The Exchange Control Regulations amended on 8 June 2012, which prohibit the export of any intellectual property rights without prior exchange control approval, are possibly unconstitutional, says Alexis Apostolidis, patent litigation partner and head of competition law at intellectual property law firm Adams and Adams.
“The regulations have for a long time stated that nobody may, except with Treasury permission, enter into any transaction whereby capital or any right to capital is directly or indirectly exported from South Africa,” says Apostolidis, who is collaborating with the Centre for Intellectual Property Law at the University of Pretoria.
“However, the term ‘capital’ was never defined and the Supreme Court of Appeal in the case of Oilwell versus Protec ruled that the term in the regulations did not encompass an intellectual property right such as a registered trademark.”
Apostolidis says to undo the consequences of the judgment, the amendment now defines “capital” to include any intellectual property right, whether registered or unregistered.
“This results in an overbroad, unrealistic and open ended definition which not only covers traditional forms of intellectual property rights, such as patents, trademarks and copyright. It may also cover a host of other rights which might be considered to be intellectual property rights. These include personality rights, performer’s rights, rights in and to inventions and even know-how.
“The amendment also defines export from South Africa as the cession of, assignment or transfer of any intellectual property right to or in favour of a person who does not live in South Africa. However, the amendment is based on a lack of understanding of intellectual property rights and is fraught with difficulties,” he says.
“Intellectual property rights are territorial and cannot be exported. A local registered intellectual property right, when transferred to a non-South African resident, is not exported. It remains a South African right, enforceable in South Africa only. That leaves one with the exportation of a ’right’ to intellectual property.
“Apart for the fact that intellectual property rights are territorial, they are also independent. If someone applies for a patent in South Africa and also applies for a patent based on the same invention in the USA, two independent patents may be granted – one by South Africa and the other by the USA. They exist independently. They may also belong to different parties.”
Apostolidis says the transfer of the rights in and to a granted patent in, for example, the USA does not amount to the transfer of a local capital asset.
“It does not differ from the transfer by a South African of property located overseas to a non-resident. The regulations can, therefore, only apply to local intellectual property rights.
“A text book example is copyright. It arises automatically in most countries, irrespective where, and by whom, it is created. Each copyright work has its own copyright in every country that is member of the World Trade Organization or the Berne Convention. It cannot be exported. The local copyright may be capital locally but not elsewhere.”
He says another problem with the applicability of the regulations is where an employee, resident in South Africa, is required to assign any intellectual property developed during employment by a non-resident employer to the employer.
“In certain of such cases the employer becomes the owner of the intellectual property right created by the employee by law and not by virtue of a ’transaction’. Surely then the Exchange Control Regulations cannot apply,” he says.
“Another example highlighting the unrealistic nature of the regulations is where academics write for a foreign publication or deliver a paper overseas. Often they are required to assign their copyright without remuneration. It could hardly have been the intention to require exchange control regulations approval for these.
“Apart from the fact that the amendment is counter to the Treasury’s professed liberalisation of exchange control, it is overbroad, discriminatory and irrational. There is no prohibition on the exportation of other assets without Treasury permission. Real estate or movables, whether income producing or not, may be sold to non-residents without consent. Why is it different for intellectual property rights?” he says.
”The Act of Parliament which allows the President to make regulations concerning banking, currency and exchange also allows the President to suspend, in whole or in part, other Acts of Parliament – such as intellectual property acts – which in today’s constitutional era cannot be valid under constitutional law.
“It, therefore, raises the question why the President did not use this particular power to promulgate the regulations rather than the general provision, the use of which has also been argued to be unlawful and unconstitutional,” Apostolidis says.