ANALYSIS | Are the drafters of the Copyright Amendment Bill acting in the best interest of authors?

The drafters of the Copyright Amendment Bill ("CAB"), which is currently before Parliament, purport to be the friend of creative persons, referred to as "authors". Owen Dean analyses if this is in fact the case. 

The New Shorter Oxford English Dictionary gives the following as a meaning of the word "friend": "A person who wishes another, a cause etc., well; a sympathiser, helper, patron..."

Carole King, the famous songwriter/performer, gives a good description of the characteristics of a friend in her iconic song, You've Got a Friend.

The drafters of the Copyright Amendment Bill ("CAB"), which is currently before Parliament, purport to be the friend of creative persons, referred to as "authors" in respect of all kinds of creative works, including books, songs, paintings and photographs. But the question arises: are they true friends of authors, or are they pseudo-friends masquerading as the real deal? Before this question can be answered it is necessary to look at its background. 

Copyright assignments and licences 

Copyright law is intended to promote the well-being of authors by providing a means of exploiting their works for financial gain. This, in turn, serves as an incentive for them to create. Copyright confers on authors certain exclusive rights, the most significant being the right to control the reproduction of their works. By being in a position to control the making of reproductions, they can charge fees of various natures for the dissemination of their works. Successful authors can achieve considerable wealth in this way.

The most common ways in which authors grant to others rights to disseminate their works are by assigning or transferring their copyright to another, for instance a publisher (the assignee then becomes the owner of the author's rights), or by granting permission, or a licence, to another to undertake the reproduction of their works. 

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An "assignment" of copyright can be compared to the sale of a house; the seller divests himself of all rights in the property, and the assignee steps into her shoes. The sale of a house generally involves the payment of a purchase price by the buyer. A "licence" of copyright can be compared to letting out a house for occupation by another; in this instance the owner retains all his rights in the property, but allows another to exercise some of his rights, notably the right of occupation. The rental of a house generally involves the making of periodic payments of rent by the tenant.

Both copyright assignments and licences have great flexibility. They can deal with some (for instance, reproduction, translation etc.), or all, of the author's exclusive rights; they can be limited as to their duration, e.g., for a period of 10 years, or they can be for the full term of the copyright; they can be limited as to the territory for which they apply, for instance, the Western Cape, for South Africa, for Europe etc. A licence can be exclusive or non-exclusive and can allow the granting of sub-licences. The parties to these transactions have a significant degree of latitude, as is their due, to customise or design their transaction as they see fit. 

Commercialising a work

When the author assigns his copyright to another, for instance, a publisher in the case of a book, the publisher pays a "purchase price" for the acquisition of the property. This payment usually takes the form of a lump sum paid upfront. However, many permutations can be used, and it is not uncommon for the purchase consideration to take the form of periodic payments in the form of "royalties" on the sale of copies of the book.

There can be variations on these two themes, and payment can take the form of the lump sum payment of part of the purchase price followed by the payment of royalties. The parties are free to adapt the payment mechanisms as it suits them. In general, the higher the royalty payments, the lower will be the amount of the upfront payment. 

When an author grants a reproduction licence to a publisher, the "rental fee" usually takes the form of royalties on the sale of copies of the book. However, it is possible for the licensor to pay an upfront lump sum as the consideration, or "rental", for the licence. The considerations regarding lump sum payments versus royalties that apply to assignments apply equally to the "rental fee" payments in respect of the licence. The parties have complete freedom to adopt the payment mechanism that best suits them and the circumstances.

The amount of the consideration payable for a copyright transaction is determined by several factors, including the fame of the author; the quality and public appeal of the work; the likely size of the market (which is influenced by the nature and subject matter of the book); the number of potential publishers available to the author; the production costs of the book and its viable sales price; and the economic climate and so forth.

A potential best-selling novel by a famous and successful author will obviously command a higher price than the first book by an unknown author on an obscure and esoteric subject. The relative bargaining positions of the parties is an important factor. These are the economic facts of life, and they cannot be altered by legislation. There is no one-size-fits all model. A successful transaction gives both parties a reasonably good deal. The principle of freedom of contract enshrined in our law plays a valuable role.

There are circumstances in which the exclusive rights granted by copyright can impinge unduly on the public interest; the public has a reasonable requirement to have free access to works. Copyright law accommodates this situation by providing certain limited exceptions to copyright protection, for instance, allowing private copying in certain circumstances. These circumstances must not be in conflict with the normal exploitation of the work or unreasonably prejudice the author's legitimate interests.

Bills benefits to the author 

The CAB, in particular, has two provisions in which it appears to be smiling benignly on and benefitting the author, the allegedly favoured child. They are supposed to improve and promote the author's lot. They are sections 6A (in the case of literary and musical works; equivalent sections for artistic works and audio-visual works are 7A and 8A, respectively) and 22(3).

For no discernible reason, the section 6A benefit does not apply to other works eligible for copyright (like sound recordings, television broadcasts, published editions and satellite transmissions) besides those mentioned above, while the latter benefit only applies to literary and musical works. The basis of this distinction is not apparent nor intelligible.

Author's royalty 

Section 6A provides that, notwithstanding any assignment of the licence granted in respect of a literary or musical work, the author will be entitled to receive a fair share, by way of royalty, of the gross profit made by the rights owner from the onward sale of the rights and from the commercial exploitation of the work. In other words, the author of the work has a statutory right to get a share of the profits of any and all transactions relating to the exploitation of the work by whosoever holds rights in it, whether by way of a licence or by assignment. This applies to all rights holders no matter how far removed from the author by multiple successive assignments or transactions. This is to be achieved by the author entering into prescribed written agreements with each and every rights holder. 

Apart from the gross impracticality of such an arrangement, this section makes serious inroads into the parties' contractual freedom and can impose severe restrictions or limitations on the conventional exploitation models.

A publisher negotiating the publication of a book with an author will have to take into account that she and any other parties to whom she may in the future grant rights in the book can be under an obligation to have to pay an ongoing perpetual royalty to the author calculated on the profits made from a sale of the rights and from the commercial exploitation of the work.

The rights in question will be impaired. This cannot fail to affect the price that the person acquiring rights will be willing to pay for those rights. A publisher taking assignment of copyright from an author in these circumstances is likely only to spend less than 50% of what the purchase price might otherwise have been. The same is true of a royalty fee to be paid by an assignee or licensee who is one or more steps removed from the author.

Without doubt, the fact that there is a perpetual charge on the copyright in a book in favour of an author, with whom a rights owner has no primary relationship, will drastically affect the value of the copyright to the rights holder and thus its market price. 

Going back to the start of the chain of rights, when the author exacting this obligation negotiates with the publisher, she will be offering an impaired product that will significantly reduce market value. The author's bargaining position and her potential asking price is going to be impaired. This means that she will be sacrificing a higher initial financial consideration against the prospect of gaining possible future earnings.

Currently, under the present law, if an author wishes to use this model they are free to do so. They have an unfettered choice in the matter. However, the provision in the CAB suggests that it is incumbent on the author to follow the royalties-down-the line model. Unsophisticated or unwary authors may follow this direction mindlessly. There are many circumstances where this model is not the optimal or desired choice. 

Must the author feel blessed that she is being induced to follow a particular model when the circumstances may dictate that an alternative model (e.g., the upfront lump sum payment) is the best option? Are the drafters of the CAB really doing the author any favours?

To draw a comparison, the proposed regimen in the Bill is like a house seller stipulating that whosoever might own the house in future is obliged to pay to her part of the profit on the onward sale of the house and for the rental received from hiring out the house, in perpetuity. This could not fail to have an adverse effect on the market value of the house!

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The irony is that s. 6A(2)(b) in the Bill provides that the author and the prospective assignee can exclude this regimen by agreement. This goes full circle and brings the situation back to the present position where the parties are free to negotiate various models, including the proposed regimen. So, what is the point? The whole proposed regimen is superfluous. This supposed "benefit" to the author is illusory. Authors are in reality, being misled.

Paradoxically and ludicrously, section 8A in the Bill, which applies the principle in issue to audio-visual works (cinematograph films in conventional copyright speak – therein lies another story), confers the "benefit" on the performers in the work rather than on its author. Apart from the fact that performers must look to the Performers Protection Act for their protection and this form of protection is not copyright, this proposition is preposterous.

It is completely impractical and unworkable. There is little or no justification for it. The performers do not create the work, nor do they ever own rights in it, as an author does. They cannot be equated with authors. Moreover, imagine a film copyright owner having to enter into agreements with, and pay ongoing royalties to, each and every member of what could be a cast of thousands. Does each member of the cast participate equally? This provision should be scrapped and has no place in a Copyright Act.

Curtailed assignments  

The term of the copyright in literary, artistic and musical works is the author's lifetime plus 50 years. Depending on at what stage of her life an author creates a work, and her longevity, the copyright could subsist for as long as a hundred years. Assignments of copyright can cover this entire period. In terms of s. 22(5) of the CA future copyright (i.e., a work that is to be made in the future and copyright that is not yet owned by, but will in due course become the property of, the assignor) can be assigned.

At the stage when the copyright vests in the assignor, the assignment takes effect. Assignments can be limited as to duration. When the assignment lapses the copyright reverts automatically to the assignee. It is a fundamental principle of assignment of rights that the assignee cannot acquire greater rights than those held by the assignor.

Section 22(2) in the Bill provides that in the case of literary and musical works an assignment of copyright can only be valid for a period of up to 25 years. At the expiry of this period, the copyright will revert to the assignor.

It is surmised that this principle is inspired by the belief that an author who assigns his work to another should have an opportunity to re-evaluate the commercial aspects of the assignment after the elapse of 25 years with a view to getting a better deal - for instance, a song that was initially untried and unknown with little market value might in the interim have become a major hit.

For a start, the author of any work is free to impose whatever time limits she might choose on the assignment of the copyright of her work under the existing law. The effect of the provision under discussion is that a compulsory limit of no longer than 25 years is imposed on an assignment. This period could amount to no more than 25% of the lifespan of the copyright. It may well be that a prospective assignee will only be willing to pay 25% of the regular price for an assignment in these circumstances. The author may prefer to get full value for the assignment at the outset rather than gamble that she may get a better return 25 years hence. A bird in the hand is worth two in the bush!

The provision thus dramatically limits the scope for an author to receive an attractive upfront lump sum payment for an assignment of her work, which may be the optimal model for exploiting her work commercially. The market value of the assignment is thus impaired. Indeed, a prospective assignee may have no interest in transacting an assignment with such a limited lifespan. This could impact of the marketability of the work as an asset.

In other words, by enacting a provision which is apparently to the benefit of the author (but making compulsory something that the author can in any event voluntarily transact), the drafters are impairing the market value of an assignment and compelling an author to use a model for the exploitation of her work which is not the optimal one and may not be of her choosing.

In general, the drafters' apparent objective can far better be reached by an author granting a full assignment of copyright and providing as the consideration the payment of an ongoing royalty for the duration of the copyright. This could be combined with a complementary upfront lump sum payment if preferred.

In any event, the dictatorial attitude of the drafters can be circumvented. An author could enter into a deed of assignment covering years 1 to 25, and at the same time enter into a further deed (in respect of future copyright) covering years 26 to 50 and taking effect in year 26, and so forth. So, what is the point of the provision? It is once again a case of an illusory benefit to the author.

Value of benefits 

Against these "benefits" to the author contained in the CAB one must weigh up other provisions in it which drastically limit the scope and effectiveness of copyright, and thus its utility. These take the form of extensive new exceptions to copyright. 

It is internationally accepted that the quasi-monopolistic effect of copyright in respect of the use of works must be mitigated in the public interest. This is achieved by making certain exceptions to the copyright owner's exclusive rights. The rights of authors and copyright owners must be weighed against the public's reasonable needs to have free access to works in certain circumstances. The CA currently contains such exceptions, but the CAB seeks to expand them drastically, virtually to the point of emasculating copyright.

Persons who act within the scope of exceptions fall outside the reach of copyright, and copyright owners gain no remuneration from their manners of use of works. Given the purpose of copyright, overly generous exceptions run the risk of killing the goose that lays the golden egg. The drafters of the Bill exude generosity in this respect.

On the one hand, the drafters purport to have granted "benefits" to authors, and the Bill is being touted as being a major fillip to authors. On the other hand, the Bill decimates the protection given to authors' copyright by providing numerous extensive and far-reaching exceptions that will reduce authors' capacity to earn royalties and gain financial reward from the exploitation of their works. When one weighs up one factor against the other, the scale tilts significantly against the welfare of the author. Is this the act of a friend? 

There can be no doubt that Carole King would not advise authors to regard the drafters of the Bill as falling within the ambit of her description in her song, You've Got a Friend. 

- Owen Dean is an Emeritus Professor at the University of Stellenbosch, a specialist copyright attorney and author of 'Dean: An introduction to copyright law'.