Introduction: How Technology is Protected in Malaysia
In Malaysia, there is more than one form of Intellectual Property (IP) rights available to protect technology, particularly, computer programs and software. The applicable laws are the Copyright Act 1987 (“CA”), the Patents Act 1983, (“PA”), the Trade Marks Act 1976 (“TMA”) and the Layout-Designs of Integrated Circuits Act 2000.
Patent rights protect a product or process resulting from an idea and not the idea itself. The basic criteria for an invention to be patentable are novelty, inventive step and industrial applicability.1 However, there are certain kinds of inventions which are specifically excluded from patentability, namely, discoveries, scientific theories and mathematical methods, schemes, rules or methods of doing business, performing purely mental acts or playing games.2 In view of the statutory exclusion of certain inventions, the question of obtaining patent protection for software has always been a concern since the basis of all computer programs and software are a set of instructions or method of data processing system which closely resemble mathematical methods of doing a particular act or business. The PA 1983 has in essence ruled out the patentability of computer software per se in Malaysia. However, the Intellectual Property Corporation of Malaysia (MyIPO) has recently provided some guidance on the examination of this area by providing that a computer program and software per se claimed by itself or as a record embodied on a carrier, or loaded into a known computer is not patentable, regardless of its content. However, the product of the practical application of the software or the process in the using of the computer programs or software may be patentable if the product or process makes a technical contribution to the art (for example, program-controlled machines and program-controlled manufacturing and control process is patentable).3
For grant of patents in Malaysia, an applicant may file a patent application directly with the Patent Office if he is domiciled or resident in Malaysia. A foreign applicant must however appoint a registered patent agent in Malaysia to act on its behalf in filing and prosecuting the application.4 The period of validity of a patent is 20 years from the filing date of the application.
The CA 1987 specifically refers to computer programs as being a literary work and are therefore, entitled to copyright protection.5 A ‘computer program’ is defined in Section 3 of the CA 1987 as follows:-
“expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended to cause a device having an information processing capability to perform a particular function either directly or after either or both of the following:
- conversion to another language, code or notation;
- reproduction in a different material form”
Copyright is recognised as the main protection for the rights of the owner for computer programs and software per se. The law of copyright protects the expression of ideas but not the idea itself,6 therefore the concept or idea behind a software or program may not necessarily be protected by copyright until the time it is reduced to written form.7 In addition, copyright of such computer programs only subsists if the work is original and the creator is a qualified person or the work is made in Malaysia or the work is first published in Malaysia.8
Copyright is conferred on computer programs upon the creation of the work provided that all the statutory requirements have been fulfilled. There is no mandatory requirement as to registration for copyright protection. Although copyright is a non-registrable right in Malaysia and owners enjoy automatic protection, ownership can still be difficult to establish when there is an infringement by third parties. As such, it is advisable that the owner have documentation to prove ownership. The CA 1987 provides that copyright owners may declare ownership over the works by way of a statutory declaration or by filing a voluntary notification to the Controller of Copyright, and this will be prima facie evidence of the facts contained therein.9
Generally, all computer programs and software are provided by technology companies. These technology companies provide services and products using brands which function to indicate the origin and quality of the services and products. Brands are used by companies to distinguish their software or computer programs from those of other traders and also act as a marketing tool to enable customers to recognise the products bearing the trade mark. Therefore, it is very important for technology companies to protect the brands of the technology they provide by registering their trade mark because consumers perceive trade marks as an indicator of source of a particular product.
In Malaysia, registration of trade marks is not mandatory but registration would provide the proprietor with the right to sue for trade mark infringement in addition to the right to sue under common law for passing off. The proprietor of the trade mark may make an application to the Registrar to register its trade mark in the prescribed manner by virtue of the TMA.10 Once the Registrar approves the application and there is no opposition, the proprietor of the trade mark will be registered. Registration is prima facie evidence of trade mark ownership.11 The period of protection is 10 years, renewable for a period of every 10 years thereafter.12 As with patents, while local applicants may file applications on their own, foreign applicants will have to do so through registered trade mark agents.13
Layout Design of an Integrated Circuit
The Layout-Designs of Integrated Circuits Act 2002 provides a comprehensive protection of layout-designs in Malaysia. Under Section 2 of the 2002 Act, “layout-design of an integrated circuit” is defined as follows:-
“…the three-dimensional disposition of the elements of an integrated circuit and some or all of the interconnections of the integrated circuit or such three-dimensional disposition prepared for an integrated circuit intended for manufacture.”
The layout-design is eligible for protection automatically if the layout-design is an original design where, it is the result of its creator’s own intellectual effort and is not commonplace among creators and manufacturers of integrated circuit; the right holder of the layout-design was a qualifying person at the time of creation; and the layout-design has been fixed in a material form or incorporated into an integrated circuit.14 Similar to copyright, protection of a layout-design of integrated circuit is conferred on the creator upon the creation of the layout-design provided that all the statutory requirements are fulfilled. The owner may submit an affidavit asserting the ownership of the layout-design to prevent a dispute on the ownership and also to enforce the rights of a right holder by virtue of the 2002 Act. The affidavit will be prima facie evidence of the facts contained therein.15 The duration of protection is 10 years from the date of its commercial exploitation or 15 years from the date of creation if not commercially exploited.16
Technology License Agreement
A license agreement is a legally binding contract between a licensor, who is the owner of IP rights, and a licensee, who receives the grant of certain IP rights to legally use and exploit the IP, in exchange for a royalty fee or other types of payment or consideration. The ownership of the IP continues to remain with the licensor with the licensee merely receiving the right to use the IP within the scope of the license. In terms of technology licensing, the IP rights protecting the technology, for example, patents, industrial designs, know-how, trade secrets etc. would typically be the subject matter of a license.
1. Types of Licenses
Generally, there are three kinds of licenses, categorised according to the degree of ex-clusivity of rights granted to licensee. A license may be exclusive, sole or non-exclusive. Firstly, an exclusive license permits only the exclusive licensee to use the IP rights in the licensed territory to the exclusion of all others including the licensor. This means that, an exclusive license only allows one party to use the IP rights namely, the exclusive licensee. Secondly, a sole license permits the sole licensee and the licensor to use the IP rights in the licensed territory. Lastly, a non-exclusive license permits the non-exclusive licensee, the licensor and other persons to whom the licensor has granted the same rights granted by the licensor to the licensee to use the IP rights in the licensed territory. In the final scenario, there can be multiple licensees. Computer software license is one common example of a non-exclusive license because generally the owner of the software will grant licenses to numerous users for the use of the software.
2. Can Know-How be a Subject of Licenses?
Know-how is a form of trade secret which comprise of information of a technical nature, and/ or unique knowledge as well as skills regarding the manufacture or operation of the software or computer program. It encompasses technical and scientific information, such as formulae, methods and specification, as well as computer source coded which is not known to the public or is not easily accessible by the public. Although know-how is technical information which may not enjoy statutory protection, it has high economic value because of its secrecy that gives the owner an advantage over its competitors.
Know-how is often bundled together with other IP rights, and most commonly in a patent license agreement, so that the licensee can gain access to the information or knowledge which would otherwise not be known nor be readily accessible to the public. This is because in certain cases, it is not enough for the licensee to have the license rights to a patent without access to the technical information or knowledge which relates to the patent without which the licensee cannot use or exploit the related invention in an efficient way. It is common for there to be a license agreement for the exclusive rights under technical know-how which supplements other IP rights and this can be seen in the case of H&R Johnson Tiles Ltd & Anor v H&R Johnson (M) Bhd and Haw Par Brothers International Ltd & Anor v Jack Chiarapurk & Ors,17 where the parties entered into a patent and trade mark license agreement and a know-how license agreement.
In a license agreement for know-how, due to the secrecy of the know-how, the agreement should carefully define, the subject matter, the scope of granted rights and provide detailed and thorough provisions regarding confidentiality and non-disclosure.
3. License contracts
Section 36 of the PA 1983 gives the owner of a patent the exclusive right to conclude license contracts.18 When a patent license contract is concluded between the parties, the parties may voluntarily register the license with the Registrar.19 Although registration of licenses with the Registrar of Patents is not a mandatory requirement, parties would be well advised to do so because it is advantageous to the licensor and licensee particularly when there is a dispute subsequently on the facts and terms of the agreement. In addition to voluntary licensing, the PA 1983 also provides for compulsory licenses in certain circumstances.20 Section 48 of the PA 1983 defines “compulsory licences” as follows:-
“ ‘Compulsory licence’ means the authorisation to perform in Malaysia without the agreement of the owner of the patent in respect of the patented invention any of the acts referred to in paragraph (1)(a), and subsection 36(3). ”
This provision may also be regarded as a Right of Government license as it is applied by the Government for reasons of public interest. Recently, the Ministry of Health, Malaysia made a decision to grant compulsory licensing under the Patents Act 1983 to exploit the patented drug Sofosbuvir in order to increase access to drugs for treating Hepatitis C.21 The compulsory license was granted despite the patented manufacturer having offered a vol-untary license to the Malaysian Government.22 The reasons given by the Malaysian Government for the grant of the compulsory license is that it is necessary to protect public health, enabling greater access as compulsory license would mean cheaper generic medication may be produced without the patent holder’s consent, whereas in voluntary licensing, the use of the patent depends on the terms of the license agreement including the licence fees payable to the owner.23 According to the Ministry of Health, Malaysia is the first country to initiate the Right of Government move through the provision of compulsory licenses under the PA 1983.24
Copyright and Layout-Design of an Integrated Circuit
The owner of the work has the rights to grant permission to other parties for the use of his copyright work or lay-out design through a license agreement.25 As mentioned earlier, copyright and layout-design of an integrated circuit are non-registrable rights in Malaysia and unlike patents, there are no provisions in the relevant statutes facilitating the registration of the licenses. However, the CA 1987 does provide that apart from copyright owners, a licensee may also make a voluntary notification to declare that the licensee has an interest in the copyright work that has been granted by license.26
Similar to patent law, a registered owner of a trade mark may grant, through a lawful contract, a right to license the use of the registered mark to any person and the parties may voluntarily register the licensee as a registered user of the said trade mark with the Registrar.27 If parties choose to register the license, the licensor is to submit an application to register the licence with the Registrar with the prescribed fee and documents as prescribed in Section 48 of the TMA 1976. The registration of the license is not mandatory.
4. Material terms in License Agreements
Most terms in a technology license agreement, if not all, are negotiable and may be presented in a way that reflects the needs and nature of the transaction. In drafting a license agreement, various factors and considerations need to be taken into account, particularly in areas concerning the extent of use of the licensed technology. It is vital for the license agreement to be clear and transparent for parties to be aware of their obligations thereunder.
While the parties to a license agreement have the freedom to incorporate terms that are the product of their negotiations, the following terms would typically be found in the agreement. It should be noted that they are not exhaustive and the decision as to whether to include them is ultimately a matter of discretion of the parties.
Sufficient information should be given for the parties to be identified. Such information may include company registration number, country of incorporation as well as registered and business addresses. Parties should also ensure that they have the right or authority to enter into the agreement. For licensors, this essentially means that they must have a good legal or beneficial title to the licensed technology, or are otherwise duly authorised by its ultimate owner to grant the license. The agreement should also state whether the rights granted under the license are extended to the licensee’s subsidiary companies or affiliates and, if so, the applicable conditions and such.
Parties should define the type, scope, and extent of the IP rights that is licensed, the boundaries within which the licensee is allowed to use such rights. To promote certainty, descriptions of the IP rights and details of their registration, if any, should also be included. Licensors should further consider whether any restriction is to be imposed on the licensee in exploiting the IP rights. For instance, Licensors should contemplate if their licensees are al-lowed to sub-license the IP rights.
Field of Use and Territory
The agreement should state clearly the field of use and territorial or geographical scope of the licensee’s rights. A license may be granted on a worldwide basis or be limited to specific geographical areas. If the rights may be exploited in different territories, the agreement should include the rights of the licensee in the respective territories. Consideration should also be given to whether the rights granted are restricted to any particular fields or industries, or whether the licensee is also allowed to use it in other fields or industries.
Types of License
The agreement should indicate whether the licensee is granted an exclusive, non-exclusive or sole license. If it is exclusive, then the agreement should describe the degree of the exclusivity, for example whether it is exclusive only within a particular territory or industry or for a specific period of time.
Where it is likely that improvements will be made to the licensed technology during the term of the agreement, it is important to consider and specify the obligations and conditions for the entitlement of both parties in relation to such improvements.
Obligations of the Parties
The agreement should state clearly the specific obligations of the parties to the agreement. For licensors, matters such as the provision of technical assistance and know-how at various points in time as well as the obligation to maintain the IP rights should be addressed. As for licensees, the obligations will generally include matters such as payment of royalties, im-provements and quality of performance in respect to the use, promotion and sale of the licensed technology, protection of the licensed technology, compliance with legal and regulatory requirements, duty of confidentiality, and clear reference to the fact that the product is made under license.
Where royalties are the prerequisite for the grant of license, provisions should be made for the manner in which the royalties are calculated and the value of the licensed IP rights. Other issues to be addressed include the timing, frequency, currency, minimum guaranteed royalties and interest for late payments. Parties should also negotiate and decide on who should be responsible for the applicable taxes or duties.
Term of the License Agreement and Termination
The agreement should set out the term of the license, and whether the licensee has the right to renew or extend the term at the expiry of the initial period and the preconditions for doing so. The agreement should also spell out the conditions on which the agreement may be terminated. Material misrepresentations, non-performance of the material terms of the agreement and non-payment of royalties are among the usual conditions imposed for termination. In addition, the parties’ obligations upon termination should be set out. This may include matters such as the licensee’s obligation to cease exploiting the licensed technology, and return or destroy documents or information given to it by the licensor.
Representations and Warranties
Other than the usual representations found in a standard agreement, licensees may wish to incorporate representations in relation to the licensors’ ownership of and title to the licensed technology, and that it is free and clear of all encumbrances, liens and interests.
With the inclusion of an indemnity clause in the agreement, parties may take comfort in the fact that they will be compensated for losses incurred as a result of the other’s actions. This is particularly useful in protecting the parties from third party lawsuits arising from the other’s negligent acts or breach of the agreement.