The IPR-PFRD Act has come into force

The Intellectual Property Rights from Publicly Financed Research and Development Act 51 of 2008 (the “Act”) has come into force. The Act was proclaimed in the Government Gazette on 30 July 2010 and declared to come into operation on 2 August 2010.

What does this mean for private entities for which institutions conduct R&D?

Until now private companies contracting with the universities and research institutions to conduct research and development have been free to negotiate and agree on commercial terms. The Act makes certain consequences of the relationship between the parties, unavoidable - for example, institutions that create intellectual property with public funds will own the intellectual property, regardless of what may have been agreed between the parties.

The Act applies strictly to intellectual property (including know-how but excluding copyright in copyrighted works) created with public funds. If research and development undertaken by a university or public research institution is funded by a private entity on a full-cost basis, the intellectual property created will fall outside of the ambit of the Act.

An institution must periodically submit its formulae for the calculation of its “full costs” (direct and indirect costs for undertaking R&D) to a National Intellectual Property Management Office (NIPMO). Full costs must be calculated in accordance with international financial reporting standards and having regard for the institution’s financial policies.

In terms of the Act, the private entity may only become a co-owner of the intellectual property if:

  • there has been a contribution of resources, such as background intellectual property, by the private entity;
  • there is joint creatorship of intellectual property;
  • appropriate benefit sharing arrangements are made for sharing benefits with the intellectual property creators; and
  • the institution and private entity conclude an agreement for commercialisation of the intellectual property resulting from the research.

The Act places various restrictions on what an institution can do with its intellectual property. For example, it cannot assign this IP to another party unless it has made this decision in accordance with guidelines prescribed by NIPMO and notified NIPMO of this decision and the reason’s therefor. Furthermore, in any local IP transaction, an institution must prefer non-exclusive licensing over exclusive licensing and where an exclusive licence is granted, the licensee must undertake, where feasible, to manufacture, process and commercialise the IP in South Africa.

If you, as a private company, have contracted an institution to conduct research for you should decide if you would like to take ownership of the intellectual property created. If so, ensure that you fund the R&D on a full cost basis. If not, ensure that the restrictions that are placed on the ownership and commercialisation of intellectual property by the institution meet your business prerogatives and strategies.

We also recommend that you investigate which of your research arrangements with institutions are impacted by this legislation and, where necessary, negotiate amendments to any written agreements governing these arrangements.

What does this mean for a recipient of public funding?

It is important to note that the Act applies not only to universities and research institutions that usually create IP using public funds but also to private companies and individuals that create IP using funds obtained from a government funding agency, such as the Technology Innovation Agency and the Department of Trade and Industry.

The Act places obligations on the recipient of these funds with respect to the management and commercialisation of intellectual property that is created using the funds. In particular, a recipient must:

  • put in place mechanisms for the identification, protection, development and management of intellectual property and the commercialisation of intellectual property;
  • provide effective and practical measures and procedures for the disclosure of know-how;
  • provide effective and practical measures and procedures to ensure that know-how is appropriately protected before it is published or publicly disclosed;
  • assess intellectual property to determine whether it merits statutory protection and if so, apply for such protection;
  • negotiate and enter into intellectual property transactions with third parties, with a view to commercialising its intellectual property; and
  • in respect of an institution, put in place mechanisms to assess, record and report to NIPMO on the benefits for society of publicly financed research conducted in the institution.

The Act also stipulates that the functions of technology transfer offices of institutions must be performed by appropriately qualified personnel that have the knowledge and expertise in the identification, protection, management and commercialisation of intellectual protection. In particular, a technology transfer office must:

  • develop and implement policies for the disclosure, identification, protection, and commercialisation of intellectual property;
  • assess intellectual property to determine commercial potential, likely successes of commercialisation routes and appropriate forms of protection; and
  • attend to all aspects of intellectual property transactions and the commercialisation of intellectual property.

How does this affect the manner in which a recipient may commercialise its IP?

The Act places certain restrictions on how a recipient may commercialise its IP and obliges recipients to obtain approval from NIPMO before pursuing certain IP transactions.

Where a recipient licenses IP to another party it must ensure that it remains possible for the State to have an irrevocable royalty-free licence in the event that it requires to use the IP (or have the IP used) anywhere in the world for the health, security and emergency needs of the country. The implication of this is that, a recipient cannot grant an unconditional exclusive or sole licence to a third party since it may be necessary to also grant the State a licence to use the IP, in certain circumstances.

A recipient may determine, at its sole discretion, the terms of a non-exclusive licence under the IP, in South Africa, on an arms-length basis. Where a non-exclusive licence is not granted on an arms-length basis, or where the licence is royalty-free or where a licensee in either of the above two situations is granted the right to sub-licence on an arms-length basis or for a royalty, then the consent of NIPMO and the IP creators shall be required for the licence.

Before granting an exclusive licence, a recipient must ensure that the licensee is capable of developing the IP further where required and undertaking commercialisation thereof.

An exclusive licence agreement must include:

i )terms and conditions requiring the licensee to commercialise the IP to the benefit of the country;

ii )an irrevocable and royalty-free right of the State to use the IP for health, security and emergency needs of the RSA; and

iii)an acknowledgement of the State’s right to a licence in any field of use to any person on reasonable terms if the IP is not being commercialised.

Before concluding any arrangement involving any off-shore transaction (including the licensing or assignment of intellectual property to a foreign entity) a recipient must inform NIPMO of its intention to do so. Where the envisaged transaction does not conform to the regulations and NIPMO guidelines for off-shore transactions, prior written approval is required from NIPMO.

The regulations provide that a recipient may determine, at its sole discretion, the terms of a non-exclusive off-shore licence under the IP on an arms-length basis but that NIPMO approval must be obtained for any off-shore licence in terms of which consideration payable by a licensee to a recipient is not on an arms-length basis; the licence is royalty-free; or where a licensee in either of the above two situations is granted the right to sub-licence on an arms-length basis or for a royalty.

Any off-shore transaction must include a statement indicating that the IP was created with support from the SA government; that it is subject to the provisions of the Act; and that the government has certain rights under the IP in terms of the Act.

Where a recipient wishes to assign intellectual property offshore or grant an exclusive licence off-shore it must first satisfy NIPMO that the RSA will benefit from the transaction.

In summary, the provisions of the Act and its regulations are detailed and recipients will have to familiarise themselves with all the provisions. In addition, specific IP legal advice may need to be sought regarding the legality of any transaction involving publicly-funded IP that may be contemplated.

Should you require any further information in this regard please contact the author Dina Biagio on d.biagio@spoor.com or +27 12 676 1112.

Date published: 2010/08/18
Author: Dina Biagio

Tags: ipr-pfrd ip rights government gazette