08 June, 2021

Broken Down and Built Again - AG Szpunar Opines Whether the Decompilation of Computer Programs Infringe Copyright

Hot off the heels of the recent decision in Oracle v Google, copyright protection in computer programming is facing its latest hurdle, which is this time in the European courts. A big aspect of computer software management is the fixing of ever-present errors, be it due to the implementation of the software or the software in isolation. When you encounter such bugs you might have to decompile the program, which, to put simply, means to convert an executable computer program into source code, allowing you to fix errors and then to recompile the program to enable its execution. While decompiling can be used for more nefarious purposes (such as to enable the 'cracking' of protected software), it can allow for the fixing of legitimate issues in licensed copies of software. But, because of this potential nefarious way of using decompilation, would doing so breach copyright? Luckily the CJEU is on the case, but before the main court has looked at the issue Advovate General Szpunar gave his two cents a little while ago.

The case of Top System SA v Belgian State concerned a number of applications developed by Top Systems for the Belgian Selection Office of the Federal Authorities (also called SELOR), including SELOR Web Access and eRecruiting, which is in charge of the selection and orientation of future personnel for the authorities' various public services. Many of the applications developed by Top Systems contained tailor-made components according to SELOR's specifications. In February 2008 Top Systems and SELOR agreed on a set of agreements, one of which concerned the installation and configuration of a new development environment as well as the integration of the sources of SELOR’s applications into, and their migration to, that new environment. As with many projects, there were issues which affected the various applications. Following these problems Top Systems took SELOR (and the Belgian state) to court for copyright infringement due to the decompilation of Top Systems' software. After the usual progression of the matter through the Belgian courts the matter ultimately ended up with the CJEU, and also the desk of the AG. The referring court asked the CJEU two questions. 

The first question asked "...whether Article 5(1) of Directive 91/250 permits a lawful acquirer of a computer program to decompile that program where such decompilation is necessary in order to correct errors affecting its functioning"

The AG first noted that, while computer programs have copyright protection over the reproduction of the program, it is limited due to the nature of how computer programs work (i.e. they need to be reproduced on a computers memory to operate). Strict enforcement would impede consumers' use of computer programs and therefore isn't desirable. The same applies to the protection against alteration. The Directive above does take account of this and sets out that reproduction and alteration of computer programs "...do not require authorisation by the rightholder where they are necessary for the use of the program by the lawful acquirer, including for error correction". However, Article 5 does leave the possibility open to restrict these acts through contractual provisions. 

Even with that being a possibility, the ability to contractually restrict the reproduction or alteration is there, this cannot extend to all such activities, as the acts of loading and running of a computer program necessary for that use may not be prohibited by contract. 

The AG then moved onto the matter of decompilation for the purposes of correcting errors. He agreed with the submissions made by the interested parties in that decompilation is covered by the author's exclusive rights under the Directive, even though there is no express 'decompilation' provision there. 

Gary wanted to fix the software, but his hands were tied...

Although argued by TopSystems, decompilation cannot be excluded from those rights under Article 6 according to the AG (which allows for reproduction and translation of a computer program if it is indispensable for the operation of the program with other programs). The relevant provision therefore remains at Article 5 and 6 will have no bearing on the exclusion of decompilation. Article 6 does not stand as the only instances where it is possible to decompile a computer program.

The AG therefore proposed that the first question be answered as "... Article 5(1)... is to be interpreted as permitting a lawful acquirer of a computer program to decompile that program where that is necessary in order to correct errors affecting its functioning"

He then moved onto the second question which asked "...in the event that Article 5(1)... were to be interpreted as permitting a lawful acquirer of a computer program to decompile that program where that is necessary in order to correct errors, that decompilation must satisfy the requirements laid down in Article 6 of that directive or, indeed, other requirements"

Article 6 sets out, as discussed above, the decompilation of a computer program where that is necessary in order to ensure the compatibility of another independently created program with the program. The AG discussed the specific requirements under Article 6, namely that: (i) they only apply to those who have lawfully acquired the program; (ii) the decompilation must be necessary in order for that program to be used in accordance with its intended purpose and for error correction; and (iii) the intervention of the user of the computer program must be necessary from the perspective of the objective pursued. 

In relation to the second condition, the AG noted that an 'error' should be defined as "...a malfunction which prevents the program from being used in accordance with its intended purpose". One has to note that this does not include the amendment and/or improvement of a program, but simply the enabling of the use of the program for its intended purpose. 

On the third condition, the AG specified that, while the decompilation of a program can be necessary, it always isn't. He determined that "...the lawful acquirer of a computer program is therefore entitled, under [Article 5(1)], to decompile the program to the extent necessary not only to correct an error stricto sensu, but also to locate that error and the part of the program that has to be amended". So, a lawful user can decompile a program to both fix and locate any errors, which gives them quite a wide berth in doing so. Nonetheless, the AG noted that the decompiled program cannot be used for other purposes. 

The AG therefore proposed the answer to the second question as "...Article 5(1)… is to be interpreted as meaning that the decompilation of a computer program... by a lawful acquirer, in order to correct errors in that program, is not subject to the requirements of Article 6 of that directive. However, such decompilation may be carried out only to the extent necessary for that correction and within the limits of the acquirer’s contractual obligations"

The CJEU's decision will be an interesting one and will undoubtedly impact the ability of programmers and companies to decompile computer programs to correct any errors they might find during the use of said programs. It would make sense to allow for their decompilation for this restricted purpose, since without that right major errors could render programs useless until the point when the provider can, and decides to fix those errors. It remains to be seen whether the CJEU will agree with the AG, but it would seem sensible for them to follow his responses. 

13 April, 2021

Not as the Oracle Foretold - US Supreme Court Decides on Copyright Infringement in relation to APIs

APIs, or Application Programming Interfaces, are absolutely everywhere these days. APIs allow for two pieces of software to 'speak' with each other, sharing information across to allow for interactivity and interconnectivity between different software applications. While many providers share their APIs freely for implementation, there is still certain rights that attach to those APIs in the form of copyright over the code itself. Just like text in a book, code can be protected by copyright and, in many instances, is absolutely worth protection if a particular coding language becomes very popular. This has been the central focus of an epic legal battle between Oracle and Google in the US, which has spanned for nearly 10 years (discussed previously on this very blog), and the highly anticipated US Supreme Court decision has finally been handed down in early April 2021. 

The case of Google LLC v Oracle America Inc. concerned the Java SE program, which uses Oracle's Java programming language. Parts of the Java SE program's code (roughly 11,500 lines of code) was used in the development of Google's Android operating system, which formed a part of the Java SE API. Java SE is commonly used to develop programs primarily to be used on desktop and laptop computers, which also extends into the realm of smartphones. Oracle subsequently sued Google for copyright infringement over this copied code, and the matter finally ended with the Supreme Court after a long 10-year journey through the US courts. 

The Supreme Court were tasked at looking at two questions: (i) whether Java SE’s owner could copyright the portion that Google copied; and (ii) whether Google’s copying nonetheless constituted a “fair use” of that material. 

Justice Breyer, handing down the majority's judgment, first started off discussing the basic requirements for copyright protection. This means that the work has to be one of authorship, original and fixed in a tangible medium. Copyright encompasses many types of works, such as literary, musical and architectural works, but in a more unconventional manner it includes 'computer programs', which are "...a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result". In terms of limitations, copyright does not extend to "...any idea procedure, process, system, method of operation, concept, principle, or discovery". In addition to copyright protection in general, one has to consider the remit of 'fair use', which allows for the use of copyright protected works for various purposes, e.g. criticism, satire and news reporting. 

The first question, as set out above, concerned whether the provision extending copyright protection to 'computer programs' includes APIs and/or whether they are excluded as 'processes', 'systems' or 'methods of operation' from copyright protection. However, the Supreme Court skipped the copyright aspect of the matter and immediately dove into whether Google's use of the API was fair use.

Justice Breyer noted that computer programs differ from other 'literary works' in that such programs almost always serve functional purposes, which makes the application of copyright to them more difficult. He also mentioned that, in discussions to extend copyright to computer programs, it should not "...grant anyone more economic power than is necessary to achieve the incentive to create". The key is to not allow copyright to stifle innovation in the realm of computer programs. 

Justice Breyer also mentioned that fair use can be used to distinguish between expressive and functional features of computer code where those features are mixed, and allow for different programs to be more readily distinguished in the light of protection. 

Turning to actually considering whether Google's copying fell into fair use, the Supreme Court had to look at the well-established factors of fair use: (i) the nature of the copyrighted work; (ii) the purpose and character of the use; (iii) the amount and substantiality of the portion used; and (iv) market effects. 

In relation to the first factor, the Supreme Court discussed the use of APIs in general as a way for computer programs to speak to each other. APIs also comprise three different 'functional' aspects, which are various parts of code that handle different aspects of the APIs functionality. Justice Breyer highlighted that the parts are inherently functional and bound together by uncopyrightable ideas (i.e. task division and organization) and new creative expression in the form of Android's implementing code. In their view the nature of APIs diminishes the need for copyright protection over them.

In terms of the second factor, the focus is on the transformative nature of a copyright protected works use. Google sought to make new products using the API and to expand the usefulness of the Android OS - argued to be transformative and innovative around the copying of the API. The Supreme Court also noted that one has to consider both the commerciality and good faith in relation to the copying. Justice Breyer determined that, while Google's use of the API was a commercial endeavor, it doesn't mean that the use cannot be transformative. Good faith was not a consideration in the case, but Justice Breyer did highlight that the other factors on the copying of the API weight towards a finding of fair use. 

The Court then moved onto looking at the amount of the work copied. As discussed above, Google copied approximately 11,500 lines of code, which was a mere fraction of the totality of 2.8 million lines in Java SE. While the amount is important, it's the substance of what was copied that is the most important part when thinking about substantiality. Why the lines were copied was to enable Java experienced programmers to work with Android; without which this would have been very difficult. This objective for the copying was to enable the expansion of Android, not to replace Java SE, and the Court did see that this favored a finding of fair use.

Finally, the Court turned to the market effects of the copying, i.e. did it impact the market value of the protected work. Thinking of the use of the code, it was in a market sector where Sun Microsystems (Oracle's predecessor) was not well-positioned, and the primary market for Java SE was PCs and laptops. Android used in smartphones was in no way a substitute for traditional computers where Java SE was typically used. However, the code's implementation did benefit Android through attracting developers to improve the OS. The Court saw that the copying didn't impact Sun Microsystem's position in the marketplace, and issues with an impact on creativity within the development of programs like Android, weighed for a finding of fair use. 

Rounding things off, Justice Breyer discussed the application of copyright in the world of computers and the difficulties the old concept has in adapting to this new environment. In his view, copyright very much persists in computer programs (and their underlying code), but emphasized the fair use doctrine's place in the same. 

The Supreme Court ultimately concluded that Google's copying was fair use as a matter of law and therefore there was no infringement of Oracle's code.

The case is a massive milestone in the application of copyright in computer programs and code, and as the court observed, Google only took "...what was needed to allow users to put their accrued talents to work in a new and transformative program". This is curious and can open the door for others to copy code as and when needed, without licensing, if it is used to allow for innovation through the implementation of well-established technologies. Justice Thomas did indeed write a very strong dissent to the majority's verdict, which highlights the blurring of copyright in relation to code. It remains to be seen how this precedent is applied by the courts in future cases, but it could very well lead to the limits of fair use in relation to code being tested sooner than you think. 

23 March, 2021

Removing the Frame - Circumvention of Technical Measures Stopping the Sharing of Copyright Works is Communication to the Public, says CJEU

The use of images online seems to be near a free-for-all, where content is copied, shared and viewed across websites and with very little consideration on IP issues. One such way is 'framing', where you showcase an image on your website through the original URL on the website where it was uploaded. This allows for you to share the image, but not copy it across, i.e. 'framing' it within your web page. The CJEU looked at this matter some 6 years ago in BestWater, however, the issue has now come back again for determination at the CJEU. This time around the question related to the restriction of framing on websites.

The case of VG Bild-Kunst v Stiftung Preu├čischer Kulturbesitz concerned a German digital library called "Deutsche Digitale Bibliothek", operated by SPK, which networks German cultural and scientific institutions. The website contains links to digitized content stored on the internet portals of participating institutions; however, many of these are stored as simple thumbnails on the site, which then lead to the page on that subject matter. VG asserted that the license agreement between the parties allowing for the use of its catalogue works in the thumbnails required that adequate security measures be put in place by SPK when using the images on the DDB website. SPK objected to this, considering it to not be a reasonable requirement, and sought declaratory relief to this effect in the German courts, requiring the granting of the license by VG without such a condition.  After traveling through the German courts the matter ultimately ended up with the CJEU, who handed down their decision earlier this month.

The CJEU summarized the question posed as "...whether Article 3(1) of Directive 2001/29 must be interpreted as meaning that the embedding, by means of the technique of framing, in a third party website page of works that are protected by copyright and that are made freely accessible to the public with the authorisation of the copyright holder on another website, where that embedding circumvents protective measures against framing adopted or imposed by the copyright holder, constitutes a communication to the public within the meaning of that provision"

Article 3 requires that EU Member States protect the exclusive rights given to copyright holders through national legislation, specifically in relation to communication to the public via wired or wireless means (i.e. the Internet). The focus for the CJEU was to decide whether the framing of the thumbnails on the DDB website is itself to be considered to be a communication to the public within the meaning of Article 3(1). 

The CJEU noted, as a primer, that a 'communication to the public' includes the transmission of works wirelessly via the Internet. Additionally, authorization of the inclusion of protected works in a communication to the public does not exhaust the right to authorize or prohibit other communications to the public of such works. As such, VG still retained the right to prevent any further communication it objected to. 

As has been discussed before, the actual 'communication to the public' of a work looks at two factors: (i) an ‘act of communication’ of a work; and (ii) the communication of that work to a ‘public’. 

Firstly, any act where a user, in full knowledge of the consequences of what he or she is doing, gives access to protected work is liable to constitute an act of communication. Secondly, for that act to be classed as a 'communication to the public', the protected work must be communicated to a public consisting of an indeterminate number of potential recipients. The communication itself has to be done using specific technical means different from those previously used, or to a new public, i.e. a public that was not already taken into account by the copyright holder when he or she authorized the initial communication. 

Following the consideration of the legal underpinnings of the matter, the CJEU turned to considering whether there had indeed been a communication to the public.

The act of framing, according to the CJEU, at first blush does constitute a communication to the public; however, as set out in previous CJEU case law, provided that the technical means used by the technique of framing are the same as those previously used to communicate the protected work to the public on the original website (i.e. the Internet), the work is not communicated to 'the public' as it isn't communicated to a new public. Since the works were left freely available on the websites, with no technological means implemented to prevent sharing, a new public wasn't possible and they tacitly authorized the distribution of the works by third-parties. However, if a link has been added to a website allowing for the circumvention of any technological means implemented to stop the sharing of the content, this would be a communication to the public and therefore an infringement. 

Tying matters to the case at hand, the CJEU saw that "...by adopting, or by obliging licensees to employ, technological measures limiting access to his or her works from websites other than that on which he or she has authorised communication to the public of such works, the copyright holder is to be deemed to have expressed his or her intention to attach qualifications to his or her authorisation to communicate those works to the public by means of the Internet, in order to confine the public for those works solely to the users of one particular website". If there then is sharing of those works, e.g. by framing, it would be communication to the public and an infringement (as that was not authorized by the copyright holder). 

Following further discussion, the CJEU concluded that "...Article 3(1)... must be interpreted as meaning that the embedding, by means of the technique of framing, in a third party website page, of works that are protected by copyright and that are freely accessible to the public with the authorisation of the copyright holder on another website, where that embedding circumvents measures adopted or imposed by that copyright holder to provide protection from framing, constitutes a communication to the public within the meaning of that provision".

The decision adds on to the already sizeable precedent pool on framing, and highlights that, if technical measures are employed to prevent the sharing of content beyond a specific website, the communication of that work would be an infringement of copyright. This makes sense, since the licensing, and subsequent protection, of works for use on a specific website would be pointless if that were rendered effectively void by allowing for the wanton sharing of that content. The case highlights the need for copyright holders to put in requirements for the implementation of measures to protect their rights so as to avoid implicit consent to the sharing of their works online. 

10 March, 2021

Non-Fungible Tokens (NFTs) are All the Rage - It Is Not Copyright and is Ripe for Misunderstanding and Misuse

Anyone who works in the sphere of intellectual property in the law will have come accustomed to misunderstandings in how various IP rights work, what they mean in real terms and how they can be utilized by both people and businesses. Recently I have come across a new world of "copyright" (even though it is not copyright in any form) that seems to be speculated over, which is Non-Fungible Tokens or NFTs that are used to sell "rights" in digital art. 

For the uninitiated, NFTs are a part of the Ethereum cryptocurrency blockchain, allowing for the distribution and/or sale of unique (i.e. non-fungible) tokens that are separate from the cryptocurrency itself. NFTs themselves can be anything that is digital, and identified as unique through the token (proving that the piece is indeed the original), and can be sold much like a physical piece of art, but in the digital world. What has made things surprising to this writer is the misunderstanding and mixing up of NFTs with copyright, so it might be worth discussing the differences between these and the implications of copyright on the sale of NFTs. 

As a brief primer, copyright is an IP rights that protects the expression of ideas, but not the ideas themselves. This means that you will have copyright in e.g. a piece of art you draw, a photo you take or a video you create, and can utilize copyright to prevent others from copying that work. This also enables the licensing of these rights to others, allowing them to copy the works under the terms of the license; however, copyright does not really impact the sale of a physical item such as a painting. Often the latter point leads to confusion as to the application of copyright to the sale of works, but it undoubtedly will impact the sale of digital copies of works. 

The potential problem with how NFTs are portrayed seems to equate them to the world of copyright, meaning the NFT gives you some sort of rights over the digital art you've purchased the token for. In fact, this is not the case, since NFTs don't give anyone any rights over the digital art, but simply act as provenance to the fact that you "own" the original digital piece. Even though you "own" the art, the ultimate copyright holder retains the rights over the distribution of the art piece. 

With that in mind, do you actually own anything? Yes and no. You own the 'receipt' for the digital art piece in the form of the NFT, but this doesn't give you any further rights, especially under copyright. The artist keeps those rights unless they sell it to you along with the NFT (and in most instances they will not do so). 

One issue that can be overlooked here is individuals or companies could conceivably claim an NFT on works that are not their own and take away monetary gains from artists who don't know, or haven't cared to, do so themselves. This could then lead to a wider sharing of works through these "authenticated" copies that negatively impacts the artist, including the aforementioned monetary loss through a missed opportunity to sell a genuine NFT to your works. Artists will have claims under copyright to challenge the sale of any NFTs (and the potential distribution of their works). 

It seems that NFTs are riding the craze of cryptocurrency, and one should be careful and understand what NFTs actually mean in terms of ownership, and what implications there are in the light of copyright. There will be issues that artists, sellers and purchasers will have to keep in mind, and while it might be cool to "own" a 'signed' copy of a piece of digital art when you buy an NFT, its limits are simply that; it's a way to prove that you have potentially purchased the genuine article, but that's it. 

24 February, 2021

That's my Dataset! - AG Szpunar Opines on Whether Search Engines' Indexing can Infringe Database Rights

In the age of big data databases can be worth their weight (or in reality, lack thereof) in gold, since the compilation of those databases can take years and cost tremendous amounts of money. As such, databases are afforded special protection through database rights (i.e sui generis rights). These rights don't always pop up in the courts, but when they do, it's worth taking note, since the infringement of these rights can be deceptively simple, at least on the face of things. As a part of the functioning of the Internet as we know it today, search engines like Google index the websites that allow for it to do so, which in effect adds them to the collective directory of that search engine (and accessible to those searching for it). This indexing will affect all websites and sub-pages that are allowed to be indexed, but could that indexing infringe database rights if done so? As luck would have it the CJEU is slated to decide this matter in the near future, but Advocate General Szpunar has given his opinion on the matter ahead of this decision. 

The case of SIA ‘CV-Online Latvia’ v SIA ‘Melons’ concerns the website 'CV.lv', operated by CV-Online, which includes a database containing notices of jobs published by employers. The website also uses meta tags, allowing for the easier identification of content on each of the site's pages for indexing purposes. The meta tags contain typical information like the name of the job being advertised, place of employment and the date when the ad was posted. 

SIA Melons operates a website called 'KurDarbs.lv', which is a search engine specialising in notices of employment, allowing for several websites posting these notices to be searched on it. The site then refers to the people searching to the websites where the information was found in via hyperlinks (including to the site operated by CV-Online). The meta tags inserted by CV-Online on its website are also displayed in the list of results obtained when SIA Melons’ website is used. 

CV-Online subsequently brought proceedings against SIA Melons for the breach of its sui generis database rights, alleging that it copies substantial parts of the contents of the database on the CV-Online website. Following decisions in the Latvian courts the case ultimately landed on the CJEU's desk, with the Advocate General giving its opinion before the decision.

The AG first discussed the basics of database rights set out in Article 1 of Directive 96/9. The article sets out databases as "...a collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means". The 'independent works' discussed should be ones that are "...separable from one another without their informative, literary, artistic, musical or other value being affected", or in other words, they need to have autonomous informative value. The database itself has to include "...technical means such as electronic, electromagnetic or electro-optical processes... or other means... to allow the retrieval of any independent material contained within it"

In addition to the above there has to have been "...qualitatively and/or qualitatively a substantial investment in either the obtaining, verification or presentation of the contents of that database".

Following on from this the AG quickly set out that the job ads contained in the database were indeed units of information which has autonomous informative value which are separable from the other ads in the same database. The only question that remained therefore was whether CV-Online had made a substantial investment in creating its database. 

Discussing the actual wording of the two questions referred to the court the AG considered that they should be reworded and considered together, namely whether "...under Article 7(1) and (2)... the maker of a database that is freely accessible on the internet is entitled to prevent the use of that database by an internet search engine that specialises in searching the contents of databases"

According to the AG, after the reformulation of the questions the case at hand resembles the decision in Innoweb BV v Wegener ICT Media BV, in which the CJEU held that where the operator of a meta search engine reutilised the whole or a substantial part of the contents of a database constituted by the website on which that meta search engine allowed searches to be carried out. The use of a meta search engine allowed users to access the whole database through those searches other than intended by the marker (and breached the database rights as a result). 

Looking at whether Melons' website acts as a meta search engine, as in Innoweb, the AG concluded that this is irrelevant, as this is not a requirement for a potential infringement of database rights. He concluded that "...a search engine that copies and indexes the whole or a substantial part of databases which are freely accessible on the internet and then allows its users to carry out searches in those databases according to criteria that are relevant from the aspect of their contents effects an extraction and a reutilisation of those contents"

However, even with this mind we have to have a balance of allowing for the indexing (and therefore searching) of the Internet, while protecting against 'parasitic' services utilizing databases they didn't create. Keeping this in mind the AG thought that national courts should verify not only whether the extraction or reutilization of the whole or a substantial part of the contents of a database and whether a substantial investment has been made into the database, but also whether the reutilization or extraction prevents the recouping of that investment. If the latter is the case, the database should be protected.  

Furthermore, national courts should consider the protection of competition within the marketplace. This is to prevent the use of database rights to prevent legitimate competition within the EU, essentially through the abuse of a dominant position through the ownership of key information through database rights. If the reutilization of that information, e.g. such as what Melons has done, does not negatively impact the business of the database rights owner, the courts should allow for the reutilization to allow for fair competition. Thinking about these issues will effectively limit the rights of the database maker, provided there is no or limited impact on the recouping of their investment. 

Ultimately the AG answered the two questions as follows, namely that Article 7(1) and (2) must be interpreted as meaning:

(i) a search engine which copies and indexes the whole or a substantial part of the contents of databases which are freely accessible on the internet and then allows its users to carry out searches in those databases according to criteria that are relevant from the aspect of their contents effects an extraction and a reutilisation of those contents within the meaning of that provision; and

(ii) the maker of a database is entitled to prevent the extraction or the reutilisation of the whole or a substantial part of the contents of that database only on condition that such extraction or reutilisation adversely affects its investment in obtaining, verifying or presenting those contents, that is to say, that it constitutes a risk for the possibilities of recouping that investment by the normal exploitation of the database in question, which it is for the referring court to ascertain.

But one must still keep in mind that this must not result in the abuse of a dominant position under Article 102 TFEU. 

The opinion is an important one in the light of how the Internet functions and sets clear guidelines on how the CJEU should answer the questions posed in this case. The ultimate decision by the CJEU could impact the operation of search engines tremendously if it creates very stringent requirements for the indexing of data, but this writer hopes that certain limits are put while respecting the functionality of the Internet. Provided no, or little, damage is done to the original website's recoupment of its investment, indexing should be rightfully allowed. 

18 February, 2021

It’s a Sword! It’s a Shield! It’s Res Judicata! - The dilemma of patent validity in South Africa

We're really grateful for the extremely comprehensive article below on a very important case in South Africa, which was brilliantly written by Sfiso Nxumalo. He is a South African lawyer, currently reading for the Bachelor of Civil Law degree at the University of Oxford. He worked at Bowmans as a candidate attorney, and also worked as a law clerk at the South African Constitutional Court before reading for the BCL. You can find his LinkedIn profile here

Introduction

On 9 May 2019, the South African Constitutional Court, the highest appellate court in South Africa, heard its first ever patent litigation case in Ascendis Animal Health (Pty) Limited v Merck Sharpe Dohme Corporation. The case required the Constitutional Court to interpret the South African Patent Act 57 of 1978 and decide the correct approach to proceedings concerning the (in)validity of patents. 

The legal issue before the Constitutional Court was significant, namely: are the different grounds of challenging the validity of a patent separate and distinct causes of action or are they one cause of action. In addressing this issue, the Court also had to consider whether the bifurcated nature of the patent litigation affected the main issue. More precisely, does it matter if the challenge of (in)validity of patents is raised in patent revocation proceedings (as a ‘sword’) or in patent infringement proceedings (as a ‘shield’)? 

Unfortunately, the Court was evenly split in its decision (usually 11 justices sit on the bench – but the Court had one justice missing due to other judicial commitments). Thus, the first patent case to be heard by the apex Court of South Africa is of very little jurisprudential value. However, the want of jurisprudential value should not stop us from engaging some of the key issues in the case. 

Facts

In June 2011, Ascendis Animal Health (Pty) Limited (the applicant) initiated revocation proceedings against Merck Sharp Dohme Corporation and Merial Limited (the respondents) for the annulment and repeal of the Patent 1998/10975 (the patent) in terms of section 61(1) of the Patents Act 57 of 1978 (the Act) because the invention was not patentable under section 25 of the Act as the invention was not new and it lacked an inventive step. These were the revocation proceedings. 

While the revocation proceedings were taking place, the respondents in October 2011 instituted proceedings against the applicant for infringing the patent. The respondents argued that, since August 2011, the applicant had made, sold, used, offered for sale and/or imported an anti-parasitic formulation under the trademark entitled Ivermax LA Platinum and had infringed the patent. This was the infringement action. 

The infringement action was stayed awaiting the conclusion of the revocation proceedings. The applicant challenged the patent exclusively on the ground of novelty. At first instance, the Commissioner of Patents found in favour of the applicant and revoked the patent for its lack of novelty. 

On appeal the Supreme Court of Appeal overturned the decision of the Commissioner of Patents and found in favour of the respondents. After this decision, the applicant sought to amend its plea in the infringement action, to remove the defence of novelty (since it lost this case in the revocation proceedings) and sought to include an additional defence – inutility. In response, the respondents sought to amend their pleadings in the same proceedings and argue that all the defences by the respondent were res judicata (already decided by a court) since the question of the validity of the patent had been definitively decided and upheld by the Supreme Court of Appeal.

In hearing the infringement action, the Commissioner of Patents granted the respondents’ amendment and held that the grounds on which an applicant may rely on to attack the validity of a patent are not separate causes of action. It held that the applicant had effectively abandoned the obviousness claim as a basis of invalidity in the revocation proceedings and that it had not formally elected to reserve the right to rely on a separate cause of action. This is the decision the applicants subsequently appealed to the highest court. 

The Constitutional Court’s decision

Five justices of the Court in a judgment penned by Justice Khampepe upheld the appeal and ordered that the parties’ pleadings should be allowed to be amended. The other five justices in a judgment penned by Justice Cameron, held that they would dismiss the appeal. The effect of this is that there is no majority decision and the decision of the Commissioner of Patents stands. The issues are discussed in more detail below.

(i) Are the grounds of challenging the validity of the patent single or distinct and separate causes of action

Justice Khampepe held that the grounds on which a patent may be challenged under section 61 of the Act (such as novelty, utility and obviousness) are concrete, distinct and separate causes of action. She opined that a cause of action comprises every fact that would be necessary for the plaintiff to prove in order to support his right to judgment of the Court. A cause of action, she emphasised, comprises facta probanda (the facts required to be proved) as opposed to the facta probantia (the facts by means of which they are proved, i.e. particulars or evidence). She then strongly reasoned that each ground of revocation are separate, distinct and independent causes of action because the facta probanda that need to be proven for each ground are markedly different. She then explained that although the legal conclusion that results from claims of either novelty, obviousness or inutility may be the same (i.e. the finding of a patent’s invalidity), it does not mean that they all represent a single cause of action. The facts required to prove a claim of novelty, inutility and obviousness are disparate as the elements constituting each ground are dissimilar. 

A compelling point is raised by Justice Khampepe when she reminds us that South Africa is a non-examination state, i.e. the state does not check whether an invention is novel before it is registered as a patent. As a result, South Africa relies on private parties to challenge the artificial monopolies created by way of registering a patent.

In the opposing judgment, Justice Cameron held that the default position should be that a previously unsuccessful patent validity claim should bar an applicant from raising the validity of the patent as a defence in an infringement action. He posited that the question is essentially the validity of the patent and this was definitively decided by the Supreme Court of Appeal and thus the matter was res judicata or is barred by issue estoppel. In his opinion, all the grounds constituted a single cause of action. 

While Justice Cameron’s argument that there is a need to stabilise our patent litigation system is attractive, it does not overcome Justice Khampepe’s reminder that South Africa relies on private parties to litigate the validity of patents. If the state relies on private parties to litigate, such parties should not be subjected to burdensome procedural requirements seeing that their litigation, while it may be driven by profit, benefits the public. Of greater consequence, allowing parties to challenge patents ensures competition in key industries and thus benefits the larger public. This does not mean that piecemeal litigation should be permitted and encouraged. In this author’s opinion the different grounds of validity claims are separate causes of actions and parties should bring as many claims known to them at the time of instituting proceedings. Should they later bring another ground, it should not be barred based on res judicata or issue estoppel. To my mind, this is a lesser evil, compared to a complete bar, which would mean that parties have one shot at challenging a patent, and should they fail, the patent holder gains a product monopoly. Justice Cameron’s conclusion is striking because it seems to go further than just bar the litigant party. He seems to suggest that res judicata could be relaxed even regarding different parties litigating over the same ‘issue’. 

(ii) Are the defences raised in the infringement action res judicata

On this issue, Justice Khampepe held that the defences were not res judicata. She described the scheme of the Act in great detail and she then distinguished between revocation proceedings and infringement actions. Justice Khampepe considered that, in revocation proceedings, evidence is provided by way of affidavit, whereas in an infringement action, evidence is given orally. In addition, the remedies available in these proceedings are different – revocation proceedings remove the patent from the register of patents, thus making it a remedy in rem (against a thing); whereas an invalidity defence in an infringement action does not remove the patent from the register but simply renders it unenforceable against the person challenging it, thus making it a remedy in personam (against a person). She then found that ‘the findings in the revocation proceedings have a final effect on the infringement action for causes which have not actually been adjudicated upon in revocation proceedings.’ In other words, in revocation proceedings the grounds of patent validity are a sword; and in infringement actions such grounds are a shield. And in her view this matters because it would lead to the dual proceedings being nugatory and of no effect because a finding on the revocation proceedings could be carried over to the infringement action.

In plain terms, Justice Cameron argued that the dispute is essentially about the validity of the patent. Once a court of appeal has ruled on the validity of a patent, the applicant is estopped from bringing the same issue of patent validity (regardless of the ground) in the infringement proceedings. He opined that same cause of action can be interpreted widely to include the same issue (the issue being the validity of the patent). 

Again, Justice Khampepe’s incisive approach is appealing. There seems to be stark differences between the two proceedings. In this author’s view, a statutory basis for the differences indicate that the legislature intended for them to be serve different functions (i.e. a sword and shield). The applicant of course will be barred from raising the same grounds that have been decided before in revocation proceedings. In my mind, requiring parties to bring all their claims at the in one suit might have adverse effects on the patent litigation going forward.

Conclusion

No patent litigation regime is without disadvantages, and the law should be applied with a purposive approach that serves the (national) objectives of patents. While there was no binding decision by the Constitutional Court, its importance lies in its detailed discussion of the South African patent system.