Intellectual property ‘no longer freely exportable’
When intellectual property rights practitioners were convinced that the law was clear that cross-border transactions involving intellectual property were no longer subject to exchange control regulations, the National Treasury sprung a surprise by declaring they were.
The Treasury did this by placing a notice in the Government Gazette on June 8, which announced that the president had amended the exchange control regulations under the Currency and Exchanges Act of 1933 by expanding the term “capital” to include “any intellectual property right, whether registered or unregistered”.
Benjamin Cronin, an associate at Webber Wentzel, said the effect of this purported extension of exchange control restrictions was a freeze on the direct or indirect export of all intellectual property from South Africa without prior express permission from the Reserve Bank.
Intellectual property, although undefined in the new amendment, likely referred to the generic intangible property rights which were a result of intellectual effort and included patents, trademarks, designs and copyrights.
In the extreme, this could mean that if you acquired know-how in South Africa, you could be prevented from emigrating because you would be exporting that knowledge.
Intellectual property rights practitioners had thought a decision by the Supreme Court of Appeal, in the case Oilwell versus Protech International in March last year, had clarified any uncertainty on the matter.
The court held that exchange control approval by the Reserve Bank was not required when a South African resident transferred ownership of intellectual property to a non-resident. According to the judgment, exchange controls could only apply to cash and currency transfers.
Cronin said yesterday: “They are now amending the regulations to close the gap created by the judgment. Unfortunately, this far-reaching amendment is potentially both unlawful and unconstitutional.”
He said this had been done by expanding the meaning of the otherwise undefined term “capital”. Cronin said the amendment was a surprise to practitioners as it was not promulgated after any consultation process, nor did any announcement or explanation accompany it.
Phumza Macanda, a spokeswoman for the Treasury, said that the act empowered the president to make regulations on any matter relating or affecting currency, banking or exchanges.
However, Cronin said the empowering provision in the act did not cover intellectual property and making any purported regulation dealing with intellectual property in terms of this act was potentially unlawful. He said even if one were to accept the proposition that intellectual property could be the subject of regulation under the act, then the power to create this restriction might itself be unconstitutional.
“This is because the power to legislate is given by the constitution exclusively to Parliament, which in turn may prescribe circumstances in which secondary or delegated legislation… may be issued. This power does not, however, extend to amending an act of Parliament,” Cronin said.
Cronin added that “the only legally coherent way for the executive to amend the law in light of the Oilwell judgment is to approach Parliament with a view to enacting legislation that will appropriately deal with this issue. Until such time as Parliament enacts new legislation, a great deal of uncertainty will hang over this recent amendment to the exchange control regulations”.
Responding to the amendment on the website of the SA Institute of Intellectual Property Law, Alexis Apostolidis, a partner at Adams & Adams, said given that the regulations were said to come into operation on the date of their publication, he believed there was very little scope, if any, to argue that they were retrospective.
He said yesterday that this was further supported by the Interpretation of Statutes Act, which prevented any retrospective application, especially where it criminalised certain activity.