On 8 June 2012 the President of South Africa gazetted a brief, but far-reaching, amendment to the Exchange Control Regulations which restricts the transfer of ownership (and possibly licencing) of intellectual property from a South African resident to a non-resident.

The amendments were made in a purported attempt to extend the application of the regulations to "any intellectual property right, whether registered or unregistered".

This was achieved by expanding the meaning of the otherwise undefined term "capital". The term "exported from the Republic" was also extended to include "the cession of, the creation of a hypothec or other form of security over, the assignment or transfer of any intellectual property right, to or in favour of a person who is not resident in the Republic".

This amendment came as a surprise to practitioners in that it was not promulgated after any consultation, nor did any announcement or explanation accompany it. It was also surprising in view of government's stated policy of relaxing exchange controls.

The amendments are clearly an attempt to close the gap created by the Supreme Court of Appeal (SCA) judgment in Oilwell (Pty) Ltd v Protech International Ltd (Oilwell Judgment) which held that exchange control approval is not required when a South African resident transfers ownership of intellectual property to a non-resident.

In this regard the SCA held that the term "capital" must be defined restrictively to mean "cash and money" and must not include other goods such as intellectual property rights. It was further held that intellectual property by its nature cannot be exported.

The amendments appear to create certainty by clarifying that no intellectual property rights, whether registered or unregistered, may be assigned from a resident to a non-resident except with the prior approval of the South African Reserve Bank (SARB).

However, it has also created uncertainty for the following reasons:

  • Firstly, no definition has been provided for "intellectual property right". It is not clear, therefore, whether intellectual property goes beyond trade marks, copyright, designs and patents to include intellectual property such as know-how and trade secrets.
  • Secondly, uncertainty is created by inclusion of the word "transfer" in the definition of "exported from the Republic". "Transfer" is often used loosely to cover assignments of intellectual property that involve the transfer of ownership of intellectual property from one person to another person. However, the term is also often used in connection with licencing in the context of a technology transfer in terms of a licence agreement. As a result, any licence of intellectual property from a South African resident to a non-resident will possibly also require SARB approval. At this stage, SARB approval must be obtained for the assignment or transfer of intellectual property from a resident to a non-resident.

Apart from the uncertainty created by the amendments, there is concern that the empowering provision to make the Exchange Control Regulations, namely section 9(1)(a) of the Currency and Exchanges Act No. 9 of 1933, does not cover intellectual property. The purported amendment to the Exchange Control Regulations to include intellectual property is thus potentially unlawful.

Furthermore the section 9 power to create this restriction may itself be unconstitutional. This is because the power to legislate is given exclusively to Parliament by the Constitution. Parliament may in turn prescribe circumstances in which secondary or delegated legislation can be issued.

The potential of issuing regulations does not however mean that the President can usurp from Parliament the power to legislate. This constitutional protection is particularly relevant in respect of amendments that criminalise everyday activities like the creation of intellectual property, as alluded to in the Oilwell Judgment.

The result is arguably that the current exchange control regulations unlawfully and unconstitutionally restrict the transfer of ownership (and possibly licencing) of intellectual property from a South African resident to a non-resident.

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