Egypt: The Transfer Of Technology Contract In The Egyptian Law: The Governing Rules

Last Updated: 13 December 2017
Article by Youssry Saleh

The Transfer of Technology Contract is one of the contracts which are included in the Egyptian Commercial Law No. 17/1999, due to the new era of significant expansion in the field of technology contracts and the legal issues that face the transfer of technology processes at the international level as a result of the conflict of interests between the parties of these processes.

The essence of Transfer of Technology Contract:

Article No.73 of the new Commercial Law defined the Transfer of Technology Contract that it is an agreement in which the supplier of technology undertakes to transfer in exchange of technical information to the importer of technology to use it in a special technical way, for the production or development of a specific commodity, the installation or operation of machines or equipment, or for the provision of services.

Accordingly, the Transfer of Technology Contract is an agreement by which the supplier obliges to transfer the technical information which will be used for the production of commodities and services, either such technical information is related to what is known as product technology (i.e. knowledge which targets the production of a specific product) or is related to the technology of production process (i.e. special technology of the production method).

The mere sale, purchase, lease, or rental of commodities or trademarks shall not be considered a transfer of technology, unless this is set forth as part of, or is connected with the transfer- of – technology contract.

Technology is a group of information to be used for the production of commodities and services. The mere sale, purchase or lease of commodity or service shall not be considered a transfer of technology; and the sale of trademarks or brands, or the issue of license to use them shall not be considered a transfer of technology. This shall be considered as kind of tenancy. The provisions of Law, however, shall apply to every sale or lease of trademarks or brands if such sale or lease is part of the transfer of technology process either done by one contract or separate contracts. The purpose of such is to prevent any fraud of provisions of law. Such prevention comes into force by including the banned restricted conditions in the Transfer of Technology Contracts in sale or lease of trademarks or tradenames.

What must be considered in drafting the Transfer of Technology Contract:-

  1. In drafting, The Technology Transfer Contract shall be concluded in writing, otherwise it shall be null and void. (Article No.74/1 of the Egyptian Commercial Law)
  2. The contract shall include a statement of knowledge elements and their consequences thereof which transferred to importer of technology. Such statement may be mentioned accompanied by feasibility studies, instructions, designs, engineering drawings, maps, pictures, computer programs and other documents that elaborate knowledge in appendices enclosed with the contract and considered as an integral part of it.

In other words, the contract shall include all elements of the technological knowledge and accessories thereof, and that means it is necessary to include in the contract all the required information in order for the importer to absorb the transferred technology.

In drafting the contract, for the protection of national interests and the favor of the projects of importing technology, the law sets a regulation so called "restrictive conditions" which brings great damages to the interests of importing technology projects. Whereupon, the law categorized such conditions into two sections, some of which subject to nullification rules and some others subject to the judicial discretion of court. The restriction condition on the right of importer to determine the quantity of production is one of the conditions that shall be deemed null and void, and the second section of such conditions that lay their nullification aside are:

  1. The approval of refinements, which the supplier adds to the technology and pays its value.
  2. The prohibition of adding refinements or amendments to technology to cope with the local circumstances or the importer's firm circumstances, and the prohibition of getting other technologies which are identical or competitive to the technology of place of contract.
  3. The usage of specific trademarks to distinguish commodities, which used the technology in their production.
  4. The restriction of production volume, price or the way of distribution or exportation.
  5. The supplier's participation in managing the importer's firm or the supplier's intervention in selecting permanent employees thereof.
  6. The purchasing of raw materials, equipment, machinery, devices or spare parts for the operation of technology received from supplier only or from his appointed firms exclusively.
  7. The supplier or his appointed persons only have the right to sell the production or to assign it to others.

And that unless any of such conditions are included in the Transfer of Technology Contract for the purpose of protecting the product consumers or protect legitimate and new interest for the supplier of technology.

Obligation of the supplier of the technology:

Egyptian Trade Law, (Article 76) obligates the supplier of the technology to expose to the importer in the technology contract or through negotiations ahead of its conclusion the following:

A-The risks that may arise from the use of technology, in particular as regards to the environment, public health, or the safety of life or money, and shall inform him what he knows from means to prevent such risks.

B-Lawsuits and other obstacles that may impede the use of technology-related rights, particularly those relating to patents.

C-Provisions of domestic law on the authorization of the export of technology.

And in order to ensure that the importing Party assimilated the technology in contract, Article 77 from the Trade Law obliged the technology supplier to provide the importer all of the data and information and other technical documents for assimilation of technology, accordingly, the Transfer of Technology Contract stipulates that:

  • The supplier shall submit to the importer the information, data, and other technical documents as required for assimilation of technology, and also the necessary technical services to be requested by the importer for the operation of the technology, particularly expertise and training.
  • The supplier shall inform the importer of the improvements he might introduce to the technology during the validity period of the contract, and shall transfer these improvements to the importer if the letter requests him to do so.

In order to ensure continuity of the project and in order not to stop it, Article 98 obligates the supplier to provide spare parts upon request of the importer.

Accordingly, the contract shall stipulate supplier's obligation for the validity period of the contract – to provide the importer according to his request of spare parts produced and needed or devices used in the operation of the facility. If the supplier does not produce these items in his establishment, the importer must know the sources of their acquisition.

The Transfer of Technology Contract shall include, when drafting, the text on the obligations of the importer, in accordance with the provisions of the Article 79, the importer shall comply with the right to use the technology a number of employees technical know-how and to ask for technical experts whenever necessary, the selection of these workers or experts should be from Egyptians living in Egypt or abroad whenever available.

And that the importer shall introduce the supplier by the provisions of the national legislation relating to the technology import (Article 80) and the importer shall be obliged not to assign it to a third party unless agreed by the supplier, and Article 82 obligates the importer the following:

The importer shall pay the charges for the technology and the improvements introduced to it, at all the times and places as agreed.

  • The charges may be a total amount payable altogether or in several installments. They may also be a share in the capital invested in operating the technology or a portion of the yield of this operation.
  • The charges may as well be in the form of a certain quantity of the commodity in which the technology is used for its production, or a primary material the importer produces and undertakes to export to the supplier.

The importer to preserve the technology confidentiality obtained and the improvements thereto, and the state in the contract shall include the compensation for damage arising from the disclosure of such confidentiality, whether it is disclosed by the importer or by the supplier (Article 83). It shall be agreed that the technology importer solely has the right to use it and trade in production this shall be determined by a specific geographical area and specific agreed terms and including the supplier, matching the technology and the documents attached thereto to the terms of the contract.

The contract stipulates the liability of the supplier and the importer without their solidarity for the damage caused to persons and money arising from the use of the technology or the goods arising from their application.

Termination of the contract:

Article 86 of the Trade Law legalized for each of the parties of the Transfer of Technology Contract after the expiry of five years from the date of the contract may request its termination or reconsidering its conditions to be amended in order to adapt it to the prevailing economic conditions, this request may be repeated whenever five years have elapsed unless otherwise agreed upon.

Jurisdiction:

According to Article 87 of the Trade Law, Egyptian courts are competent to adjudicate disputes arising from the Transfer of Technology Contract.

In all cases and according to the provisions of Article 87(2), settlement of dispute shall be in accordance with the provisions of the Egyptian law and shall void any agreement contrary to that.

However, the parties to the contract can enclose the state on settlement of the disputes amicably or through arbitration in Egypt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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