Swedish Court requests CJEU to clarify meaning of 'preparatory design material' and 'employee' within Software Directive

Y owned a share in Dacom Ltd, a company in Sweden of which he subsequently was the sole owner between 2007-2011. Informed Portfolio Management (IPM) is a Swedish company that deals with capital management. In 2003, Y entered into a contract with IPM under which it was agreed that IPM would employ Y. The employment would commence later that year and Y would also be granted partnership in IPM’s parent company.

Throughout Y’s employment with IPM a specific type of computer program was developed for the purpose of capital management. A first version of that program was subsequently published in 2010.

Note: A core question regarding the reference for preliminary ruling in Dacom, C-313/18 (keep reading) is how the term ‘preparatory design material’ should be understood and established if someone has acted as an employee and joint author of the work.

The parties’ arguments and the first instance decision

Dacom Ltd brought an action before the Patents and Market Court and requested it to establish joint authorship over the computer program and the preparatory design material. It also requested the court, by way of injunction, to prohibit IPM from further using the computer program.

Dacaom’s claim was supported by three points: (i) Y participated in the creation and making of the preparatory design material to the extent that he would be joint author of that preparatory material and the computer program, (ii) the work done for IPM was not in the capacity as an employee but, rather, as a consultant, and (iii) by conclusive actions, Y had granted IPM a licence to use the program in the course of its business. The licence expired in 2012 and Y transferred his rights to the program to Dacom Ltd. Because Dacom Ltd did not grant IPM authorization to this, IPM’s actions amounted to an infringement of Dacom’s joint copyright ownership in the program.

IPM disputed Dacom’s claims and argued that Y had not created or developed the preparatory design material. The copyright in the work belonged to IPM due to Y’s position as an employee with IPM. IPM argued that even if Y was hired as a consultant, the circumstances are of such nature that Y ought to be regarded as an employee. In particular, Y’s salary was invoiced by Dacom Ltd but to the same account as Y’s salary previously hade been made to. Neither had there been any reference to the fact that Y’s employment would unexpectedly terminate and be replaced by a consultancy agreement.

In relation to the software, IPM recognized that Y was involved in the work leading to the preparatory design material. The design material, however, included generic descriptions of the same type of computer programs used earlier on by IPM with the support of a licence. This was done to such large extent that the material could not be regarded as being protected by copyright. If copyright subsisted in the work it would be as a literary work and not applicable to the preparatory design material.

The Patents and Market Court rejected Dacom’s claim after it found that Y was employed by IPM in the period 2003 – 2012. It also found that the computer program was an original and independent creation in relation to the preparatory design material. The preparatory design material could not be said to give the final product – the computer program – a certain outline or structure. Instead, it had largely been the programmers who had to make their own choices and decision on how to write the programming code.

The Swedish Patents and Market Court of Appeal

Dacom Ltd appealed the first instance judgment and also amended its claims. It requested that the Patents Market Court of Appeal establish that Dacom Ltd had, together with another, the right to joint ownership over the program or in the alternative, to the preparatory design material. The preparatory work should not be regarded as an independent work in relation to the program. IPM opposed the claim in its entirety.

Domestic law & questions referred

According to Section 1 of the Swedish Copyright Act (SCA), a person who has created a computer program owns the copyright to it. Section 40a SCA specifies that copyright in a computer program created by an employee in accordance with his/her employment duties, belongs to the employer. Section 53 b SCA sets out that a court may prohibit, by way of injunction, further use of that work, that amounts to an infringement in light of Section 53 SCA.

In order to determine whether the computer program and the preparatory design material enjoy copyright protection, the court accepted that it’s essential to apply the latter provisions in the SCA in light of EU law. However the Court recognized that there is uncertainty on how EU-law should be interpreted:

Article 1 of the Software Directive (Directive 2009/24/EC) specifies that computer programs enjoy copyright protection as literary works. The same provision specifies that the term 'computer program' includes preparatory design materials. However, preparatory design materials are not sufficiently defined in that directive.

Another uncertainty subsists is how detailed or developed a document must be to be protected as preparatory design material. Should a material, to form preparatory design material, be so complete that in practice it does not require any independent choice on the side of the person who writes the code? And is it possible to develop two computer programs with the same functions but different forms of expressions based on one and the same preparatory design material? These questions essentially boil down to the issue of how the preparatory design material and computer programs relate to each other under the Directive.

Finally, according to Article 2 (3) of the Software Directive, where a computer program is created by an employee in the performance of his/her duties or following the instructions given by his/her employer, the employer is exclusively entitled to exercise all economic rights in the program thus created, unless otherwise provided for by contract. The question that arises is therefore how the term “employee” should be defined within the scope of the Directive.

Hence, in light of the foregoing considerations the Patents and Market Court decided to stay the proceedings and refer the following questions to the CJEU for preliminary ruling:

(1) What criteria are to determine whether material constitutes such preparatory design material as is referred to in Article 1(1) of the Computer Programs Directive? Can documents which set out the requirements as to the functions which are to be performed by a computer program and the result which the computer program must achieve, for example detailed descriptions of investment principles or risk models for asset management including mathematical formulae to be applied in the computer program, constitute such preparatory design material?

(2) Must material, in order to constitute preparatory design material within the meaning of the directive, be so complete and detailed that in practice it requires no independent choices on the part of the person who actually writes the code of a computer program?

(3) Does the exclusive right to preparatory design material within the meaning of the directive mean that the computer program in which the preparatory design material subsequently results is to be regarded as an adaptation of the preparatory design material and therefore a dependent work for the purpose of copyright?

(4) Can a consultant employed by another company, but who has been working for a number of years for the same client and, in the execution of his duties or following the instructions given by the client, has created a computer program, be deemed to be an employee [of the client company] for the purpose of Article 2(3) of the Computer Programs Directive?

(5) On the basis of which criteria should it be assessed whether someone is an employee for the purposes of that provision?

(6) Does Article 11 of Directive 2004/48/EC (The Enforcement Directive) mean that there must be a possibility of obtaining an injunction, even in a situation where the claimant holds the intellectual property right at issue jointly with the party against whom that injunction is directed?

(7) If the answer to question 3 is in the affirmative, does that lead to any other conclusion if the exclusive right concerns a computer program and that computer program is not disseminated or made available to the public, but used only in a joint owner’s own business?

The IPKat will follow this reference and reports on relevant updates in due course.