The Court of Cassation confirmed in a recent decision that it is not possible to transfer rights over software without clear and precise provision in writing.
When a business places an order for a supply of intellectual property, does it automatically become the owner of the product it has ordered? The answer is not obvious and caution is advised. Just because a price has been paid does not mean that the business obtains an unlimited right to exploit the product.
The rules are not the same for all intellectual property rights, such as patents, trademarks, designs and drawings, and literary and artistic works. The final category includes not only copyright in the classic sense of the term, but also rights in computer software and databases.
On 12 January 2023, the Luxembourg Court of Cassation provided a clear answer to the question of the transfer of rights in computer software. At issue was a software package called "Socrates" used by a Luxembourg trade union. An IT company claimed payment of invoices for the use of the software, arguing that it had bought the software from the IT company that had originally developed it.
The trade union objected, arguing that it had bought all the rights in the software by having fully financed its initial development. Although no associated contract had been signed, the Court of Appeal considered that the trade union had become the "owner of the copy of the software" it was using, by having been given at the outset a physical copy of the program installed on its computer system.
This reasoning did not find favour with the Court of Cassation, which referred to the words of the 2011 Law on copyright, according to which "With regard to the author, any transfer or succession of his economic rights is proved in writing and interpreted restrictively in his favour”.
The Court concluded from this that the transfer or succession of an author's economic rights must be proved in writing and that, in the absence of a written document, the author is considered not to have assigned their rights. In the Court’s view, this rule applies to all transfers of rights, even in the case of software programs created to order or under an employment contract.
Consequently, the appeal judges were not correct to conclude, in the absence of a written document, that there had been a transfer of any rights to the software.
This dispute is one episode in a genuine judicial epic, since it was preceded by an official inspection procedure, and a previous appeal decision had already been overturned. The second Court of Appeal judgment having suffered the same fate, a third composition of the Court of Appeal will have to take the matter forward. Reading the Court of Cassation’s judgment suggests that the result will not be the same next time.
This judgment is a reminder of the importance of ensuring that any contract which relates, in whole or in part, to intellectual property rights, contains precise and detailed clauses about the scope of the rights which are granted or transferred. During the negotiation of the contract, the parties should clarify whether it is a transfer of rights or a simple licence, whether or not it is exclusive, whether sub-licensing is permitted, the duration of the agreement, and so on.
The Court of Cassation also referred expressly to software programs "created under an employment contract", i.e. those created by an employee in the course of their work.
In an employment relationship, however, the situation is tempered since copyright law provides an exception for computer programs: when they are created by an employee in the performance of their duties, only the employer may exercise the related economic rights. On the other hand, this exception does not apply to any other form of copyright, for example over texts, photos, graphics, plans or videos.
By way of illustration, a dispute arose between a news organisation and one of its employed photographers, who, after being dismissed, objected to his photos continuing to be used in publications. The judges noted that an employment contract does not entail an automatic transfer of intellectual property rights. In the absence of an express clause in the employment contract, the photos remained the intellectual property of the dismissed employee. The former employer was thus ordered to pay EUR 4,600 for 184 reused photos and EUR 2,000 damages for non-financial harm .
It is therefore important to ensure that both commercial contracts and employment contracts contain clauses that are sufficiently precise to avoid disputes.