OASIS

                        ORGANIZATION OF ADVOCATES SPECIALISING IN INTERNATIONAL SERVICES

SWEDEN 2010/2011

Ann Nilsson, DANOWSKY & PARTNERS ADVOKATBYRÅ KB

LAW OF PROPERTY

The Swedish Supreme Court has delivered a judgement (NJA 2010 s 467) concerning negotiable promissory notes that may amend established practises among banks and other financial institutes acquiring bulks of debts.

The facts in the case were the following.

In 1988 two individuals borrowed SEK 110,000 (roughly € 12,000) from a financing company in order to buy an apartment. The debtors signed a negotiable promissory note (Sw. löpande skuldebrev) and the loan was repayable in fixed monthly instalments with a credit period of 45 years. Immediately after issuance, the promissory note was transferred to another creditor, a bank called Skaraborgsbanken. From Skaraborgsbanken the promissory note was later transferred four times to different creditors before payment was demanded in 1991. Upon receipt of the claim, the debtors argued that the debt had been fully paid already in 1990 to Skaraborgsbanken, at that time in possession of the promissory note. The new creditor initiated legal actions against the debtors claiming that they should be ordered to settle the debt.

The legal grounds presented by the creditor were that it had not received payment, it had been in good faith when it received the negotiable promissory note and that all of the earlier creditors also had been in good faith when acquiring the note. The debtors on the other hand argued that they had already refused to pay one of the earlier creditors, Hoist, and that they had explained to Hoist that the debt had been settled already. After that, Hoist had not put forward any new demand for payment. According to the debtors, Hoist could no longer be regarded as in good faith. Further, even if Hoist was to be regarded in good faith that would not change the fact that the creditor who now claimed payment was in bad faith.

The Supreme Court confirmed the lower courts’ findings that the debtors had been entitled to make final payment to Skaraborgsbanken. Thereafter, the court referred to Section 15 of the Swedish Bills of Exchange Act (Sw. skuldebrevslagen (SFS 1936:81)) and the legislative history of that provision. The Supreme Court then established that if only one of the acquirers of the negotiable promissory note acted in good faith, subsequent acquirers are able to demand payment regardless of their own good faith. Thus, according to the Supreme Court, had Hoist or the claimant been in good faith at the time when they got possession of the negotiable promissory note, they would have been entitled to demand payment in full.

However, the Supreme Court also stated that the notion in good faith, in this situation calls for an activity by the creditor and he has to ask the debtor and receive his confirmation that there still exists a remaining debt. This interpretation of the notion good faith applies when the creditor is a financial institute and the debtor is not.

The judgement profoundly alters the interpretation of the Bills of Exchange Act as concerns its provisions on negotiable promissory notes. Critics claim that, after the ruling, the characteristic feature for the negotiable promissory note, its negotiability, is lost. Acquiring a negotiable promissory note will now be linked to the same risks as acquiring a promissory note made payable to a certain individual (Sw. enkelt skuldebrev). This means that the risk that the debtor has already paid his debt is placed on the acquirer of the negotiable promissory note, regardless of him de facto being in good faith.

In the case, a written statement had been made by the industrial organization for Swedish banks and financial institutes arguing that the current practise concerning negotiable promissory notes functioned well both in relation to the customers and in assignment of notes between creditors. The Supreme Court disagreed and noted that, if the bank did not have any particular reason to suspect that the negotiable promissory note already had been paid, the customer stood the risk of having to pay again, this time to the acquirer. The Supreme Court found that it was reasonable that the financial institutes had to take more responsibility, especially since the established practice had been set on their initiative. In addition, according to practise, the negotiable promissory note was not returned to the debtor when the debt was settled. This fact also made it more reasonable, according to the court, to place the risk at the financial institutes.

Since the debtors had not, in connection with the transfer, been asked or confirmed that the debt was still outstanding, the creditor was not considered in good faith and its claims were rejected.

INTELLECTUAL PROPERTY AND INSOLVENCY LAW

The Supreme Court has ruled that a valid cancellation of a patent transfer leads to a return of the patent rights to the assignor effective against the acquirer’s creditors. If the assignment is cancelled prior to the buyer’s bankruptcy, the property right is not affected by the fact that the buyer has had a right of disposal of the patent prior to payment of the purchase sum. (Supreme Court judgement on December 22, 2010, Case No. T 5811-09)

The facts in the case were the following.

An inventor had transferred his national and international patent rights to a limited liability company that was to exploit the invention. According to terms of assignment, the inventor was entitled to terminate the contract with immediate effect whereby the patent would go back to him, should the company be subject to liquidation or if it could otherwise be assumed to be insolvent.

In September 2002, at a time when part of the purchase sum remained to be settled, the inventor terminated the contract with reference to the above mentioned section in the contract. Two months later the company was declared bankrupt. In May 2003, the official receiver sold the assets of the estate including the patent to another company.

The inventor brought legal actions against the bankruptcy estate claiming better title to the patents covered by the assignment. The estate contested the claim and asserted, among other things, that the termination clause in the contract was not binding upon the company’s creditors. This position was based on the contractual right for the company to freely dispose of the patents (including the right to transfer it).

The Supreme Court noted that when a party is declared bankrupt, contracts etc. that has been entered prior to bankruptcy normally gives the other party a claim in the bankruptcy. The claim is, however, not binding upon the estate unless it is a protected right (or the estate chooses to enter into the agreement). The Court also noted that the estate had admitted the cancellation to be binding upon the parties. In the Supreme Court, the question was therefore whether the cancellation was also binding upon the company’s creditors.

Under Swedish law, an acquirer of intellectual property rights (incl. patents), is protected against the assignor’s creditors, already through the contract of assignment. The reasons for this are that an intellectual property rights cannot be handed over and there is no third party, obliged to perform, that can be notified of the transfer. In addition, there is no regulation that stipulates that a transfer must be registered. The Supreme Court held by analogy that a cancellation prior to bankruptcy protects the original assignor against the assignee’s creditors.

In doctrine it has been disputed whether the assignor of an intellectual property must always have reserved himself the right to cancel the assignment in order to be entitled to cancel an assignment or, if that is the case at least when the acquirer has been permitted to start using the intellectual property prior to payment. It has also been discussed whether a permission to start using or dispose of the right should imply that cancellation is no longer possible.

Since the inventor in this case had reserved himself the right to cancel, the Supreme Court only needed to deal with the second part of the question. According to the Court, the fact that the acquirer had been entitled to start using the patent prior to payment did not prevent the assignor from revoking the transfer. However, a right to freely dispose of the intellectual property (inter alia by selling it to a third party prior to payment) could lead to that the cancellation could not be invoked against a third party. Hence, the assignor would not get better title to the intellectual property right if the cancellation is made after bankruptcy. If, on the other hand, the cancellation is made prior to bankruptcy, the return is valid against the estate regardless of the right to dispose of the patent. The Supreme Court also stated that it is a different matter that the assignor, in such case, might be forced to respect a new acquirer’s right to the property. In its reasoning the Supreme Court referred to the rules applicable for tangible personal property.

Thus, the Supreme Court found that the inventor had a better right than the bankruptcy estate to the patents and ruled in favour of the inventor.

IPRED - REQUEST FOR A PRELIMINARY RULING

In a case between number of audio book publishers and an internet provider concerning copyright infringement, a potential conflict between the so called IPRED and the Data Retention Directive (2004/48/EU and 2006/24/EU) became evident. On August 25, 2010, the Supreme Court turned to the Court of Justice of the European Union (ECJ) and requested a preliminary ruling.

In 2009, the implementation of IPRED caused the Swedish legislator to introduce a new provision in the Copyright Act. The rule gives the copyright holder a possibility to, with assistance of the court, request information from Internet Service Providers (ISP) in order to identify a particular subscriber. The ISP can only be ordered by the court to disclose information on its subscriber if the copyright holder can show probable cause that the internet connection in question is being used in connection with copyright infringement. At the same time, the Data Retention Directive from 2006 imposes on the EU Member States to implement a regulation that obligates the ISP to keep record of internet traffic. The information should be stored for a certain period of time. The reason is that criminal investigative authorities should have the possibility to use the information in their struggle to combat serious crimes. The Data Retention Directive contains provisions that the information gathered may only be disclosed to an authority, never to individual right holders. Sweden has not implemented the Data Retention Directive on time.

The questions that the Swedish Supreme Court has referred to the ECJ are, in short:

1.      Does the Data Retention Directive, in particular Articles 3, 4, 5 and 11 thereof, preclude the application of a national provision based on Article 8 of IPRED which permits that an ISP in a civil proceeding is ordered to give a copyright holder or its representative information on a particular subscriber to whom the ISP has provided a specific IP address, which address, it is claimed, was used in an infringement? The question is based on the assumption that the applicant has adduced evidence of the infringement of a particular copyright and that the measure is proportionate.

2.      Is the answer to question 1 affected by the fact that the member state has not implemented the Data Retention Directive on time, i.e despite the fact that the period prescribed for implementation has expired? 

The request for a preliminary ruling (C-461/10) has not yet been dealt with by ECJ. Until then, similar cases on information injunctions will not progress in the Swedish courts.

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