An unspooled tape – copyright law in need of fixing

July 1st, 2017
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By Jenalee Harrison

Copyright law in many countries has been used to limit parallel importation of goods into a country without the express permission of the copyright owner. These imports are not illegal, immoral or unlawful and are not fundamentally different to ordinary imports (Kerstin Maria Rippel and Roux de Villiers ‘Legalising Parallel Imports under Intellectual Property Law’ (2004) 15 Stellenbosch Law Review 550). The limitations on the importation of these goods depends on the copyright law of that particular country and the policy considerations that inform the interpretation of that law.

This article advocates for South Africa (SA) to either incorporate the doctrine of exhaustion into our law, as done in the United States (US), or at least for the doctrine to be a relevant consideration in determining whether the parallel imports should be prohibited, as done in Singapore.

Parallel importation and exhaustion

Parallel importation occurs when distribution of a genuine product occurs through non-authorised channels, being manufactured in jurisdiction X either by the intellectual property (IP) owner, or with his or her consent, and then being imported into jurisdiction Y without the IP owner’s consent. These ‘grey’ goods are then often sold in competition with goods sold by the authorised distributor or licensee who has acquired trading rights to sell in jurisdiction Y (see Sadulla Karjiker ‘The first-sale doctrine: Parallel importation and beyond’ (2015) 26 Stellenbosch Law Review 633 at 637).

There is no international consensus on the extent of the protection that IP rights must afford IP owners against parallel imports. Article 6 of Trade-Related Aspects of Intellectual Property (TRIPS) provides that member states of the World Trade Organisation may opt for national, regional or international exhaustion (World Intellectual Property Organisation ‘International Exhaustion and Parallel Importation’ www.wipo.int, accessed 26-5-2017). The doctrine of exhaustion, sometimes referred to as the first sale doctrine, refers to the level of control a copyright owner has over distribution rights after the first sale. This doctrine can be limited in terms of the geographical area to which it applies. For example, national exhaustion refers to the scenario where a copyright owner no longer has control over commercial exploitation in the domestic market but can still oppose the importation from a foreign country. Regional exhaustion refers to the scenario where the first sale exhausts any rights the IP owner has in that geographical region (Warwick A Rothnie ‘Parallel Imports and Copyright’ (2005) 6 Bus.L.Int’L 326 at 341). For example, European Economic Area follows regional exhaustion. Finally, international exhaustion involves an IP owner’s rights being exhausted as soon as there is a sale anywhere in the world, either by the IP owner themselves or with their consent.

South Africa

Section 23(2) of the Copyright Act 98 of 1978 deems parallel imports to constitute a copyright infringement if the work is imported into SA without the consent of the copyright owner and when the importer knew that the making of the article ‘would have constituted such an infringement if the article had been made in [South Africa]’ (s 23(2) of the Copyright Act). This requires the courts to postulate the manufacturing of the product in SA by the person who manufactured it abroad (Owen H Dean ‘Parallel Importation – Infringements of Copyright’ (1983) Centenary Volume SALJ 258 at 262). If the person who reproduces the work abroad has the rights to reproduce the work in SA then the products will not constitute infringing copies, as the reproduction of the products would be authorised by the copyright owner. However, if the reproduction of the copy is only authorised in the country in which it is manufactured then it will be an infringing copy if it was hypothetically reproduced in SA (Dean (op cit)).

The matter of Frank & Hirsch (Pty) Ltd v Roopanand Brothers (Pty) Ltd 1993 (4) SA 279 (A) illustrated the use of copyright assignment in order to pass the hypothetical test of s 23(2). Frank & Hirsch were the exclusive distributors in SA of TDK blank cassette tapes. Roopanand Brothers imported the blank cassette tapes from a third party in Singapore who acquired the tapes from TDK Electronics Co Ltd of Japan (TDK Electronics). TDK Electronics manufactured and distributed the tapes with no geographical restraint, meaning that it would not have passed the hypothetical test of s 23(2). As a result, TDK Electronics assigned the copyright of the literary and artistic works in the trade dress and the get-up of the cassette tapes to Frank & Hirsch (Frank & Hirsch (op cit) at 523). This assignment of the copyright created a situation where, if TDK Electronics manufactured the get-up in SA, they would have been infringing copies (Frank & Hirsch (op cit) at 527).  Accordingly the Court held that Frank & Hirsch had established copyright infringement in the get-up of the cassette tapes. Some academics believe that this is a viable and effective use of copyright, while others have argued that this indirect method is artificial and was not the intention of the legislature or TRIPS (Rippel & De Villers (op cit) at 569).

South Africa does not follow national or international exhaustion; whether or not a copy is infringing depends on the extent of the rights vested in the manufacturer abroad, not the origin of the copy. The concept of exhaustion is central to the issue of parallel importation, but has received minimal to no consideration in SA. A decision on exhaustion cannot be undertaken without an engagement in policy considerations surrounding parallel imports, which seems to have been a topic that SA courts have been hesitant to engage in.

United States

Section 109(a) of the Copyright Act of 1976 states that a copyright owner’s distribution right is exhausted after the first sale of a copy lawfully made under that title while s 602(1)(a) prohibits importation into the US of work acquired outside US without the authority of the copyright owner. There are two different interpretations that could be adopted after the combined reading of these two provisions.

The first interpretation is that s 109 only refers to copies made lawfully in the US. This interpretation would allow for the prohibition against parallel imports of less expensive foreign made copies. Many courts undertook that this was the correct interpretation of these two provisions, which meant that the US would be following a doctrine of national copyright exhaustion (Irene Calboli ‘The United States Supreme Court’s Decision in Kirtsaeng v Wiley & Sons: An “Inevitable” Step in Which Direction?’ (2014) 45 IIC 75 at 78). The second interpretation, following an international exhaustion approach is that s 602(1)(a) does not limit s 109(a) and that copyright extends to all products lawfully made regardless of where it was manufactured (Calboli (op cit) at  79).

In the recent judgment of Kirtsaeng v John Wiley & Sons Inc 133 S.Ct 1351 (2013), Kirtsaeng was sued for copyright infringement by John Wiley & Sons for purchasing, importing and selling Asian editions of their textbooks. Kirtsaeng argued that the first sale doctrine applied as the textbooks were made by an Asian subsidiary of John Wiley & Sons and, therefore, did not constitute copyright infringements (at 1352). The court stated that Congress could not have intended a system where only goods manufactured in the US would be subject to copyright exhaustion. The court could also not find a copyright law principle that suggested that publishers had a right to price discriminate between different jurisdictions (at 1370). The dissenting contended that the majority’s interpretation was at odds with the intention of Congress, who wanted to protect copyright owners from cheaper copies. Further the majority’s position was in conflict with International Trade Agreements that the US had with other countries, which seemed to support national copyright exhaustion (at 1384).

The need to have national law and the US’s international obligations in alignment may result in Congress overruling the Kirtsaeng judgment (Calboli (op cit) at 88). It has also been argued that the legislature needs to amend the Copyright Act of 1976 and prohibit reliance on the copyright of the get-up to prevent parallel import (Irene Calboli and Mary LaFrance ‘The case for a Legislative Amendment against “Accessory copyright” for Grey Market Products: What Can the U.S. Learn from Singapore and Australia?’ 2013 (Dec) Sing. J.L.S. 253 at 255).

Singapore

Section 32 and 104 of the Singapore Copyright Act 1987 states that liability for parallel imports is dependent on the importation being –

  • for commercial purposes;
  • imported without the consent of the copyright owner; and
  • imported without the license of the owner of copyright.

However, it was uncertain whether reference to the ‘copyright owner’ meant the manufacturer in Singapore or the foreign place of manufacture (George Wei ‘A Look Back at Public Policy, the Legislature, the Courts and the Development of Copyright in Singapore’ (2012) 24 SAcLJ 867 at 875).

In Public Prosecutor v Ngoh Chin Heng & Teo Ai Nee [1993] 3 SLR (R) 755, the court held that the consent needed must relate to the manufacture of the copy in Singapore (the place of import) and not the actual place of manufacture in the foreign country (OH Dean ‘Copyright v Grey Goods in South Africa, Australia and Singapore’ (1994) SALJ 746-756).

(1994) SALJ 753). This was the interpretation that the legislature intended as it would prevent imports from countries that do not have adequate copyright laws – the court noted policy arguments but stipulated that policy formation on parallel imports is a task for the legislature and not the judiciary (the Ngoh Chin Heng case at 31). Many interpreted this judgment as a movement towards national copyright exhaustion, which did not coincide with the liberal approach that Singapore had previously adopted to parallel imports (Wei (op cit) at 887).

The legislature provided clarity by stating in the 1994 Copyright Amendment Act that the copyright owner was the owner in the foreign country of manufacture reaffirming Singapore’s international exhaustion approach (Wei (op cit) at 887). The amendment also stated that if there is no copyright owner in the foreign country of manufacture then reference to the copyright owner meant the owner in Singapore. Further it prohibited the assignment and use of copyright of the get-up to prevent parallel imports (Calboli and  LaFrance (op cit) at 263).

Conclusion

Parallel imports have to date received depthless treatment in South African law. Section 23(2) of the South African Copyright Act is applied too literally without any consideration of policy arguments (Karjiker (op cit) at 663 – 664). This has caused legal lacunas, such as the assignment of get-up in order to prevent parallel imports when the work initially does not pass the hypothetical test, with little to no engagement from courts on whether this would even be desirable.

An in-depth analysis needs to be undertaken by the legislature if the courts are not prepared to engage with these issues. In Singapore, the legislature undertook to make amendments after policy arguments made it evident that international copyright exhaustion would be the most beneficial doctrine to follow whereas in the US, the courts engaged with policy considerations surrounding international exhaustion.

Section 23(2) of the South African Copyright Act has created murky waters – SA follows neither national nor international exhaustion. The way forward is to, first, decide on which exhaustion doctrine will suit SA’s unique needs, and to then amend copyright law in order to reflect this position.

Jenalee Harrison BSc LLB (Stell) is a candidate attorney at STBB in Cape Town. Ms Harrison is also the Deputy Chairperson of the Cape Town Candidate Attorney Association.

This article was first published in De Rebus in 2017 (July) DR 34.

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