Legal Update on Transfering IP Offshore

Unfortunately the President has published an amendment to the Exchange Control Regulations this month to provide for an expansive new definition of "capital" to include all forms of intellectual property.  This means that Reserve Bank approval is again required before you can sell IP ownership to a foreign person or corporation.

However, for those interested in democracy and law, there is a question mark over the validity of the amendment to the regulation...

In terms of section 85 of the Constitution, the President and other members of the Cabinet have executive powers, essentially the power to implement legislation.  In terms of section 44 of the Constitution, the power to make legislation sits with the National Assembly (i.e. parliament). The Courts, in turn, have the power to interpret legislation.

This is the “doctrine of separation of powers”.

Section 41 of the Constitution says that all spheres of government must exercise their powers in a manner that does not encroach on the integrity of another sphere.

The Currency and Exchanges Act of 1933 is the historical source of the President's present day power to make regulations bearing on “currency, banking or exchanges”. However, whether inserting a broad definition of “capital” into the Exchange Control regulations should be viewed as a new regulation for the purposes of implementing an existing law, or making new law, is a debatable point that the Constitutional Court could be called upon to decide. The very broad powers granted in 1933 might not stand up to modern constitutional scrutiny.

 

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Comment by Brendan Hughes on June 29, 2012 at 13:37

Hi George,

It's the sale of IP ownership rights that Exchange Controls are concerned with, not reproduction of IP offshore. In other words, the financial act of moving an IP asset off your own balance sheet and onto a non-resident's balance sheet, not than the practical act of publishing or licensing IP offshore. I'll amend the blog post above to make this clearer.

Comment by George Gombay on June 29, 2012 at 12:52

Hello Brendan,

Thank you for alerting us to this new development with its important implications.

Maybe while we are on the subject, you could perhaps clear up for me something about this IP export thing which has had me puzzled for while.

What would it mean in practice to try and conrol the movement of IP? Does this translate into restrictions on the conversion of patents and/or  copy rights?

When it comes right down to it, an IP is a recipe, a secret sauce or an invention etc..

So it seems to me that if a person were really determined to take IP out of the country, all that he or she would need to do is to carry the formula or the essence of an invention in their head when they step on a plane for a flight overseas. Obviously the more complex discoveries might overburden such a person's memory, but much the same results would be achieved by discreetly recording and transporting the details of such IP on a UBS stick or CD-ROM diskette. In the case of software programs it is even simpler; in this age of the internet  a person could easily transmit such material throuhg cyberspace.

I  can't see how that sort of thing could be controlled or prevented in practical terms.

So wouldn't any attempt to try and put barriers on the export if IP-related capital or to enforce controls on the export of such intangibles be essentially an exercise in futility?

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