode of exploitation.Indeed, consideration for the development agreements' provisions and the level of development within communication technology supported that the contractual intention of parties was to release the game and the add-on on external, physical storage media. Therefore, the service contract's objective was realised by the music's reproduction and distribution (on CD and DVD).Therefore, the "unrestricted use of the end product" does not cover making a work available to the public as a mode of exploitation. This restrictive interpretation of the extent of use is also confirmed by the principle of in dubio pro auctore.The modes of exploitation indispensably necessary to realise the service contracts' purpose was the music's reproduction and distribution. Thus, the developer could not transfer other rights to the predecessors of the defendant. This means that the defendant had infringed the claimant's copyright.CommentThis case raised two important questions of law, one related to jurisdiction and the other related to copyright.When it comes to the Hungarian courts' jurisdiction, in this case, the courts followed the mosaic approach of the European Court of Justice. According to this approach, a court has jurisdiction to hear an action for damages in respect of a copyright infringement committed on a website accessible in its territorial jurisdiction.The mosaic approach is an important exception of the actor sequitur forum rei principle, allowing copyright holders to sue copyright infringers not only in the country where the infringers are seated, but also in any other jurisdiction within the European Union where the copyrighted works are accessible.In relation to the substantive law issue of the case, the Supreme Court relied on two important rules of restrictive interpretation of copyright contracts.One of the rules is that the licence will be restricted to the mode of exploitation and to the extent of use indispensably necessary to realise the contract's objectives. This rule was originally called "zweckübertragunstheorie" and came from German copyright jurisprudence.(9) It was subsequently incorporated into the Hungarian Copyright Act.The other rule of restrictive interpretation of copyright contracts referred to by the Supreme Court was the maxim of in dubio pro auctore, which applies in most European countries and it is often directly mentioned by jurisdictions' copyright acts or it derives from the general principles of interpretation defined in civil law.(10)By applying these principles to this case, it can be argued that the Supreme Court achieved one of the objectives of copyright licensing rules – namely, to protect the presumed-weaker party.The claimant was a young composer in the 2000s and he signed the service contracts drafted by the developer without any negotiation. He could not have reasonably foreseen that the music that he created for computer games released on CD would be used 10 years later in significantly different ways, such as for games playable on smartphones. The Supreme Court judgment confirms that the poor quality of the service contracts' wording cannot be assessed to the claimant's detriment, and that his artwork could not be used on new platforms without benefit to himself.For further information on this topic please contact Richard Schmidt or Anita Vereb at SMARTLEGAL Schmidt & Partners by telephone (+36 1 490 09 49) or email ([email protected] or [email protected]). The SMARTLEGAL Schmidt & Partners website can be accessed at smartlegal.hu.Endnotes(1) "Porting" is the term used when a video game that is designed to run on one platform, be it an arcade, video game console or personal computer, is converted so that it runs on a different platform, perhaps with some minor differences.(2) EU Regulation (1215/2012) of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Article 7(2) therein allows a person domiciled in a member state to be sued in another member state in matters relating to tort, delict or quasi-delict, in the courts of the place where the harmful event occurred or may occur.(3) Cases C‑170/12 (Pinckney) and C‑441/13 (Hejduk).(4) In accordance with section 44 (2) of Act 76 of 1999 (the "Copyright Act"), granting licence for a mode of exploitation unknown at the time of the conclusion of the contract is invalid.(5) Section 43(5) of the Copyright Act stipulated that if the contract does not provide for the mode of exploitation to which the licence applies or does not provide for the licensed extent of use, the licence is limited to the mode of exploitation and extent of use indispensably necessary to realise the contract's objectives.(6) Section 42(3) of the Copyright Act provides that if the content of the licence contract cannot be clearly established, it is construed such that it is favourable to the author.(7) In accordance with section 26(8) of the Copyright Act, which is substantially the same as article 3 of EU 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.(8) Artisjus is a Hungarian collecting society, exercising the collective management of rights in literary and musical copyright.(9) The theory was created by German lawyer Wenzel Goldbaum, who claimed that the entrepreneur who acquires an artwork, acquires as many rights as they need to fulfil their purpose.(10) See Strowel, Alain, Vanbrabant and Bernard, "Copyright Licensing: a European View", Research Handbook on Intellectual Property Licensing, 2013, pp 29-53.