The expansion of the Technology Industry in South Africa has become increasingly encouraging. Our software engineers have become well-known for their impressive skill sets. As a result, we have seen an increase in global investment into the South African Technology sector. However, what many global players fail to appreciate is that there are many complexities in South African Intellectual Property Law that may hinder cross-border development efforts by multi-national teams.

In terms of South African law there is no “work for hire” concept. With limited exceptions, just because you pay someone to create content, code or databases for you does not mean that you own the intellectual property rights in the deliverables provided to you. Regarding artistic and literary works (a database is an example of a literary work), the person who first creates the work is the author of the work. The default position, again subject to certain exceptions, is that the author of the artistic or literary work is the owner of the work. The position is slightly different when it comes to computer programs, where the author is the person who exercised control over the making of the computer program. Again, however, the default position is that the author is the owner, unless the exception that any material created in the course and scope of employment applies, in which case the employer will in fact be the owner. So, what happens when multi-national organisations are using South African subsidiaries and their employees to create intellectual property for the broader organisation? Well, the answer is simply, that where the South African employees are considered authors of the relevant works, then the South African subsidiary/employer is the owner of the intellectual property rights authored by its employees.

The default position between related entities is to have some sort of service level agreement put in place between the entities which governs the allocation of ownership in the intellectual property rights emanating from the cross-border collaboration by various global subsidiaries. Ordinarily most organisations would ensure that all intellectual property rights are held in one comprehensive portfolio by one entity and would ensure such rights are assigned to that entity by the relevant subsidiaries. However, the position in South Africa regarding the assignment of intellectual property rights is a lot more complex. In terms of Regulation 10(1)(c) of the Currency and Exchanges Act, 1933 (Regulation 10(1)(c)),no person may assign (directly or indirectly) any intellectual property rights outside of South Africa without prior approval from the South African Reserve Bank. Authorised Dealers (banks) are permitted to approve the outright sale, transfer and assignment of intellectual property rights by South African residents to unrelated non-residents, provided that: (i) the transaction is concluded at arm’s length and at fair market-related prices; (ii) the sale, transfer or assignment agreement is provided to the Authorised Dealer; (iii) the basis of the calculation of the sale price is provided to the Authorised Dealer; and (iv) all inward funds resulting from the sale, transfer or assignment of the intellectual property are repatriated to South African within 30 days of falling due. Where the parties are related, all IP transactions must be approved by the Financial Surveillance Department within the South African Reserve Bank (Finsurv).

Therefore, where global players are using global teams, some of whom are resident or domiciled in South Africa, the inclusion of an assignment provision, in respect of all future intellectual property to be created, in a service level agreement between the entities, will be unenforceable until Finsurv approval is obtained. Furthermore, should any offshore entity wish to take assignment of such future rights post-creation, it would have to do so at fair market value and on an arm’s length basis. These constraints are not often appreciated when outsourcing development work to South African subsidiaries and global players would be well advised to consider the implications of Regulation 10(1)(c) carefully in any cross-border development efforts.