Monday, 25 June 2012

RSA: IP Transfers to non residents require approval

The latest development in the ongoing tug-o-war (see here and here) between the judiciary and the RSA government on whether IP transfers to non resident's require exchange control permission can be found in this month's Government Gazette (amendments to the Excon Regs by the President), extracted as:

"(4) For the purposes of sub-regulation (1 )(c)-

(a) 'capital' shall include, without derogating from the generality of that

term, any intellectual property right, whether registered or unregistered;


(b) 'exported from the Republic' shall include, without derogating from the

generality of that term, the cession of, the creation of a hypothetic or

other form of security over, or the assignment or transfer of any

intellectual property right, to or in favour of a person who is not resident

in the Republic.".

Effectively, this means that IP transfers from locals to non residents require exchange control approval. But is the amendment lawful? At least one commentator (Webber Wentzel's Benjamin Cronin) thinks not - see here:

"The reason is that the empowering provision to make the Regulations themselves, which is contained in section 9(1)(a) of the Currency and Exchanges Act 9 of 1933, refers to the ability of the President to "make regulations in regard to any matter directly or indirectly relating to or affecting or having any bearing upon currency, banking or exchanges“. This empowering provision does not cover Intellectual Property, making any purported regulation dealing with Intellectual Property potentially unlawful. [ed - but is it - the IP seems incidental and the IP acts have not changed?]

Even if one were to accept the proposition that Intellectual Property could be the subject of Regulations under the Currency and Exchanges Act 9 of 1933, then the section 9 power to create this restriction may 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 (such as Regulations) may be issued. The potential for the issuing of Regulations does not, however, mean that the President can usurp from Parliament the power to legislate [ed - what if that is what Parliament had already legislated in the empowering provision ie it had empowered the President?] ...

While on the face of it, this amendment is a positive step in that it attempts to create certainty by legislating a partial definition of the term "capital" and of the phrase "exported from the Republic", neither is in fact fully defined. Further, the new phrase "any intellectual property right" is itself not defined. Consequently, this amendment creates substantial uncertainty not only because of its doubtful legality, but also because of the lack of definitional detail." [ed - agreed. to take it to the absurd - if a well known local sports star is transferred to Europe, does he need excon approval - after all he/she possesses unregistered image rights, could be brand or have valuable know-how ... and what if a humble lawyer decided to do the same]

Afro Leo is more interested though in whether a protectionist regime so clearly advocated by RSAincentivise innovation & tech transfer in the country ie job creation and growth by creating a rule that IP generated in the country cannot be transferred outside the country without permission? Surely not but then again I am not an economist - comments welcome.

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