Decree 2,095 establishes national regulations to implement the Common Code on Foreign Investment and Technology Licensing, which was adopted by Decisions 291 and 292 of the Commission of the Andean Community.

Pursuant to the decree all licence agreements between a foreign entity and a Venezuelan company concerning a foreign-owned IP right must be registered with the Superintendency of Foreign Investment (SIEX), regardless of whether royalties or fees are payable.

Article 52 states that failure to register a licence agreement will trigger an automatic suspension of the obligation to pay any royalties or fees, and it will be impossible to cite the licence as a defence against actions by third parties. All other aspects of the unregistered licence agreement remain enforceable.

Previously, the main risk that a licensor ran in dealing with a defaulting licensee in an unregistered licence agreement was the inability to enforce the licence's payment provisions. This situation became less frequent in recent years, when most licence agreements were struck between parent companies and their subsidiaries. Moreover, since the decree provides no penalties for non-registration, it is likely that a number of licence agreements were never duly registered.

Aside from financial considerations, and with respect to registrable intellectual property(particularly trademarks and patents), the main advantage of registering a licence agreement was that this presented as a defence against any third-party action. Evidence of effective use in the country alone is not legally sufficient to establish use in the event that a licence agreement is not registered.

Now there is another valid reason to register licence agreements that contemplate payments abroad. This has resulted from the government's suspension of the unrestricted freedom to purchase foreign currency as of January 22 2003.

According to Article 29 of Exchange Agreement 1 (issued on February 5 2003 and republished on February 27), a licence agreement must be registered with SIEX (or the corresponding national control entity) in order for licensees to obtain foreign currency for the purpose of effecting royalty or technological fee payments abroad. Also, an application for foreign currency for such payments must be presented to the relevant national control entity. Once approved, the application must then be submitted to the Commission for the Administration of Foreign Exchange, which is the overall foreign exchange control agency.

The introduction of a third exchange control regime in 20 years increases the prospect of lengthy delays and bureaucratic obstacles in effecting obligatory payments under licence agreements. Licensors might now consider terminating or suspending their licence agreements due to the likelihood that any payments due will be delayed by several months at best. However, if licensors terminate or suspend their licences (actions that should be recorded at SIEX or the corresponding control agency), they run the further risk of being unable to demonstrate use of their intellectual property in Venezuela.

The new exchange control regime makes the registration of licence agreements with SIEX imperative. Without registration, licensees will not legally be entitled to access foreign currency through which they can make payments that may be due under their licences to foreign parties.

Where licence agreements are unregistered, or are terminated or suspended in response to the new exchange control regime, licensors may discover that they are in a weaker position towards third parties who seek to have their trademarks or patents cancelled for non-use, or to a request for an obligatory licence of a patent. For these reasons, the regime is expected to test the patience of licensors and licensees, as it is improbable that Commission for the Administration of Foreign Exchange will make foreign currency available for the servicing of foreign licence agreements.

For further information on this topic please contact Richard N Brown or José Gutiérrez at De Sola & Pate by telephone (+58 212 793 9898) or by fax (+58 212 793 9403) or by email ([email protected] or [email protected]).