Legal Update

Vol. 9 & 10                                                            July -  December  2002

 

Contents:

 

1.         Saudi Arabia Privatize 20 Industries

2.         Saudi Telecom Loses Monopoly

3.         Counterfeit Goods Crisis

4.         New Trademark Registration Law

5.         New Copyright Legislation

6.         Labor Law

7.         Saudi Arabia Launches Formulation of New IT Initiative

8.         Firm News

Saudi Arabia Privatizes 20 Industries

 

In the largest privatization effort in the very young history of the Kingdom, national mainstays like  the Saudi Arabian Basic Industries Corporation (SABIC), the Saudi Electric Company, and substantial banking interests are to be transferred from governmental control to the private sector. This transfer to the private sector will also include Saudi railways, telecommunications, seaport services, sports clubs, and several hotels.

 

In order to facilitate such a transfer, the Shoura Council has passed legislation creating a formal, official stock exchange. Traditionally, Saudi Arabia’s stock exchange (bourse) exists on an informal and unofficial basis.

 

For the time being, it is widely believed that the industries mentioned above will be opened to investment by Saudi interests only. Foreign investment in these industries is being considered and probably will be permitted at a later date.

 

Under the framework of the World Trade Organization (WTO), which Saudi Arabia is now seeking to join, only industries defined as “developing” are, as a general rule, allowed to enjoy protections from their respective governments such as limiting investments to native citizens and businesses solely. Further, under the framework of the Cooperation Council for the Arab States of the Gulf (GCC), of which Saudi Arabia is a founding member, corporate citizens of other GCC Member States must, for all practical purposes, be treated by local law as though they were Saudi companies instead of foreign investors. Thus, it can be seen that developments necessary to make foreign direct investment in these fields a reality are progressing well.

 

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Saudi Telecom Loses Monopoly

 

On July 27, 2002, the Saudi government officially announced its decision to open the telecommunications industry to competition, effectively ending Saudi Telecom’s monopoly status as the sole provider of telecommunications services in the Kingdom.  Eventually, it is expected that the telecommunication industry in Saudi Arabia will be opened to foreign investment as well. It is hoped that these reforms will make Saudi Telecom more efficient, while also providing more choices for consumers in the Kingdom.

 

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Counterfeit Goods Crisis

 

Pirates, primarily from East Asia, have entered the Saudi market in many industries and with surprisingly quick success. It is estimated that some of the largest consumer goods providers in the Kingdom are losing up to twenty percent (20%) of the market share for their own products, resulting in the equivalent of millions of US dollars in annual losses.

 

These pirates deal in counterfeit goods by engaging in a form of trademark infringement by trying to pass off goods with similar packaging and a similar or, in some cases, the same brand name as the genuine article. The corporate victims of this racket are now taking action themselves by retaining attorneys to ask the Commerce Ministry to raid these counterfeiters.  This approach has been used so far in copyright infringement cases involving pirated CDs and videocassettes.

 

Nevertheless, a trade association for music recording houses has recently released the results of a market study in which it estimated that a considerable amount of music sales in the Kingdom were of counterfeited goods rather than the genuine articles. In order to help combat music piracy, the government is now considering a new copyright law at the highest levels of government. An analysis of this law will be published in Legal Update once the government approves the legislation and announces its details to the public.

 

The government is also considering stronger measures against all types of piracy, due to its concern that theft on such a monumental scale might cause foreign companies to delay plans to directly invest in the Kingdom. The government is concerned about this problem as the Kingdom seeks to join the WTO, especially since the WTO requires its members to promulgate and enforce measures to protect intellectual property rights.

 

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New Trademark Registration Law

 

The Council of Ministers approved new trademark rules on August 5, 2002. The new trademark law approved by the Cabinet stipulates that the names, words, numbers and forms used in a given trademark must be clear and differentiate an industrial product from a commercial one. Any words, models or pictures that violate Islamic teachings, as well as flags and emblems of the Kingdom and other countries, will not be given trademark protection.

The new law allows a person to lodge a complaint to the Commerce Minister within 60 days after the rejection of his trademark application.  If the complaint is rejected, the applicant can approach the Court of Grievances within 30 days.  The new law comes into effect 90 days after its publication in the Official Gazette and will then nullify the old law which was issued two decades ago.

 

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New Copyright Legislation

 

The Shoura Council recently approved of a new bill which should provide greater protection to artistic and creative content published in the Kingdom. Coverage under this bill includes books, audio and visual products, and software.

 It is anticipated that this new legislation will protect the rights investors, artists, authors and publishers who distribute their materials in the Kingdom, while improving the chances that the Kingdom will be permitted to join the WTO. This new Copyright legislation, in addition to the new Trademark law mentioned above, make it clear that the Kingdom is serious in its efforts to become TRIPS-compliant.

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Labor Law

 Under the government’s Saudization program, designed to provide relief in the face of an estimated 12-15% unemployment rate currently plaguing the Kingdom, the required quota of Saudi nationals employed by companies doing business in Saudi Arabia will increase from 30% to 35%. Many are hailing this as a necessary development to help alleviate the current unemployment crisis. Others, however, are asking whether this should be a matter for the private sector, especially since the Kingdom is moving from a controlled economy to one based on free enterprise. The latter assert that in a free enterprise system, the best jobs program relies upon a solid educational program, with the private sector recruiting the best qualified workers, regardless of one’s nationality. This debate is expected to continue.

 

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Saudi Arabia Launches Formulation of New IT Initiative

 

Saudi Arabia has instructed recently the Saudi Computer Society to begin work on crafting a strategy for the development of a national plan to boost the Kingdom’s fledgling Information Technology industry. It is estimated by the responsible authorities that a “five-year plan” will be ready for implementation by the end of 2003.

 

E-commerce, e-education, and e-government projects are expected to be promoted through this initiative. Those heading-up this project also hope to include IT training for Saudi nationals as part of the initiative. At all times, safeguarding Saudi culture in the information age will remain a priority.

 

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Firm News

 

Establishment of a New E-commerce Practice Area

We are proud to announce that our firm has established a new practice area in the field of e-commerce. In a rapidly changing world in which businesses and consumers alike are demanding faster communications and transactions and greater availability of knowledge and information, the Law Firm of Khalid Alnowaiser is committed to staying up-to-date on cutting-edge legal issues that accompany changing developments in the world of commerce.

 

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