The South African Government introduced the Intellectual Property Rights from Publicly Financed Research and Development Act No. 51 of 2008 (the Act) in order to provide for effective identification, protection and utilisation of intellectual property (IP) emanating from publicly financed research and development (R&D). The Act further establishes National Intellectual Property Management Office (NIPMO) which is tasked with ensuring compliance with the Act. Non-compliance with the Act renders any transaction void ab initio (as if never entered into). The Act includes various provisions, however, for the purpose of this article, ownership of IP, IP-related transactions and incentives for IP creators provisions will be the focus areas.

Prior to dealing with the above-mentioned provisions, it is important to note that the Act was promulgated on 2 August 2010; therefore, the Act only regulates IP which was created after 2 August 2010. Furthermore, IP includes “any creation of the mind that is capable of being protected by law...any rights in such creation...but excludes copyrighted works...in the ordinary course of business, is associated with conventional academic work”. Therefore, IP includes inventions, designs, etc. and excludes copyrighted works such as theses, articles, handbooks or any other publications. However, if there is an invention which is the subject of the thesis or article, such invention will be subject to the Act.

The Act aims to incentivise IP creators at a publicly financed institution in order to encourage such IP creators to create IP. An IP creator is defined as “a person who is involved in the conception of IP in terms of this Act and identifiable as such for the purpose of obtaining statutory protection…”. The IP creator has a right to a portion of revenues that accrue to the institution for exploitation of IP. In particular, the IP creator or his/her heir has right to share in revenue accruing to the institution from the IP and is entitled to at least 20% of revenue accruing to the institution for up to the first R1-million. Thereafter, the IP creator is entitled to 30% of nett revenue accruing to the institution. In cases where there is more than one IP creator, such IP creators have to share in equal portions such applicable revenues.

With regard to ownership of IP, the Act provides that IP emanating from publicly financed research and development is owned by a recipient, which is a higher institution, a research council, etc. The institution is thus entitled to obtain protection of such IP and exploit such IP. In exploiting the IP, the institution can decide on an appropriate exploitation manner of such IP by 3entering into various IP transactions. For example, the institution can licence or assign the IP to an off-shore or a local company. However, if the institution intends to provide an exclusive licence to an off-shore company, the proposed IP transaction should be approved by NIPMO. Furthermore, if the institution intends to assign such IP to an off-shore or local company, such proposed assignment transaction should also be approved by NIPMO. When entering into IP transactions, the institution is expected to take into account the preferences of the Act which include that preference should be given to BBBEE entities and small enterprises, non-exclusive licences rather than an exclusive licences, parties that seek to use the IP in ways that provide optimal benefits to the economy and quality of life of the people of South Africa (amongst others).

In instances, where there is research collaboration between an institution and a private company where the research is undertaken at the institution, the Act provides that IP emanating from such collaboration shall be jointly owned by both parties only if certain requirements are satisfied. The first requirement is that there has to be joint contribution of resources. Both parties should have contributed to the collaboration. In particular, the company should have at least contributed through, e.g., background IP, raw materials or funding, etc. The second requirement prescribes that there has to be joint creation of IP. This means that the R&D collaboration should be conducted by researchers from the institution and researches/engineers who are employees of the company. Thirdly, the parties should have entered into a commercialisation agreement in which they stipulate the manner in which the IP is intended to be commercialised. Lastly, there has to be an arrangement relating to benefit sharing for institution’s IP creators/researchers. Once the IP is exploited and generates income, the IP creators of the institution should benefit from such exploitation of the IP.

Once the above-mentioned requirements are fulfilled, the company and the institution will co-own the IP. However, it will be appreciated that co-ownership of IP can be problematic, in particular, if the IP is the subject of a patent application or a patent. For example, in the absence of an agreement to the contrary, a joint patentee cannot without the consent of his co-patentee exploit the invention or assign the patent or grant licences thereunder. Furthermore, a joint patentee may also not institute proceedings relating to the patent itself, but may institute proceedings against others for infringement, provided he gives notice to the other joint patentee. Because of this, most companies prefer to own their own IP wholly so that they can protect and exploit such IP in line with the companies’ strategy.

The Act allows for such whole ownership of IP, and in particular, the Act provides that any R&D undertaken at an institution and funded by a private company on a full cost basis shall not be subject to the provisions of this Act. Thus the company can negotiate to own the IP wholly. Full cost basis means that costs associated with the R&D as determined in accordance with international financial reporting standards and include all applicable direct and indirect costs. Each institution is obligated to submit to NIMPO for approval biennial formulae which would provide an indication of the calculation of full costs. The formulae should include direct costs of R&D in accordance with institution financial and related policies, and generally accepted accounting practices. As an example, indirect cost can be determined as a % surcharge levied on direct costs and can vary between departments of the institution.

It is crucial that any company which wishes requesting an institution to conduct R&D on its behalf ensures that the particular R&D is fully costed. If the R&D is not fully costed, IP emanating from such R&D shall be owned by the institution and the company cannot retrospectively pay for the R&D project on a full cost basis. This may have an adverse impact on the company’s strategy and severe financial implications. Furthermore, non-compliance with the provisions of this Act renders any transaction between the company and the institution void ab initio. Thus prior to concluding any transaction with publicly financed institution, it is advisable that the company should consult with a Patent Attorney who would be able to advise the company accordingly while ensuring that the company’s rights are being protected sufficiently.

Written by Tumelo Mashabela, Adams & Adams, telephone 012 432 6302 or email Tumelo.mashabela@adamsadams.com