Termination of head licences

In Germany

An issue highly debated in Germany has been the question of the validity of a sublicence upon termination of the head licence. The German Federal Court (the "Bundesgerichtshof" (BGH)), has recently issued two decisions ("Take Five", I ZR 24/11, and "M2Trade", I ZR 70/10) which preserve the validity of a sublicence upon such termination. Both cases concerned the licensing of copyright; even though the 10th division of the BGH that is responsible for patent law was not directly involved in the decisions, it has confirmed that it stands in agreement.

In these decisions the BGH stated that each sub-licensee had made investments based on its licence and considered that, because the sub-licensee could not influence or foresee early termination of the head licences, he should therefore have the right to continue using the intellectual property rights concerned under the terms of the sublicence.

In exchange, the head licensor is entitled to claim the assignment of the claim for payment stipulated in the sublicence agreement from the head licensee. Thereby the head licensor becomes entitled to claim the sublicence royalties from the sub-licensee directly.

The sublicence, however, continues between the head licensee and the sub-licensee, so the head licensee will have to continue to perform the sublicence without receiving payment from the sub-licensee.

If the head licensor has no interest in sublicences that may survive termination of the head licence, he has the option not to permit sublicences at all. However, in many cases, especially when the licence is granted to a company with subsidiaries, this is not an option for the licensee.

green goldfish leading other goldfishA better option is to include a provision in the head licence agreement stating that all sublicences shall end simultaneously with the head licence. The agreement has to ensure that this provision is not only contractual but instead a "quasi right in rem". Therefore it should be stipulated that the licensee is only permitted to grant sublicences under a resolutive condition stating that the sublicence ends simultaneously with the head licence and all licensed rights fall back to the head licensor1. In this case the sub-licensee can only obtain a licence with the resolutive condition from the licensee because the licensee cannot grant to the sub-licensee a right that he does not possess. A bona fide purchase of rights is not possible under German law.

In the UK

In VLM Holdings v Ravensworth Digital Services [2013] EWHC 228 (Ch) Mann J has held that a sub-licence has survived the liquidation of the sub-licensor and consequent termination of the head-licence.

Although it is a software case, the principles in issue in VLM Holdings would apply to a patent case, albeit that the factual circumstances required are fairly narrow.

The key to the reasoning why the sub-licence survives termination of the head-licence is the authority of the head licensor over both; the head licensor and licensee were both run by the same directors and effectively run as one. Therefore, the sub-licence is also effectively a licence from the head licensor. If this were not the case, the decision would, on the face of it, breach the normal privity rules.

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

1 Klawitter, Christian, GRUR-Prax 2012, 425

puzzle pieces held by different people

Manja Epping

Manja is a partner and Head of Life Sciences for Germany based in our Munich office.

Paul England

Paul is a senior associate and professional support lawyer in the Patents group based in our London office.