New restrictions on intellectual property transfers outside South Africa

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Michalsons Attorneys recently pointed out that the Currency and Exchanges Act was recently expanded to address intellectual property transfers outside of South Africa. The Act, through its regulations, requires any person wishing to export “capital” or any “right to capital” from South Africa requires permission from the South African Reserve Bank. Until recently, the definition “capital” did not include intellectual property (and this was confirmed in a recent Supreme Court of Appeal judgment).

The President amended the regulations in terms of this Act in June 2012 and altered the definition of “capital” to include intellectual property and expanded the scope of “export” to include a “transfer” of any intellectual property outside South Africa. Individual property can be transferred in 2 ways: licensing or assignment. Assignment is a complete transfer from one party to another. When intellectual property is assigned from one party to another party, the party receiving the intellectual property generally becomes the new owner of that intellectual property and the only party that can exploit that intellectual property. The party that assigned that intellectual property in the first place gives up the rights to exploit that intellectual property altogether.

On the other hand, licensing intellectual property means giving another party permission to exercise certain of the rights the licensor (often the intellectual property owner or someone who has already obtained a licence which includes the ability to sublicense the intellectual property to another party) has in that intellectual property. An example of this is where a content license grants a licensee permission to make a copy of the content. When licensing intellectual property, the licensor usually retains the original rights in the intellectual property and merely extends some of his or her permissions to the licensee. Unlike with assignment, the licensor generally retains the ability to exercise the rights granted (although this depends on the specifics of the license) along with the licensee.

As an aside, we often come across digital agencies that assign their copyright ownership to clients without thinking twice and not realising that doing this means they can’t exercise the rights they may need to sustain licenses they have granted already to the content they have handed over (which has contractual implications for the agency given that they are now technically incapable of performing that obligation of licensing the content) and that they can’t build on that intellectual property going forward. In these sorts of situations, an appropriately drafted license is often far more suitable, even if it is fairly broad.

While the term “transfer” almost certainly covers intellectual property assignment, it is not clear whether it includes licensing. If it does, it probably doesn’t cover non-exclusive licensing (Michalsons apparently spoke to a South African Revenue Service representative who advised that licensing is not included – I wonder if the “SARS” reference in the Michalsons post shouldn’t be a reference to the South African Reserve Bank, though) but even if it is included, non-exclusive licenses shouldn’t be included in that restriction (including non-exclusive licenses would be highly problematic and would lead to a deluge of requests to the SARB to permit a range of licenses that are on virtually every website and service with a decent set of terms and conditions). Unfortunately the regulations appear unclear.

What does appear clear is that any content owner intent on assigning the rights in that content to a party outside South Africa will have to factor in the requirement for the SARB’s consent into its agreements (companies would, for example, have to include conditions in their agreements making the agreements conditional on this consent being obtained from the SARB). This would, specifically, pose fairly serious challenges to local companies that transact with foreign companies that requirement intellectual property assignments to them in their agreements and it may be far more viable to explore licensing arrangements if the word “transfer” in the amended regulations doesn’t include licenses.

This change to the regulations adds to an already complex regulatory overhead that companies bear, especially for businesses which rely on their intellectual property as core aspects of their offerings. It also means that companies must be far more careful about how their intellectual property is made available to clients and providers and avoid assignments unless they are absolutely necessary.

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