South Africa Afrique du Sud Südafrika. Report Q194. in the name of the South AfricanGroup by Gavin MARRIOTT, Dario TANZIANI and Llewellyn PARKER

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1 South Africa Afrique du Sud Südafrika Report Q194 in the name of the South AfricanGroup by Gavin MARRIOTT, Dario TANZIANI and Llewellyn PARKER The Impact of Co Ownership of Intellectual Property Rights on their Exploitation Background The position in South Africa regarding co ownership and exploitation of intellectual property rights is that co owners, as a general rule, are deemed to own an undivided share of the intellectual property right in question. As such, a co owner cannot, as a general proposition, exploit the co owned IP right without the consent of the other co owners, but can enforce and maintain that right in force without such consent. The Patents Act and the Designs Act regulate the rights of co owners in co owned patents and designs. The Copyright Act and the Trade Marks Act are silent as regards the respective rights of co owners of trade marks and copyright and so the common law regulates the position. Questions I) The current substantive law 1) Groups are invited to indicate whether, in their countries, the statute of co ownership of IP rights is uniformly organised or if each IP right has its own regulation concerning co ownership, particularly as far as their exploitation is concerned. In South Africa, each IP right, namely patents, design rights, copyright and trade marks has its own regulations or common law rules which regulate the exploitation of co owned rights. What options are left for co owners to regulate their co ownership relationship: are the statutory rules mandatory, or do they apply only in case of the absence of a contractual regulation of co ownership between the parties? As will become evident from the answers to the questions below, the statutory and common law restrictions on co owners exploiting their co owned rights do not apply where the consent of the remaining co owners has been obtained to deal with the IP right in question. Therefore, a contract entered into between the co owners which gives consent to one of the co owners exploiting the co owned rights, will overcome the statutory (and common law) limitations placed on co owners in this regard. 2) Groups are invited to explain who has the right to exploit an IP right which is co owned by two or more persons: may each co owner exploit the right freely and without any consent from the other co owners or is this exploitation subject to conditions? The South African Patents Act (s49) and the South African Designs Act (s25) both make clear that a co owner of a patent or a registered design may not exploit the invention or design protected by that patent or registered design unless there has been an agreement to the contrary between the parties and the other co owners have given their consent to the exploitation of the invention or design. 1

2 Copyright is a bundle of rights which are severable from one another. It is therefore necessary to distinguish true co ownership from ownership of part of the bundle of copyrights. In the latter case, the owner of part of the bundle can exploit his part of the bundle without the consent of the owners of the remaining parts of the bundle. In a true co ownership situation, where each co owner owns an undivided share of the whole copyright, the common law provides that the consent of all the co owners is required to exploit the copyright in question. Trade Marks can be co owned in two circumstances. Firstly, where the two or more parties jointly apply for registration of a trade mark which neither has used, then, assuming it proceeds to registration, the trade mark will be co owned by the applicants in equal undivided shares. Secondly, where a trade mark enjoys a reputation in goods or services to which more than one party has contributed, no one of them alone can claim proprietorship of the goodwill in the mark. In the absence of an agreement to the contrary, both parties would therefore have to apply for the registration of trade mark based on such joint use. Trade marks which are co owned would ordinarily be exploited pursuant to a joint venture or similar agreement between the co owners. If not, the mark so registered runs the risk of expungement on the grounds that its continued use is likely to lead to confusion or deception as to the origin of the goods or services in question. In the absence of an agreement between the co owners, the common law position applies and the co owner would require the consent of the remaining co owners to exploit the trade mark. Even if this exploitation by only one co owner is permitted by the national law, shall the co owner who exploits a right pay any compensation to the other co owners. Not applicable. Finally, in case compensation is required by the legal rule, how is the amount of compensation determined? Not applicable compensation would be determined by agreement between the parties. 3) The Groups are also invited to give an overview of their national Law in relation to the benefits which may result from the exploitation of an IP right which is co owned. In particular, the Groups are invited to indicate if their national Law provides any kind of obligation for a co owner who exploits personally its share of an IP right to pay any benefits to the other co owner wherever the second exploits or no the same IP right. If there is such an obligation, how the amount of money that should be paid to another co owner is determined? Not applicable the division of benefits flowing from exploitation of a co owned IP right would be determined by agreement between the parties. 4) The Groups are also invited to indicate if the co owner may grant a licence to third parties without any authorisation from other co owners, or if the granting of such a licence is subject to certain conditions? If such conditions exist, the Groups will have to specify their content. The granting of a licence is analogous to exploiting the IP right in question under South African law. The answer given in question 1 is therefore repeated here. In summary, the Patents Act and the Designs Act specifically prohibits a co owner granting a licence in relation to the patent or the design without the consent of the remaining co owners. The common law regulates the position with regard to copyright and trade marks and, in both cases, the consent of the remaining co owners would be required to grant a licence under copyright or trade mark in question. 2

3 5) The question of the exploitation of an IP right interferes with the possibility of transferring such an IP right to third parties. The Groups should indicate the solution in theirs countries relating to the possibility of transferring a share of co ownership of an IP right to third parties: may such a transfer (by assignment) be carried out freely without any conditions or must it be offered firstly to the other co owners or is it specifically subject to the agreement of the other co owners? The Groups are invited to indicate the conditions to which such a transfer is subject. The assignment of the whole or part of an IP right is analogous to exploiting the IP right in question under South African law. The answer given in question 1 is therefore repeated here. In summary, the Patents Act and the Designs Act specifically prohibits a co owner assigning the whole or any part of his interest in the patent or the design without the consent of the remaining co owners. The common law regulates the position with regard to copyright and trade marks and, in both cases, the consent of the remaining co owners would be required to assign the whole of, or his interest in, the copyright or trade mark in question. 6) IP rights may also serve as a guarantee for the investment which is necessary for their exploitation. The question then arises of whether a share in co ownership of an IP right can be used as such a guarantee and under what conditions. Is it necessary to obtain agreement from all the co owners in order to secure an IP right or can each co owner freely secure his own share of an IP right without seeking the consent of the other co owners? The Groups are invited to describe their legal systems on this question. Neither the Patents Act nor the Designs Act deals specifically with the use of an IP right as a guarantee for investment. However, as the co owners of patents and designs enjoy equal undivided shares in the patent or design, it is our view that the consent of the parties would be required before the patent or design could be encumbered in this way. The co owner could not, as a matter of law, give the guarantee only in respect of his share of the patent or design because the patent or design is not capable of being divided up in this way. As such, if one co owner were to purport to give a guarantee in respect of his share of the patent or the design, this would amount to an encumbrance of the IP right as a whole. Encumbering the IP right in this way must therefore require the consent of the remaining co owners. The same reasoning applies to trade marks and copyrights. 7) The enforcement of IP rights plays an important role in their exploitation. Such enforcement is mainly achieved by means of legal proceedings that may be filed by the owner of an IP right in order to penalise the infringement of his right by third parties. The question arises of whether such a legal action must be filed by all of the co owners of an IP right or whether it can be filed by only one of the co owners. The Groups are therefore invited to specify the legal solutions and procedural exigences in their countries in relation to the possibility of one of the co owners of an IP right filing an infringement action. The Patents Act and the Designs Act both provide that any joint patentee or joint registered proprietor of a design right may institute proceedings in its own name, provided it gives notice to every other co owner of the patent or the design in respect of which it institutes proceedings. Each of the other co owners is entitled, but not obliged, to join the proceedings as a co plaintiff and to recover the damages it has suffered as a result of the alleged infringement. If any of the co owners choose not to join the proceedings as a co plaintiff, then any award of damages made will be made to the plaintiff/s in the action as if it/they were the only 3

4 owner/co owners of the patent or design. In other words, the party which chose not to join the proceedings will not be able to recover any damages in respect of the infringement which is the subject of the litigation. The position under the common law, which regulates the issue as regards copyright and trade marks in the absence of an agreement between the parties, is not as clear as the position for patents and designs. The author of the leading text on South African copyright law takes the view, citing UK authority, that a co owner is entitled to enforce the co owned copyright without the consent of the remaining co owners and that this power is not inconsistent with the right of veto that a co owner enjoys regarding the exploitation of that copyright. The authors of this submission agree with that view and submit that it would apply equally to trade marks (again stressing that the common law would only regulate the issue in the absence of an agreement to the contrary between the parties). However, there is no South African case law on the point and these submissions should not be understood as a definitive statement of South African law on the issue. If a co owner is entitled to institute proceedings in its own name without the consent of its co owners, then further questions arise. For example, must a co owner, who chooses not to join the proceedings, nevertheless be joined as a party to the proceedings (against whom no relief is sought)? Generally, it is desirable that all parties with an interest in litigation before a South African court be joined as a party to that litigation and, to this end, the infringer may, under the Rules of Court, apply to court join that co owner to the proceedings (against its will). The co owner who chooses not to join the proceedings will still have an interest in those proceedings because, in the absence of a statutory provision to the contrary, that co owner is entitled to recover damages from the infringer, even where it has chosen not to enter the proceedings. 8) The exploitation of the IP rights depends also upon the existence of these rights and, more specifically, upon the capacity of their owner to ensure the continuity of the existence of these rights. Now, the decision on maintaining patents or trademarks by the payment of the renewal fee, may vary according to the legal system of organization of co ownership. The Groups are therefore invited to tell how the question of the decision making process of the maintaining or renunciation of the patents or trademarks is organized in their national law. The Patents Act and the Designs Act specifically provide that a patent or a design may be renewed by a co owner acting without recourse to the remaining co owners. The position under the common law (for copyright and trade marks) appears to be the same, although there is no case law exactly on point. 9) The Groups are also invited to describe their national rules of international private law in relation to conflicts of law relating to the co ownership of the IP rights and conflicts of jurisdiction in order to enforce these rights. More specifically, the Groups are requested to indicate if their international private law rules accept that the statute of ownership of an IP right co owned in different countries be regulated by one law. In this case, what law is applicable for determining the statute of co ownership? What is the criteria for seeking the proper jurisdiction in cases of conflict between the co owners concerning their rights? Regarding national rules of international private law in relation to conflicts of law relating to the co ownership of the IP rights, South Africa has the view that questions of co ownership should be handled in accordance with South African legal principles by South African courts. To a large extent this stems from the national nature of intellectual property rights. South Africa is not a member of any regional intellectual property bodies where such conflicts are likely to occur. 4

5 10) Finally, the Groups are invited to indicate what other specific solutions or problems relating to the question of the exploitation of IP rights co owned by two or more persons are raised in their respective countries. II) The inability of co owners to exploit co owned IP rights can give rise to difficulties in exploiting that IP right at all. These difficulties are generally occasioned by the breakdown of the relationship between the parties in that the co owners can no longer work together, even for their mutual benefit, to exploit the IP right in question. To overcome this difficulty, the Patents Act and the Designs Act both provide that a joint owner of a patent or design may apply to the Court of the Commissioner of Patents or, in the case of designs, to the High Court to determine the parties respective rights in the patent or the design, the institution of proceedings relating to the patent or the design or the manner in which the parties should deal with the patent or the design. The Patents Act and Designs Act also provide that, in situations where one of the co owners is not able or willing to remain as such, the court can order that that co owner assign its rights to the other co owner/s. The Acts further provide that the court can order that the assignor in such circumstances be compensated, if it appears just and equitable to do so. For copyright and trade marks, it is submitted that a joint owner could bring an application before the High Court for a declaratory order along similar lines. Proposals for future harmonisation The Groups are also invited to formulate theirs suggestions in the framework of an eventual international harmonisation of national/regional intellectual property rights or, at least, an improvement or completion of the existing solutions. 1) In particular, the Groups are requested to indicate if they consider that the principle of freedom of contracts should apply to allow the co owners to determine the statute of the rights and the conditions for their exercising or if the rules governing co ownership of IP rights should be mandatory. The contributors are in favour of the current South African system, which allows for the statutory limitations placed on co owners of IP rights to be overcome if the consent of the remaining co owners is obtained. 2) The Groups are also requested to indicate if a statutory rule should give equal rights to all co owners to individually exploit the IP rights or, without the authorisation of others co owners, to grant the IP rights to third parties or whether, due to the exclusive character of an IP right, such exploitation can only take place with the agreement of all co owners. Should this requirement of the agreement of all co owners apply to all acts of exploitation and acts in defence of IP rights, or only to the acts of disposal of IP rights for the benefit of third parties, such as licensing or transferring to a third party? In the contributors view, a system which allows one co owner to exploit an IP right without the consent of the other/s gives rise to more difficulties than advantages. The co owner/s who has not exploited the IP right will, inevitably, claim some form of compensation from the party that has. The claim for compensation will, in most cases be based on the fact that the non exploiting co owner expended money, time and effort in developing the IP right in question and is looking to recover the costs of that expenditure. However, as the exploitation has taken place without the consent of the non exploiting co owner, the question of how much compensation is reasonable will need to be determined after the exploitation has commenced and after the exploiting co owner has expended a not inconsiderable amount of time and effort in exploiting that IP right. The exploiting co owner is therefore likely to be reluctant to share the spoils of its efforts. This scenario lends itself to conflict between the co owners and, in the contributors view, will often lead to a breakdown of the relationship between them. 5

6 The contributors are in favour of a system which forces co owners to agree on these sorts of issues in advance of any exploitation of the IP right taking place. The system must allow the parties to approach the court, or similar body, to determine any dispute between them or to assist them in reaching an amicable solution to the dispute. Furthermore, the system should allow one party to approach the court to order the assignment of a co owner s rights to the other co owner/s in appropriate circumstances. 3) The Groups are also invited to give their preference as to the possibility of an enforcement action for infringement being initiated by all co owners or only by some of them. The contributors view is that a co owner should be allowed to bring an enforcement action against an infringer in its own name. It should, however, be obliged to give notice to the other co owners that it intends doing do. The only question, in the contributors view, is whether or not a co owner who chooses not to participate in the proceedings is entitled to recover damages from the infringer if the action is successful. In the contributors view it should not because it has not borne the costs and risks in bringing the action. The matter is open to debate though, because that party is arguably entitled to recover its costs in developing the IP right in question. 6