It has generally been assumed under English law that a sub-licence of software would automatically terminate if the main licence comes to an end without any need for an express provision to that effect. This would mean a sub-licensee could find itself facing infringement action from a software owner through no fault of its own simply on the basis the head licence under which the sub-licence had been granted was cancelled.

Because of this potential injustice for the sub-licensee, courts in other countries have reached different conclusions on the issue of survival of the sub-licence and there is no global consensus on the position.

Decision

The divergence of opinion is highlighted by a recent decision of the German Federal Court (Bundesgerichtshof, BGH) which found the sub-licence did survive.

In the case before the BGH, the software owner had given its licensee the exclusive rights to a software programme. The licensee in turn sub-licensed another business to use the software. The main licence was terminated for non-payment of licence fees. The software owner brought a claim against the sub-licensee for copyright infringement due to its continued use of the software. The court decided that in the absence of any express provision, the termination of the main licence did not result in termination of the sub-licence agreement. The sub-licensee had a continuing right to use the software.

The decision of the German Court runs directly against what we would have expected the outcome to be under an English law governed agreement.

Consequences

Against this background and to avoid uncertainty in licensing contracts involving international parties we suggest that the right to sub-licence and the survival of that sub-licence is dealt with expressly in the contract, including the following:

  • Software owners should specify in the head licence that suitable terms relating to survival must be incorporated into the sub-licence. Ideally sub-licences should only be available subject to approval to try to ensure that the terms are indeed incorporated;
  • Where the sub-licences are income generating, software owners may not necessarily want the sub-licences to terminate and may want the sub-licence to state that in the event of termination of the head licence, the software owner will take on the sub licence providing; (a) that the sub-licensee performs all of its obligations under that sub-licence and; (b) that the terms of the sub-licence are on approved terms to avoid taking on onerous obligations agreed to by the main licensor.