Post by Peter Lotz, M.C.J. (NYU) Attorney, Attorney-At-Law (N.Y.) MAYRFELD LLP

Ever wondered whether you really own your database? Database protection in multi-party projects: an evergreen – reloaded.

Recently, we had a couple of conversations with clients in the context of projects where the creation of a database was key for the initiation of a desired business model. Across industries, databases are a key factor in particular for the implementation of disruptive business initivatives. The question of who will own the database is always in the focal interest. From these conversations, I got the impression that the perceptions in the business community may not always correspond to the legal concepts. In particular, in more complex scenarios with a couple of players and more sophisticated financing arrangements, issues of database protection and database ownership may not be as trivial as they seem. Hence, a quick 101 on an evergreen: database protection and database ownership under the EU Database Directive 96/9/EC (the „Directive“) as implemented by German law – and if only to refresh your memories.

A not unusual scenario would be that a company envisages to offer a service based on a database. That can be an online service, subscription service, agency or placement service, etc. Alternatively, players in the industry sometimes want to consolidate pools of certain information in a separate corporate entity such as for credit information or OFAC information, etc. In the course of a development project one participant may have the business idea, another has the software skills, yet another provides financing, and sometimes the users of the product or service are actually entering the relevant raw data themselves. The entity that eventually will offer the envisaged database-based service may have cut an exceptionally good deal on the project financing through a project partner. A project can roughly be described to cover the conceptual aspects, development and design of the retrieval software, collection of the data, organization and processing of such data, the visual design of the user interface, as well as the output of database searches. And while everybody is eagerly working on completing his or her part, the question remains: who will own the database eventually?

What Is A Database (from a legal perspective)?

To answer the above question, we first need to take a look at the definition of a database. Pursuant to Section 87a German Copyright Act, a database is the entirety of its content as fixed on the database’s data carrier that is collected, arranged and individually made accessible by making a substantial investment. Mind that database protection applies to databases that qualify as a (new) collection of its elements / information including a thesaurus or index system. However, protection does not cover the individual information contained in the database! Therefore, the owner of a database does not necessarily own information (i.e., each dataset) contained in the database – however, you should of course make sure that you have the right to use information contained in your database.

Originality v. Investment – Types of Database Protection

Originality – Database As Work Of Authorship

Whether investment or originality is decisive for database protection and ownership depends on the type of protection. A database can enjoy copyright protection if the selection and arrangement of its elements is sufficiently original to qualify as a work of authorship. In this scenario, a key aspect is that the creator of the database has room and discretion for the selection of the database elements (e.g., a collection of noteworthy poems). Further, the selection should be based on own personal selection criteria. Obviously, no corresponding room for an „original“ selection exists where the value of the database depends on the completeness of its elements (e.g., the play-list of all games in the major league). However, German courts have held that in these cases originality may be found in an original arrangement of a database‘s elements or in an original access or query system. Mind, that the software that runs the database is always subject to own and separate (copyright) protection.

Substantial Investment And Sui Generis Protection

Under the so-called sui generis protection (e.g. Section 87a UrhG or Article 7 of the Directive), a substantial investment in a database is key factor for protection and, thus, ownership. In a business context, the value of a database or of database-based services is not necessarily created by its originality, however, by the completeness of its dataset. Compiling these databases can require a considerable investment. This is where the sui generis protection kicks in. The sui generis protection protects the database producer who made a substantial investment when producing a database. Thus, the party who made a substantial investment in the production of a database qualifies as the producer of a database and is conferred ownership-like rights in connection with the disposal or the making available of the database. Without the producer’s permission, nobody may use, copy or dispose of the database. Although the sui generis protection in the first place aims at the protection of a producer’s (substantial) investment in a database, as a result, even non-original databases are protected if they are based on a substantial investment. What may at first sound like a relief immediately calls for the question: what is a substantial investment and who needs to make that investment?

Sui Generis Protection Through „Substantial Investment“

In order to enjoy sui generis protection (through substantial investment), a database must meet the following requirements: it must be

  • a collection of works, data or other independent elements
  • that is systematically or methodologically structured
  • containing information that is individually accessible
  • developed (collected, verified or presented) by making a substantial investment.

If the above requirements are met, the person or entity that made the substantial investment qualifies as the producer / owner of the database. In a financed project scenario obviously the aspect of a „substantial investment“ is the key factor. So let‘s dive right into this requirement.

Investments That Qualify As „Substantial Investments“

In general, only those investments are relevant for database protection and ownership that are made in connection with the procurement, review or presentation of the collected data. Mind that costs for the creation of data elements do not qualify as (substantial) investment.

Costs / investments into data procurement include, e.g., costs related to the identification and search for existing data and the collection of such data in a database. The idea for granting database protection through substantial investment was to incentivize the creation of systems for the collection and dissemination of existing data (rather than creating not yet existing data).

Costs for data review include, e.g., costs for the verification of the correctness of the collected data during database production and maintenance. Not included are costs related to the review of newly generated data.

Costs for the presentation of data include those investments made into a database that enable its functionality for information processing. Relevant investments include costs, e.g., for the preparation of data elements for inclusion in the database, such as costs for

  • personnel working on the systematic or methodological arrangement of data elements
  • the production of a register
  • the development of query systems, indices and thesauri
  • updating and expanding the database content
  • improvements in the presentation of the database.

Not included, however, are costs for the acquisition of existing databases, of entities holding rights in databases, or the acquisition of licenses in databases, since those investments are not deemed to be directly related to the development of a database.

What Is „Substantial“?

Threshold

German courts determine whether an investment qualifies as „substantial“ on a case-by-case basis. On the one hand, this requirement has been used as a de minimis criterion to exclude databases created by minimal effort and investment (e.g., personal address databases) from sui generis protection. Others, on the contrary, require an investment with substantial weight. In any case, when determining a substantial investment, courts exclusively look at the expenditures made and costs created in connection with the development of a database.

Type And Scope Of An Investment

Courts apply an overall evaluation of the sum of quantitative and qualitative investments in a database when determining whether an investment is substantial. If the aggregate of both factors is substantial (even if each factor alone would not be substantial), an investment qualifies as substantial. In this context, quantitative factors are all financial means invested or afforded in the development of a database (e.g., financing, license costs, personnel costs, costs for technical resources). Qualitative factors are efforts that cannot be quantified such as the use of time, intellectual efforts, and energy. It is irrelevant in this context whether the investments made were necessary or whether the database could have been developed at a lower price as long as the investments have been made. German courts have found substantial quantitative investments, e.g., in the following cases: EUR 2.5m annually for the maintenance of an online train schedule, EUR 380,000 annually for the maintenance and updating of a database, EUR 50,000 for the maintenance of a database over a period of five years, or EUR 34,500 for putting together a list of poem titles.

More Than One Investor – Finance Structures

In a larger project you will typically have more players financing, contributing to and organizing a database. In these projects the question typically is who is considered as the investor in (and, thus, the owner of) a database and whether you can have more than one database owners.

Investor As Producer

As a general rule, the producer (and, thus, the owner) of a database is the person or entity taking the initiative and bearing the financial risk. Contractors do not qualify as database producers / investors. The decisive factor is in whose name and for whose account the relevant financing, procurement and employment agreements are entered into and who acquires the necessary rights to use the elements contained in the respective database. In other words, courts consider who bears the organizational responsibility and the commercial risk in connection with the production of the database. It is irrelevant, however, whether such responsibilities and risks are borne on behalf of a third party. This means that in order to maintain ownership in a database, company A can have company B work on the database as a contractor as long as company A bears the organizational responsibility and the commercial risk. However, company A cannot acquire ownership in a database (by law and without a separate agreement) by having company B working on a database and having company B bearing the corresponding organizational and financial risks. Database protection / ownership is afforded the moment in which the investor makes an investment on his own and is not forfeited if such investments are paid by a third party. Producer / investor is the person or entity who directly assumes the investment risk, i.e., the person/entity directly participating in profits and losses. Individuals or companies that perform activities in connection with the production of a database (e.g., collection, review, or organization of data) against remuneration and, thus, without own investment risk, do not qualify as database producers or investors. Their contribution does not qualify for ownership in a database. Where one party contributes financial resources, however, another party contributes substantial time, efforts, and energy, it is advisable to allocate ownership in the database by way of contract. Further, the fact alone that a party makes available data (information) for inclusion into a database (with or without compensation) does not afford such party (co)ownership in the corresponding database.

More Than One Producer / Investor

Where more than one party participates in the production of a database in the fashion that each party takes an initiative and bears an investment risk, the participating parties acquire co-ownership in the relevant database. In this scenario, the relationship between the parties in Germany is determined according to the specific contractual arrangements between the parties. Without agreement, where the parties deliberately combine joined efforts (substantial investments) in the production of a database, the parties most likely will form a partnership by operation of law. However, even without joint efforts co-ownership may be created that would exclude exclusive ownership in a database by only one party.

Structuring Traps

In a project with more than one player, the roles of principal and contractor as well as the rights, responsibilities, and contributions need to be clearly defined among all parties involved to ensure consistent database ownership. Project leaders need to have an eye on whether parties other than the envisaged database owner may make contributions and bear organizational responsibilities and financial risks. On the other hand, unless you want to reserve subsequent rights in a database by contract, you would need to ensure that the envisaged database owner in the project actually assumes (substantial) organizational responsibilities and financial risk. A particularly „good deal“ where a third party assumes all organizational responsibilities and financial risks eventually may lead to forfeiting an envisaged allocation of database ownership. The more players will assume risks and responsibilities, the more likely it is that – absent specific agreements – co-ownership in a database needs to be shared, which may not always co-align with your envisaged business model.

This article is intended to convey general thoughts on the topic presented. It should not be relied upon as legal advice. It is not an offer to represent you, nor is it intended to create an attorney-client relationship. References to “MAYRFELD”, “the law firm”, and “legal practice” are to one or more of the MAYRFELD members. No individual who is a member, partner, shareholder, director, employee or consultant of MAYRFELD (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect to this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of MAYRFELD. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of MAYRFELD on the points of law discussed. You must take specific advice on any particular matter which concerns you.

For more information about MAYRFELD LLP, please visit us at www.mayrfeld.com.

About the author Peter Lotz, M.C.J. (NYU) Attorney, Attorney-At-Law (N.Y.) MAYRFELD LLP
Peter Lotz is a partner of MAYRFELD LLP. He has been counseling for nearly 20 years domestic and foreign Fortune 500 companies as well as SMEs in connection with the cross-border developemt, acquisition, licensing and commercialization of novel technologies.
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