The position on the requirement for Treasury approval prior to the assignment of rights in and to South African owned intellectual property to a foreign proprietor has changed again.
Certain amendments to the Exchange Control Regulations came into effect on 8 June which have altered the legal position on this issue.
These amendments follow just 15 months after the judgment of the Supreme Court of Appeal in the matter of Oilwell (Pty) Limited v Protec International Limited and Others (case no. 44835/08) (“the Oilwell judgment”), in which the SCA held that intellectual property, as immovable property, does not constitute “capital” for purposes of Regulation 10(1)(c) and cannot be exported.
Regulation 10(1)(c) provides that;
“10(1) No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose –
(c) enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.”
Following the Oilwell judgment, the position was that no Treasury approval was required for the assignment of rights in and to South African owned intellectual property, to a foreign proprietor.
After this judgment, queries were raised as to whether the Court had interpreted Regulation 10(1)(c) in line with what the Legislature had intended.
Now, the legislature has made its intention clear. The terms “capital” and “export from the Republic” have been expressly defined in the new Regulations.
“Capital”, for purposes of Regulation 10(1)(c), has been defined as any intellectual property right, whether registered or unregistered.
“Exported from the Republic” has been defined as the cession of, the creation of a hypothetic or other form of security over, or the assignment or transfer of any intellectual property right, to or in favour of a person who is not resident in the Republic.
In the circumstances, no intellectual property rights, including trade marks, copyright and patents, whether registered or unregistered, may be assigned to off-shore entities except with prior permission granted by the Treasury.
The nature and extent of an “intellectual property right” will become important and should not be confused with ownership rights. A trade mark application, for instance, does not grant the owner thereof any enforceable right vis a vis the trade mark, other than the right to claim ownership of that application, at least until it has been accepted and advertised in the Patent Journal. Ownership of an invention gives the proprietor a right to file a patent application for that invention, but there is no protectable intellectual property right in the idea itself. An assignment of rights in and to an invention could therefore possibly fall outside the ambit of this definition.
One also cannot help but wonder whether the express inclusion of intellectual property rights within the ambit of Regulation 10(1)(c), will stifle foreign investment in the development of intellectual property in this country. Would a foreign entity commission and pay for the development of intellectual property in South Africa if it can only obtain the intellectual property rights by going through a time-consuming and expensive exchange control approval process?
On the other hand, the fact that valuable assets which have the potential to generate substantial income in the Republic can no longer be moved offshore without any Treasury control, should be viewed in a positive light.
The amendments have not addressed the question of whether or not an agreement entered into in contravention of Regulation 10(1)(c), is void ab initio. In light of the clear finding of the SCA in the Oilwell judgment on this point, this should not be the case.
Written by Werina Griffiths – Senior Associate, and Kelly Thompson, Partner at Adams & Adams