Authors are remembered for the stories they tell that entertain, enlighten and inspire us. The death of a beloved author can leave a void, a sense of loss, and feelings of nostalgia. Fortunately, their works will remain - or will they?
What will happen to their copyright and the royalties that will be earned from their copyright works in future? How should they be dealt with in a deceased estate and who should deal with it?
By way of background, copyright is an automatic right that is conferred on a work eligible for copyright at the time when it is created. In terms of section 2(1) of the Copyright Act 98 of 1978 one form of work that is eligible for copyright is a literary work that includes novels, stories, poetic works, dramatic works, textbooks and articles. The author of a literary work is the person who first makes or creates the work and is generally the first owner of the copyright that vests in the work. Copyright confers on the owner the right to do or authorise others to do certain acts in relation to the copyright work, such as reproducing, publishing or making an adaptation of the work. The duration of copyright in the case of a literary work is the life of the author and fifty years from the end of the year in which the author dies.
When an author passes away, the copyright that vests in a literary work falls into the deceased estate. Copyright can be a highly valuable asset in a deceased estate and the executor should deal with it in the same manner as he would deal with any other asset. The duty of the executor is to take control of the assets of the deceased estate and, after payment of all the debts, distribute the assets to the heirs.
The copyright must be shown, with sufficient detail, in the inventory and the liquidation and distribution account so that it can adequately be identified. The royalties earned up until the date of death and the royalties that will be earned during the duration of the copyright should be shown separately.
In listing the copyright in the inventory and liquidation and distribution account, the value of the copyright should be determined. It is fairly easy to place a value on royalties earned up until the date of death. However, it becomes more difficult to determine the value of the royalties that will be earned during the remainder of the copyright. The value of the copyright work is probably best expressed as an amount that constitutes the current, capitalized value of the potential royalties that will be earned in future.
There are three main internationally accepted approaches in arriving at a value of intellectual property. These are the cost, market or income approaches. The cost approach seeks to measure the benefits of ownership of intellectual property based on the cost of developing the intellectual property or its replacement or reproduction cost. The market approach seeks to determine a value based on amounts that other purchasers in the marketplace have paid for assets that can be considered reasonably similar to those being valued. The application of the market approach can result in an estimate of the price reasonably expected to be realized if the copyright work is sold. Because a copyright work is unique, by definition, the decision of what similar assets to use as benchmarks will be essential to the derived value and is difficult to apply. These two approaches are seldom used due to practical difficulties.
The income approach is the most commonly used method for valuing intellectual property. It measures the value of the intellectual property with reference to the value of the economic benefits (royalties in the case of copyright) expected to be received over the remaining useful economic life of the work. It focuses on the income generating capability of the copyright. This future value is then converted to present value through discounting with an appropriate discount rate. As the duration of copyright in literary works is the life of the author and fifty years from the end of the year in which the author dies, a practical time span to consider is the expected period of commercial viability for the copyright work.
The valuation should be performed by a person that is nominated by the executor, with the necessary motivation, and approved by the Master. In practice, the valuation will generally be performed by either intellectual property attorneys, auditors or publishers.
After the copyright has been accounted for in the liquidation and distribution account and the statutory periods for the estate have lapsed without event, the executor can pay the creditors and distribute the estate among the testamentary heirs. Where the copyright is specifically bequeathed, it should be awarded in accordance with the will.
A potential problem can arise if the copyright has a high value and the estate has limited liquidity in order to satisfy demands for estate duty and after bequest. That may lead to financing issues or even sale of the copyright.
According to section 22 of Act 98 of 1978, copyright can only be assigned in writing signed by or on behalf of the assignor or by operation of law. In the case of testate succession, the written instrument is the will and the transfer process is finalised on that basis. In the distribution of the deceased estate, the executor will inform the publishers of the identity of the legatee. The beneficiaries of the copyright will inherit all the rights, title and interest in the copyright work and, therefore, be entitled to the royalties earned and other income that may be derived from it. The beneficiary of the rights can watch for any infringement of the copyright work in order to protect the rights. In practice, a testator quite often appoints a person, i.e. another author, publisher or attorney, to monitor and protect the copyright.
If the copyright has not been awarded to a specific legatee, the copyright and royalties earned will form part of the residue of the deceased estate and will be distributed accordingly.
In conclusion, it is clear that copyright can be a valuable asset in a deceased estate and it is advisable that practitioners who deal with authors or owners of copyright should advise their clients to provide in their wills for inheritance of those rights and how they should be dealt with for the remaining duration of the copyright.