IT & e-commerce

 

In the Danish legal system, IP licenses are considered contracts and subject to ordinary Danish contract law. The following focuses on software licensing and copyright law, as explained in the chapter on intellectual property rights, because software is protected by copyright law and the source code to a computer programme is not in itself patentable.

 

There are no form requirements to software licenses; it is generally possible to term license agreements as the parties see fit in scope and extent. It is important to note that unlike in some European jurisdictions, under the Danish copyright regime, copyrights can be transferred in their entirety.

 

Danish copyright law distinguishes clearly between a transfer of a license, i.e. a limited right to use the particular programme, and a transfer of the copyright to the programme. In the former, the rights of the licensee are limited and the programme can only be used in accordance with the license terms or the underlying law in the Danish Copyright Act; in the latter, the copyright itself is transferred from one contractual party to the other.

 

A software license (and any other type of copyright license) is construed under ordinary principles of Danish contract law. However, the Danish Copyright Act contains a specific rule of strict interpretation of transfers of rights. As stated above, it is not contrary to Danish law to fully transfer a copyright. However, under the Danish Copyright Act there is a presumption against a full transfer of copyright. The same rule is applicable to new types of use of a license right, which becomes available due to technological advances. In this context it becomes particularly important for the licensee to ensure that all types of use, new technologies and the scope of such use is clearly delineated in the license agreement.

 

The Copyright Act contains a mandatory provision which grants a licensee a limited right of reverse engineering which is necessary to create interoperability between the licensed software and the licensee’s existing software and IT-system. It is common in many foreign license agreements to specifically prohibit reverse engineering; under Danish law, however, such a prohibition could be set aside by a court. To avoid this, license agreements generally contain a provision that limits the right to reverse engineering but with respect of mandatory legislative provisions.

 

It is common practice in Danish license agreements, as it is in foreign license agreements, to prohibit license transfers. It is the general assumption that it is possible to prohibit transfers, and it is off course important from a contractual point of view to address the parties’ views and needs for the possibility to transfer the license. This also becomes specifically pertinent in relation to outsourcing and off-shoring (see section 2). Accordingly, it is always important to identify the licensee as precisely as possible, in particular in relation to subsidiary companies and companies in the same group, etc.

 

It is a common approach to include license terms in comprehensive IT-system contracts, which includes not only software but also hardware and often consultancy services. The license agreement is often a separate agreement attached to the larger contract as a schedule or appendix. Unfortunately this approach also carries the risk that the license agreement is not addressed in the same detailed manner as the main agreement. It is of vital importance to ensure that the license agreement concerning the software contains the necessary rights and obligations.

 

 

It is common for large and mid-sized businesses to outsource their IT operation. Such outsourcing contracts are typically very complex and involve a lot of different issues, e.g. scope of service, liability, tax, employees etc. In the last years the Danish legal system has, however, seen some controversy regarding such outsourcing, in particular in respect to the transfer or use by the outsourcing supplier of software covered by a software license agreement between the customer and a third party licensor. Recently a decision by the Danish High Court ruled that outsourcing is to be legally construed as a transfer of licensed rights, and it is therefore necessary to obtain the original rights holder's acceptance of such a transfer, unless the licensee’s right to transfer is specifically contained within the license agreement. The rights holder’s acceptance in these instances can and will very often be conditioned on a new license or another form of remuneration.

 

Accordingly, it is advisable that written permission from all the relevant rights holders, i.e. licensors, is obtained. From the customer’s view point it becomes important that its license agreements with suppliers contain clauses that explicitly allow outsourcing.

 

Furthermore, some businesses, e.g. businesses within the financial sector, are subject to regulation which has an impact on the terms and conditions for outsourcing. 

 

Off-shoring, however, creates some of the same legal challenges as outsourcing. The two approaches are from a legal viewpoint essentially similar and give rise to the same conflicts regarding licensing.

 

Off-shoring also brings particular Danish and European rules and procedures into play concerning the protection of personal data. If the data to be transferred is construed as personal data within the ambit of the Act on Processing of Personal Data, transfer of data to countries outside the EU/EEA and a few other countries is conditioned on a warranty that the data is processed according to satisfactory standards. Depending on the technical nature of an off-shoring project, the off-shoring supplier will in many instances gain access to and might even store the customer’s data. Even remote access can constitute transfer of data. From a practical point of view, this problem is solved by an EU model agreement between the customer and off-shoring supplier. As a separate schedule to this agreement the parties are required to specify the nature of the data and the processing involved. It is necessary to notify the persons concerned when the transfer or processing data involves information. The Danish Data Protection Agency must also approve the intended transfer and processing. Finally, the Danish Accounting Act might prevent accounting data from being part of an off-shoring project.

 

LETT has assisted several clients in outsourcing and off-shoring projects. We have extensive experience in dealing with issues relating to the transfer and processing of personal data.

 

 

Traditionally the Danish government has always been a major acquirer of IT systems. As such the role of the government in contract drafting has played a major part in developing the principles that govern Danish IT contracts.

 

In a cooperative effort with representatives of the IT industry the Danish government has published two model agreements, K01 and K02, intended to replace older and somewhat outdated model agreements (K18 and K33). The model agreements are tailored to specific types of IT projects: K01 is intended for smaller, short term IT projects with a significant degree of standardization in the goods and services rendered and therefore relatively minor adjustments. K02 is intended for the development of major IT systems.

 

As K01 (and K02) is the product of a drafting process involving the government and the IT industry, the model agreements are agreed documents. K01 has been in use since 2004, whereas K02 was only recently released (it is expected that K02 will be officially adopted in December 2007). Parties to such IT contracts should be aware, however, that the model agreements cannot be used in their standard form. For both contracts it is necessary for the parties to scrutinise the agreements and the schedules, and draft the contracts to suit the parties’ situation and needs.

 

The standard agreements use the same basic structure: A main agreement, which contains all major provisions in the agreement between the parties – in most cases an IT-company supplying a comprehensive IT-system – and a wide array of schedules or appendices to the main agreement. The schedules govern certain detailed aspects, such as licenses (see supra section 1), service and maintenance agreements, as well as payment terms and time schedules. Of particular note is the schedule containing the specification of the customer's requirements to the IT-system, which is essential in determining possible faults or defects in the final delivery.

 

Of note in the K01 contractual scheme is particularly the concept of acceptance tests and service tests. Pursuant to the contract the project contains two separate tests, designed to assess the system's compliance with the agreed requirements and to clearly regulate when final delivery has taken place. An acceptance test is conducted to determine whether the required functionality of the system is present. In this context the customer needs to be aware that if the system is put to use for business purposes, this can be construed as acceptance of delivery. The service level test is designed to assess if the system has the required service level (which in turn are specified in a schedule).

 

Furthermore the contracts contain provisions regulating the liability for damages, which in accordance with ordinary principles in Danish tort law, disclaims indirect losses, such as loss of profits and loss of data.

 

LETT has extensive experience in drafting contracts that follow the model agreements and their predecessors, as well as with contracts that are derived from the model agreements. In this respect LETT has advised governmental clients and private clients, both suppliers and customers.

 

 

On a general level, Danish law contains several acts regulating e-commerce with a plethora of mandatory provisions that tend to greatly favour the consumer over professional businesses. The following are the acts of legislation, with which a foreign business entity is most likely to come into contact with when doing business either directly based in Denmark or doing business which is inter alia targeted towards Danish customers and consumers. Under Danish law an online service can be construed as specifically targeting the Danish market. Should Danish courts or authorities reach this conclusion, certain legislation will apply. Relevant factors in assessing whether or not a specific business targets the Danish market include inter alia the language used on a website or other marketing material, the nature of the goods or services offered, etc.

 

The Danish E-Commerce Act implements the commercial aspects of the EC E-Commerce Directive (2000/31/EC) and requires businesses to provide information about their legal identity, place of business, etc. The E-Commerce Act also contains provisions exempting internet service providers from legal liability for IP infringements in certain instances.

 

The Danish Marketing Practices Act contains provisions on the requirements pertaining to marketing, information on price, etc. Of particular note are the provisions on unsolicited marketing, which applies to any promotion using electronic means of communication, e.g. e-mails or text messages. Violation of the Marketing Practices Act can in certain instances be met with criminal liability. It should also be noted that the Danish Consumer Ombudsman, the authority that administers the Act, is quite diligent in detecting and prosecuting violations of the Act. In several court decisions, companies have been ordered to pay a considerable compensation for such violations.

 

The Danish Act on Processing of Personal Data is a complex body of rules detailing the gathering and processing of personal and private information concerning the customers. The Act and the case law from the Danish Data Protection Agency is particularly relevant for businesses that use IT to gather, process, and transfer data in any situation, which in a modern society means almost any type of business. See also section 2 above for more information about the data protection rules in regards to off-shoring projects. The data protection rules are relevant in many aspects of business in Denmark; see for example the chapter on labour law for a discussion of the applicability of the rules towards employees.

 

The Danish Consumer Agreements Act governs business-consumer contracts; it contains inter alia provisions that allow easy access for consumers to cancel contracts. Some online digital services where delivery is instantaneous, such as text messaging services, are, however, exempt from the law.

 

Apart from regular e-commerce, i.e. the sale of goods and services, online gambling deserves particular attention from a business perspective. The Danish Gambling, Lotteries and Betting Act is a public order law which quite severely restricts the offering of gambling, betting etc. services outside of a State-controlled monopoly. The law is under some criticism from within Denmark and from the European Commission, which is contemplating a case against Denmark for breach of the EC treaty. LETT is currently representing gambling companies challenging the legality of the Gambling, Lotteries and Betting Act before the Danish Supreme Court. Apart from this specific expertise, LETTs specialists in IT law have a broad experience with the above-mentioned legislation and can advise businesses on how to address issues of Danish e-commerce regulation.