How proposed changes in Copyright Amendment Bill will affect tech startups

If you run or own a technology company you should sit up and take note of the proposed changes to the current South African Copyright Act, as proposed by the 2017 Copyright Amendment Bill.

Copyright laws provide the legal vehicle for protecting and monetising your technology, particularly the rights in computer programs, applications, source code and the like.

These rights arise automatically on creation — you don’t need to register the copyright in South Africa. Thus, if carefully managed, copyright can be an efficient and cost-effective tool to gain a competitive advantage, generate royalties and pursue infringers (for example someone who copies your source code without consent).

Robust copyright laws also incentivise innovation and development and are important drivers of foreign investment to South Africa. The time however is ripe for amendments to the Copyright Act.

‘The Copyright Amendment Bill, which was recently published by the Department of Trade and Industry for comment, has been widely criticised’

The legislation was last updated in 1993 and the statute is behind the curve in catering for the rapidly evolving digital and technology environment. So while changes are welcome in principle, the real question is whether the proposed amendments are appropriate and workable in practice.

The 2017 bill was recently published by the Department of Trade and Industry for public comment. Many stakeholders and interested parties made written and oral submissions to the Portfolio Committee of Trade and Industry. While there are indeed positive aspects of the bill, it has also been widely criticised.

Here is an outline of some of the key proposed amendments that you should know about today:

1. 25-year assignment limit

The bill states that any assignment (ie transfer or sale) of copyright will only be valid for 25 years. This means that if you acquire the intellectual property (IP) rights of another person, you will lose those rights after 25 years.

For sellers of IP it is likely that buyers will factor this limitation into their calculation of the purchase price. It may also be a deal-breaker for many potential purchasers, as copyright ownership is central to the ongoing ability of the buyer to use, access and exploit technology.

This is arguably impractical for many stakeholders in the technology industry. For example, if a software development house is commissioned to create bespoke software and the client wishes to acquire the copyright in the bespoke software developed, then this will only apply for 25 years and it is likely that the copyright will then revert to the software development house after 25 years.

2. State funded copyright

One of the most controversial proposed changes is that the state will own all the copyright in works that it has funded. There is no definition for “funded”. This could include anything from grants, loans and tax incentives, to use of public resources or services arrangements (for example where the state, as a client, pays a service provider to develop software).

There is also no threshold for the funding. As it stands, the state could own all the copyright, even if it only funded one percent of the work.

The potential impact of this inclusion is amplified by another provision — the state cannot assign (transfer) the copyright it owns. This means that it cannot assign it back to a service provider or a funding recipient.

This is not ideal in a developing industry where tech startups are often reliant on external funding. Companies should be wary of these provisions as even a nominal use of state funding or resources could mean that they lose ownership of the resulting copyright.

Without ownership, a company’s ability to commercialise and reap financial rewards from their creations is severely restricted. Ownership of copyright is also often critical to the ongoing ability of tech companies to operate, expand and access funding.

3. Copyright exceptions for decompilations and ‘reverse engineering’

The 2017 bill introduces copyright exceptions – ie exceptions to the general rule that the copyright owner has the exclusive right to (among other things) exploit and copy the copyrighted work (for example software).

Two such proposed exceptions effectively permit decompilation and reverse engineering of computer programs under certain conditions.

A person with a lawful right to use a computer program may “observe, study or test the functioning” of the program so as to “determine the ideas and principles” underlying that program while doing an act which he or she is lawfully permitted to do (ie loading, displaying, running, transmitting or storing the program).

The above exception does not permit copying of the code itself, but rather the lawful obtaining of the underlying ideas and functionality of the software.

However, a further proposed exception does allow reproduction of code without the consent of the copyright holder where this is “indispensable in order to obtain the information necessary to achieve interoperability of an independently created computer program with other program”.

The several conditions must be met for this exception to apply, such as:

• The reproducer must have a lawful right to use the computer program being copied.
• The information necessary to achieve interoperability must not have been made previously available.
• The acts must be confined to the parts of the original program that are necessary to achieve interoperability.
• The information can only be used for interoperability and may not be used for the development, production or marketing of a computer program substantially similar in its expression of the original program.

This proposed exception will assist in the development of interfaces and the like, where the copyright owner of the original program does not assist or co-operate in its
creation. This provision has been welcomed by some and criticised by others. Some have called into question the practicality of this provision (for example is it possible to limit to those parts strictly necessary for interoperability?).

Others may be concerned that this proposed provision goes too far and diminishes the rights of the copyright owner, who is meant to have exclusivity over the work (for example the copyright owner may wish to control who builds interfaces with its work, generate service fees from creating interfaces or obtain royalties for the development of interfaces).

4. Unenforceable contractual terms

The bill provides that contractual provisions that prevent or restrict any act that would otherwise be lawful under the Copyright Act, or any provision which requires the renouncement of a right under the Copyright Act, will be unenforceable. This will impact on common contractual provisions, such as restraints and non-compete clauses.

So, for example, you cannot contract out of a copyright exception or require the state to waive its rights of ownership pursuant to its funding. This has a far-reaching impact and removes the rights of parties to a contract to negotiate terms that best suit their commercial relationship.

It is hoped that there will be further engagement with the public on the bill (and that it will be changed) before it is implemented into law. Those that have any concerns with the bill, should however participate in future public participation processes.

Aalia Manie is a senior associate in the Technology, Media, Telecommunications & Intellectual Property Practice at Webber Wentzel.

Featured image: Vlad Podvorny via Flickr (CC 2.0 license BY-SA, resized)