Following the recent English case of VLM Holdings Ltd v Ravensworth Digital Services Ltd, the short, and rather surprising answer to the question in the title is "yes". The long answer, which follows below, explains the circumstances under which this can happen.
Facts
A European company (VLM Holdings) owned the copyright in some software for online printing services. The company granted an informal licence to its subsidiary in the UK (VLM UK) allowing it to use the copyright. VLM UK then granted a sub-licence to an estate agency (Spicerhaart).
After VLM UK went into liquidation, VLM Holdings terminated the existing head licence and granted a new and exclusive licence to another company, Ravensworth Digital Services Ltd (Ravensworth).
When Spicerhaart claimed to still enjoy the benefits of the sub-licence, Ravensworth argued that the licence Ravensworth had been granted was not exclusive and could therefore be terminated without obligation to pay. Under the terms of the licence, Ravensworth would then become the beneficial owner of the copyright.
VLM Holdings subsequently terminated the licence with Ravensworth for failure to pay and claimed for breach of copyright. Ravensworth then counter-claimed seeking a declaration that it was the owner of the copyright.
Decision
The key question was whether the sub-licence granted by VLM UK to Spicerhaart had survived termination of the head licence. The points considered to decide this were as follows:
1.
| A licence is a contractual permission rather than a proprietary right; |
2.
| All of the directors of VLM UK were also directors of VLM Holdings. The businesses and aims of the two VLM companies were shared to such a great extent that the two were effectively run as one in this area; |
3.
| The sub-licence incorrectly identified VLM UK (rather than VLM Holdings) as the owner of the copyright and VLM Holdings was aware of this; |
4.
| There were no provisions in the sub-licence regarding what would happen if the head licence was terminated, or what would happen if VLM UK was wound up; and |
5.
| The purpose of the sub-licence was to allow Spicerhaart to continue its use of the licence software without disruption. |
The Court decided that:
| as VLM UK had granted the sub-licence in the full knowledge, and with the implicit consent, of VLM Holdings, VLM UK had effectively acted as VLM Holdings' agent; |
| the licence, and the permissions the licence granted to Spicerhaart, were therefore given not only by VLM UK but by VLM Holdings as well; |
| automatic termination, on circumstances outwith Spicerhaart's control, would have frustrated the licence's business purposes; |
| the sub-licence with Spicerhaart did not terminate when the head licence was terminated nor when VLM UK was wound up; and |
| VLM Holdings was therefore in breach of the subsequent exclusive licence granted to Ravensworth. |
Comment
This case shows that, in certain specific circumstances, a sub-licence can survive termination of the head licence. In this particular case the situation arose through the rules of agency but whenever the head-licensor can be shown to have directly given permission to the sub-licensee, independently of the permission given by the sub-licensor, a similar result could arise.
The key to avoiding this is proper drafting of the head licence. Avoid granting to a licensee permission to grant sub-licences that are capable of surviving termination of the head licence and expressly provide (and require that any sub-licences also provide) for automatic termination of the sub-licence in the event of termination of the head licence.
This is an English case and hasn't yet been tested in the Scottish courts. However, the underlying principles apply to licenses of copyright both north and south of the border so the case is indicative of the likely judicial approach should similar circumstances arise in a Scottish case.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our Privacy Notice.