The vexed question of whether the assignment of intellectual property rights owned by a South African to a foreign entity requires Exchange Control approval has now been decided in the negative by our Supreme Court of Appeal.

Regulation 10(1)(c) of the Exchange Control Regulations (“ECR”) provides:

“10(1)(c) No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose –

(a) ….
(b) ….
(c) enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.”

In the earlier case of Couve and another v Reddot International (Pty) Limited and others 2004 (6) SA 425 (W), the High Court held that the assignment of a patent application that did not have prior Exchange Control approval offended Regulation 10(1)(c) and was void ab initio.

In the present case of Oilwell (Pty) Limited v Protec International Limited and Others (case no. 44835/08), the Court of first instance held that the assignment of a registered trade mark entered into without prior Exchange Control approval did not constitute a contravention of Regulation 10(1)(c) and that such a contravention would not, in any event, render such an assignment agreement void ab initio. It also held, on the particular facts, that the claim to set aside the assignment had prescribed.

On appeal, in a judgment dated 18 March 2011, the SCA dismissed the appeal and held as follows:

1. IP rights do not constitute capital for purposes of the ECR and, as immovable property, cannot be exported;
2. ECR 10 (1)(c) therefore does not apply to trade mark assignments (or to patents, designs or copyright);
3. such assignments would, in any event, not be void ab initio;
4. the issue of prescription did not need to be dealt with.

Written by Werina Griffiths and Chris Job of Adams & Adams Attorneys