Federal Court of Justice, Decisions of 19 July 2012, Nos. I ZR 24/11 and I ZR 70/10, "Take Five" and "M2Trade"

The Federal Court of Justice decided in two cases that a sub-license does not cease to exist if the main license expires.

In both cases, the right owners of a copyright protected work took action against sub-licensees for copyright infringement, following the expiry of the main license, from which the sub-licensees derived their rights.

In the first case, the plaintiff was the owner of the exclusive world-wide publishing rights to Paul Desmond's famous Jazz composition "Take Five". In 1961, the plaintiff entered into a license agreement with the B-company for the exclusive publishing rights in Europe. The B-company then proceeded to sub-license the rights for Germany and Austria to the defendant. In 1986, the plaintiff and the B-company entered into a settlement agreement that ended the main license. The settlement also included a clause according to which all the sub-licenses granted by the B-company should cease to be valid. Nevertheless the defendant continued to market "Take Five" without disruption. The defendant even paid royalties directly to the plaintiff and the plaintiff did not object to receiving those royalties until it sued in 2009.

In the second case, the plaintiff was the owner of the rights for two computer programs. The plaintiff entered into a main license agreement with the M-company which in turn sub-licensed the right to use to the defendant. After the M-company stopped paying royalties in February 2002, the plaintiff terminated the main license agreement - one sided but effectively.

The main difference between the two cases was that in the first case the main license expired due to a consensual agreement, whereas in the second case the main license expired due to a one-sided cancellation of a contract.

The German Copyright Act does not regulate the fate of sub-licenses after the expiry of main licenses so that it is for the German courts to decide this question.

In both cases, the Federal Court of Justice dismissed the plaintiffs' claims. The court decided that the sub-licenses were still valid after the expiry of the main license, regardless of whether the main license was terminated due to an agreement or a one-sided termination.

Consequently, as their licenses were still valid, the sub-licensees did not infringe the copyright.

In both cases, the Federal Court of Justice highlighted that there is no explicit provision in the German Copyright Act dealing with this situation. Therefore, the decisions in these matters need to be made on a case-by-case basis. The interests of both, the owner of the copyright and the sub-licensee, have to be weighed against each other.

The court said that the interests of the sub-licensee would regularly outweigh the interest of the copyright owner, mainly on the basis that the German Copyright Act and other Regulations on IP rights in Germany tend to favor the continuation of sub-licenses after the change of ownership in the main license.

Conclusion

As the validity of sub-licenses has to be evaluated on a case-by-case basis, it depends on the circumstances whether a sub-license will be deemed to have expired with the main license. Following the decision of the Federal Court of Justice, right owners should already keep the fate of possible sub-licenses in mind when drafting a main license agreement.