Violation of a license agreement: Tort action is possible, according to the French Supreme Court

It is essential for intellectual property ("IP") owners to know what legal regime will govern potential disputes with their counterparties, who are authorized users of the works, products and other innovations protected by these rights. In particular, it is important to know whether a breach of contract by the licensee, co-exploiter or partner (e.g., marketing of the marked product beyond the limits of the license, over-manufacturing, etc.) should be punished as counterfeiting, and thus on the basis of a specific tort system, or on the basis of "simple" con­tractual liability, and thus on the basis of the general law of obligations. In the first case, the dispute will only be dealt with by one of the nine judicial courts specialized in intellectual property (or the Paris court exclusively in patent matters), which will mainly apply the intellectual property code, which offers extensive remedies, specific to the violation of an intellectual property right. In the other case, it will fall under the jurisdiction of the ordinary courts, which will mainly apply the civil code and the law of obligations. The strategy for preparing for and managing such a dispute, the alternatives for amicable or extrajudicial resolution, and even the drafting of the contract itself are impacted by this choice.

 

The company Entr'Ouvert commercialises, under free license, a software "Lasso" relating to a system of access authentication. The company Orange, following a tender process by the State concerning the conception of a data-processing portal intended for the public, provided to its customer a specific data-processing solution, in the form of a platform of online services. On the basis of the free license, Orange had integrated the Lasso software into its platform. But, in short, the conditions of licence of the Entr'Ouvert software did not authorize the integration of the software in a third-party software system.

 

Believing that this provision of its software was thus not in conformity with the terms of the initial license, Entr'Ouvert first made proceed to a seizure for counterfeiting at the head office of Orange, then assigned the operator in infringement of its copyrights. The litigation was thus introduced on the basis of the delictual responsibility.

  

In first and second instances, the courts declared inadmissible the action brought by Entr'Ouvert, on the grounds that the violation of a license agreement could exclusively be based on the contractual liability. Entr'Ouvert then appealed to the French Supreme Court. 

 

In March 2019, the decision of the Court of Appeal of Paris had been written about intensively as it had surprised many specialists of the intellectual property law. 

 

In October 2022, the French Supreme Court seems to have settled this question which divided many lawyers and worried right holders, anxious to correctly anticipate their contractual relations and the risk of litigation which always ensues.

 

The French Supreme Court, in order to answer the question raised, referred to a decision of the Court of Justice of the European Union (“CJEU”) of December 18, 2009 (IT Development v. Free Mobile, aff. C-666/18). Accor­ding to this decision, Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, as well as Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs, must be interpreted as meaning that "the infringement of a clause in a computer program licensing agreement, relating to the intellec­tual property rights of the copyright holder of that program, falls within the notion of infringement of intellec­tual property rights, and, consequently, that holder must be able to benefit from the guarantees provided for by the latter directive, irrespective of the liability regime applicable under national law".

 

It is thus on this basis that the French Supreme Court overturned the decision of the Court of Appeal. In doing so, it affirms – or reaffirms – that, in the event of a breach of a clause in a software license agreement, the rights holder is indeed entitled to bring an action based on the tort liability, and therefore in counterfeiting.

  

In 2009 already, in matters of trademarks, the French Supreme Court had recognized the tortious nature of the violation of a coexistence agreement (Cass.com, March 31, 2009, n°7-17.665 and Cass.com Feb. 10, 2015, n°13-24.979).

 

In December 2019, in a case concerning the infringement of a software license, the CJEU, without deciding the question of the regime applicable under French law, established, for the benefit of national courts, a key criterion for deciding the matter: the infringement of an agreement relating to intellectual property rights does fall within the scope of Directive 2004/48 and the rights holder, victim of such an infringement, must benefit from the specific and protective guarantees and tools granted in this respect, independently of the liability regime applicable under national law.

 

Under the general law of obligations, only contractual liability can usually be incurred in the event of non-performance or improper performance of a contract in the name of the principle of "non-accumulation" of the contractual and tort liabilities, as recalled by the French Supreme Court in the present case. There is therefore, as a general rule, no possibility of "opting in" to liability in tort in the event of a contractual dispute.

 

However, as these Directives and the CJEU point out, intellectual property law is a specific and autonomous law, the rules of which may differ from the principles of ordinary law if they offer more guarantees to the party benefiting from the obligation whose violation is invoked (in this case, the owner of the property rights).

 

In French law, and with regard to property rights, an action in contractual liability offers fewer guarantees and means of redress than an action in tort, particularly if one refers to the two Directives mentioned above. First of all, as has been pointed out above, jurisdiction, and therefore the applicable law, differs according to the type of liability that is invoked, which necessarily influences the strategy of each party.

 

Moreover, in terms of evidence, the investigative measures of article 145 of the Code of Civil Procedure do not allow for seizures as extensive and restrictive as the seizures for counterfeiting provided for by the Intellectual Property Code.

 

Furthermore, as regards damages, the parties are bound by the terms of the contract, which may have set a liability ceiling, or even excluded certain liabilities, for example in the case of consequential damages. More generally, the possible sanctions in contractual matters do not even have the same scope as those specific to the protection of a property title and the fight against counterfeiting, whether the breach is in good faith (by a negligent contractual partner) or in bad faith (by an infringing licensee).

 

Finally, the application of the contract law alone will not make it possible to question, if need be, the scope or validity of the property right in question, which are sovereign questions that are the responsibility of only a few judicial courts specialized in this area. However, this issue is often raised, as a counterclaim (and subject to the terms of the contract), by the defendant. 

 

The Court of Justice of the European Union has often had a more "humanistic" vision of copyright than the more economic and competitive vision that is attributed to Common Law countries. Throughout its decisions, it has adopted a position favorable to property right holders, in order to allow them to protect their intellectual rights as effectively as possible, by having the choice between these two liability regimes in case of contractual infringement, and thus between two litigation strategies.

 

The solution adopted today by the French Supreme Court therefore aligns with the case law of the CJEU resul­ting from the 2009 and 2019 judgments, and clarifies the uncertainties raised by the 2019 appeal judgment.

  

Contracts relating to intellectual property rights (or title) can also be quite "complex" contracts and involve specific obligations of various kinds. As a result, many tortious behaviors, affecting the very value or enjoyment of such a right, can harm the software publisher, the producer of a database, the owner of trademarks and more broadly a holder of intellectual property rights. 

 

This solution – a confirmed choice between two bases for legal action – seems reassuring for the owners of intellectual property rights, whose level of protection would not be diminished in the event of an infringement originating in the violation of a contract relating to said right. Thus, without depriving the ordinary law of obli­gations of its force, they retain access to the most protective and usual litigation route, before the specia­lized courts, offering a dedicated legal framework, broader guarantees, a wider range of sanctions, and therefore more drafting and alternative dispute resolution strategies.

 

It remains to be seen what the position of the Court of Appeal to which the case is referred will be, which should nevertheless confirm this case law, since it is now well established at European level.

 

However, this answer was given in a situation where the contract in question related exclusively to the exploi­tation of an intellectual property right, in this case a software license. The same is true of the other decisions cited (trademark coexistence agreement, etc.). In these cases, it is indeed quite logical not to close the door to tort liability, since any breach of contract almost necessarily affects the value or existence of the right concerned.

 

Should the answer be the same if the contract in question had a much broader purpose, within which the exploitation of the property right would only be incidental? Distribution, franchise, research and development, software integration and business transfer contracts (etc.) have a much broader purpose than the sole property right mentioned in them. Does their violation also open the way to tort for the injured right holder, whereas, by nature and with some exceptions, the civil law of obligations is intended to apply to contractual disputes?

 

In our opinion, there is no reason to set aside the general principles now reaffirmed by the French Supreme Court, recognizing the possibility of a choice, as long as the contract "relates to an intellectual property right". Thus, if the complex contract in question does indeed contain provisions on the exploitation of an intellectual property right, and if its violation relates at least to this right, the injured party should therefore also be able to sue in tort. On the other hand, if the infringement did not concern or have any impact on this right, but concerned another contractual obligation, then contractual liability would remain the only classic option. But there is no doubt that, in such more complex contractual situations, the question will be more acute for the courts.

 

The drafting of a contract relating to a copyright (software), a trademark, a database, a patent, must therefore take into consideration the risks of litigation and anticipate the alternatives of amicable as well as judicial or extra-judicial settlement.

 

Moreover, in matters of complex intellectual property contracts, and in particular computer contracts as in this case, the practices of negotiation, drafting and execution range from the most careful of good practices to the most dangerous ones, such as the absence of writing. Furthermore, given the length of time required to negotiate such contracts, and the urgency of certain IT projects, the best can sometimes be the enemy of the good.

 

These contracts must above all aim to avoid the risk of litigation or, if necessary, to manage them as well as possible. To this end, they follow, in addition to specific legal rules, good drafting practices consolidated by case law, well known by specialists, but which companies sometimes ignore in the urgency of their operational agenda.

 

From a legal point of view, an IT project must imperatively 

 

It is all too common for us to be seized late with disputes that have already begun, based on poorly documented files.

 

The proper drafting of a complex intellectual property contract allows us to manage the disputes that may arise and to provide the necessary resolution strategies, particularly in terms of liability – contractual or tort.