Re­serve Bank flexes its mus­cles

De­fend­ing its de­ci­sion to refuse to ex­port in­tel­lec­tual prop­erty rights

Finweek English Edition - - Creating Wealth -

ONE OF THE MAIN REA­SONS in­ven­tors and le­gal prac­ti­tion­ers con­tra­vene ex­change con­trol reg­u­la­tions is the lack of knowl­edge about the types of trans­ac­tions that re­quire ap­proval. A case pend­ing in the Cape Town High Court has put that kind of ig­no­rance back in the spot­light.

The SA Re­serve Bank is de­fend­ing an ap­pli­ca­tion by Promethea, a com­pany reg­is­tered in Van­u­atu (a coun­try com­pris­ing many is­lands in the South Pa­cific) to re­view the Bank’s de­ci­sion to refuse ap­proval for the ex­pa­tri­a­tion of in­tel­lec­tual prop­erty (IP) from South Africa. Com­mer­cial­i­sa­tion and sur­vival of the IP are now un­der threat, due to the par­ties’ al­leged con­tra­ven­tion of SA’s ex­change con­trol reg­u­la­tions, es­pe­cially where it re­quires prior ap­proval for the ex­port of “cap­i­tal” – which in­cludes IP and the right to re­ceive roy­al­ties from SA.

Over 2004/2005, Colin Vale and Ge­orge Long de­vel­oped pro­to­type pres­sure and wick paraf­fin stoves. Patent applications were filed at­tor­neys. “Once IP leaves SA you can eas­ily use the IP to re­duce South African tax (ie, by li­cens­ing SA op­er­at­ing com­pa­nies) and en­sure that for­eign royalty in­come isn’t sub­ject to tax in SA. It’s mainly for tax rea­sons that the ex­pa­tri­a­tion of IP is strictly con­trolled,” Van Zantwijk says.

It’s thus im­per­a­tive for South African IP hold­ers who in­tend to take that IP off­shore to ob­tain Bank ap­proval in the fol­low­ing in­stances: Where IP is as­signed to a for­eigner. For ex­am­ple, where a South African in­ven­tor as­signs his ad­he­sive patents to 3M (US). Where a li­cence is con­cluded and con­se­quently roy­al­ties paid to a for­eigner. For ex­am­ple, where a McDon­ald’s fran­chisee in SA pays roy­al­ties to McDon­ald’s (SA) for both in­ven­tions. In 2006, Vale and Long as­signed their patents to Promethea, a com­pany reg­is­tered in Van­u­atu, in con­sid­er­a­tion for 10% bearer shares in the com­pany. How­ever, no ex­change con­trol ap­proval for the as­sign­ment was ever ob­tained. The re­la­tion­ship be­tween Promethea man­age­ment and its in­ven­tors soured and cer­tain patent rights have con­se­quently been lost.

This isn’t an ex­cep­tional case. Back in 2006 a sur­vey con­ducted on be­half of the SA Rev­enue Ser­vice trawl­ing all IP data­bases and fil­ter­ing out IP reg­is­tra­tions that cited for­eign ap­pli­cants and South African in­ven­tors was con­ducted. It found 423 patent fam­i­lies only cited SA in­ven­tors and for­eign ap­pli­cants (typ­i­cally in tax havens), which means the en­tity that filed also owned the patent. A patent fam­ily refers to a group of patents, patented in var­i­ous coun­tries.

“Since the Bank’s pol­icy was to al­low the ex­pa­tri­a­tion of IP from SA in ex­cep­tional cases only, we can as­sume most of those paten­tees are fol­low­ing the Promethea case very closely,” says An­thony van Zantwijk, a part­ner at Sibanda & Zantwijk patent

for the use of its trade­mark. Where a for­eigner is of­fered a li­cence at a dis­counted royalty rate. For ex­am­ple, where Wimpy SA al­lows its Botswana fran­chisee to use its trade­mark without pay­ment of roy­al­ties by fran­chisee to Wimpy (SA). Where a for­eigner is granted a li­cence per­mit­ting it to sub-li­cense the IP and re­ceives more from the sub-li­censee than roy­al­ties paid to the SA li­cen­sor. For ex­am­ple, where an SA patent holder grants a li­cence to a Mau­ri­tian com­pany in con­sid­er­a­tion for a royalty cal­cu­lated at 5% of turnover and per­mits the Mau­ri­tian com­pany to grant sub-li­cences to sub-li­censees at 7% royalty, thereby per­mit­ting the Mau­ri­tian li­censee to re­tain a 2% spread. Where prom­is­sory notes re­lat­ing to royalty pay­ments are trans­ferred to a for­eigner. For ex­am­ple, where grants Y a 10-year li­cence in con­sid­er­a­tion for an­nual royalty pay­ments of R10m, ev­i­denced by prom­is­sory notes (PNs) (ie, 10 x R10m notes) and then sells those PNs to a for­eigner for R50m. Where IP is ceded to a for­eigner as se­cu­rity. For ex­am­ple, where For­eign Co grants an SA com­pany a loan and the SA com­pany cedes its IP as se­cu­rity to the for­eign com­pany. Where a li­cen­sor per­mits a for­eign li­censee to in­sti­tute in­fringe­ment pro­ceed­ings re­lat­ing to the li­censed IP and to re­tain dam­ages. For ex­am­ple, where an SA owner of patents gives a Cana­dian a li­cence and al­lows the Cana­dian to in­sti­tute in­fringe­ment pro­ceed­ings against an in­fringer in Canada, per­mit­ting the Cana­dian li­censee to re­tain all dam­ages awarded by the court. “There are no ex­cep­tions to the above cat­e­gories. As such, even where a South African re­searcher has been con­tracted by a for­eign

This isn’t an ex­cep­tional case. An­thony van Zantwijk

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