JURISDICTION REPORT: SOUTH AFRICA
EXCHANGE CONTROL RULING ON ASSIGNMENT OF IP RIGHTS
Marius Le Roux and Dikeledi Mokwena DM Kisch Inc
A South African High Court decision in 2004, Couve and another v Reddot International (Pty) Limited and others (the Reddot case), introduced exchange control requirements for the assignment of IP rights to foreign entities. In the Reddot case, the court held that assignments of patent rights from South African exchange control residents to foreign entities are subject to Regulation 10(1)(c) of the Exchange Control Regulations, 1961. Hence, prior Treasury approval is required, failing which the assignments are null and void. It was interpreted widely to apply to all other forms of intellectual property.
Regulation 10(1)(c) provides that:
“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.”
In 2008, Oilwell applied to the South African Gauteng North High Court (court a quo) for an order declaring an assignment of IP rights invalid because prior Treasury approval had not been obtained. Te court a quo held that:
• Te Reddot case was wrongly decided, principally because intellectual property rights are not ‘capital’ within the meaning of the term as used in the regulation
• Assignment of IP rights to a foreign entity does not require Treasury approval to be valid, and
• A contravention of Regulation 10(1)(c) would, in any event, not render such an assignment agreement null and void, ab initio.
On appeal, the Supreme Court of Appeal of South Africa delivered judgment in the case Oilwell v Protec. It held that a trademark assignment agreement entered into without prior Treasury approval does not constitute a contravention of Regulation 10(1)(c) of the Exchange Control Regulations, 1961. Even if it did, a contravention of Regulation 10(1)(c) would, in any event, not render such an assignment agreement null and void, ab initio.
Harms DP stated in paragraph 11 of the judgment that the significance of the word ‘capital’ in a particular case depends on the context in which it is used. In Regulation 10(1)(c), it cannot mean everything with monetary value. A restrictive interpretation of capital in Regulation 10(1)(c) has to be adopted. If such an interpretation were not adopted, immovable property would then be capital and, although it cannot be ‘exported’, the purchase of such property by a foreign company would amount to the export of the right to capital, covered by Regulation 10(1)(c), especially if the property
68 World Intellectual Property Review May/June 2011
is an income-producing property. But it is common cause that the sale of immovable property to a foreign entity is not covered by the provision. Te same applies to IP rights because their territoriality makes them akin to immovables. Tey cannot be exported.
Te court further held that royalties are not capital, they are earnings or income. Te flow of royalties and licence fees are controlled by Regulation 3(1)(c), which provides that it may not take place without the Treasury approval.
Te SCA judgment in Oilwell v Protec has authoratively established that:
• IP rights are not capital for the purposes of Regulation 10(1)(c) of the Exchange Control Act, and
• A contravention of Regulation 10(1)(c) does not render an assignment agreement null and void, ab initio.
Aſter a number of contradicting judgments, inter alia the Reddot case and the Oilwell judgment in the court a quo, the highest court in South Africa, has ruled that in respect of assignments of intellectual property rights, i.e. trademarks, patents, designs and copyright, it is not necessary to obtain prior Treasury approval.
Marius Le Roux is a director in the patent department at DM Kisch Inc. He can be contacted at:
mariusl@dmkisch.com
Dikeledi Mokwena is a candidate patent attorney at DM Kisch Inc. She can be contacted at:
dikeledim@dmkisch.com
www.worldipreview.com
“ A SOUTH AFRICAN HIGH COURT DECISION IN 2004, COUVE AND ANOTHER V REDDOT INTERNATIONAL (PTY) LIMITED AND OTHERS (THE REDDOT CASE), INTRODUCED EXCHANGE CONTROL REQUIREMENTS FOR THE ASSIGNMENT OF IP RIGHTS TO FOREIGN ENTITIES.”
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