Legal Update

Issue No: 21                                                                                                                                May - August  2006

 

Contents:

1.         Recent Improvements in Saudi Intellectual Property Protections

2.         New Commercial Courts Planned

3.         Saudi Arabia Opens to Foreign Banks

4.         Progress in Opening Investment Funds Industry to Brokerage Companies

5.         Privatization of Airlines in the Kingdom

6.         E-Governance Update

7.         New Telecom Licenses Coming

 

 

 

Recent Improvements in Saudi Intellectual Property Protections

 

Recent symposiums on intellectual property rights held in Riyadh and Jeddah underscore the seriousness of the Kingdom’s drive to protect owners of patents, trademarks, and copyrights.  The Saudi Arabia General Investment Authority (SAGIA) is particularly keen on ensuring that the laws designed to protect intellectual property rights are enforced. 

 

In order to further develop information technology (IT) in the Kingdom, it is essential that those who create new inventions and other intellectual works be empowered to stop those who seek to misappropriate those creations for their own selfish purposes.  The problem is particularly evident in smaller businesses that base much of their future success on using and marketing their creations exclusively.    

 

Thus, the Saudi Ministry of Commerce and Industry is in the process of revamping the Trademark Protection Law to support the estimated 300 small and medium enterprises from having their trademarks counterfeited.  Not only do the affected small businesses lose revenue from the counterfeiting, but consumers are misled so that the latter have no assurance that the person using the trademark is rightfully able to do so.  This adversely affects consumer confidence in the goods and services associated with the misappropriated trademark.

 

Given that these businesses have limited financial resources, they are more vulnerable to counterfeiting, which can cause them to not only lose sales, but even have to close their doors.  By contrast, larger concerns with greater resources have the ability to fight the counterfeiters and seek to have them brought to justice.

 

At a Jeddah symposium last February, a legal consultant with the Saudi Customs Department presented certain recommendations to combat the piracy of intellectual property, including proposals for a specialized court to adjudicate violations of the law and the creation of a database to track fake and imitated goods.  Additionally, the speaker called upon the World Trade Organization to create and circulate lists of companies involved in trade fraud and counterfeit activities globally.

 

Fines and other punishments must be stiffened to make it more unprofitable to engage in trade fraud than to follow the laws protecting intellectual property rights.  Local chambers of commerce also need to become more involved in assisting law enforcement authorities to apprehend violators and make ordinary consumers more aware of those persons and concerns who misrepresent the source of registered goods and trademarks.

 

Progress must be made on this issue.  Failure to aggressively protect the rights of  owners of intellectual property can only be expected to result in a constriction of  IT development in the Kingdom, thereby frustrating the government’s strong interest in furthering Saudi Arabia’s new status as a member of the WTO.

 

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New Commercial Courts Planned

 

The Saudi Ministry of Justice is in the process of establishing special courts to resolve commercial disputes, especially with the influx of more foreign companies doing business in the Kingdom.  Saudi businessmen generally conduct business with goodwill and a handshake with lawyers not even consulted unless a dispute arises.  With WTO membership and foreign companies entering into agreements with Saudi nationals, more than a handshake will be required to consummate binding and enforceable contracts.

 

To this end, commercial courts set up to deal with business disputes will be essential so misunderstandings can be settled quickly and amicably.  Saudi companies and individuals planning to contract with foreign concerns are well-advised to consult with experienced and knowledgeable attorneys before they enter into business agreements, so that their rights will be fully protected in the event of a later dispute.  Our firm’s attorneys have extensive experience in protecting the interests of our business clients, and Dr. Alnowaiser is a recognized authority in the growing importance of international arbitration.

 

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Saudi Arabia Opens to Foreign Banks

 

With Saudi Arabia’s recent accession to the World Trade Organization, foreign banking institutions can now set up branches in the Kingdom, and existing joint venture banks can increase their foreign equity to 60% from 40%.  In addition to the existing eleven Saudi-owned banks, ten foreign banks have received licenses from the Saudi Arabian Monetary Agency to operate within the Kingdom.

 

The newly licensed foreign banks include J.P. Morgan, Deutsche Bank, the National Bank of Kuwait, BNP Paribas, the National Bank of Bahrain, Emirates Bank,  Gulf International Bank, State Bank of India, and the National Bank of Pakistan.  In early 2006, BankMuscat will join this group and open its first branch in Riyadh.

 

Saudi banks have a strong reputation in offering financial products that excel those offered by their counterparts in Europe.  Even so, competition from these foreign banks is expected to improve all financial services within the Kingdom.  Further, foreign banks will be subject to Saudi Arabia’s Banking Control Law, Company Law, and Foreign Investment Law – all of which were enacted to pave the way for the Kingdom’s membership in the WTO.

 

In a related matter, HSBC and the Saudi British Bank have received governmental approval to establish the first full-service, independent investment bank in the Kingdom.  The joint venture known as HSBC Saudi Arabia Limited will provide corporate finance and asset management advisory services to companies in Saudi Arabia as well as investment advisory services to individual investors.  These services will include initial public offerings, private security placements, and Islamic and conventional debt securities.

 

Subject to obtaining an investment license from the General Investment Authority and commercial registration from the Ministry of Commerce and Industry, HSBC Saudi Arabia Limited intends to offer the Kingdom’s first corporate bond worth up to SR 1 billion (US$ 267 million) in Saudi Basic Industries Corporation.  The bond proceeds will be used to help finance that company’s global expansion plans.

 

There also is a great deal of interest in the Islamic bonds market.  For example, one Islamic fund at the Saudi British Bank currently is worth over SR 10 billion.

 

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Progress in Opening Investment Funds Industry to Brokerage Companies

     

For decades, Saudi banks have had a virtual monopoly on offering investment funds to investors who were interested in avoiding the research time and risk involved in individual stock selection. When the Capital Market Law was enacted in 2003, it gave the Capital Market Authority (CMA) the power to grant licenses to independent brokerage companies.  Last March, CMA granted a comprehensive license for brokerage activities and asset management to the first wholly owned Saudi concern, Rana Investment Company.  Rana now joins HSBC and Team One as non-banks set up to provide a full range of brokerage and investment services to Saudi citizens.

 

These autonomous brokerage companies can now offer investment funds just like banks, which should increase investing activities in the Kingdom.  Further, the Saudi Arabian Monetary Agency (SAMA) is expected to require all licensees to abide by international standards regarding the administration of these mutual funds and ensure that there is fully accurate and transparent information to enable investors to make appropriate investment decisions.

 

The Kingdom now has 175 investment funds with over 171,000 dealers offering these investments to Saudi citizens.

 

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Privatization of Airlines in the Kingdom

 

A year ago, the Kingdom enacted a new 176-article Civil Aviation Law that was designed to regulate air transportation, build and operate airports, and organize the operation of airline companies.  Recently, the Saudi government announced that it intends to license two private airline companies to operate domestic flights and cargo services alongside state-owned Saudi Arabian Airlines (Saudia).

 

These two private carriers, which are to be based in Riyadh and Dammam, will be allowed to transport passengers and goods among airports in the Kingdom.  Three companies have expressed interest in entering the market:  Sama, National Air Services, and Al-Tayyar Travel Group.  Sama intends to operate Boeing 737-700 jets consistent with low-budget international airlines.  National Air recently announced daily flights between Riyadh and Jeddah from Saturday to Wednesday, along with charter flights to regional tourist destinations.  Al-Tayyar also hopes to operate a private airline in the country, but is waiting for further privatization of Saudi Arabian Airlines.

 

The wait may be over.  The Supreme Economic Council approved Saudia’s privatization plan on March 21, 2006, which involves the sale of 30% of the airline’s shares in an initial public offering (IPO) later this year.  Saudi Arabian Airlines has already presented its documents to the Capital Market Authority to complete IPO procedures.

 

This privatization plan is part of the government’s overall goal to divest control of state-run corporations and institutions with a total value of US$800 billion in some 20 major economic sectors within the next ten years.  It is hoped that the arrival of private airlines will help provide more seats to the growing number of passengers, especially pilgrims intending to perform Haj and Umrah and people who want to visit tourist resorts in various parts of the Kingdom.

 

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E-Governance Update

 

Saudi Arabia continues to pursue its policy to develop procedures for electronic governance transactions. The goal is to speed up the execution of documents in the government by greater use of the Internet and thereby increase operational efficiencies. As more controls are developed to ensure the accuracy and genuineness of transactions, users should have more confidence to interact with governmental agencies electronically.  This is expected to promote access to government services by Saudi citizens and reduce costs and delays in transactions.

 

A key to achieving progress in e-governance is for governmental agencies to simplify their procedures.  They are also being asked to review their operations in light of the challenges and opportunities inherent in the Information Age.

 

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New Telecom Licenses Coming

 

The Saudi Communications and Information Technology Commission announced in March that it will grant new mobile and fixed phone licenses by the end of 2006.  Following on the heels of the sale of 30% of state-owned Saudi Telecom in an initial public offering at the end of 2002, these new licenses are expected to break Saudi Telecom’s monopoly on landline phone services and add at least one more mobile phone company.

 

Although Saudi Arabia has the largest telecommunications market in the Gulf region, the Kingdom’s 4 million existing fixed landlines and 14.5 million mobile lines retain the capacity for further growth.  Wireless Internet access is the fastest growing  segment of the telecommunications industry, and Saudi Arabia stands poised for further progress in this area which will stimulate continued economic growth.

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