Issue No. 03 June / July 2001

LEGAL UPDATE

Contents

1. Saudi Arabia Attacks Computer Piracy

2. Combating Computer Hacking

3. Saudi Medical Services Going On-Line

4. Kingdom Slashes Import Duties

5. New Real Estate Regulations

6. Foreign Investors Allowed To Invest In Telecom Sector

It is hard to pick up a newspaper or trade publication in Saudi Arabia today without seeing at least one or two articles either discussing the Kingdom’s imminent accession to the World Trade Organization (WTO) or the increasing importance of e-commerce to the economic development of the Middle East. These two important issues involve intellectual property, especially the need to enforce copyright protection and prevent piracy.

The WTO wants to see a more concerted effort by the Saudi Arabian government to combat intellectual property piracy before member countries such as the European Union and the United States lend their support to Saudi Arabia’s long-overdue admittance to the international trade organization. This international pressure comes at a time when the Saudi government has gone to considerable expense to host international conferences and trade shows designed to highlight the Kingdom’s emphasis on the areas of e-commerce and information technology. Currently, the Saudi government is addressing these concerns by drafting new legislation to better address piracy issues, while also promoting the use of information technology systems throughout the Kingdom.

Intellectual property piracy harms industrial competitiveness by limiting the growth and maturity of the domestic software development industry. Furthermore, this hurts local users, who rely on domestic software developers for locally tailored products and support. Through improved enforcement of intellectual property rights, many important societal and cultural benefits, including employment and revenue opportunities, can be realized. For example, growth in the use of personal computers ("PCs") now exceeds 27% annually. It is estimated that at least 100,000 new computer users will enter the Saudi market next year. Of the 223,000 computers (worth $500 million) sold in the Kingdom last year, 35% were assembled in Saudi Arabia. The volume of computer, software, and network and maintenance market in Saudi Arabia has been about $2 billion annually, and it is expected that the Saudi markets will grow by 19% this year as more PCs are introduced in government and private sector offices. It is clear, therefore, that all law firms and businesses must have a good understanding of the current copyright regulations in Saudi Arabia in order to avoid possible violations.

A new drafted copyright law is currently being reviewed by the Saudi Council of Ministers for final approval. This law will substantially enhance the protections for copyrights and increase the efficacy of enforcement tactics in the Kingdom. The country’s current copyright law (effective January 12, 1990) protects foreign works by virtue of Saudi Arabia’s accession to the Universal Copyright Convention (UCC) on July 1, 1994. Thus, all works copyrighted in another country which is a signatory to the UCC are entitled to all of the protections afforded by the regulation for the protection of Copyrights ("Copyright Regulation") enacted by Royal Decree No M/11 Dated 19 Jumada Al-Awal 1410 (as amended by Royal Decree No M26 of 1412). It is illegal to make or distribute copies of any copyrighted materials without specific authorization from the copyright owner. Materials deserving of copyright protection specifically include computer programs. A software user must first purchase the original copyrighted programs. It is illegal to purchase a single copy of original copyrighted software to load onto more than one computer, or to lend, copy, or distribute software for any reason without the prior consent of the software manufacturer. If software is purchased for business purposes, every computer at the place of business must have its own set of original software and accompanying documentation. When purchasing software, it is also important to buy legitimate products. Many counterfeit packaged products are designed to look like the original manufacturer’s products, but are of inferior quality. Purchasers and users of counterfeit or copied software face other serious risks such as computer viruses, corrupt disks, and a lack of technical product support and software upgrades offered to registered users.

Saudi Arabian law specifically prohibits reproduction of software without permission. If caught engaging in software piracy, one may be subjected to penalties, including a fine of up to SR 10,000 for the first offense, confiscation and destruction of infringing copies as well as equipment used in the commission of piracy, and closure of the business establishment for up to fifteen days. In cases of multiple or recurring offenses, higher fines and greater penalties may be imposed.

The Saudi government has several innovative and effective approaches to fight intellectual property piracy already in place. For instance, the audio-visual industry continues to rely on Saudi Arabia’s successful publication approval system to secure anti-piracy protection. The motion picture industry representative submits authorized licensee certificates for a copyright owner’s product in Saudi Arabia to the Director General of Publications (DGOP), which prosecutes unauthorized titles through the Ministry of Information. These certificates raise a presumption of copyright ownership and distribution authorization for licensees of the copyright owner’s titles and increase requirements for others attempting to obtain approval to distribute those titles. This procedure has discouraged piracy and has made it easier for the Ministry of Information to detect unauthorized products.

The Ministry of Information also has issued a groundbreaking enforcement decree requiring media companies to submit their software licensing documentation in order to register and conduct business in the Kingdom. The Ministry has conducted a nationwide campaign, sending letters to end-users all over Saudi Arabia announcing the decree and urging them to ensure that all software being used is legal. The campaign has attracted significant attention in the market and has resulted in an immediate increase in the use of legal software. It is believed that Saudi Arabia is the first country that has conditioned the renewal of a business license on the legal use of software.

Reflecting the enormity of the task before it, the Saudi government created over thirty new jobs last year for an intellectual copyright protection department in the Ministry of Information. In addition, the Ministry of Information is working with the software industry on a public relations campaign to increase public awareness of the penalties for intellectual piracy. Finally, the government has remained receptive to participating in conferences with private sector representatives, including conferences under the sponsorship of international organizations.

The Ministry of Information’s process to enforce intellectual property rights is fairly straightforward. The Ministry serves notice of a copyright violation to a particular shop, and a case is prepared in which the alleged violator and the government inspector can present their respective arguments. The case is then forwarded for a decision to a court within the Ministry of Information. It has been reported that violators have been assessed fines of up to SR10, 000 (US$2,666) and have had their shops closed.

In order to raid the business of an alleged violator, the Ministry of Information, upon discovering a duplication site outside a retail outlet, must formally issue a written request to the Governor for police assistance. The Governor then forwards the request to the police department, and the raid is coordinated between the two agencies. To create a more efficient enforcement system, an inter-ministerial approach to enforcement will most likely be the route chosen. There may also evolve a formal task force established between the police and the Ministry of Information to cross-reference their knowledge of copyright piracy.

The Saudi government is seeking to improve coordination and cooperation among the various enforcement authorities when attacking the underground pirate industry. Piracy often involves duplication sites located in private residences and warehouses. These sites are often outside the jurisdiction of the Ministry of Information (which only has administrative authority over retail shops), and therefore must be dealt with by the Ministry of Interior (police) and others. While there is at present no formalized sharing of information nor an orchestrated task force approach between the ministries, the new copyright law should help address this issue and make it easier to create an effective and systematic enforcement regime.

Given that the international community and the Saudi Arabian government have stressed the importance of intellectual property and its piracy, it is advisable to prepare for the changes imminent in this important commercial area.

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Accompanying all of the benefits of implementing the e-commerce system are burdens as well. To their credit, Saudi authorities are not waiting for the need to arise before developing the means to combat criminal misconduct on-line. Currently, the Kingdom is organizing a governmental training course to prevent computer hacking and other on-line crimes with international participation. Internet scams cost roughly $9 billion worldwide last year and $125 million in Saudi Arabia alone. A high-level governmental committee in the Kingdom has been charged with the responsibility of formulating the rules and regulations governing e-commerce and safeguarding on-line payments. A training course to help fight on-line crimes is expected to develop the necessary software applications to counteract the rising incidences of computer crimes.

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The four-day E-Health Conference and Exhibition-2001 was recently held in Jeddah, Saudi Arabia. For the first time, over 400 participants registered on-line for a conference. A number of businessmen promoted their E-Health projects to deliver the best standard of medical services to all of Saudi Arabia. This shows the determination behind the Smart Satellite Regional Health Center Program launched this year by a number of hospitals, which was one of a series of technology initiatives in the Kingdom. The first phase of the scheme is the implementation of— satellite computer links and software has been launched linking the Madinah, Qassim and Dammam areas to the main urban hospitals. The idea is to send top doctors from Riyadh and Jeddah to regional hospitals that are equipped with MRI and CAT equipment and send the information to the main hospitals with the sophisticated diagnostic equipment. The Kingdom is particularly well suited to e-Health innovation initiatives, as remote areas where facilities are few and far between will soon be just a computer mouse click away from the latest medical advancements.

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Saudi Arabia recently reduced customs tariffs on imports from twelve to five percent in a move widely welcomed by businessmen. This move is widely viewed as one more progressive economic initiative designed to stimulate the country’s economy. The tariff reduction is part of the government’s ongoing economic reforms aimed at attracting increasing levels of foreign investment and creating more jobs for Saudi nationals. This policy change corresponds to international trends toward market discipline. The most drastic changes will be seen on items such as electronic consumer goods, automobiles and accessories, and a wide range of consumer goods. Roughly 80% of the current list of imported goods will come down in cost. Goods like tobacco, food items including wheat, flour, milk and dates (among others) will continue to have 100 percent tariff levels for public policy reasons.

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New real estate registry regulations were submitted to the Council of Ministers for consideration recently. The new system soon will replace the current title deeds one year after the bill has been passed by the Council of Ministers.

The draft bill requires the registration to be based upon the actual unit of real estate and not the owner/dealer of the unit. Exact details of the real estate unit such as its size, boundaries, etc. will be clearly determined with high-tech surveying methods. The name of the owner of each real estate will also be recorded in a precise log so as to eliminate questionable titles. The status of each unit of real estate with its claims and liabilities will be recorded in the new system. The new regulation is designed to protect the ownership and rights of real estate businessmen as well.

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The Supreme Economic Council (SEC) has endorsed a new telecommunications bill ending the state monopoly in the telecommunications sector and opening it up to foreign capital investment. The new regulations allow foreigners to hold shares and contribute capital to telecommunications companies. Telecommunications (and insurance sectors) will be removed from the list of commercial sectors forbidden to foreign investment. Elimination of the monopoly on telecom service by the state-run Saudi Telecom Co. (STC) is the first step in this scheme. Plans to privatize the firm, which also controls the Internet and mobile communication services, are in the works and should be announced in the near future. It is hoped that competition and market forces in these sectors will result in better services at lower prices while creating employment opportunities for young Saudis in these fast growing and globally important market sectors.

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The Law Firm Of Dr. Khalid Alnowaiser
P.O. Box 50100 Jeddah 21523
Saudi Arabia
TEL: (966-2) 664 5666; FAX: (966-2) 661 1352
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