Page 15 – CIP – The Anton Mostert Chair of Intellectual Property

Recent media reports raised several questions about the transfer of so-called digital “property” by means of a testamentary bequest. These digital works include e-books, songs, videos, movies, applications and other forms of intellectual expression recorded in digital format and distributed to end-users by means of web traders such as Kalahari, Amazon and Apple iTunes.

According to these reports, individuals who sought to provide for the transfer of their personal collections of digital works after their death found that the law does not specifically provide for such transfer of ownership. Consequently some turned to trust law in an attempt to vest their future heirs with the rights to these works, while others argued that it has become necessary to include a username and password in a will so that the new owner may use the digital works after the testator’s death. In North America several states have implemented legislative measures for the transfer of so-called “digital property” by means of a testamentary assignment while an enterprising legal practitioner jumped on the opportunity to sell his own software for this purpose.

In fact, those who are attempting to make hay while the sun shines are likely to end up with nothing more than chaff. The truth is simply that in the case of digital content there can be no talk of digital property of any sort.

When a user “buys” an e-book or song from one of these online service providers, a contract of sale is not concluded. In reality the user only receives a right to use the work for specified purposes such as to download and open the e-book, play the song or install the application. For this reason the agreement between the service provider and the customer is defined as a license agreement. Therefore it is a mistake to imply that the user has vested any property rights over downloaded contents. A license agreement neither transfers ownership of the contents nor does it create any transferrable rights for the user.

In the case of content provided by Amazon and Apple, the standard terms of the agreement specifically state that the contents is not sold to the user. Furthermore, these agreements are described as non-exclusive, non-transferrable license agreements for the limited use of the work. Therefore such an agreement is appropriately classified as a contract for the provision of services as opposed to a contract for goods.

As a result, all service providers (including Kalahari, Amazon and Apple) expressly prohibit the transfer (by any means) of the rights conferred on the user in relation to the work, despite the fact that such a provision is unnecessary. Consequently, a collection of digital content cannot be bequeathed to another because it is neither personal property nor any kind of transferrable right. Of course the same prohibition would apply where any attempt is made to transfer digital content to a trust. Regardless of whichever circuitous route is followed to achieve the transfer of the rights to digital content (posthumously or otherwise), it would still amount to a breach of contract. And in most cases a breach of the license agreement would activate the service provider’s right to recall the user’s rights to use the work and his/her copy of the work itself. Any attempt to retain possession of the work would then constitute an infringement of copyright in the work.

Furthermore, the standard license agreement most commonly used for the provision of digital content is expressly concluded with the user in his or her personal capacity. Hence the term: end-user. In addition, these agreements impose an obligation on the user to keep his or her access credentials safe and prohibits the use of a username or password by anyone other than the licensee. Consequently, any mention of a username or password in a will (or anywhere else) would also constitute a breach of contract while the use of another person’s authentication credentials to gain access to protected work is a form of fraud and a criminal offense in terms of the Electronic Communications and Transactions Act.

Finally, the rights of the end-user (outlined above) must be distinguished from the rights of the author or copyright owner of the works in question. In the latter case, the intellectual property rights (a specific kind of movable property) may of course be transferred to another by means of a written contract or testamentary disposition in terms of the Copyright, Trade Marks or Patents Act, whichever the case may be.

As for the rights of the end-user – lest you want to turn your heirs into criminals, these must be carried to the grave.

Cobus Jooste

The introduction of the new IPR from Publicly Funded Research and Development Act is a significant milestone in empowering local universities in their negotiations with industry partners around research funding and managing the results flowing out of such research. The importance and value of intellectual property, which until recently was a vague term in the language of most academics, was highlighted and prominence was given to it at all levels of the University. The Technology Transfer Office (TTO) made use of the opportunity to educate academics and to increase the disclosure rate at our university, which we have successfully achieved.

We experience that the majority of researchers understand and buy into the rationale of the Act and abide by it. However, there are cases where research funding is lost due to probably unforeseen and unintended consequences of the Act. Researchers are increasingly expressing that the Act is sometimes working against them in a manner that does not support the overall objectives of the legislation. This concerns a wide range of research funding instruments, including the Department of Trade and Industry’s THRIP funding incentive program which is geared toward facilitating university-industry interaction.

Researchers argue that the university’s core function is research and not commercialisation. They also feel that a critical element of a research agreement with industry should be an academic footprint and not a commercial outcome. However, they agree that, where it makes sense, the small portion of research agreements that result in possible commercially viable intellectual property, this should be dealt with in a different manner than the much broader research agreement pool. Another reality is that many universities are increasingly dependent on third stream income and in some cases federal funds (which accounts for more than 60% of research income at some universities) do not have a commercial focus.

This principle is highlighted by a case where a researcher applied for funding from an established international non-profit organisation. The organisation’s contractual intellectual property-related clauses were drafted to ensure that research outcomes were made available to poor and needy communities to support their own charitable objectives, while simultaneously giving the university an opportunity to commercialise those outcomes. The research funding opportunity was lost to competitors at an African university due to IPR Act compliance requirements. In many cases a university is obliged under the IPR Act to negotiate intellectual property issues with such funders. This places pressure on them to edit funding clauses to comply with the IPR Act, leaving them little choice to award the funding to competitors that are willing to comply with their strict rules and deadlines with the result that the university loses these opportunities.

The intellectual property in the majority of these cases is not of such a nature that a TTO can ever commercialise it, but negotiating these agreements to bring them strictly in line with the Act consumes serious capacity and time, with the end result that it creates distrust with faculty members. It also delays signing of contracts and it annoys the funding bodies. As a result, a TTO loses face. TTO staff members are spending nearly all their time negotiating often highly irrelevant intellectual property clauses in charitable research grant agreements, to the detriment of the commercialisation of the very small portion of commercially viable intellectual property at a university.

Another consequence of this serious problem is that researchers are fingering blame at the TTOs for the loss of funding opportunities which have very important and significant strategic value for them and the university in many instances. Incidents like these are used as damaging examples at Faculty meetings, creating an impossible situation for a TTO to fulfil its role and function within the university.

A possible solution would be to identify and ring-fence specific parameters and types of research agreements that will empower a TTO to make fast decisions to allow certain intellectual property clauses even thought they don’t technically comply with the Act in its current form and that take the research funder’s context and intentions into consideration. Examples of these parameters include where there is clearly zero commercial value to be gained from the research outcome. and where the funding time frame and/or the situation prevents us from negotiating the issue and where the intellectual property clauses are specifically drafted to ensure the furtherance of the non-commercial objectives of the funded research.

An example scenario where this could be applicable is when the funder requires copyright on a report detailing interventions that will reduce teenage pregnancies in poor communities, which will allow the funder to distribute the information as widely as possible to the benefit of the community that the information will make the biggest impact. Currently, such approval cannot be granted freely by a TTO if the project is not funded on a full cost basis. A resolution of this nature will truly empower TTOs that are regarded by researchers as bureaucratic and inflexible obstacles in their quest for research funding applications.

There is a misconception that university intellectual property is generally highly profitable and has great commercial value. The opposite is true. Only a very small percentage of university-developed intellectual property is commercially feasible. In a recent meeting to discuss the commercial potential of a promising invention, we were schooled by our business partner in the dynamics of the niche technology market dynamics that would influence the deal ahead. These factors were regardless of the technical merits or benefits of the underlying technology.

In the USA, where the Bayh Dole Act (which differs from the IPR Act in that it involves significantly less types of intellectual property) has been implemented for more than three decades, only 16% of TTO’s break even or make a profit. In South Africa I expect that number to be smaller due to the nature of research being conducted here and the level of funding support from both industry and government for research.

Our research efforts are mostly aimed at reducing social and health problems specific to the South African population and far less funding is available for high technology breakthroughs.

Due to the early-stage nature of university intellectual property and the long lead times required to commercialise some University innovations with understaffed TTO’s who spend significant resources managing and negotiating intellectual property clauses in research agreements, we should not be surprised if university management start questioning the additional burden that a TTO places on their ever increasing budgets. This is especially true for Universities that have recently established TTOs as an outcome of the application of the IPR Act.

This is unfortunately the reality we face as TTO’s in South Africa. However, we believe that the Act will become a powerful tool in our TTO’s resource kits once it has been streamlined to achieve its intended objectives. We are highly committed to working with the National Intellectual Property Management Office to achieve this.

Anita Nel

Anita Nel is the CEO of Innovus, Stellebosch University’s technology transfer company. A former investment manager at a venture capital company, Anita has served on the boards of various young companies in different technology-based fields. She went on to manage a socially responsible investment fund and a small research company. With vast experience in human resources, marketing, negotiations, strategy and general management, Anita is well equipped to understand entrepreneurship and the many challenges facing start-up companies.

“From Dickens to Dean” was the heading of one of the book reviews after the Handbook of SA Copyright Law was first published in 1987. Since then The Handbook of South African Copyright Law has substantially been rewritten and updated to the extent that it is now in its third edition.

According to Mabel Jansen SC, “the hallmark of Dr Dean’s book is that he is a masterful craftsman as far as the layout and language of the work are concerned, rendering the contents of his work accessible to novice and expert alike. The book is a veritable tour de force which is rendered even more remarkable in that few authors have the ability to present such a complex subject matter in such an accessible and enjoyable format to read without the exclusion of any of the intricacies from its complexity. Dr Dean’s magnum opus encapsulates a lifetime dedicated to the law of copyright and evidences decades of research by a keen intellect, an ever enquiring, analytical mind, a lateral thinker, and a highly experienced practitioner. It is a handbook which caters for the beginner and expert, the academic and the practitioner alike. The book is remarkable, in every sense of the word, and has held pride of place in various generations of copyright practitioners’ libraries. Its stature is evidenced by the copious references thereto by our courts and academics.”

Juta law presented Prof Dean with a special commemorative edition of his book bearing the CIP regalia. On the photo (from left): Edmund Beerwinkel (Juta Law), Prof Owen Dean, Cedrick Pucrin, Anita Kleinsmidt (editor of the Handbook on Copyright).

According to attorneys, lawyers and students alike, this book hits the nail on the head and is the only authoritative publication dealing with all the aspects of copyright.

The Handbook of South African Copyright Law (Revision 14) has been published by Juta Law since 1987.

It is therefore only fitting that Juta Law Publishers decided to host a gala dinner to mark the occasion of this book’s 14^th revision and third edition with true Stellenbosch style.

In addition, the re-launch celebrated Prof Dean’s valued alliance with Stellenbosch University and the repatriation of his seminal work as part of Stellenbosch University’s impressive collection of peer-reviewed publications.

The launch dinner was held at the STIAS Manor House on the evening of 30 August and the select group of guest received an opportunity to hear Cedric Pucrin SC (doyen of IP legal practice, advocate of the Supreme Court and Prof Dean’s long-time colleague and friend) deliver the keynote address.

In a masterful mix of serious legal analysis and insider views on IP litigation, Adv. Pucrin’s speech on the Oilwell v Protec International case and South Africa’s Amended Exchange Control Regulations found a captivated and well-entertained audience.

The CIP would like to thank Edmund Beerwinkel and Wayne Staples from Juta for their participation and all of the colleagues from the Faculty of Law who made this evening a great succees.

Congratulations to Prof Dean – we hope to see many more publications!

Annette van Tonder

In this special report, the VineOracle (IPStell’s personal pundit on all things IP) brings news (and her own brand of predictions) for the aesthetically minded visitor. And it is a star-studded cast of high-flyers (and fast swimmers) from Paris and New York representing some of the most exclusive brands. But do not be fooled by the A-list members on call, from what the VineOracle hears, these celebrities are prone to IP rights violations aplenty. Read on:

Michael Phelps caught double dipping on the IOC’s bill

The greatest Olympian in history retired from professional swimming at the close of the London 2012 Summer Games with an impressive 22 medals, but not before (unwittingly) kicking up a tremendous storm. Midway through the Olympic games two pictures were leaked to the online press showing Mr Phelps taking a bath in his swimming trunks and having tea with Russian gymnast Larisa Latynina (the former record holder for the greatest number of Olympic medals).

However, these were not Phelps’ holiday snaps but pictures by the famous photographer Annie Leibovitz and intended to be part of Louis Vuitton’s latest advertising campaign – or so many inferred from the strategically placed Vuitton products. Unfortunately, these pictures appeared online on the second Tuesday of the Olympic games, in violation of rule 40 of the Olympic Charter.

This by-law determines that:

“Except as permitted by the IOC Executive Board, no competitor […] who participates in the Olympic Games may allow his person, name, picture or sports performances to be used for advertising purposes during the Olympic Games.”

Rule 40 forms part of the volume of Ambush Marketing legislation enacted in the United Kingdom to protect the official sponsors of the event and the Olympic brand itself against opportunistic profiteering. These include the Olympic Symbol etc. (Protection) Act 1995 (OSPA) and the London Olympic Games and Paralympic Games Act 2006 (the ‘2006 Act’), both of which limits the extent to which the Olympic regalia may be used directly or indirectly. In addition, all athletes are prohibited from displaying any sponsored products (other than those of the official sponsors) during the event or at any press conference or other media appearance. However, rule 40 (formerly rule 41.3) also prohibits all celebrity endorsements by any athlete at the games for the duration of the event.

And of course Phelps did exactly that. Strangely, early reports stated that these pictures were not intended to be part of the well-known fashion house’s marketing materials and that they were not responsible for the leak. Conversely, Peter Carlisle (Phelps’ agent) reports that his client appeared in these pictures with the understanding that Vuitton’s campaign would only start on 16 August, after the IOC’s ban on celebrity endorsement ended, as it in fact did.

Unfortunately for Phelps, a contravention of rule 40 is punishable by anything from a fine or declaration of ineligibility (irrelevant) to the stripping of medals (not so irrelevant).

As a result, Phelps went on the offensive and argued that he did not leak (or sanction such leak) of the pictures and is therefore not guilty of contravening rule 40. In fact this was not the first time Phelps fell victim to rogue photographs, as his bong-smoking picture (published by News of the World) proves emphatically.

However, it seems that somehow the law got lost in this haze. According to Carlisle (as reported by Fox Sports) ”all that matters is whether the athlete permitted that use. That’s all he can control. In this case, Michael did not authorize that use.” Unfortunately for Carlisle and Phelps, there is an Olympic-sized swimming pool divide between permitting the creation of photographs and authorizing the use of photographs.

The question is not whether Phelps permitted the use of the pictures. It is whether Phelps permitted the use of his person. And it would be really difficult to argue that Vuitton’s pictures were taken without Phelps’ permission.

Of course this is a strict interpretation of rule 40, but clearly within bounds of the provision. Unless Phelps can establish that he expressly forbid the distribution of these pictures during the ban-period (which he clearly cannot do), his actions may legitimately be construed as consent by conduct for the use of these pictures by Vuitton. The VineOracle sincerely doubts whether Phelps would ever have taken the plunge for Vuitton without his endorsement cheque safely deposited. Appearing in an advertisement is complete the moment an appearance is made – not the moment a picture is lawfully used as an advertisement. The fact that Vuitton did not publish the pictures does not mean that the pictures did not serve to advertise their product.

However dubiously this came about, Vuitton’s pictures managed to garner the widest possible distribution during the Olympic games at precisely the time when the world’s attention was focused on Phelps’ performance – and all this without a single cent to the IOC. One would be hard pressed to imagine a more obvious example of ambush marketing.

Early headlines in this matter proclaimed, “Michael Phelps strips down for Louis Vuitton”. It seems that Phelps would be fortunate if the IOC does not strip him of more.

Boots and all for Louboutin and the red suede shoes

Ladies of distinction everywhere would immediately recognise the distinctive red-soled shoes as the product of French shoemaker Christian Louboutin. His range of iconic footwear is globally recognized as much for its “China Red” soles as for its dangerously high heels. And yet, many are willing to abandon all reason in an attempt to reach the celestial heights of fashion and extravagance.

It is therefore not surprising that Louboutin refused to be tripped up by fashion giant Yves Saint Laurent and took issue with Laurent’s proposed line of monochrome footwear. The proposed Laurent line was to include a pair of all-red shoes (including the sole) that, according to Louboutin, constituted an infringement of the Louboutin red-sole trademark.

Earlier this month the US Second Circuit Court of Appeals delivered judgment in this case and at the close of proceedings Louboutin was standing tall. However, in true American fashion the court saw fit to create a new word for an existing legal concept and delivered a “cut-out” judgment which allowed Laurent to still produce and sell its all-red shoes.

According to Judge José Cabranes’ lengthy judgment, the combination of an all red lacquered sole and a shoe (of a different colour or combination of colours) has become distinctive of the Louboutin brand as is therefore protectable as an indication of origin. As a result, Lourent (and of course all other shoemakers) are prohibited from producing a red-soled shoe.

However, the “cut-out” (or exception, limitation or reservation) in this case is, by implication, the use of a red-sole in combination with an all-red shoe. According to the judgment, Louboutin’s trademark is only represented in the colour combination of a red sole and a non-red upper shoe. Consequently, the judgment did not find that Lourent’s all-red product infringed the trademark of Louboutin and is therefore free to continue production.

According to surveys submitted as evidence in the matter, most consumers recognized Louboutin’s shoes by its red sole, as opposed to its general colourisation. It is therefore irrelevant that Louboutin relied on a single colour (in stead of a collection of colours) as the basis for its trademark suit – the distinctive characteristic of the brand was contained in the contrast between the consistently red sole and the rest of the non-red shoe. Consequently the court ordered the US Patent and Trademark Office to limit the registration of Louboutin’s colour trademark to cases where the red sole is used in contrast to the rest of the shoe.

However, while this judgment is successful in walking the fine line between fair use and trademark use, all has not welcomed it.

Particularly the judge in the court a quo (New York District), who dismissed Louboutin’s case because a finding in its favour would “cast a red cloud over the whole industry, cramping what other designers could do while allowing Louboutin to paint with a full palette.”

Fortunately, “cramping” the style of others is precisely what trademark law is supposed to do. It protects the brand value, goodwill and reputation of the manufacturer by preventing others from producing ersatz products, Chinese copies or similar goods under the same or similar trademark.

Of course, in isolation, it is impossible to draw a line in the sand between infringing and non-infringing trademark use. For this reason, the outcome of trademark litigation is particularly difficult to predict and largely circumstantial. Especially considering the fact that the Trade Marks Act protects all registered marks against exploitation by the same or similar mark in relation to the same of similar goods or services. It is therefore no wonder that sometimes a judge commits a (legal) faux pas.

Gladly, Judge Cabranes is cutting a fine figure today and his decision marks a small (yet valuable) victory for trademark proprietors against the ever-encroaching free-use pariahs.

Cobus Jooste

All is fair in love and (patent) war, but apparently not when it comes to awarding damages in patent litigation. After nearly 18 months of protracted trench-warfare between Apple and Samsung’s formidable IP legal teams in the Northern District Court of California, Judge Lucy Koh surrendered the matter to a panel of 9 laymen (and women). A mere 22 hours later the (well rested and fed) jury had finished studying Judge Koh’s 109 page instructions and 26 pages of the parties’ juror forms, answered all 56 factual and legal questions and ticked all of the 250+ boxes of the baffling verdict form. In doing so the jury managed to adjudicate on more than 700 legal arguments and delivered 30 different judgments.

The result? An astonishing landslide victory for Apple and a simultaneous award of damages set precisely at $1 051 855 000.00 (R 8 613 000 000.00). Not to be outdone in skill or efficiency, Judge Koh noticed a minor error in calculation, after which Samsung received a 0.24% discount. The final number: $1 049 343 540.00 (R 8 597 000 000.00).

Which begs the question: how did the jury arrive at this precise figure? And better yet: how is it possible to make such a finding so quickly?

Patent law is, by far, the highest specialisation in law that is practiced by only the very brightest of legal-technical minds. For that reason, the lowliest of patent attorney must hold both an LLB and BEng, BSc or other technical degree, complete his/her articles and a further four years of patent training before admission. As a result, the US Patent and Trademark Office is said to contain the greatest concentration of the smartest people in the world.

Therefore, to arrive at this expeditious verdict, the jury in this case must have been composed of nine (very) expert individuals. Or so you might think.

In fact, the jury contained only two engineers and four office workers from technology companies. According to the jury foreman, Velvin Hogan (50), the 20-year old member of the jury “provided most of the debate”. Of the nine members, only 7 hold any college degree while two members are from the Philippines and one from India. According to a study by CNet, two members of the jury are unemployed while the others are occupied as a bike-shop manager, an electrical engineer, a municipal worker, a human-resources consultant, a marketing executive, a social worker, and a network-operations employee. In addition, only one member of the jury owned an iPhone, while none of the members owned a Samsung smartphone.

When asked why she is considering buying an iPad, one female member of the jury said; “I love the technology. I mean, you could sit around in the yard and play with it. Apple comes out with really, really nice stuff.”

Therefore, clearly the jury did not arrive at its decision so quickly by applying their expertise. Which suggests that perhaps the case was not quite as difficult to decide.

According to the jury, the video clips (illustrating the operation of the disputed patents on both parties’ devices), Samsung’s damning internal communications and a side-by-side comparison of the devices were instrumental to their findings.

However, in addition to a series of software and design patent disputes, Apple’s case also included claims of federal false designation of origin or trade dress dilution (based on the visual similarity between the products), federal and common law trademark infringement, federal and state unfair (unlawful) competition and unjust (unjustified) enrichment.

According to the jury, the plaintiff’s reports (Exhibits 44 and 46) were of fundamental importance to their deliberations. The first, a 132 page confidential internal report of Samsung’s Product Engineering Team, contains hundreds of side-by-side comparisons between a Samsung smartphone and an iPhone, each of which examines the operation, design, look and feel of a particular function followed by comments. The second, a 94 page confidential internal document entitled Usability Evaluation Results, contain further direct comparisons along with suggested improvements such as to “provide a layout similar to that of iPhone” or “provide a fun visual effect” identical to that of the iPhone. In total, these documents request more than 200 visual, functional, design and aesthetic changes to Samsung’s products in order to “move it closer” to the iPhone, according to the contents of internal emails from Samsung executives.

Therefore, there is no doubt that on the merits of the case the jury returned the correct verdict. However, the same cannot be said for the award of damages.

According to the jury foreman, at the start of their deliberations the jury’s mood was in favour of dismissal (a verdict in favour of Samsung to dismiss the infringement suit). However, shortly thereafter this changed (presumably with aid of the wunderkind-member’s expert guidance) and the jury began studying the volume of financial statements, actual, hypothetical and projected sales figures, market share indicators, product penetration statistics and the myriad of other documents upon which Apple’s claim for damages, reasonable royalties and punitive damages were based.

This was done, according to Hogan, in what sounds like a conveyor-belt system. Each patent claim was decided individually with regard to each of the (numerous) Samsung products, a finding made and an amount of damages distilled from the financial evidence and testimony. Wash, rinse and repeat 300 times (10 patents, 30 devices).

It might sound simple, but it is definitely not. Patent damages are awarded (theoretically) according to the sum-formula approach. Basically this is a complex version of the negative damages method, which compares the plaintiff’s current patrimonial position with the hypothetical position had the infringement not occurred. However, under South African law (where, of course, a judge quantifies the damages), the positive damages method is also applied after an enquiry into the damages has been ordered and delivered.

Thereafter the court is also required to consider the actual financial value of the patent itself (a calculation that is notoriously difficult to make) by considering a wide range of factors including the patent-holder’s subjective position, the market value of the patent and its current and future application.

In addition, in all IP matters an award for reasonable royalties (in addition to or as an alternative to damages) may be ordered. In this case, the amount is calculated according to the license fees the respondent would have been obliged to pay in order to make legitimate use of the patent to the extent of the actual use in that particular case.

At this point, even the hardiest of mathematician’s head would be spinning. But not so for the Apple v Samsung jury – not only did they manage to make sense of the evidence and complete all 300 calculations in time, but they also had no trouble in determining the amount of damages/royalties for Apple’s additional claims of trade dress dilution. Unfortunately, the jury’s assembly line system suffered a momentary software glitch. As a result, their first verdict included an award of $2 million in damages for inducement while finding Samsung not liable for any inducement – hence the 0.24% discount.

Sadly, while completing its monkey-puzzle template verdict form, the jury was not required to show their calculations. Although this makes for a good surprise and pleases the American sense for well-scripted dramatics, it leaves the rest of the IP community baffled. It is therefore not surprising that this verdict seems like an emotive, large-scale, orchestrated exercise at thumb sucking.

Of course this is unfortunate – while indulging their love of the philosophical “jury of your peers” idea, the US court has blown a gaping hole in an otherwise sound judgment. America is the undisputed world leader in the development of patent law to new technologies but, if this case is anything to go by, also the most backward jurisdiction in IP litigation. Indeed, one almost feels sorry for Samsung, almost.

And after the dust has settled over the battlefield, only one thing remains standing – the unimpeachable authority of the jury. And this is NOT a good thing.

The mobile patent war is far from over. In fact, Apple and Samsung are currently embroiled in more than 50 lawsuits in more than 10 countries. However, except for the United States and Canada, in all of the other jurisdictions where Apple is seeking a repeat performance the jury system in civil cases has either been abandoned or never applied.

Therefore, the fact that Apple’s first notable victory in this battle was won before a jury is no more likely to aid its foreign battles than the US’s skill at international diplomacy is likely to prevent war.

In fact, it is far more likely that cooler heads will prevail outside of the US and that the speed (and arbitrary quantification of damages) in this case will give foreign courts reason to deliver an adverse judgment, or at least a far lower amount of damages. Unfortunately, a court’s finding directly influences the value of a patent in the mobile market and a lower calculation of damages will, in Apple’s case, lower the value of its patents and, concurrently, the company’s market value.

Meanwhile, in South Korea (Samsung’s home market) the court found that Apple was infringing two of Samsung’s patents while Samsung was infringing one of Apple’s patents. As a result, it imposed a national sales ban on Apple’s iPhone 3GS, iPhone 4, the iPad and the iPad 2.

And then, less than a week after Apple announced its newest creation (the iPhone 5) Samsung announced that it is preparing to sue Apple for use of the LTE (long term evolution connectivity) patent technology in the new iPhone. However, Samsung is not planning to use their home-ground advantage in South Korea, but will take the fight to Apple in Europe and the USA.

Clearly, this is not the last we will hear from these trigger-happy giants of the mobile industry. And there is a good chance of an appeal in the US (also before a jury). One may only hope that before then a more transparent judgment will be delivered elsewhere so that we might learn more about the law and less about the lives of nine (very) ordinary Americans.

Cobus Jooste

PS: No, Samsung did not pay Apple $1 billion in nickels (300 truckloads) as rumour would have it. Payment is not yet due pending the judge’s order (which may very well be higher).

Innovative, trailblazing new programmes offer IP Law modules to law and non-law students! The Faculty is proud to introduce the first law programme at SU specifically aimed at non-law graduates and practitioners as well as the only Master of Laws (LLM) in Intellectual Property accredited by the Department of Education as a specialised LLM in IP Law.

Seldom does a fact bear repeating as frequently as the maxim, “There is no copyright in ideas”. And despite the regularity with which this fundamental principle of copyright law is cited, its application remains a bone of contention.

Since the Statute of Anne (1710), the common antecedent of modern copyright law, this creature of statute exists exclusively for the protection of the material expression of ideas, and not the underlying ideas, facts or discoveries contained in the work.

For this reason, copyright protection vests at the moment a work is recorded in physical form, and only to the extent that it is recorded. As a result, an author will hold the exclusive rights to reproduce and distribute his/her novel while the ideas that inspired the storyline (the general plot, setting and timeline) may be lawfully reproduced by another.

However, in some cases the material expression and its underlying ideas will become enmeshed to the extent that a reproduction of the idea will necessarily borrow from the material expression of that idea, resulting in copyright infringement. The consequential difficulty in separating unprotected ideas from protected expression is known as the idea/expression dichotomy.

In an attempt to provide legal certainty, the “sweat of the brow” doctrine provides that an author is entitled to protection for, and to the extent of, his intellectual efforts at creating the work. In other words, an author may draw upon copyright protection as the basis for rewarding his intellectual investment in the work to the extent that it embodies his own labour, skill and judgment.

However, copyright law has seen renewed challenges to the idea/expression dichotomy from the software industry, most notably with regard to the protection of the non-literal elements of computer programs. This refers to those parts or manifestations of a computer program that are not directly represented in the source code, such as the user interface or screen display produced by the program and, more importantly, the functionality of the program.

Considering the vast financial investment in software development, not to mention the commercial gains that may be derived from a successful product, the software industry has consistently lobbied for the expansion of copyright protection beyond the source code. In order to achieve a competitive edge, many software houses have resorted to copyright litigation based on the functions their program can perform. By doing so, third-party developers were obliged to obtain a license for the use of the ostensibly protected software in order to build upon its functions and create compatible applications.

Of course this utility-based approach to copyright protection is at odds with the nature of copyright law, contrary to its underlying ideology and considered a dangerous precedent for the future development of intellectual property law.

As a result, copyright in software functionality became the apple of discord in many jurisdictions between those who control a particular market segment and those who offer (or wish to create) an application that performs the same function. Consequently, copyright litigation based on functionality joined the established tradition (in software matters) of an indefinite to-and-fro between the courts and deliberate forum-shopping. As a result, either party may succeed in the court of first instance of one jurisdiction, lose in another and respectively succeed and fail on appeal in the same two jurisdictions based on precisely the same facts within months of each other. While this trend is unprecedented in other areas of law, to those in software copyright (and even more so in patents) it is old news.

It is, therefore, not surprising that the European Court of Justice in SAS Institute Inc v World Programming Ltd C-406/10 (2 May 2012) was asked to advise on the application of two EU Directives (91/250 and 2001/29) that deals with copyright. This highly anticipated decision was set to be a watershed moment in modern copyright law as many predicted that it would build upon the established anti-functionality trend in the UK and USA and finally indicate a point of no return.

The facts in this matter before the High Court of Justice of England and Wales ([2010] EWHC 1829 (Ch) (23 July 2010)) so closely resembled the essence of every copyright functionality case before it that, even before the case was set down by the ECJ, this matter was earmarked as a decisive battle.

The dispute arose after World Programming Ltd (WPL) published a statistical analysis program called World Programming System (WPS). WPL admitted that this program was created specifically to mimic the functionality of the SAS Institute’s software (known as Base SAS). According to the English High court, “this was so as to ensure that WPL’s customers’ application programs executed in the same manner when run on WPS as on the SAS Components” [3]. Consequently, the need to obtain a license from SAS was removed, while the third party’s programs remained compatible with all SAS-based applications.

However, WPS did not reproduce the protected source code of the SAS programs but merely imitate its functions as closely as possible by studying the manner in which it executed a particular command.

SAS took issue with this and argued that the use of their software in this manner exceeded the scope of the license held by WPL, that WPL reproduced the specific compilation of syntax, keywords and commands found in the SAS software manual and that WPL infringed copyright in the Base SAS application by reproducing its functionality.

On 29 November 2011 Advocate-General Yves Bot gave his opinion, which was substantially confirmed in the full judgment.

The ECJ (Grand Chamber) held that:

Use of a computer program under license for the purpose of observing and studying the operation of the program in order to discover its functionality, underlying ideas or principles does not exceed the scope of a copyright license.
The functionality of a computer program does not constitute a form of expression that may be the subject of copyright protection in terms of article 1(2) of Council Directive 91/250/EEC of 14 May 1991.
The same applies to the programming language (itself) and the format of data files used to achieve a specific function.
Copyright may subsist in the user manuals of a computer program and such copyright would be infringed if, in the judgment of the national court, a reproduction of the intellectual creation of the author occurred.

The matter is now referred back to the English High Court for judgment in light of the principles set out by the ECJ.

Clearly, WPL has been vindicated and the likelihood, however small, that the High Court may yet find that WPL infringed copyright by reproducing the Base SAS user manual, will not dampen the spirits.

However, the interpretation of EU law set out by the ECJ in this case heralds a return to the fundamentalist approach to software copyright and will not find favour with many of the current software giants.

On the flip side, this decision will certainly bolster the efforts of the smaller competitor attempting to break the functionality stronghold. It is also likely to increase the amount of competition between market rivals, which, in turn, should lower the cost of software licenses.

For this reason the ECJ decision is considered a victory against needless software monopoly and hailed as a significant stimulus to future innovation.

But is it really? The decision of the ECJ is sound and, in principle, a welcome one for establishing legal certainty. However, in the wake of celebrations it appears that no one has yet considered the impact of this decision on software patenting.

It is an interesting (albeit somewhat worrying) question whether the ECJ will have the final say on this matter. It is, however, beyond doubt that many software creators still seeking to protect the functionality of their programs will now look to patent law for protection. Not only will this lead to a scramble for more, wider and increasingly vague software patents, but also perpetuate the global chaos that reigns in software patent litigation and its stifling grip on innovation.

Regardless, in the ephemeral world of software copyright there is nothing that cannot be changed. But in the mean time, at least for a while, form will once again rule over function in copyright law.

Cobus Jooste

There is a saying that goes: “The past is history, the future hasn’t come yet so live for the moment.” After this week I totally disagree. IP is the future.

This pioneering short course was a combined effort of The Anton Mostert Chair of Intellectual Property at Stellenbosch University and the Law@Work Professional Development Project of the Law Faculty at the University of Cape Town. The joint presentation was at the outset a challenge – several contracts between the two universities were required for the course to be presented. The accreditation process for the course was not straightforward (there was a lot of tiresome red tape, amongst others, having to register this course nationally, which was a huge task), but when the administrative difficulties were over and done with, the ball was set rolling for a world-class and unique experience.

Throughout the three days of the course I realized that IP is like an umbrella, with its protective function. Protection must be comprehensive because IP is as important as your family. No one would like their family life to be violated and that is why it is important to protect their intellectual creations against violations (whether patent, copyright or trademark violations).

The concept of IP absolutely exploded in the late 1980’s and beyond. South Africans have a great love for sport. An example: If it was not for intellectual property, the Soccer World Cup could never have taken place. Sponsorships, the lifeblood of major sports events, could not operate and survive without IP, across the spectrum of Trade Marks, Advertising, Patent, Copyright and Designs.

Copyright is particularly significant. Works that enjoy copyright protection can be divided in two main categories, namely Literary works and Artistic works. Prof Dean gave a clear and easily understandable exposition of Copyright.

The Digital Environment is something no one can ignore these days. I was surprised to hear that even the smallest details of your computer and its software can be protected and therefore can be the subject of rights owned by someone. If you need more information you should contact Cobus Jooste or Sadulla Karijiker, who will gladly explain more. Their knowledge of their subject astounded me. They were also very good at explaining a complicated concept in a way that all the attendees could understand – the essence of good educators.

Traditional Knowledge is a topic that I never thought to be part of IP (in my ignorance I thought it was in the public domain!), but it is also something that perhaps needs protection. The practical aspects of how to licence your brand or trademark were very interesting. If you are properly advised by your lawyer your IP can generate a lot of money, or, conversely, if it is not properly managed, you might forfeit the opportunity of making a lot of money.

Attending the course was an honour and a privilege. Next year I propose to attend the Diploma course that will be presented by the Anton Mostert Chair. If I had not attended this short course I would not even have contemplated attending the Diploma course, but the short course opened my eyes to many things and really inspired me to learn more about IP. I really believe there are many other people that attended the course who feel the same way.

Congratulations to Prof Dean, the presenters and organisers of this excellent course. It was an absolute world- class performance.

Annette van Tonder

PICTURES

The short course met with great enthusiasm among the attendees, which included delegates from the Department of Arts and Culture, the Bar, Academia, Media24, Juta, Anglo American, Foschini Group, SKA South Africa, Engen, Eskom, SA Weather Service, Capespan, ArmsCor, The Namibian Ministry of Justice, MWeb, De Beers and Woolworths.

Annette van Tonder (US), Lee-Ann Tong (UCT), Prof Owen Dean (US), Prof Julian Kinderlerer (UCT)

Lee-Ann Tong (UCT), Don MacRobert (ENS), Prof Owen Dean (US)

OTHER OPINIONS (from the course evaluation forms):

“I found the course very fulfilling and instructive and can recommend it to anyone who wishes to have a general overview and understanding of what IP Law is all about.”

“I commend both UCT and US for a well-coordinated programme. I also wish to commend the organisers of the course not only for choosing professionals who understand their fields of expertise, but for the professional manner in which they went about with the organisational aspect of the programme.”

“The course exceeded my expectations and piqued my interest in areas of IP that I do not work with.”

“All speakers were very knowledgeable and it’s great that they are passionate about their specialist fields. The constant use of practical examples and real cases was great. The course exceeded my expectations. A big thank you to organisers and speakers.”

“The course was awesome! Thanks! I really enjoyed it.”

“Packed with a lot of useful information … It was generally very informative, exciting and stimulating … Really it was money well spent. Keep it up.”

The Exchange Control Regulations (the “Regulations”) have been amended with effect from 8 June 2012 (Government Gazette No. 35430) to provide that transfers of ownership of intellectual property from a South African resident to a non-resident now require prior Treasury approval. While this amendment to the Regulations has drawn comments or criticisms from commentators, these have principally related to, inter alia, the apparent reversal of the stated policy of relaxing exchange controls or the alleged invalidity of the amendment. In contrast, the purpose of this note is to briefly examine some of the possible implications of this amendment, particularly the extent to which assignments or transfers of ownership of intellectual property from a South African resident to a non-resident will require Treasury approval. Although this amendment was effected to address the consequence of a recent judgment of the Supreme Court of Appeal concerning the assignment of trade marks, as noted above, it is not confined to trade marks. The ownership of copyright will be used to illustrate some of the implications of this amendment.

Background

In Oilwell (Pty) Ltd v Protec International Limited ([2011] ZASCA 29), the brief facts were that Oilwell (Pty) Ltd (“Oilwell”) assigned its trade mark “Protec” in South Africa, and elsewhere (including pending trade mark applications), to Protec International Ltd (“PIL”). Crucially, however, the case only concerned the South African registered trade mark, which Oilwell sought to reclaim on the basis that the assignment was ineffective because it was in contravention of the Regulations as PIL was a non-resident entity and no Treasury approval had been obtained.

The Regulations (reg 10(1)(c)), issued under the Currency and Exchanges Act, No 9 of 1933 (the “Act”), prohibited the export of capital by a resident to a non-resident without Treasury approval, and one of the issues the court had to determine was whether the assignment of the South African trade mark from a resident to a foreign (non-resident) entity amounted to the export of capital. In determining what constitutes “capital” in this context, the court considered the purpose of the Act (and the Regulations), and found to be the preservation, and regulation, of foreign currency resources. Given the purpose of the Act (and the Regulations) and the potential consequences of non-compliance (including criminal liability), “capital” had to be restrictively defined; it therefore meant funds for investment, or money that can be used to produce further wealth, that is, capital in the financial sense. Capital did not simply mean something with a monetary value, that is, it did not simply mean capital in an economic sense, such as immovable property or other tangible property. Neither did it mean capital in the accounting sense.

The rights in a trade mark were said to be analogous to immovable property as they are territorial in nature, and, as such, cannot be exported. Significantly, the court, in an obiter remark, considered that the same principle would apply equally to patents, designs and copyright. Interestingly, the court held that the rights to ownership of intellectual property rights should be distinguished from the rights to income derived therefrom in the form of royalties, established by contract, which were already regulated in terms of the Regulations (reg 3(1)(c)), and which could not be transferred to a non-resident without Treasury approval. The underlying logic of the Regulations was that even if the ownership of intellectual property was transferred to a non-resident, any money in the form of royalties or other income payable to the new, non-resident intellectual property owner could not be remitted from the country without exchange control approval (which is what the government sought to prevent), with the result that there was really no need to regulate the transfer of the ownership of such intellectual property. With respect, it is submitted that the approach adopted in the Oilwell judgment is correct and doctrinally sound. The position of the state in preventing capital from leaving the country, or preventing the diminution of currency reserves, is not compromised by allowing ownership of intellectual property to be transferred to a foreign person. Intellectual property, being a creature of South African statutory law (comparable in this respect to a piece of land), cannot physically leave the country, as could, for instance, happen in the case of a painting or similar tangible movable article. Why therefore seek to restrict the transfer of ownership of intellectual property any more than the transfer of the ownership of land or other tangible property to a foreign resident, when the latter can be freely transferred to a foreigner without Treasury approval? The court, therefore, correctly held that no Treasury permission was required to assign such rights to a non-resident person.

Amended Regulations

In response to the Oilwell decision the Regulations have been amended to require Treasury approval for assignments of ownership in intellectual property rights. While not defining what is included in the term “intellectual property rights,” the Regulations now provide that “capital” for purposes of regulation 10(1)(c) includes any intellectual property right, whether registered or unregistered (reg 10(4)). In addition, the scope of transactions which could constitute an “export” from the Republic has been extended well beyond an assignment or transfer of intellectual property rights to a non-resident person; it also includes the creation of a security interest over any intellectual property right in favour of a non-resident person.

Analysis

Although the amended Regulations have not defined “intellectual property rights,” they expressed to include registered and unregistered intellectual property rights (reg 10(4) sv “capital”). While it obviously applies to registered intellectual property like trade marks, patents and designs, it is not clear whether applications for the registration of such intellectual property will be covered by the regulations. The Oilwell case emphasised that, in relation to intellectual property rights which are required to be registered, until registration, no rights exist. While this would, for example, mean that an applicant for a patent, trade mark or design registration would not have any assignable rights, the question arises whether such an applicant could now cede its prospective rights to its registration (contractually bind itself to assign such rights on registration, or in the case of a pending trade mark application, the application itself) without Treasury approval. It is not clear whether the reference to “unregistered” intellectual property rights is intended to include applications for registration intellectual property rights, or whether it simply refers to intellectual property which requires no registration such as copyright. If cession of prospective rights without Treasury approval is permitted, would the subsequent assignment of rights on registration require Treasury approval? Additionally, it is not clear whether unregistered intellectual property is simply a reference to copyright or whether it includes other intangibles such as trade secrets, know-how or goodwill. The Oilwell decision expressed no view on whether intangibles such as trade secrets, know-how or goodwill are territorial in a manner analogous to immovable property.

More significantly, the Oilwell decision was at pains to emphasise that it only concerned the South African registration of the Protec trade mark. In other words, the case only concerned the assignment of South African intellectual property rights, owned by a South African resident, to a non-resident person. The court held that because of the territorial nature of intellectual property rights, at least, those rights which are registered, they cannot be exported. If the intention of the amended Regulations were to provide clarity, they appear to have failed to achieve that result. As the amended Regulations have not defined intellectual property rights as being South African intellectual property, it is arguable that, as drafted, Treasury approval is required in respect of any intellectual property rights owned by a South African resident which is to be assigned to a non-resident, irrespective of territory in which such intellectual property is deemed to be located. For example, an author of a literary work such as a novel, who is resident in South Africa, will own the copyright in such work. Given the reciprocal obligations of the states who are signatories to the Berne Convention for the Protection of Literary and Artistic Works, 1886, the author will be afforded the ownership of copyright in numerous other countries, allowing the author the exclusive right to exploit such work in each of such jurisdictions.

The consequence of the Oilwell decision was that such an author would be able to assign the South African copyright in such work without Treasury approval because there would be no export of such rights. Similarly, no Treasury approval would have been required in relation to the assignment of the ownership of the copyright vesting in the author in any other jurisdictions, as such rights would presumably be located in each of the respective jurisdictions. Accordingly, there could be no suggestion that such rights were being exported from South Africa. However, following the amended Regulations, it is arguable that Treasury approval may now be required not only respect of the assignment of the ownership of the South African copyright in such work, but also in respect of the ownership of copyright vesting in the author in any other jurisdiction. This result would, in any event, be consistent with the treatment of the rights to income derived from such works in the form of royalties, pursuant to regulation 3(1)(c).

Unfortunately, the amended Regulations are simply another example of sub-standard drafting; something we have become accustomed to seeing in legislation or regulations over the past few years. It is submitted that the root cause of this problem is that the responsible individuals lack the requisite expertise of the substantive issues which they are seek to regulate, and fail to adequately consult on the proposed course of action. Most undesirable legal uncertainty is thereby created and this is detrimental to all. It results in an inefficient use of resources because an inordinate amount of human effort is spent on trying to determine the meaning and implications of such drafting, and possibly costly litigation.

Another alarming trend signified by the amendment to the Regulations is the introduction of unwanted and undue formalities, and complications into the commercial exploitation of intellectual property. This trend has manifested itself in recent legislation affecting intellectual property like the Intellectual Property Rights from Publicly Financed Research and Development Act, 2008 and the Intellectual Property Laws Amendment Bill (the infamous so-called “Traditional Knowledge Bill”) which introduce a plethora of bureaucratic measures such a state approval of the content of licence agreements and the like. Measures of this nature complicate and impede forging commercial relations in respect of intellectual property and could lead to the providers of much needed and desired foreign investment questioning whether it is worthwhile to do business in South Africa. Our country’s competitors for foreign investment do not have measures of this nature and may well be more attractive.

What actually is the government seeking to achieve with this legislation? If its objective is to discourage would-be foreign investors and to retard business activity involving intellectual property it is going about matters in the right way.

Sadulla Karjiker

Government, and more particularly the Departments of Trade and Industry and Arts and Culture, entered into the current controversy around the ownership of the copyright in the National Anthem by issuing a media release on 18 June 2012. With respect, its contribution to the debate evidences the same lack of knowledge and insight into Copyright Law that is apparent in its ill-conceived and executed Intellectual Property Laws Amendment Bill (the infamous so-called “Traditional Knowledge Bill”)

In regard to the ownership and duration of the component parts of the current National Anthem, and of the composite Anthem as a whole, see “An Anthem To Ignorance – The Case of Nkosi Sikelel’ iAfrika” on this blog. The bottom line is that the Nkosi component, both words and music, and the words of Die Stem are in the public domain and, being the property of no-one, are free for use for all, unless they have been cast in a particular new form or arrangement, in which case copyright can exist in, but is limited to, that particular form or arrangement. Such new copyright grants no rights in respect of the pre-existing subject matter. The music of Die Stem is still in copyright and such copyright is owned by the heirs of the composer, MJ De Villiers, while the new words of the English component of the Anthem and the merged composite work are the subjects of copyright which is owned by Jeanne Zaidel-Rudolph, the author/composer.

“Proclamation does not create copyright”

It is stated by the Departments that the adoption of the current work as the National Anthem by Proclamation no 68 in the Government Gazette of 10 October 1967 makes the work the property of the country – by which is presumably meant that it is owned by the State. The Proclamation says no such thing, nor does section 4 of the Constitution from which it derives its authority. The section merely provides that the State President is empowered to determine by Proclamation what work shall be the National Anthem and the Proclamation purports to do no more than this. This determination of the National Anthem no more creates ownership of the copyright in the particular work than it would make the State the owner of the copyright in “Somewhere Over the Rainbow” if it was determined as the National Anthem. Similarly, when Beethoven’s Ninth Symphony was designated as the temporary National Anthem for purposes of the 1992 Olympic Games, the State could not have become the copyright owner of this work by any proclamation.

Copyright is created and owned in terms of the Copyright Act and nowhere is it provided that the State can become a copyright owner by proclamation.

It is claimed that Section 5 of the Copyright Act enables the State to become the owner of the copyright in a literary/musical work (an anthem is such a work) where it commissions the making of the work and pays for such making, and that the State is the owner of the copyright in the National Anthem on this basis.

In the first place the facts show that neither the music of Die Stem nor the composite work which constitutes the current National Anthem were made pursuant to any commission by the State or any other person.

In the second place, Section 5 has nothing to do with commissioned works and, moreover, Section 21(c), which does deal with the ownership of copyright in commissioned works, does not cover literary or musical works, which means that even if the making of these types of works is commissioned by a third party, the copyright in them is owned by the author/composer.

“Filling imaginary gaps?”

The Departments say that they are “currently reviewing gaps in the legislation” with regard to the National Anthem, presumably with a view to rectifying the situation. There are no “gaps” – all that is required is that the State should do what any sensible person who wishes to acquire copyright in a work would do, and what the State did in 1957 with regard to Die Stem, namely obtain an assignment of the copyright in its favour from the copyright owner by means of a written agreement.

In the event that the State seeks to acquire copyright in a work by legislation, it would act in breach of Section 25 of the Constitution (the “Property Clause”) unless it paid adequate compensation to the person who owns copyright in terms of the Copyright Act.

It is a matter for considerable concern that the very government departments that are responsible for the administration of copyright and the legislation in that regard should show such appaling ignorance of the subject. Small wonder in the circumstances that the DTI comes up with ridiculous legislation like the Traditional Knowledge Bill. It is simply not good enough.

The Government should either acquire the necessary expertise or consult those that do have it. Otherwise our intellectual property legislation and the state of this field of law are sailing headlong at the rocks.

CIP – The Anton Mostert Chair of Intellectual Property

Cobus Jooste

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Cobus Jooste

Cobus Jooste

Background

Amended Regulations

Analysis

Sadulla Karjiker

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