Why Brexit will make software license transfers and enforcing database rights harder for UK firms

The Story So far: Protection of Software by Copyright

The essential protection of software stems from intellectual property rights, primarily copyright. When the United Kingdom left the European Union, 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 United Kingdom was leaving the European Union.

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 (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.

Nevertheless there have been some Brexit related changes, where the harmonising constraints of the European Union 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 therefore surprising that European Union Law is constructed in such a way as treating software that has been “purchased” in much the same way as a book. In particular, European Union 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 European Union.

In order 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 European Union by or with the consent of the software owner, the licensor of the software;
The copy, and any back-up copies, must have been uninstalled by the previous licensee and no longer usable by him;
The transfer must be of a “perpetual” licence rather than a licence that is essentially rented.

Of course until 31st December 2020 the European Union included the United Kingdom. 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 European Union. It does not allow for the transfer of copies of software, for example, in and out of other countries such as the United States. Note that there is no need for the owner to be resident in the European Union: the licensee could be a United States 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

The Brexit deal signed in December 2020 was “light”. There were many areas (such as the whole of the services industries) which 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.

Since there is no express alteration of the current arrangements, that means that there will be an important change just by consequence of the exiting law continuing, but the united Kingdom ceasing to be within the European Union. Where a copy of software is first placed on the market in the United Kingdom after 31st 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 United Kingdom before 2021 would, as a matter of fact, continue to have first been placed on the market within the European Union. Such a copy can still be traded throughout Europe. For completeness, it should be stated that a copy of software which is first placed on the market in the United Kingdom in the future can still be traded in the United kingdom, since the United Kingdom has allowed for a continuing “exhaustion of rights” region extending to the whole of the European Union.

Indeed, the United Kingdom 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 European Union, that copy will still be able to be imported into the United Kingdom.

Database Rights: An Introduction

Under this legislation, the maker of a database (i.e. a person who creates a database) 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 European Union 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 what the features of each program are.

The rights created by the European Union 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 which 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. A further condition is that, in order for the database right to be enforceable in the European Union, the person or organisation who is the creator of the database must be a national of a Member State of the European Union or a company formed under the laws of a Member State and based there from an economic perspective.

Database Rights after Brexit

The first thing to notice is the use of the word “be” in the explanation above. Where the person of organisation which owns the database rights ceases to be a national or company of a Member State, the database right is lost. So, if a company relocates itself and assets to a country which is not a Member state, such as the United States, the database rights are lost.

Unfortunately it is not absolutely clear that the “light” Brexit deal that has been negotiated ensures that United Kingdom citizens and companies will retain their database rights, despite the United Kingdom no longer being a Member State. While the intention of the Brexit deal was clearly that United Kingdom citizens and companies should retain their Database Rights, there is at least one counterargument to that position.

Conversely, within the United Kingdom, European Union citizens and companies, alongside United Kingdom citizens and companies, will continue to have enforceable Database Rights. This continuation is specifically and unambiguously provided for in the initial Withdrawal Agreement which was agreed in January 2020.

However, for United Kingdom companies and citizens, the reverse position is more complex and the position cannot be stated with absolute certainty. It is the associated doubt itself which has created a disadvantage for United Kingdom companies. In a situation where a United Kingdom citizen or company seeks to enforce its database rights in Europe it may find itself coming up against an argument that, in fact, it no longer has database rights in Europe.

Not only this, but the enforceability may also depend partly upon the country instantiation of the Member State in which that individual or company is seeking to enforce its database right. The European legislation is found in a 1996 Directive. All Directives require a country instantiation in order to be enacted in that country. In some countries, the wording of the Directive states that it is sufficient only that the database owner resided in the European Union at the time the database was created. For example, this appears to be the case in the German instantiation of the Directive.

In conclusion, the position of United Kingdom owned databases is therefore at best unsatisfactorily ambiguous, and at worst there is no continuing protection for United Kingdom databases in Europe. Either way, it does not reflect the agreed aim in the political declaration entered into between the European Union and the United Kingdom in October 2019. That declaration included an obligation “to preserve the Parties’ current high levels of … rights [in] … database[s]”.

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