Exclusion of the possibility of terminating a licence, although debated by legal commentators, had not been ruled on by the Polish courts until recently. But now a judgment has been issued by the court of appeal inferring from the writings and behaviour of the parties that they concluded a non-exclusive licence agreement for an indefinite period without the possibility of terminating the licence.
Warsaw Court of Appeal judgment of 17 December 2015 (Case VI ACa 1735/14)
Licence agreements for works, and particularly software, often provide that the licence is granted indefinitely or in perpetuity. Such a provision is intended to ensure the licensee unhindered use of the work for as long as it deems economically justified. Meanwhile, the rights to the work remain in the hands of the author, who can continue to provide the same work to other users through further non-exclusive licences. But the possibility of effectively concluding a “perpetual” licence remains debatable under Polish civil law. The regulations can be interpreted to mean that the author’s right to terminate a licence for an indefinite period cannot be excluded. We have written before about these controversies more extensively on our portal.
Dispute over licence for photos
The dispute in the case before the Warsaw did not involve software, but the economic copyright and moral rights to the use of photographs by a publisher after the publisher ceased its cooperation with the photographer. The parties had entered into a cooperation agreement for a period of two years. Under the agreement, the photographer transferred to the publisher the economic copyright to the photographs commissioned by the publisher. The transfer covered all fields of exploitation known at the time the agreement was concluded. The photographer also promised not to exercise his moral rights. The publisher paid the photographer a fixed monthly fee.
After the agreement expired, the parties continued their cooperation. The photographer still supplied photos to the publisher and issued an invoice each month for the amount specified in the agreement. An employee of the publisher approved the invoice each month with a signature and paid the fee. After some time, however, the publisher terminated the arrangement, complying with the termination notice period provided in the agreement that had previously been in force between the parties.
The photographer then sued the publisher, demanding a fee for the photos provided to the publisher after the expiration of the agreement on transfer of copyright. The photographer alleged that after the original agreement between the parties expired, the parties agreed orally on a non-exclusive licence to use the photos supplied by the photographer. And, in exchange for the monthly fee paid by the publisher to the photographer, this licence permitted the photos to be used for only one month. He claimed that publication of the photos after one month, and without giving the photographer credit for his work, infringed the photographer’s economic and moral rights, justifying a claim for an additional economic fee and compensation for his moral loss.
Rulings by the courts
The regional court denied the claim, finding that following expiration of the original agreement the parties had concluded a further cooperation agreement under the same terms, including transfer of the economic copyright to the photographs.
In the regional court’s view, this finding was supported by the fact that the parties continued to perform the obligations arising under the expired contract. Thus the parties had concluded an agreement provided for in Art. 682 of the Polish Civil Code, that is, implied acceptance of an offer by a business entity which maintains regular economic dealings with the other party. The condition of written form for such an agreement was met because the plaintiff issued invoices which were accepted by the defendant, as demonstrated by the employee’s signature.
On appeal, the Warsaw Court of Appeal upheld the judgment of the lower court, finding that the regional court had reached the right result even though its reasoning was erroneous.
According to the court of appeal, the parties did not conclude a new agreement on transfer of economic copyright, because the requirement for written form of the documents stating the parties’ intent was not complied with. It was not proven that the employee accepting the invoices was authorised to represent the publisher.
Nonetheless, in the court’s view, the plaintiff had granted the defendant a non-exclusive licence under terms similar to those specified in the original copyright assignment agreement. This was demonstrated by the photographer’s continuing to supply photos and issuing monthly invoices in the previously agreed amount. Consequently, the court found that the plaintiff had granted the defendant a non-exclusive licence to use each photo supplied after the expiration of the original agreement, in all fields of exploitation known at the time of conclusion of the agreement, for an indefinite period. But most significantly, the court of appeal found that the agreement concluded by the parties permitting use of the photos excluded the right to terminate the licence. Thus it was an agreement which the parties undertook would last in perpetuity.
Perpetual licence and termination
The court of appeal addressed the issue which had not yet been ruled on in the Polish case law and had generated conflicting positions in the legal literature. Undoubtedly this judgment will be cited by proponents of the theory that a licence agreement can be concluded for an indefinite period excluding the right to terminate the agreement.
The view that the right to terminate a licence granted for an indefinite period cannot be excluded follows from an interpretation of Art. 68 of the Copyright Act in connection with Art. 3651 of the Civil Code. Under the first of these provisions, “If not otherwise provided by the agreement, and the licence has been granted for a indefinite period, the author may terminate the licence in compliance with the contractual periods, or in their absence one year in advance, as of the end of a calendar year.” An interpretation of this provision may lead to the conclusion that the issue of the ability to terminate a licence is left to the contractual discretion of the parties. Nonetheless, Civil Code Art. 3651, which applies to all continuing obligations of an indefinite time, results in a recognition that a provision of a licence granted for an indefinite period excluding or limiting the right to terminate the licence would be an invalid provision. Consequently, according to some commentators, a licence agreement cannot impose an obligation on the parties to maintain the licence permanently, with no limit in time. In that situation, the only method of ensuring the unhindered right to use the work in perpetuity would be to purchase the economic copyright to the work. But that would, as a rule, prevent the author from continuing to make unlimited use of the work.
Supporters of the opposing view point out that Copyright Act Art. 68 is a specific regulation in relation to Civil Code Art. 3651, and the phrase “if not otherwise provided by the agreement” permits the parties to regulate the period the agreement remains in force, and to regulate termination of the agreement, differently than provided in that article, and therefore also excluding the possibility of terminating such an agreement.
Practical importance of the issue
This controversy has practical significance in commercial dealings. Adoption of the view that it is impossible to exclude the right of termination does not permit licensees to achieve a solid assurance against unanticipated termination of the licence. In the case of a software licence, termination of the licence could have wide-ranging impacts for the licensee’s business, for example if the software is used for operation of the licensee’s online store or control of equipment at the licensee’s manufacturing facilities.
Practice has developed several methods for dealing with this major concern. Provisions are used reserving the right to terminate the licence only in strictly defined instances, unusually long termination notice periods are used, and termination is subject to high contractual penalties. But none of these solutions provides a guarantee of effectiveness. In the event of a dispute, they might be held to be invalid provisions because they seek to limit the right to terminate the agreement, or are designed to circumvent the law.
In this situation, the ruling the Warsaw Court of Appeal provides a solid argument to supporters of the position providing for the possibility of excluding termination of a licence agreement concluded for an indefinite period. It should be remembered in this regard that this ruling was issued by the court under the specific circumstances of the case in question. These circumstances warranted a finding that the intention of the parties was to create on the part of the publisher the right to use the photographs to the broadest extent possible, comparable to the scope provided in the original copyright assignment agreement. Moreover, the licence agreement between the parties was non-exclusive, and thus did not limit the photographer’s right to make further economic exploitation of the works. Under those circumstances, the court rightly found that excluding the possibility of terminating the agreement did not harm the interests of the author of the works and was economically justified.
Norbert Walasek, Intellectual Property Practice, Wardyński & Partners