Expiration of the principal licence – what happens to the derived sublicence?

The Federal Court of Justice (BGH) had to decide in a recent judgment whether the expiration of a principal licence leads to the expiration of a sublicence when the principal licensee has granted the sublicensee an exclusive right of use in exchange for participation in licence proceeds and the principal licence expires as a result of the amicable termination of the principal licence agreement.The parties to the dispute are music publishers, whereby the plaintiff is domiciled in California and the defendant is domiciled in Germany. The plaintiff is the owner of the worldwide exclusive music publishing rights and the resulting rights of use in the composition "Take Five" by composer Paul Desmond. The plaintiff granted the exclusive music publishing rights to this work for Europe to a music publisher (principal licensee), which finally in 1962 granted the exclusive subpublishing rights for Germany and Austria to the legal predecessor of the defendant.

In 1986, the plaintiff entered into a settlement with the principal licensee in the course of a legal dispute, with which the parties agreed that all mutual obligations under the publishing agreement concerning the work "Take Five" were terminated and with the expiration of the licence the rights at sublicensees of the principal licensee irrevocably ended. Since the plaintiff was of the opinion that with the expiration of the principal licence the sublicence of the defendant was also terminated, it sought in particular the judicial determination of the lapse of music publishing rights of the defendant for Germany and Austria. The Regional Court (LG) granted the claim. The Court of Appeal rejected the claim

Decision of the Federal Court of Justice (BGH)

With its Urteil vom 19.07.2012 – I ZR 24/11 the Federal Court of Justice (BGH) dismissed the plaintiff's appeal. The defendant continued to be the owner of the exclusive subpublishing rights for Germany and Austria.

The defendant's exclusive subpublishing right did not expire by virtue of the fact that the plaintiff and the principal licensee concluded a settlement in the course of a legal dispute, in which they agreed on the termination of the publishing agreement existing between them and the expiration of the agreed licence. In doing so, the Federal Court of Justice (BGH) referred to the principle of successor protection that applies in copyright law, according to which exclusive and simple rights of use remain valid if the holder of the right who granted the right of use changes or renounces his right. This led to the conclusion that the expiration of a right of use does not necessarily lead to the lapse of the rights of use derived from it. The purpose of successor protection is to protect the confidence of the rights holder in the continuance of his right and to enable him to amortize his investments.copyright law valid principle of successor protection, according to which exclusive and simple rights of use remain valid if the holder of the right who granted the right of use changes or renounces his right. This led to the conclusion that the expiration of a right of use does not necessarily lead to the lapse of the rights of use derived from it. The purpose of successor protection is to protect the confidence of the rights holder in the continuance of his right and to enable him to amortize his investments.

The defendant's interest in the continuation of the sublicence generally outweighs the plaintiff's interest in the reversion of the sublicence in the event of the expiration of the principal licence. The plaintiff must accept that it is prevented, until the expiry of the protection period, from granting exclusive subpublishing rights to the composition for the territory of Germany and Austria, since it consented to the granting of further exclusive rights of use by the principal licensee. The plaintiff's interest is largely protected because it can claim against the principal licensee after the expiration of the principal licence for the assignment of its claim against the sublicensee for payment of licence fees.

The continuance of the sublicence upon the lapse of the principal licence thus does not lead to the unfair consequence that the principal licensee, no longer entitled, benefits from licence payments of the sublicensee and the principal licensor, again entitled, receives nothing. The sublicensee can regularly neither influence nor foresee the cause for the extraordinary termination of the contract geschlossenen Vertrags and the premature termination of the earlier right of use. It would often suffer considerable economic disadvantages from the premature and unexpected loss of its right, which could even lead to the destruction of its economic existence if it depends on the existence of the licence.

Conclusion

The expiration of a principal licence does not generally lead to the expiration of the sublicences derived from it, if the principal licensee has granted the sublicensee an exclusive right of use in exchange for participation in licence proceeds and the principal licence does not expire on the basis of a recall due to non-exercise, but expires for other reasons.
The exclusive rights of use of the sublicensee accordingly continue independently of the principal licensee, as long as it continues to pay the licence fee and sufficiently exercises the exclusive right of use granted to it.