The German Federal Court of Justice decided in two cases that within normal circumstances a sub licence does not cease to exist if the main licence expires.
In both cases the owners of the rights to a copyright protected work sued sub licensees for copyright infringement after the main licence, from which the sub licensees derived their rights, had expired.
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 licence agreement with the B-company for the exclusive publishing rights in Europe. The B-company then proceeded to sub licence 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 licence. The settlement also included a clause according to which all the sub-licences 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 programmes. The plaintiff entered into a main licence agreement with the M-company which in turn sub-licenced the right to use to the defendant. After the M-company stopped paying royalties in February 2002, the plaintiff terminated the main licence agreement one sided but effectively.
The main difference between the two cases was that in the first case the main licence expired due to a consensual agreement whereas in the second case the main licence expired due to a one-sided cancellation of a contract.
The German Copyright Code does not contain any regulation concerning the fate of the sub licence after the expiry of the main licence. The German legislators left this for the Courts to decide.
The German Federal Court dismissed the claims of the Plaintiffs in both cases. The Court decided that the sub licences were still valid after the expiry of the main licence, regardless of whether the main licence was terminated due to an agreement or a one-sided termination. As their licences were still valid, the sub licensees did not infringe the copyright.
In both decisions the German Federal Court highlighted that – as there is no explicit provision in the German Code of Copyright – decisions have to be made on a case-by-case basis. The interests of both the owner of the right and the sub licensee have to be weighed against each other. According to the Court the interest of the sub licensee regularly outweighs the interest of the copyright owner, regardless of whether the sub licence is an exclusive or non-exclusive one. The Court derives this conclusion mainly from the fact that the German Copyright Code and the regulations on various other IP rights in Germany tend to favour the continuation of sub licences after the change of ownership in the main licence.
As the validity of sub licences is evaluated on a case-by-case basis it depends on the circumstances whether a sub licence will be deemed to have expired with the main licence. From now on owners of rights should already keep the fate of possible sub licences in mind when drafting a main licence agreement.