Use the Lexology Getting the Deal Through tool to compare the answers in this article with those from other jurisdictions.
Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?
South Africa does not have restrictions on foreign persons or entities being shareholders in South African companies, trusts or participating in joint ventures, subject to any international sanctions that may be in place.
Foreign entities have the option to license into, or take part in a joint venture in, South Africa without establishing a branch office or subsidiary in South Africa. Depending upon the structure of the licence agreement and whether royalties are to be paid, the prior approval of the South African Reserve Bank (SARB) would need to be procured for the outward payment of licence fees and royalties.
Foreign licensors may establish their own subsidiary entities governed by South African legislation, such as private companies, using the standard South African company incorporation processes.
If the licensor is a foreign company that is either a profit or non-profit entity, or carrying on business or non-profit activities, as the case may be, in South Africa, then it is required to register with the Companies and Intellectual Property Commission (CIPC) as an external company within 20 business days after it first begins to conduct business in South Africa. Conducting its business includes:
- being a party to one or more employment contracts within the Republic;
- engaging in a course of conduct or has engaged in a course or pattern of activities in South Africa over a period of at least six months, such as would lead a person to reasonably conclude that the company intended to continually engage in business activities in South Africa;
- holding a meeting or meetings in South Africa of the shareholders or board of the foreign company, or otherwise conducting any of the company’s internal affairs in South Africa;
- establishing or maintaining any bank or other financial accounts in South Africa;
- establishing or maintaining offices or agencies within South Africa for the transfer, exchange or registration of the foreign company’s own securities;
- creating or acquiring any debts in South Africa, or any mortgages or security interests in any property in South Africa;
- securing or collecting any debt, or enforcing any mortgage or security interest in South Africa; and
- acquiring any interest in any property in South Africa.
Each company or external company must: continuously maintain at least one office in South Africa and register the address of its office, or its principal office if it has more than one office.
Kinds of licences
Forms of licence arrangement
Identify the different forms of licence arrangements that exist in your jurisdiction.
South Africa does not have a specific legislation on intellectual property (IP) licensing, however, various IP Acts (such as the Patents Act No. 57 of 1978 (PA); Plant Breeders’ Rights Act No. 15 of 1976; Copyright Act 98 of 1978 Designs Act No. 195 of 1993 and Trade Marks Act No. 194 of 1993) contain rules governing at least part of the licensing of those rights.
Types of licences
The following characteristics define some of the most pertinent aspects of licence agreements:
- exclusive, sole, non-exclusive;
- sub-licensing provisions;
- running royalty, upfront payment, combination;
- ownership of improvements;
- territory; and
- licensed object.
A licence may be exclusive, sole or non-exclusive.
An exclusive licence permits only the licensee and persons authorised by the licensee to exploit the invention and therefore exclude all other persons from doing so, including the patentee.
A sole licence permits the patentee to work the patent but prevents the grant of additional licences, as opposed to an exclusive licence, which excludes the patentee from exploiting the patented invention.
A non-exclusive licence allows the patentee to retain the right to exploit the licensed property as well as the right to grant additional licences to third parties.
The South African Patents Act contain provision on compulsory and cross licences.
The South African common law and case law contains a substantial body of law, clarifying these rights.
There is no fixed list on the types of IP that can be licensed, for example, licences for patents, trademarks, know-how, software, domain names, plant varieties and other IP rights.
Law affecting international licensing
Creation of international licensing relationship
Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.
Depending upon the parties and rights involved in the licence, the legislation most likely to impact an international licensing relationship will be exchange control regulations (see question 23).
The Patents Act restricts the use of certain licensing terms as listed under question 7.
The Competition Act is concerned with anticompetitive behaviour more generally, and seeks to regulate the relationship between competitors, suppliers and customers.
These laws can be used to prevent dominant parties forcing others into perpetual licences, or manipulating markets by contracting with anticompetitive royalty rates or minimum supply requirements from a given supplier.
What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?
There are no formal requirements for pre-contractual disclosure of non-franchise licence agreements in South Africa. Subject to the transaction and resources at hand, parties may wish to agree upon a due diligence process similar to that for a corporate acquisition; however, for many small-scale licences (such as generic software licences) this is neither feasible nor necessary.
However, If the licence agreement Is also a Franchise Agreement, then material disclosure Is required in terms of the Consumer Protection Act and the regulations thereto.
Licensors should be aware of the impact of inducing a licensee to enter into an agreement by misrepresentation, which can lead to rescission of the contract, or a payment in damages to the licensee. Silence may constitute misrepresentation in some circumstances, and accordingly a licensor may wish to make some limited disclosure, or include some level of warranty in any licence.
There are no requirements to register licences to confirm their validity; however, it is advisable to register exclusive patent licences and any trademark licence with the CIPC on the application registries.
Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?
Commercial entities contracting in South Africa are able to agree to such terms as they wish, provided that the agreement is freely entered into by all the parties. While the position is not entirely settled, South African courts have typically been reluctant to imply general ‘good faith’ obligations into contracts.
South African courts have a limited discretion to imply terms into agreements, where such a term is required to give business efficacy to an agreement, or is obvious to both parties to have been a term at the time of formation; however, the courts will not intervene to resolve a bad bargain where both parties have freely entered into the agreement, to the ultimate detriment of one or both.
Termination is similarly subject to the agreement reached between the parties and may be unilateral and without cause if the parties will agree it. However, where an agreement is silent on both its term and termination the courts will imply a term that an agreement is terminable on reasonable notice, though reasonableness will be judged on the facts at hand in each case, rather than a statutory standard. There is also no obligation for good cause for non-renewal.
Intellectual property issues
Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?
South Africa is party to the Paris Convention Paris Convention for the Protection of Industrial Property 1883 (1 December 1947), the Patent Cooperation Treaty 1970 (16 March 1999) and the Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (1 January 1995).
Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?
In the case of Fuel Economy Co Ltd v Murray, the court stated that there is not an absolute estoppel in all cases and in all circumstances on the part of the licensee under which he or she is prevented from at any time and under any circumstances saying that the patent is invalid. Section 90 of the Patents Act lists certain clauses that should not be included in licence agreements, as these clauses would be regarded as being null and void:
(1) Any condition in a contract relating to the sale of a patented article or to a licence under a patent of which the effect will be:
(a) to prohibit or restrict the purchaser or licensee from pur- chasing or using any article or class of articles, whether patented or not, supplied or owned by any person other than the seller or licensor or his nominee;
(b) to prohibit or restrict the licensee from using any article or process not protected by the patent;
(c) to require the purchaser or licensee to acquire from the seller, licensor or his nominee any article or class of articles not protected by the patent;
(d) to require or induce the purchaser to observe a specified minimum resale price in respect of any article or class of articles protected by the patent; or
(e) to prohibit or restrict the making, using, exercising or disposing of the invention concerned in any country in which the invention is not patented.
Invalidity or expiry
What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?
Typically, it will be a term of an IP licence that it will terminate in line with the expiry or invalidity of the right in question. However, there are some nuances depending upon the IP rights in question.
Patent licensors should be aware of the provisions of the Patents Act, where licences requiring indefinite payment of royalties or fees are likely to be in breach of the Patents Act, although an ongoing obligation for payment exceeding the term of the patent may be permissible where it pertains to know-how associated with the patent.
Trademark licensors may wish to be careful about accepting termination on the invalidation of a trademark, as the trademark may retain value as an unregistered trademark with its attendant goodwill. Should a licence not provide for expiry on the invalidation of the trademark, a licensee would need to demonstrate that the invalidity of the trademark was a repudiatory breach of the licence, or that the maintenance of that trademark was a condition of the agreement, in order to terminate.
Various unregistered rights, such as copyright, will expire over time, and agreements pertaining to such rights should take this into account in much the same way as they would otherwise pertain to expiry of registration.
Requirements specific to foreigners
Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?
South Africa has no special requirements for the registration of IP owned by foreigners, or for the registration of IP rights originating in another jurisdiction. The registration of IP rights originating outside or held by entities based outside South Africa should follow the standard registration processes in South Africa.
Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?
An unregistered right may be licensed, or assigned, to the extent that it can be defined in such a way as to grant sufficient certainty as to the scope of that property right. Unregistered trademarks are common in South Africa and are often licensed, as they are protected under the common law, thereby giving a licensee comfort as to the value of its licence. Similarly, licences of registered trademarks will typically incorporate reference to the attendant unregistered rights associated with that trademark, such as any goodwill accrued to it. Future or potential rights can be licensed prospectively.
Are there particular requirements in your jurisdiction to take a security interest in intellectual property?
Section 60 of the Patents Act provides that a patent or a patent application may be hypothecated and such hypothecation may be recorded in the patent register.
A registered trademark may be hypothecated by a deed of security having the effect of a pledge of movable property. The deed of security must be lodged with the Registrar of Trade Marks in the prescribed manner, whereupon the Registrar shall endorse the register of trademarks to that effect.
Copyright is frequently hypothecated. The manner in which such hypothecation is commonly achieved is by pledge as security.
IP rights are property rights, and are therefore capable of being subject to the usual security interests under South African law. IP rights can also be used to found or confirm that jurisdictions of the courts. However, if IP is used a security in favour of a non-South African person or entity, then the prior approval of the SARB is required prior to such security being given.
Proceedings against third parties
Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?
Section 53(3) and (4) of the Patents Act provides that the licensee under a licence granted by virtue of the endorsement of a patent may (unless in the case of a licence whereof the conditions are decided by agreement, the licence otherwise expressly provides) call upon the patentee to institute proceedings in respect of any infringement of the patent, and if the patentee fails to do so within two months after being so called upon, then the licensee may institute proceedings for the infringement in his or her own name as if he or she were patentee, joining the patentee as a defendant. A patentee so joined as a defendant shall not be liable for any costs unless he enters an appearance and takes part in the proceedings.
Subject to the provisions of any licensing agreement, there is nothing in South African legislation to restrict a foreign owner or licensor from commencing proceedings without joining the South African licensee.
Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?
There is no statutory right to sub-license in South African legislation. Licences should deal expressly with sub-licensing rights to avoid later dispute or inference.
Jointly owned intellectual property
If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?
Generally, co-owners are not free to deal with jointly owned IP as they wish. Any exploitation, including the licensing of such co-owned IP must be done with the consent of both the owners thereto.
First to file
Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?
South Africa is a ‘first to file’ jurisdiction. Patent applications are considered personal property and, accordingly, grants of rights may be made out of them.
Scope of patent protection
Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?
The Patents Act precludes software, business process or method from being patented; however, living organisms have not been expressly ruled out of being patented, provided that the exceptions as provided in the Patents Act are not applicable. The Patents Act provides further that a patent shall not be granted for any variety of animal or plant or any essentially biological process for the production of animals or plants, not being a micro-biological process or the product of such a process.
Trade secrets and know-how
Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?
South Africa does not have specific legislation governing trade secrets or know-how, though they can be effectively protected under South African common law.
Trade secrets can be protected if it can be established that the information has the necessary quality of confidence, and that anyone with access to the information owes its owner a duty of confidence. It is not a requirement that a given recipient enters into a non-disclosure agreement, though it is indicative of a relationship of confidence. If a recipient then discloses that information in breach of that confidence, legal action can be taken by the owner.
Parties will often enter into agreements when transferring trade secrets or know-how between each other for any purpose expressly protecting the use and handling of the information, and setting out the indemnities in respect of their loss or misuse. It is also common in such agreements to include an express reference granting the right to seek an injunction as first recourse in the event that the information is lost or misused. The courts have been willing to grant injunctions in recognition of the importance of trade secrets.
Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?
Parties are free to contract so as to restrict the disclosure of trade secrets to third parties, and will ordinarily do so. Confidentiality provisions will typically be drafted to survive the agreement and be severable, as disclosing parties will wish to protect their trade secrets indefinitely, rather than just for the term of a given licence; any loss of confidentiality in the future will limit the capacity of the disclosing party to monetise that information going forward.
What constitutes copyright in your jurisdiction and how can it be protected?
The owner of copyright in a work is by statute given the exclusive right to perform certain specified acts in respect of his or her work or to authorise others to do so and hence to prevent unauthorised persons from performing those acts. Only certain specified categories of works defined in the Copyright Act are eligible for copyright protection.
Only works that fall within the following categories are eligible for copyright protection:
- literary works, irrespective of their literary quality:
- ‘literary’ works include: novels, stories and poetical works; dramatic works, stage directions, cinematograph film scenarios and broadcasting scripts; textbooks, treatise, histories, biographies, essays and articles; encyclopaedias and dictionaries; letters, reports and memoranda; lectures, speeches and sermons; and tables and compilations, including tables and compilations of data stored or embodied in a computer or a medium used in conjunction with a computer;
- artistic works irrespective of their artistic quality:
- ‘artistic works’ include: paintings, sculptures, drawings, engravings and photographs; works of architecture, being either buildings or models of buildings; and works of craftsmanship; and
- ‘drawing’ includes any drawing of a technical nature or any diagram, map, chart or plan;
- computer programs;
- musical works;
- cinematograph films;
- sound recordings;
- programme-carrying signals; and
- published editions.
The respective terms of copyright protection for the different categories of works are as follows:
- literary works, artistic works (other than photographs) and musical works - for the life of the author and 50 years from the end of the year in which he or she dies;
- computer programs, photographs and cinematograph films - 50 years from the end of the year in which the work is lawfully made available to the public or is first published, whichever term is the longer. If neither of this happens within 50 years from the making of the work, 50 years from the end of the year in which the work is made;
- sound recordings - 50 years from the end of the year in which the broadcast first takes place;
- broadcasts - 50 years from the end of the year in which the broadcast first takes place;
- programme-carrying signals - 50 years from the end of the year in which the signals are emitted to a satellite; and
- published editions - 50 years from the end of the year in which the edition is first published.
Perpetual software licences
Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?
Parties to agreements in South Africa are free to contract for any term that they wish. There is therefore no bar to a perpetual licence, but to ensure the functioning of the licence in practice, parties should contract clearly that the licence is in perpetuity, and also directly address termination.
Practically speaking, software has a limited lifespan relative to the copyright protection it is entitled to, and accordingly parties are unlikely to come upon issues of enforceability owing to duration.
Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?
As software can be protected by copyright, an exclusive licence to a piece of software should be in writing and signed by or on behalf of the copyright owner. This is typically the licensing entity, but copyright ownership should be checked in advance of entering into any licence. Beyond this there are no bespoke requirements pertaining to software licensing.
South Africa has exchange control restrictions on the outward licensing of IP, and these licence agreements require the exchange control approval from the SARB. The approval by the SARB or designated commercial banks is required for outward payment of licence fees or royalties.
Restrictions on users
Are there any legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?
There is no restriction in South Africa against the inclusion of disabling code in software, and indeed a licensor would be wise to include such a power in order to maintain control against misuse or infringement of its IP rights. Accordingly, the exercise of such a power is primarily subject to the contractual terms between the parties; if the licensor reserves the right to terminate for material breach then it would have the right to use disabling code.
This being said, unilaterally disabling a licensee’s software would be an at-risk decision for the licensor, as if the licensor was wrong about the breach, or if the breach was ultimately not material, the licensor would itself be in breach of the licensee. It is therefore to be recommended that any use of disabling code is subject to typical material breach notifications and procedures.
Royalties and other payments, currency conversion and taxes
Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?
South Africa has significant exchange control regulations in place that restrict and require approvals for payments in international licensing relationships.
The exchange control regulations of the SARB are applicable are Regulations 10(1)(c) and 10(4).
Regulation 10(1)(c) prohibits ‘[entry] into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic’ without ‘permission granted by Treasury in accordance with such conditions as the Treasury may impose’.
Regulation 10(4), stipulates for purposes of 10(1)(c) that: ‘capital’ shall include without derogating from the generality of that term, any IP right, whether registered or unregistered; and ‘exported from the Republic’ shall include, without derogating from the generality of that term, the cession of, the creation of a hypothec or other form of security over, or the assignment or transfer of any IP right, to in favour of a person who is not resident in the Republic.
An application for approval is made by the South African entity through an authorised dealer in foreign currency, which is usually the entity’s commercial bankers. Exchange control approvals are invariably granted on the basis that: the consideration payable represents a price payable between notional arm’s-length parties; and that it is fair and reasonable in all the circumstances; and further, invariably, is supported by that an auditor’s confirmation that the proposed price meets these requirements.
Typically, where the IP right in issue has been commercialised or commercialisation is imminent, exchange control requires an appropriately motivated valuation substantiating the price to be furnished.
Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?
The SARB has placed several restrictions on capital flows to and from South African. The restrictions are regulated in terms to the SARB exchange control regulations. The authorisation of some payments where the parties are unrelated, the payment is for fair value (as supported by an auditor’s letter) and is part of an arm’s-length transaction may be authorised by commercial banks.
Taxation of foreign licensor
In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?
In general, non-resident licensors are only subject to tax in South Africa on income that is attributable to a permanent establishment in South Africa of that licensor; or to the extent that tax is required to be withheld by the licensee.
Withholding tax is imposed on payments of royalties for a number of different types of IP including patent royalties, copyrights, trademarks and design rights. There are certain reliefs from the duty to deduct tax, the most common being where a double tax treaty (DTT) concluded between South Africa and the jurisdiction in which the licensor is resident provides that the rate of withholding is to be reduced.
Where no reduction in the rate of withholding tax on royalties is possible, the current rate of deduction is 15 per cent (this rate may increase during 2019) of the royalty. If a licensor has suffered a withholding, it may be able to claim credit for South African tax withheld in its home jurisdiction, either under local law or under the provisions of any applicable DTT.
Competition law issues
Restrictions on trade
Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?
Several provisions of the Competition Act are relevant. Section 5(1) of the Competition Act prohibits agreements between firms in a vertical relationship that would have the effect of substantially preventing or lessening competition in a market or that relate to minimum resale price maintenance. The Competition Act further prohibits the abuse of dominance.
Price fixing, collusive tendering and market division as well as minimum retail price maintenance are thus per se prohibitions in the Competition Act.
Typical restraint provisions applicable to franchising, which may have possible competition implications, require careful consideration. It must be noted, however, that the extent to which competition concerns may arise would depend largely on market definition, which the Commission will do on a case-by-case basis, taking into account both geographic and product dimensions. The Competition Act prohibits the practice of minimum resale price maintenance. In the context of franchising, exclusive territorial restrictions by a dominant franchisor could also be found to be anticompetitive, unless the franchisor concerned can show that pro-competitive or efficiency gains outweigh the anticompetitive effects of the exclusionary act.
The Consumer Protect Act further limits the instances when tying of products is permissible.
Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?
The duration of a licence rarely leads to competition concerns in itself, although it can be problematic where restrictions continue to apply to a licensee after a licensed right has expired.
Exclusivity may be permitted, depending on the market context; a licensor can also generally prevent licensees from actively soliciting customers from other countries. Prohibitions in internet selling have not yet been decided on by the courts.
Exclusive grant-back provisions, where the licensee is required to assign or license improvements back to the licensor on an exclusive basis, are likely to breach competition law. Non-exclusive grant-backs are permitted under the Competition Act.
IP-related court rulings
Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?
Indemnification, disclaimers of liability, damages and limitation of damages
Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?
Indemnities are generally enforceable and are commonly found in licence agreements as a way of mitigating losses without resorting to other principles of contract and delict (tort), which may be more difficult to prove, such as causation. Insurance coverage is available for those providing indemnities, and will be subject to the terms and conditions of the insurer.
Waivers and limitations
Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?
Parties will frequently wave or limit their liability, and such limitations will generally be enforceable provided that they are seen as fair and reasonable. Liability for death or personal injury as a result of gross negligence cannot be limited.
In terms of the Conventional Penalties Act, if upon the hearing of a claim for a penalty, when it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated, the court may reduce the penalty to such extent as it may consider equitable in the circumstances: provided that in determining the extent of such prejudice the court shall take into consideration not only the creditor’s proprietary interest, but every other rightful interest that may be affected by the act or omission in question.
According to De Lange v Deeb 1970 1 All SA 234 (O), an innocent party is not entitled to recover damages in lieu of the penalty, unless the contract expressly provides therefor. The courts, however, have recognised that if the contract stipulates that the creditor may recover both the penalty and damages, this gives the creditor power to choose between the two remedies, even though the contract did not state specifically that the claim for damages may take the place of the penalty. If the contract only contains a penalty stipulation and no clause reserving the rights to claim damages then a party’s claim would be limited to the amount of the penalty even if the possible damages claim exceeds the penalty.
Right to terminate
Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?
In South Africa, the principle of freedom of contract also applies to the right to terminate without conditions or limitation, subject to the terms of the contract itself. Wrongful termination may result in damages for breach of contract. Licensing relationships are not treated any differently in this respect.
South African courts will only apply the laws of agency where there is an agreement which establishes an actual principal and agent relationship (ie, where the agent is empowered to bind the principal, as a opposed to a mere licensing relationship.
Impact of termination
What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?
Generally, and without an agency relationship being present, a sub-licence will only be as good as the head licence. The South African law in this area is subject to evolution and the facts of each case would need to be considered. In order to protect the parties’ positions, IP owners should ensure that the effect of termination of a head-licence is clearly stated with respect to any sub-licences.
Impact of licensee bankruptcy
What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?
Upon a licensee becoming insolvent, a liquidator will be appointed to take control of the licensee’s assets. Similarly, if a licensee is placed under business rescue, a business rescue practitioner will take control of the licensee’s assets. The liquidator or business rescue practitioner will then decide how those assets should be distributed to ascertain as much value as possible for the licensee’s creditors. In business rescue proceedings, the business rescue practitioner may elect which contracts are to be kept in place and which on application to court are to be terminated.
It is common for licensors to structure licences to provide for express termination of the licence on the licensee being place in business rescue or being liquidated. In this way, the licensor can protect its valuable IP assets.
Impact of licensor bankruptcy
What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?
Normally, liquidation of the licensor would lead to termination of the licence agreement. The licensee can contractually agree to obtain an irrevocable right to continue using the IP, should the licensor be liquidated.
Governing law and dispute resolution
Restrictions on governing law
Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?
It is common in international licensing agreements for the parties to choose a governing law of a jurisdiction other than their own. There are no specific restrictions in this regard in relation to South Africa. When drafting the governing law provisions, the parties should take into account conflicts-of-laws principles, the ease of enforcements of foreign judgments, cost and the requirement of accessing local courts for injunctive relief (interdicts) on an urgent basis.
Contractual agreement to arbitration
Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?
Parties are free to agree to submit their disputes to arbitration. The parties may also agree to have the hearing conducted in a jurisdiction of their choosing. When agreeing to arbitration of IP disputes, the parties should carefully consider the varying forms of dispute which may occur to ensure that such a clause does not fall foul of public policy restrictions on the arbitrability of disputes. In South Africa, the validity of an IP right is not arbitrable, as the High Court has the jurisdiction over such matters.
Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
South Africa is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Accordingly, court judgment or arbitral awards are ordinarily enforceable.
Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?
Injunctive relief is available and is a frequent feature in IP and licensing disputes. Provided that the ordinary conditions for a contract are met, a party may waive their entitlement to claim specific types of damages, such as loss of profits and indirect losses. The ability to waive injunctive relief is limited, as the courts are available to assist parties where one party to a licence agreement is acting unlawfully or in breach of the licence agreement.
Updates & Trends
Updates & Trends
Updates and trends
The South African Copyright Act is in the process of being redrafted and is likely to impact on the types of works protected and the manner of the protection afforded. The South African Patent Office, in consultation with the Department of Trade and Industry, is in the process of implementing substantive search and examination on selected fields of technology - as per the IP Consultative Framework, which was approved by the cabinet on the 6 July 2016. At this stage it would seem as if the Patent Office intends to only perform a substantive search and examination on patent applications pertaining to pharmaceuticals and other chemistry-based fields. Other fields of technology are to follow suit, as the Patent Office builds capacity. It remains unclear exactly how and when substantive search and examination will be implemented, however, the Patent Office has indicated that the implementation date is imminent.
Formal accession and implementation by South Africa of the Madrid Trade Mark System is envisaged for 2020. Preparation and proposed amendments to South African legislation is currently underway.
The South Africa Reserve Bank has indicated that it intends relaxing some of the exchange control regulations pertaining to the export of intellectual property out of South Africa and we are awaiting these amendments in March 2019.