ASSIGNING IP TO FOREIGN ENTITIES JURISDICTION REPORT: SOUTH AFRICA
Christine Kalibbala DM Kisch
Until June 2012, there was much debate in South Africa as to whether exchange control approval is a rule, or an option, when intellectual property is exported outside South Africa, due to case law which conflicted with the Exchange Control Regulations.
Regulation 10(1)(c) of the Exchange Control Regulations, promulgated in terms of Section 9 of the Currency and Exchanges Act No. 9 of 1933, is aimed at the protection of South African capital reserves and provides that: “No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose … enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.”
The Supreme Court of Appeal in the case of Oilwell (Pty) Ltd v Protec International Ltd & Others, ruled on the issue of the assignment of IP from a South African resident/entity to a non-resident/foreign entity and in particular, whether approval in terms of regulation 10(1)(c) is required for such transactions. The applicant (a South African company) was previously the proprietor of various trademark registrations in South Africa. An assignment was entered into between it and, inter alia, the first respondent, whereby the trademark registrations were assigned to the latter.
Te applicant sought an order to set aside the assignment agreement on the basis that the trademarks amounted to a “transaction whereby capital or any right to capital was directly or indirectly exported from the Republic of South Africa” and as a result contravened regulation 10(1)(c), due to non- compliance with the regulation. Te court held, inter alia, that:
• Te fact that a foreign entity becomes entitled to exercise certain rights in South Africa does not mean that these rights have been exported; and
• In the event that a trademark does qualify as ‘capital’ or a ‘right to capital’, a failure to obtain exchange control approval in terms of regulation 10(1)(c) does not result in the assignment being null and void, ab initio.
The court found that the legislature intended the penalty imposed in the regulations to be a sufficient punishment for non-compliance, and it did not wish also to render an agreement invalid in the case of non-compliance.
IP rights such as trademarks, patents and designs are valuable assets and can generate or sustain income streams. However, many questions have been raised as to whether the rights in, and to, these assets constitute capital.
Subsequent to the above case, the regulations have been amended requiring
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“THE FACT THAT A FOREIGN ENTITY BECOMES ENTITLED TO EXERCISE CERTAIN RIGHTS IN SOUTH AFRICA DOES NOT MEAN THAT THESE RIGHTS HAVE BEEN EXPORTED.”
approval on transactions involving IP rights. Regulation 10 has been amended by the insertion of the following sub-regulation:
“(4) For purposes of sub-regulation (1)(c):
• (a) Capital shall include, without derogating from the generality of that term, any IP right, whether registered or unregistered; and
• (b) Exported from the Republic shall include, without derogating from the generality of that term, the cession of, the creation of a hypothec or other form of security over, or the assignment or transfer of any IP right, to or in favour of a person who is not a resident of the Republic.”
Te regulations came into operation on June 8, 2012, and now clearly define what constitutes capital and, furthermore, what constitutes being exported from the Republic.
Tis significant development has potentially far-reaching consequences and, as such, is important to bear in mind as far as the transfer of IP outside South Africa is concerned.
Christine Kalibbala is a senior associate at DM Kisch Inc. She can be contacted at
christinek@dmkisch.com
World Intellectual Property Review September/October 2012 113
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