Exchange Control Regulations amended in response to Oilwell decision

On February 17 2010 a South African High Court ruled that a trademark assignment entered into without prior exchange control approval from the South African Treasury did not constitute a contravention of the South African Exchange Control Regulations.

Previously, the South African Reserve Bank required that a South African entity wishing to transfer intellectual property offshore should first obtain approval for the transfer from the treasury. If the approval was not obtained, the transfer of rights was null and void.

The decision handed down by the Supreme Court of Appeal in Oilwell (Pty) Ltd v Protech International Limited that foreign exchange approval was no longer required for an assignment of trademarks, was based on an interpretation of the term 'capital' in Regulation 19(1)(c) of the Exchange Control Regulations. These regulations provided that any transaction whereby capital is exported from the republic requires exchange control approval.

The Supreme Court of Appeal held that a trademark does not constitute 'capital' as envisaged in Regulation 10(1)(c) and that, accordingly, foreign exchange approval was not required to transfer trademarks offshore.

In response to this decision, the exchange control authorities have now amended the regulations specifically to state that 'capital' does include an IP right, whether registered or not, and that “exported from the republic” includes the transfer of an IP right to a person who is not resident in the Republic of South Africa.

Consequently, it has once again become necessary for exchange control approval to be obtained when any intellectual property is assigned to an offshore entity.

Megan Reimers, Spoor & Fisher, Pretoria