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Why Brexit will make software licence transfers and database copyright harder for UK firms

Brexit will make it more difficult for UK companies to sell unused software licences and to enforce their database rights in Europe. Firms will face a legislative disadvantage over AI-generated databases

The essential protection of software stems from intellectual property rights, primarily copyright. When the UK left the European Union (EU), at a superficial level nothing changed because the essence of copyright is based on international treaties. All the countries within Europe, and indeed most of the world, have signed up to those international treaties, which, to a large extent, harmonise the law of copyright globally. There was little scope for change just because the UK was leaving the EU. 

Not all the countries in the world unequivocally accept that copyright extends to protect software. However, software has been afforded full copyright protection in Europe since 1993 when a harmonising directive – the Directive of 14 May 1991 on the Legal Protection of Computer Programs which was re-enacted without significant change in a directive having the same title on 23 April 2009 – came into force. Due to this directive, the law of copyright, as it applies to software within Europe, has been harmonised to an even greater extent than is required by mere membership of the international copyright treaties. 

How to legally transfer software licences

Nevertheless, there have been some Brexit-related changes, where the harmonising constraints of the EU are no longer binding. Perhaps the most important regards the resale of software.

When the directive was passed, most software was provided on physical media such as discs. It is perhaps not surprising, therefore, that EU law is constructed in such a way as treating software that has been “purchased” in much the same way as a book. In particular, EU legislation provides that when the original licensee of software ceases to use the software, the licensee can transfer the copy of the software to a third party anywhere else within the EU.  

For a licensee lawfully to transfer a copy of the software to a new licensee, only the following conditions need be satisfied:

  • The copy of software must originally have been placed on the market in the EU by or with the consent of the software owner, the licensor of the software.
  • The copy, and any backup copies, must have been uninstalled by the previous licensee and no longer usable by them.
  • The transfer must be of a “perpetual” licence rather than a licence that is essentially rented.

Of course, until 31 December 2020, the EU included the UK. That has not changed, so for software first placed on the market on or before 31 December 2020, only the above rules need to be satisfied. 

However, this law only applies within the EU. It does not allow for the transfer of copies of software, for example, in and out of other countries such as the US. Note that there is no need for the owner to be resident in the EU – the licensee could be a US company operating in Europe – what matters is only the location where the software is used. Indeed, it is a fundamental foundation of international copyright treaties that the citizens (and companies) of all countries who accede to those treaties are treated equally. 

The effect of Brexit on transferability of software

The Brexit deal signed in December 2020 was “light”. There were many areas (such as the whole of the services industries) that were not the subject of any deal. The transferability rights discussed above – the technical name for these transferability rights being “exhaustion of rights” – was not expressly altered by the Brexit deal. 

Where a copy of software is first placed on the market in the UK after 31 December 2020, that copy will not be able to be imported into Europe

Since there is no express alteration of the current arrangements, that means there will be an important change just by consequence of the exiting law continuing, but the UK ceasing to be within the EU. Where a copy of software is first placed on the market in the UK after 31 December 2020, that copy will not be able to be imported into Europe. This is because the first condition above can no longer be satisfied.  

Note that this effect is not retrospective, since a copy first placed on the market in the UK before 2021 would, as a matter of fact, continue to have first been placed on the market within the EU. Such a copy can still be traded throughout Europe. For completeness, it should be stated that a copy of software that is first placed on the market in the UK in the future can still be traded in the UK, since the UK has allowed for a continuing “exhaustion of rights” region extending to the whole of the EU. 

Indeed, the UK has extended its own view of “exhaustion of rights” by unilaterally extending “exhaustion” to remain for the whole of Europe. This means that the converse situation is different and that if a new copy of software is, in the future, first placed on the market in the EU, that copy will still be able to be imported into the UK. 

The impact of Brexit on database rights

Under this legislation, the maker of a database – a person who creates a database by selecting and populating it with data – has the right to prevent the extraction or re-utilisation of the whole or a substantial part of the contents of the database. The legislation applies to databases created on or after 1 January 1998. This legislation is specific to the EU and is not based on an international treaty. 

For these purposes, a database must have an element of selection in it as well as an investment of time and money to create it. For example, a database could consist of the events in a football match, such as the free kicks, corners, penalties and goals, or a database could consist of a list of computer programs together with an overview of the features of each program. 

The rights created by the EU legislation last for 15 years from the date of creation of the database. The rights are infringed even by a systematic extraction or re-use of insubstantial parts of the contents of the database. Where there is a substantial change to the contents of a database, so that it can be considered as a “substantial new investment”, the database will then qualify for a new term of protection beyond the original 15-year period. In this way, database protection can conceivably last for a long time, provided that “substantial new investments” are regularly made to the database. This will invariably be the case for commercial databases that are continuously being updated. 

The key is that there must have been a substantial investment in the obtaining, verification or presentation of the contents of the database. However, for the database right to be enforceable in the EU, the person or organisation who is the creator of the database must be a national of a member state of the EU or a company formed under the laws of a member state and based there from an economic perspective. 

Unfortunately, the “light” Brexit deal that has been negotiated does not extend to including any provisions at all regarding database rights. This means that UK citizens and companies will no longer have the database rights in the rest of Europe which they formerly had. Within the UK, UK citizens and companies will retain their rights. Within the UK, EU citizens and companies, alongside UK citizens and companies, will continue to have enforceable database rights, as these are specifically provided for in the Withdrawal Agreement which was agreed in October 2019. For EU companies and citizens, however, this will only apply in respect of databases that existed prior to 1 January 2021. 

UK companies lose database rights in Europe

The reverse position is more complex. Certainly, since the UK is no longer part of the EU, for any new databases first created by a UK citizen or company after 31 December 2020, no database rights will exist in the EU. Whether the UK citizen or company will continue to have database rights in Europe for databases created before 2021 will depend on a country’s instantiation of the European database legislation. 

That legislation will depend on a country’s instantiation because the European database legislation is found in a 1996 directive that required national specific laws to be enacted. The strict wording of the directive requires that for database rights to exist in a European country, the database owner must continue to reside in that country. However, for example, the German instantiation of this law is that it is sufficient only that the database owner resided in the EU when the database was created. 

Why database rights are becoming more important

Database rights are becoming more, not less, important. This is because of the use of artificial intelligence (AI) to create those databases. By way of an example, consider a computer-generated database of protein molecules and their likely properties. It is perhaps unfortunate, to say the least, that UK companies will be at a legislative disadvantage in the future in the exploitation of databases. 

Finally, substantive changes have been made to the law regarding electronic products with embedded software. Put shortly, the situation for such products is that Great Britain will have its own regime allowing for free circulation of those products, while the same product in Northern Ireland must comply with the, now different, EU regime. Those changes will be explored in a subsequent article. 

Dai Davis, solicitor, Percy Crow Davis & Co, Leeds, England, and Oliver Habel, PhD, tecLEGAL Habel Rechtsanwälte, Munich, Germany.

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