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MOSAIC APPROACH AND RESTRICTIVE INTERPRETATON OF LICENSE IN IP INFRINGEMENT CASES

14 October 2021

The Hungarian Supreme Court recently ruled in the case of our Client, a BAFTA 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 jurisdiction of Hungarian courts on foreign defendants in international copyright infringements, the other question of the case was whether the original licence granted by our Client, covers these different modes of exploitation. In this article we analyse the judgement of the Supreme Court.

1. Facts

Our Client, the claimant (“Claimant”) was the shareholder and the employee of a Hungarian video game developer company (“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 1”) in relation to a creation of a real-time space-strategy game (“Game”). The development agreement provided that the Developer grants exclusively to the Publisher 1 all copyrights in perpetuity.

In August 2001 the Claimant entered into a service contract with the Developer regarding the composing of the music for the Game, according to which 60% of the service fee was “the remuneration of the unrestricted use of the end product”. The Game was released in 2002.

The Publisher 1 assigned his rights to another publisher (“Publisher 2”) who entered into a development agreement with the Developer in April 2003 in relation to the add-on of the Game (“Add-on”) based on which the Publisher 2 acquired all copyrights regarding the Add-on.

In May 2003 the Claimant entered into a service contract with the Developer regarding the composing of the music for the Add-on, the content of which regarding the licence was the same as content of the earlier service contract. The Add-on was released in 2003.

The Publisher 2 assigned his rights regarding the Game and the Add-on to a French video game publisher (“Defendant”) who makes available the ported[1] versions (“Ported versions”) on different online platforms such as Good Old Games, Steam, iTunes and Google Play.

2. First-instance procedure

The Claimant sued the French Defendant in Hungary, relying on Article 7 (2) of Brussels Ia Regulation[2] and the related  case-law[3] of the CJEU, developed in IP right infringement cases, especially in the Pinckney and Hejduk-cases.

Based on the above case law, which is often described as “mosaic approach”, in case copyright protected works are placed online on a website accessible in different countries, the court of the Member State shall have jurisdiction to hear an action for damages in relation with the damage caused within the said 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 offers for sale the Games in the territory of Hungary as well, the court shall have jurisdiction to rule on the damage caused in Hungary.

The Claimant claimed that by using the music composed by him in the Ported Versions, the Defendant infringes the Claimant’s copyright as the licence originally granted by him in the early 2000s does not cover this different mode of exploitation.

The Claimant argued that at the time of the conclusion of the original contract, the current use of the music was an unknown form of exploitation[4]. Further, the Claimant claimed that the licence does not cover the current use 1) as this mode of exploitation was not required for the purpose of the service contracts[5], 2) based on the principle of “in dubio pro auctore”[6] the service contract shall be interpreted in favour of the Claimant.

The Defendant raised a jurisdictional objection claiming that the Claimant did not prove any actual use which was carried out in the territory of 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 of the conclusion of the service contracts and argued that the term “unrestricted use of the end product” covers all modes of exploitation without any limitation.

The first instance court partially dismissed the jurisdictional complaint of the Defendant, since the online platforms were accessible and therefore the games were downloadable from Hungary.

The first instance court, based on opinion of the Council of Copyright Experts found that the current use of the music considered as making available to the public of the work[7] was not an unknown form of exploitation in 2001. However, considering the level of technological development and the usual distribution methods at the time of the conclusion of the service contracts and the development agreements, the Claimant and the Developer could not have realistically envisaged the use of the music in games ported for online platforms.

Therefore, making available to the public of the work as a mode of exploitation was not absolutely necessary for the purpose of the service contract, thus the “unrestricted use of the end product” covers only the reproduction and the distribution. Thus, the Developer could not sublicence the making available to the public to third parties (like the Publisher), consequently the Defendant infringed the copyright of the Claimant.

3. Second-instance procedure

Based on the appeal of the Defendant, the second instance court modified the judgement of the first instance court and dismissed the Claimant’s action.

The second instance court established that given that making available to the public of computer games was not an unknown form of exploitation in 2001, granting a licence to making available to the public of the music created for the Game and the Add-on was absolutely necessary in order to realise the objectives of the service contracts at the time of their conclusion. The opposite cannot be possible in case of a real-time computer game developed for digital environment and the music created for such game.

According to the second instance court his above finding is corroborated 1) by the tariff announcement of the Artisjus[8] from 2000 which provides for the remuneration to be paid in consideration of the licence for making works available on demand and 2) by the proper reference of the Defendant that at the beginning of the 2000s the bandwidth was already fast enough to download such games from the Internet to PCs and that file sharing on the Internet was not unattainable in 2001 and 2003.

4. The decision of the Supreme Court

In the request for judicial review, the Claimant argued that the second instance court wrongfully created a concept that if a mode of exploitation (in our case the making available to the public of the work) was not unknown at the time of the conclusion of the licence contract, that mode of exploitation shall also be considered as absolutely necessary for achieving the objectives of the licence contact. Further, the second instance court supported this concept with evidence that he could not even have taken into account for procedural reasons and even if he could, the evidence was incorrectly evaluated by him.

The Supreme Court established that given that the content of the service contracts as licence contract is not clear enough regarding the modes of exploitation and the licenced extent of use, in order to decide the scope of the licence two principles shall be considered: 1) the maxim of “in dubio pro auctore” and 2) the rule that the licence shall be restricted to the mode of exploitation and to the extent of use indispensably necessary to realise the objectives of the contract.

By carefully reviewing the content of the service contracts and the development agreements, the Supreme 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 method at that time. According to the Supreme Court at the conclusion of the service contracts the making available to the public of the Game was not yet an absolutely necessary mode of exploitation.

Indeed, more provisions of the development agreements and the actual level of the development of the communication technology support that the contractual intention of parties was to release the Game and the Add-on on external physical storage media, thus the objective of the service contract was realised by the reproduction and the distribution (on CD-, DVD-ROM).

Therefore the “unrestricted use of the end product” does not cover the making available to the public of the work as a mode of exploitation. This restrictive interpretation of the extent of use is also confirmed by the principle of “in dubio pro auctore”.

All in all, the modes of exploitation indispensably necessary to realise the purpose of the service contracts was the reproduction and the distribution, thus the Developer could not transfer other rights to the predecessors of the Defendant. This means that the Defendant infringes the copyright of the Claimant.

5. Comment

This case raised two important questions of law, the one of which is jurisdictional, the other is related to copyright.

When it comes to the jurisdiction of Hungarian Courts in international copyright infringement cases, the Hungarian courts followed the “mosaic approach” of the CJEU according to which 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 a very important exception of the “actor sequitur forum rei” principle, allowing copyright holders to sue copyright infringers not only in the country where the latter are seated, but in any other jurisdiction within the European Union, where the copyrighted works are accessible.

In relation with 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 shall be restricted to the mode of exploitation and to the extent of use indispensably necessary to realise the objectives of the contract. This rule called originally “Zweckübertragunstheorie” originates from the German copyright jurisprudence[9]. and is contained by the German Copyright Act[10] since 1966 and was incorporated in the Hungarian Copyright Act in 1999.

A similar provision appears in the European Copyright Code[11] that the Wittem group of copyright academics has elaborated which provides that any grant of copyright is to be interpreted in accordance with the grant’s underlying purpose (purpose-of-grant rule)[12].

The other rule of restrictive interpretation of copyright contracts referred to by the Supreme Court was the maxim „in dubio pro auctore”, which apply in most European countries, and is often directly mentioned by the copyright acts or it derives from the general principles of interpretation defined in the civil law[13].

It is our opinion that by applying these principles to the case of our Client, the Supreme Court achieved one of the objectives of copyright licensing rules, namely to protect the presumed weak party.

In fact, our Client ,who was a young composer in the 2000s and signed the service contracts drafted by the Developer without any negotiation, could not reasonably foresee that the music he created for computer games released on CD-ROM will be used after 10 years in significantly different ways like in versions of the games playable on smartphones.

The judgement of the Supreme Court confirms that the poor quality of the wording of the service contracts cannot be assessed to the detriment of our Client, and it is a great satisfaction for him as he really found it unfair that his artwork is used by a giant video game publisher on all of these new platforms without our Client benefitting from it.

 

[1] Porting is the term used when a video game designed to run on one platform, be it an arcade, video game console, or personal computer, is converted to run on a different platform, perhaps with some minor differences.

[2] REGULATION (EU) No 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) A person domiciled in a Member State may be sued in another Member State: in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.

[3] see Case C‑170/12 (Pinckney), C‑441/13 (Hejduk)

[4] In accordance with section 44 (2) of Act LXXVI of 1999 („Hungarian Copyright Act”) granting license for a mode of exploitation unknown at the time of the conclusion of the contract shall not be valid.

[5] See section 43 (5) of the Hungarian Copyright Act: 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 shall be limited to the mode of exploitation and extent of use indispensably necessary to realise the objectives of the contract.

[6] See section 42 (3) of the Hungarian Copyright Act: If the content of the licence contract cannot be clearly established, it shall be construed so as is most favourable for the author.

[7] In accordance with section 26 (8) of the Hungarian Copyright Act, substantially the same as Article 3 of the 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 (INFOSOC Directive)

[8] ARTISJUS is a Hungarian collecting society exercising the collective management of rights in literary and musical copyright

[9] The theory was created by the German lawyer Wenzel Goldbaum who claimed that the entrepreneur who acquires an artwork, acquires as many rights as he needs to fulfil his purposes.

[10] see section 31 (5) of the German Copyright Act = Urheberrechtsgesetz (Gesetz über Urheberrecht und verwandte Schutzrechte) Gesetz vom 09.09.1965

[11] https://www.ivir.nl/copyrightcode/introduction/

[12] Art. 2.4. If the contract by which the author assigns or exclusively licenses the economic rights in his work does not adequately specify (a) the amount of the author’s remuneration, (b) the geographical scope, (c) the mode of exploitation and (d) the duration of the grant, the extent of the grant shall be determined in accordance with the purpose envisaged in making the grant

[13] see Strowel, Alain, Vanbrabant, Bernard: Copyright Licensing: a European View, in Research Handbook on Intellectual Property Licensing, 2013, pp.29-53