Companies, public authorities and other actors are highly dependent on efficiently operating IT systems, including computer programs. If a licensee agreement authorizing the use of an IT system is terminated, questions such as to what extent the licensee has acquired post-contractual usage rights and, if not, what damages etc. the supplier may be entitled to, will be actualized. This was also the case in a recent dispute between the City of Malmö (“Malmö”) and Alfa Kommun & Landsting AB (the “Supplier”). In its judgment dated 25 September 2018, the Swedish Supreme Court held, inter alia, that Malmö’s passive storage of licensed software, after the license agreement had expired, did not constitute a copyright infringement (Case No. T 1738-17).
Previously, it has been asserted in Swedish doctrine that all copies and backups of computer programs which are used by the licensor during the license term must be deleted when the license expires. It has been believed that even the mere passive storage of such copies, after the end of the license term, is equivalent to use of the computer program and thus that such storage does in fact amount to copyright infringement. The Supreme Court’s ruling demonstrates that these assumptions are incorrect. This ruling should be welcomed by many licensees.
Set forth below is a brief summary of the dispute.
In 2002, Malmö acquired a healthcare IT system (the “Computer Program”) from the Supplier. The Computer Program was used by Malmö from February 2002 until 12 January 2015. The agreement was terminated by the Supplier on 31 December 2013. At that time, Malmö did not have a new healthcare IT system in place and Malmö thus continued to use the Computer Program until 12 January 2015, when the system server was finally shut down. Malmö also stored a copy of the Computer Program until 28 September 2015, when the copy was finally deleted.
In December 2013, Malmö filed a summons application at the District Court asserting that Malmö held the copyright to the Computer Program, or at least had acquired a perpetual license to use the Computer Program. The Supplier disputed the claim and submitted a counterclaim seeking compensation for copyright infringement due to unauthorized use of the Computer Program. It was common ground that: (i) the Computer Program was protected by copyright; (ii) the agreement between the parties had been terminated on 31 December 2013; and (iii) that Malmö had in fact used the Computer Program until 12 January 2015.
The District Court found that Malmö had infringed the Supplier’s copyright until 12 January 2015, when the server was shut down. The District Court did not consider that Malmö had infringed the Supplier’s copyright during the period thereafter, i.e. through Malmö’s passive storage of the copy of the Computer Program. The Court of Appeal, on the other hand, held that Malmö had in fact committed an infringement by just passively storing the Computer Program.
Hence, the Supreme Court was called upon to determine whether passive storage of the Computer Program, after the agreement had been terminated, constituted unauthorized use (copyright infringement) and, if so, how compensation for such use should be calculated. The Supreme Court noted, inter alia, that according to Section 26 g of the Swedish Copyright Act (SFS 1960:729), anyone who has acquired the right to use a computer program is entitled to make such copies of the program and to make such adaptations of the program which are necessary in order for him to use the program for its intended purpose. According to these provisions, however, unless otherwise agreed, such backup copies may not be used for other purposes or continue to be used once the right to use the software has expired. In light of, inter alia, the fact that Malmö had acquired the right to use the Computer Program, according to the parties’ previous agreement, and that it was not stated in the preparatory works to the Copyright Act that backup copies must be deleted when the usage right expires, the Supreme Court held that backup copies of computer programs can be created and kept lawfully, even after a license agreement has been terminated. In order to reach this conclusion, the Supreme Court also considered that the EU Computer Programs Directive does not regulate the situation when a back-up copy has been created and kept lawfully (with permission).
In summary, Malmö’s passive storage of a copy of the Computer Program (without actually using it) did not infringe the Supplier’s copyright. Moreover, as neither EU law nor Swedish law states that the right holder is entitled to compensation for a third party’s passive storage of a copyrighted work, Malmö did not have to pay any compensation to the Supplier due to the passive storage of the Computer Program.
For the avoidance of doubt, the reader should note that Malmö’s unauthorized use of the Computer Program between 31 December 2013 and 12 January 2015 had already been classified as a copyright infringement by the Court of Appeal. The Supreme Court’s ruling did not include, and hence did not alter, this assessment.