Friday, 25 July 2025

Darren Olivier

SOUTH AFRICA: AI IP License Back Arrangements and Exchange Control

Regulation 10(1)(c) of the Exchange Control Regulations (and CEMAD Circulars) prohibits the export of any right to capital, including intellectual property and related licenses (exclusive and non-exclusive), without prior SARB approval. This applies even where such rights are embedded in standard terms and conditions, such as those commonly found in AI platform agreements. Typical clauses read:


“You may provide input to the Services (‘Input’) and receive output (‘Output’). OpenAI may use Content to provide and maintain the Services, comply with applicable law, and enforce our policies. You grant OpenAI a license to use Content as necessary.”


“You own the assets you create with the Services, but you grant Midjourney a non-exclusive, worldwide, royalty-free license to use, copy, modify, and distribute them for any purpose.”


As AI usage becomes entrenched in everyday life, it would be impractical, to the point of point of being absurd, to obtain approval for every usage of an AI system. However, this does not mean that the obligation should be ignored, quite the contrary.


What SARB is really interested in


The South African Reserve Bank (SARB) enforcement focus is typically directed at transactions involving material or recurring commercial value; strategic or core IP assets; exclusive or perpetual rights; or a transfer or waiver of rights central to a South African business's operations or value chain.


In practical terms, SARB is unlikely to scrutinise casual, low-value use of offshore AI systems by individual users. But enterprises using AI platforms to create high-value content or inventions, especially when such output is subject to broad license-back clauses, face a tangible regulatory risk.


Accordingly, South African users should assess the materiality of the AI output, the breadth of rights licensed back, and the commercial use of such content, and seek professional exchange control advice where the output forms a meaningful part of the business model, IP portfolio, or revenue base.


Scenario-Based Risk Flags for Exchange Control Advice


• A consultancy uses an AI System to generate high-value client deliverables and the platform’s terms include perpetual reuse rights to the AI provider.

• A creative agency uses an AI System to produce visual assets or branding elements for commercial use, licensed back to the offshore provider.

• A software company integrates AI System APIs into a product that uses user prompts to generate exportable code or documentation.

• The AI output is incorporated into patented inventions or copyrighted works later commercialised abroad.

• The IP created is central to the company's valuation, e.g., start-ups relying on AI-assisted invention or branding.


Lower Risk Scenarios (But Not Risk-Free)


• A sole trader or freelancer casually uses AI platforms for idea generation or illustration, with no significant commercial dependency on the output.

• The use is incidental or internal, with no redistribution or monetisation of the content.

• The output is ephemeral, non-strategic, and doesn’t result in a substantive economic right being granted to the offshore AI platform.


Practical Steps


Assess the nature of your AI use: Is the AI output strategic or high-value? Does the license-back clause involve perpetual or commercial rights? Will the content be monetised, distributed, or incorporated into exported IP?


Where the answer to any of these is yes or you have doubt, exchange control advice is both prudent and legally necessary.


Note: It is the South African user, not the AI provider, who bears the legal risk of non-compliance with exchange control regulations. Failing to obtain SARB approval may render the contract invalid (which could result in the loss of the IP assets) and result in penalties.

 

Darren Olivier

Darren Olivier

Darren Olivier

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