Mar 30,2010 / News / Legal Brief

An exception has been made to the current situation that that no South African intellectual property (IP) may be exported without South African Reserve Bank permission. A recent, as yet unreported, court ruling has departed from the approach followed up to now, which saw any unapproved IP outflow as a contravention of exchange control regulations.
“The latest ruling definitely does not mean that Reserve Bank approval falls away but it does indicate that a rigid, one-size-fits all approach may not always be appropriate,” says Janine Hollesen, director of IP law at Werksmans.

She is referring to the ruling by the Northern Gauteng High Court in the matter of Oil Well (Pty) Limited v Protec International Limited & Others. Before this ruling, South African case law had demonstrated the dangers of entering into any offshore IP agreement without Reserve Bank approval.

Reserve Bank permission is required in terms of provision 10(1)(c) of the Exchange Control Regulations. The purpose of the regulations is to keep capital, including IP assets, in South Africa.

The regulations stipulate that local IP may not be transferred by way of a sale, assignment or cession and/or the waiver of rights in favour of non-residents in whatever form, directly or indirectly, cannot be undertaken without the prior approval of SA’s exchange control authorities. Failing to gain that approval is an exchange control contravention that results in the agreement concerned being void and unenforceable.
“It is safe to say that the dangers of not obtaining permission still apply,” says Hollesen, pointing out that the penalty for non-compliance is a R250,000 fine or five years’ imprisonment.

“The difference is that in the latest ruling, the specific circumstances relevant to the case were taken into account.”
What transpired in this particular case was this: In July 1998, a South African company Oilwell assigned the South African registered trademark 1987/10281 PRO TEC to a Guernsey company, Protec International Ltd. In 2007, after conducting business for almost 10 years, Protec transferred the trademark to another Guernsey company.

Oilwell then brought an urgent application to the High Court, asking the court to declare the assignment of the trade mark void because it amounted to the direct or indirect export of capital from South Africa. Oilwell also requested the court to rectify the trade marks register to reflect Oilwell as the registered proprietor.

In its application, Oilwell cited the 2004 High Court case Couve and Another v Reddot International. In Couve, there was a written agreement that the South African company would assign its rights in and to certain patent applications to the foreign-owned company, and would issue certain shares. In that case, the court ruled that the agreement had contravened the Exchange Control Regulations, as the Reserve Bank’s permission had not been obtained.

The South African exchange control authorities then accepted the Couve judgment as applying to the assignment of all intellectual property, including trade marks. “This has been a significant hurdle to transactions involving a foreign company wishing to acquire a South African IP asset,” Hollesen says.

In the recent Oilwell judgment, however, the Gauteng North High Court ruled that the Oilwell case was different from Couve for several reasons:

Firstly, the Couve case involved the allotment of shares and the transfer of patent rights but the Oilwell case was only concerned with the assignment of a trade mark. Interpreting this as a contravention of the Exchange Control Regulations was too expansive and broad and, hence, was erroneous.

The Court also found it would be a grave injustice to declare the assignment of the Pro Tec trademark as void. In this case, the assignment agreement had been concluded more than 11 years ago and a great deal of business would have been conducted in that time. Furthermore, certain legal consequences would have resulted and certain legal rights been established.

“On reaching its decision, it seems that the Court adopted a narrow approach, taking into account the specific circumstances relevant to this case,” Hollesen says. “Whether or not this decision will have application to other transactions will depend on all of the facts of the matter. The outcome of an appeal, if any, would be interesting.”