File downloading is cheap in Germany

This blogger knows one or two people who have MP3 players, some of which include songs which may or may not have been downloaded illegally (he would prefer not to know), but he's always interested to see how much an illegal (and in Germany criminal) download would cost. Fortunately he lives in Germany and is rather pleased that the Hamburg District Court  has decided that it's only EUR 15 per download (as report in the German language Beck website).

The 16 year old infringer happily used his father's Internet connection to place a couple of titles onto a file sharing site. The court concluded that these had been downloaded around 100 times and then applied the tarifs from the German collecting society GEMA. An arbitration case between GEMA and the German BITKOM information technology association adopted a similar level.

A mere 15 Euros seems a little low when one considers the penalties in the United States. However, German law on damages doesn't like the concept of punitive damages - and merely looks at replacing the economic damage suffered by the IP rights holder. The level tends to be set at the level that an arms-length negotiation between the rights holder and a potential licencee would establish - a so-called "fictitious licence agreement". It's probable that the court in this case was influenced by the young age of the infringer.

The IPKat has also blogged this here.

The Hamburger Court's press release is here (but the case is not yet reported in full).

Guide to McDonalds Restaurants in Hamburg here.

Typical Licence Fees in Germany

My attention has just been drawn to an interesting article published in the German-language IP journal "Mitteilung der deutschen Patentanwälte" by Michael Trimborn of Osborne Clarke in Cologne. Prof. Trimborn has reviewed published German court decisions and arbitration awards relating to patented products since 1995 and produced a table which has been published in the journal.

The article can be purchased here.

One point that needs to be made is the difference in the manner in which the awards are calculated. One set of figures relates to awards made against infringers. Another set is based on compensation made to inventors under the German Law on Empolyee Inventions (for more details see the German Wikipedia article).

Double licence fee for ringtones refused

According to a 24IP Law Group News Flash last week, the German Bundesgerichtshof has ended a dispute between artists and music publishers on the one side and professional ringtone providers on the other, concerning an additional royalty for ringtone arrangements of popular music songs.

According to the most recent decision, it is usually sufficient to pay the royalty to GEMA (the Society for musical performing and mechanical reproduction rights) in order to obtain a licence to convert a musical song into a ringtone. The precedent for this is a dispute between Frank Kretschmer (composer of the Jeanette Biedermann hit single “Rock my Life”) and the German ringtone provider Telemedia. After Kretschmer demanded a separate royalty for the conversion of his song into a ringtone, Telemedia stated that it purchased a licence from GEMA in which the conversion of the song into a ringtone was included.

The Regional Court of Hamburg initially decided in favour of Kretschmer (18 January 2006, file 5 U 58/05), holding that ringtone providers were obliged to pay a separate licence fee for the conversion of musical songs into ringtones and observing that the musical compositions are shortened and digitally edited to a few beats for the use as a ringtone. The songs were thus transformed into a signal which did not include the composer’s initially intended musical and sensual experience. The Court compared the conversion of a musical song into a ringtone with a form of merchandising use that required the composer’s approval.

The recent decision of the Bundesgerichtshof has now made it clear that the amendments to the GEMA agreement of 2002, 2005 and 2007 included the assignment of rights concerning the conversion of musical compositions into ringtones and required no further assignment of rights by the composer or music publisher. The Court said it was obvious that the conversion of a musical song into a ringtone required shortening and digital editing. The musical song is transformed into a signal which is cut off by answering the phone. Furthermore it is obvious that a ringtone consists of the repetition of a small section of the respective musical song which does not necessarily need to include the beginning of that particular song. Telemedia still had to pay a royalty to Kretschmer though, since his GEMA contracting agreement was signed in 1996, before the amendments for the conversion of musical songs into ringtones were included.

This recent decision will have a tremendous financial impact on both ringtone providers and the composers and the publishing industry. Ring tone providers may seek to claim a refund of royalties already paid in respect of songs of composers who signed the GEMA agreement's 2002 version.

Bilanzrechtsmodernisierungsgesetz

The German government recently issued its draft law concerning the modernisation of company annual accounts. The Bilanzrechtsmodernisierungsgesetz implements the EU Directive 2006/43/EC into national German law and also updates the rules on drawing up company balance sheets found in the German Commercial Code (Handelsgesetzbuch).

For particular interest to IP practitioners are the changes to Sec 248. Paragraph 2 currently reads that a value for intellectual property developed by a company cannot be entered onto the balance sheet. IP acquired from another entity can be placed on the balance sheet.

The new law proposes to bring the German practice closer to IFRS regulations. Paragraph 2 will be deleted completely. The memorandum attached to the draft law states that this means that due to the requirements of Sec 246 there will in future be a requirement to include a value for intellectual property in the balance sheet as long as this item of property can be separately commercialised, for example by sale or by use.

An amendment to Sec 255, Paragraph 4, states that the value assigned is that of the market value - but if none is available then generally acceptable accounting rules can be used. If no possible value can be drawn up then the value assigned will be that of the development costs for the item of intellectual property (but note that research costs are not included as these are considered to be general costs - and not linked to the development of the intellectual property). The memorandum states that it is "recht einfach" (i.e. easy) to make the distinction between research and development costs - however in practice this is likely to be much more difficult than it seems at first glance.

The rules for drawing up the balance sheet listed in Sec 266 are amended to include an item for self-created intellectual property.

Finally in order to protect creditors the new law also incorporates a provision (Sec 268 Paragraph 8) which states that a dividend can only be paid to shareholders when suffcient funds are retained by the company to cover the value of the intellectual property listed in the accounts.

The draft law is currently out for consultation. There seems to have been little debate about these provisions and they will certainly be welcomed, for example, in the venture capital industry where investments are made into innovative companies whose sole assets are intellectual property rights.