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Is the Price Guide for license software the relevant proof of the value of software products in considering the cases involving the recovery of compensation for the illegal use of computer software?

March 27, 2018

I was urged to write this article by the analysis of the judicial practice, related to the protection of the exclusive right to computer software.

As a rule, the plaintiffs in this category of disputes are prominent Russian and foreign companies operating on the software market. The list of companies that are constantly active in the protection of their violated rights to computer programs in the courts is rather narrow, the main players in this field are about 5 companies, in connection with which these cases can be classified as serial.

Usually, the right holders’ claims are reduced to filing claims to the violators for the recovery of compensation, the calculation of which is made on the basis of double the amount of the value of the right to use, which is determined on the basis of the price, which in comparable circumstances is usually charged for the lawful use of a work on the basis of Paragraph 3 of Article 1301 of the Civil Code of the Russian Federation (hereinafter referred to as the C.C.R.F.).

Article 1301 of the C.C.R.F states, that in cases of the violation of the exclusive right to a work the author or other right holder, along with the use of other applicable methods of protection and measures of responsibility established by the C.C.R.F. (Articles 1250, 1252 and 1253) shall have the right in accordance with Paragraph 3 of Article 1252 of the Code to demand at his choice from the violator the payment of compensation instead of the remuneration for damages:

  1. in the amount from ten thousand rubles to five million rubles determined at the discretion of the court;
  2. in double the amount of the value of the copies of the work
  3. in double the amount of the value of the right to use determined on the basis of the price, which in comparable circumstances is usually charged for the lawful use of the work.

In which, each of these methods stipulates its own order of proving.

In Paragraph 43.2 of joint resolution of the Plenum of the Supreme Court of the Russian Federation and the Supreme Arbitration Court of the Russian Federation of 26.03.2009 No. 5/29 “On Some Issues Arising in Connection with the Entry into Force of Part Four of the Civil Code of the Russian Federation” (hereinafter referred to as Resolution No. 5/29) the compensation shall be subject to be recovered, if the fact of the violation is proved, in which, the right holder shall not be obliged to prove the amount of the damage incurred.

As it comes from the explanations contained in Paragraph 14 of resolution of the Plenum of the Supreme Court of the Russian Federation of 19.06.2006 No. 15 “On the Issues Arose at the Courts in Considering Civil Cases Connected with the Application of the Copyright Law and Related Rights” (hereinafter referred to as Resolution No. 15), in settling the issue, which party must prove the circumstances relevant to the case for the protection of the copyright or related rights, the court must take into account that the plaintiff must confirm the fact that he has the copyright and (or) related rights or the rights to their protection, as well as the fact of the use of these rights by the defendant.

Thus, in the suits for the recovery of compensation for the violation of the exclusive right to computer software the fact in proof includes the fact, that the plaintiff has exclusive rights to the relevant intellectual property subject-matter, the fact of the use by the defendant of these rights, and the legality of the use of such subject-matter by the defendant, as well as the proof of the scope of such violation, that is, the actual number of counterfeit copies and their value.

Concerning the method used by the right holders of computer software for calculating compensation on the basis of Paragraph 3 of Article 1301 of the C.C.R.F., the Highest Courts in Paragraph 43.4 of Resolution No. 5/29 gave the following explanations, if the rights holder has filed a claim for compensation in double the amount of the value of the right to use the works, which is determined on the basis of the price, which in comparable circumstances is usually charged for their lawful use, then in determining the amount of compensation the basis shall be the remuneration subject to the license agreement, which stipulates a simple (non-exclusive) license, at the time of the violation.

In this case, it is assumed that such remuneration corresponds to the price, which is usually charged in comparable circumstances. In which, if the calculation of compensation is based on the value of the right to use the work, it is not the total value of the exclusive right that shall  be taken into account, but only the value applicable to the method of the use of the work covered by the violation.

At the same time, many plaintiffs in this category of disputes, in order to facilitate their own proof procedures, submit to the court not license agreements with the confirmation of their performance, but the Price Guide for license software issued by the Nonprofit Partnership of Software Vendors.

So, the official website of the indicated organization (http://www.appp.ru/) has the following information in the section “The Information on the Partnership”: “In November 2000, the Nonprofit Partnership of Software Vendors (NP SV) was established to coordinate the efforts to combat piracy. Today, NP SV is the largest officially registered association in the software and information products industry, and it includes 281 companies from more than 50 regions of Russia, as well as from Belarus, the Ukraine, Kazakhstan, Moldova and Estonia.

The Partnership aims to contribute to the formation of a civilized market of software products on the territory of Russia, to its development and protection of the interests of vendors and manufacturers of the license software products and information services.”

As it follows from the information indicated on the Partnership’s website, its objectives do really have good intentions in the field of the intellectual property protection, in particular, in the field of the protection of the rights of developers and right holders of software.

Indeed, the Russian Federation has just recently started to combat pirates actively, which, like the plague, have appeared with the advent of computer technologies.

At the first stages, the anti-piracy was directed against the sellers of the illegal copies of computer software and operating systems who sold discs with the collections of computer software on the markets and in the subways and caused serious financial damage to the right holders.

With the advent of the Internet to the homes of ordinary people, the sellers of counterfeit disks have fallen into oblivion and the piracy took root within the expands of the World Wide Web, where “good” pirates began to host hacked versions of software products, and dishonest users began to use them actively, preferring free hacked computer software, rather than a license version of software products.

Naturally, this situation seriously affected the demand for license products and the profits of the right holder companies, and therefore they were forced to start this “war” with pirates and the persons who use counterfeit computer software.

Having united in this struggle under a single flag of the Nonprofit Partnership of Software Vendors, the right holders, in order to facilitate the tasks of the courts and law enforcement agencies to establish the value of computer software, started to publish a Price Guide for license software, in which each of the members of this partnership published the value of his computer software.

It would seem that nothing may be better and more convenient when the prices for all computer software and their versions are in one and the same Guide, and the judge, determining the amount of compensation, does not waste time by investigating all economic activity of the plaintiff, does not waste time by investigating his license agreements, payment orders and other documents, but he simply looks into the Guide, finds the value of computer software he needs, multiplies it by the number of the counterfeited copies detected from the defendant, and he also applies the double coefficient and gets the amount of compensation subject to be recovered.

The same situation is with the majority of the cases considered by the courts, and if to bother to conduct an analysis of the judicial practice in this category of disputes, it will be established, that the courts in considering such category of cases are often guided by the above mentioned Guide.

All this would be good and convenient for all, but there is a slight problem.

Some organizations started to appear in this partnership, which do not consider anti-piracy and the fight against the illegal use of software products as their main objectives. The main aim of these organizations is the enrichment by dealing with numerous claims for compensation for the violation of the exclusive rights to computer software.

In which, these “dealers” also use this Guide as the proof of computer software value.

You may ask, “And what is the catch?” The catch is in the following.

This right holder has some software product which was developed more than 10 years ago, and in its best years its price was, for example, 1,000 rubles. However hard the right holder tried to promote this computer software, nobody bought it even for 1,000 rubles, and maybe somebody bought it, only the right holder keeps silent about it, and why he does so will be clear further.

And then computer software becomes quite “adult,” it can be said that it has become simply old and nobody needs it at all, and the right holder invents a daring plan to compensate himself for all his moral sufferings he experienced during the years of hardship and deprivation, in connection with a non-liquid commodity (computer software), which has not brought him the golden mountains and an affluent old age.

Our right holder decides to enter the partnership, knowing that the Nonprofit Partnership of Software Vendors takes under its wing all those who have been offended by “pirates” and provides them with a place on the pages of its guide.

In which, it seems that the right holder was aware that “The value of software products provided by the right holder to be indicated in the Guide is not checked by the Partnership and is indicated as it is.”

Thus, the value reflected in the Guide is indicated on the basis of the information provided by the right holder in a free form, and this value is not confirmed by the license agreements performed and the payment documents.

The rights holder thought for a long time what value he should indicate for his old computer software which nobody needed, and it occurred to him to indicate five hundred thousand rubles, he really liked that number. So, that was his decision, and he even issued a certificate to himself confirming, that the value of his computer software then was as many as five hundred thousand rubles. Oh, and he did not forget to send a copy of his certificate to the Partnership.

As to the Partnership, it does not forget “its guys,” and it, of course, both published computer software – an “old lady” in its guide and indicated its value.

And now the right holder began to seek out those who have once used computer software without paying him a thousand rubles, and found luckily, and he claimed to recover compensation, which he had calculated on the basis of Paragraph 3 of Article 1301 of the C.C.R.F., that is, in double the amount of the value of the right to use, determined on the basis of the price, which in comparable circumstances is usually charged for the lawful use of the work. And as the proof of the value of the right to use, the right holder, as usual, submits to the court the guide and says that the it contains the determined value, and the fact that he has not sold a single copy of computer software at that price is not a problem, the most important thing is that he has determined this value to himself.

As a result, such a teeming activity of the right holder has brought to dozens of sentences according to which the persons who were caught in the course of operational-investigative activities in the installation of counterfeit versions of that “old” computer software the price of which was 1,000 rubles and were prosecuted under Article 146 of the Criminal Code of the Russian Federation only because that right holder has considered that he himself could determine the value of computer software at his own discretion, regardless of whether that computer software would be sold at that price.

The Partnership does not check the reality of such value and indicates in the guide exactly what the right holder has indicated, and the courts and investigators are guided by what is indicated in the guide.

But in fact the situation could be quite different, if the real price had been applied, then the above mentioned persons would have been brought to administrative responsibility, and not to criminal responsibility, because in this case no heavy damage is caused to the right holder.

Judge for yourself, bringing to criminal responsibility leaves in one or another way a “stigma” on the person's life, even if the person brought to responsibility is not serving a real term.

Let us return from this lyrical and sad retreat to our topic about the relevant proof, which can be submitted when filing a suit where the claims for compensation are calculated on the basis of Paragraph 3 of Article 1301 of the C.C.R.F.

In my personal opinion, the courts should be critical about the proof of such kind as the Price Guide for software, when in the suit for compensation the plaintiff applies the calculation of compensation, based on double the amount of the value of the right to use, determined on the basis of the price, which in comparable circumstances is usually charged for the lawful use of a work, in connection with the following.

The Chamber of Commerce and Industry of the Russian Federation in response to one of the applications concerning the Price Guide for license software has indicated the following: According to the opinion of the Chamber of Commerce and Industry of the Russian Federation, the above mentioned Price Guide should be considered only as a reference and statistical publication, which is not intended for the evaluation or expert activity.

Moreover, the Eighteenth Arbitration Appeal Court, in its resolution of 16.01.2014 on case No. A76-13105/2013, set forth an absolutely justified and fair position, according to which the Price Guides for license software developed by the Nonprofit Partnership of Software Vendors shall not be the proof of the circumstance under investigation, since they do not contain the information about the value of disputable software products at the time of the violation in accordance with the provisions set forth in Paragraph 43.4 of Resolution of the Plenum of the Supreme Court of the Russian Federation No. 5, the Plenum of the Supreme Arbitration Court of the Russian Federation No. 29 of 26.03.2009 “On Some Issues Arising in Connection with the Entry into Force of Part Four of the Civil Code The Russian Federation.”

In addition, in analyzing the contents of the above mentioned documents, the appellate court can not conclude that the information contained therein is the result of monitoring the average prices for software products, which are actual in the relevant period, since the Guide offers the recommended prices for software products, whereas the determination of the value for the concrete commodity under the sale and purchase agreement shall be carried out by the parties according to Articles 421, 424 of the C.C.R.F. at the discretion of the parties, and taken into account the objective availability of the competition in the market, the value may be lower than the value recommended in the guides.

The appellant's references to the fact that these guides are evaluated by the courts in the extensive judicial practice as the proof of the value of the software product are rejected as contradicting to the norms of Articles 65, 71 of the Arbitration Procedure Code of the Russian Federation, according to the context of which the evaluation of the proof shall be carried out by the court taking into account the concrete circumstances of the case, including on the basis of the evaluation of the proof submitted to justify the objections of the opposing party, it evaluates their relevance and admissibility, and neither proof has a predetermined force.

At the same time, I think it is also necessary to give as an example of the case on the protection of trademark rights, since this area is essentially adjacent to copyright and is aligned with it in the methods of the calculation of compensation.

In the example given below, the Plaintiff also calculated the amount of compensation using the similar method, based on the value of the right to use the disputed trademark, which is determined based on the price of the license agreements, which he usually concludes, which stipulate a simple (non-exclusive) license, at the time of the violation.

Thus, the Intellectual Property Court in the resolution of 11.07.2017 in case
No. A40-215407/2014 came to the following conclusions: “However, the plaintiff has determined the amount of compensation to be paid for the violation of the exclusive rights to the disputed trademark, in accordance with the provisions of Subparagraph 2 of Paragraph 4 of Article 1515 of the C.C.R.F.,not based on the value of the right to use the disputed trademark, which is determined  based on the price of the license agreements, which he usually concludes, which stipulate a simple (non-exclusive) license at the time of the violation, but based on the information indicated by the evaluator in the above mentioned report and conclusion submitted by the plaintiff to the court.

Therefore, the Judicial Division of the Appeal Court thinks that such proof can not be considered as the relative proof of the amount of the value of the right to use the trademark for the purposes of Subparagraph 2 of Paragraph 4 of Article 1515 of the C.C.R.F. and can not serve as the appropriate proof in the case under consideration.

Thus, the conclusion can be made that the courts, if there are reasonable doubts in the reality of the value of the right to use a disputed subject-matter of intellectual property, in the absence of license agreements in the court papers, which stipulate a simple (non-exclusive) license at the time of the violation, are critical of such proof as evaluators’ reports and the Price Guide for license software.

These conclusions are confirmed by extensive judicial practice in similar disputes (the Resolution of the Eighteenth Arbitration Appeal Court of 16.01.2014 in case No. A76-13105/2013, the decision of the Armavir City Court of Krasnodar Krai of 29.03.2011 in case No. 2-707/11, the resolution of Temryuk District Court of Krasnodar Krai of 26.10.2010 in case No. 1-369/2010, the cassational ruling of the Orenburg Regional Court of 16.10.2012 in case No. 22-4736/2012, etc.).

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Author of article

Roman Larshin

Roman Larshin

Lawyer