High Court declines to follow Reddot judgment
 The applicant, a South African company, was previously the proprietor of various trade mark registrations for the trade mark PROTEC in South Africa and abroad. On 4 July 1998, an assignment agreement was entered into between, inter alia, it and the first respondent, by which the PROTEC trade mark registrations were assigned to the latter. The applicant sought to set the assignment aside and argued that the assignment of the trade marks (and, particularly, South African trade mark registration no. 1987/10282 PROTEC) amounted to a “transaction whereby capital or any right to capital was directly or indirectly exported from the Republic” and therefore contravened Regulation 10(1)(c) of the Exchange Control Regulations. The applicant contended that the assignment agreement was therefore null and void, ab initio, so that the trade mark registration was, in law, never assigned to the first respondent and was still the property of the applicant. In doing so, it relied on the decision of the Witwatersrand Local Division of the High Court in Couve and another versus Reddot International (Pty) Limited and others 2004 (6) SA 425 (W) (“the Reddot case”). Regulation 10(1)(c) provides as follows: “10(1)(c) No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose – (a) …. (b) …. (c) enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.” It was common cause that no permission to enter into the assignment agreement had been granted by the Treasury. The first respondent raised two arguments in limine, namely, non-joinder (which argument was not proceeded with at the hearing of the matter) and prescription. It contended that the cause of action was based upon an alleged “debt” as intended by the Prescription Act 68 of 1969. As the debt arose at the date of the assignment, it would have become prescribed three years after the date of assignment. The Court first dealt with the following issues: 1. whether or not the 1998 assignment agreement, entered into without prior Treasury approval, constituted a contravention of Regulation 10(1)(c) of the Exchange Control Regulations; and 2. whether such a contravention of Regulation 10(1)(c), would have rendered the 1998 assignment agreement null and void, ab inito. Regarding the first question, the Court declined to follow the judgment in the Reddot case, which is the current legal precedent in matters similar to this one. The Court differentiated between the issues in the Reddot case and those in casu, pointing out that the earlier case did not involve the same facts. Reddot revolved around whether or not an allotment of shares and a resulting change in ownership of a patent application, contravened Regulation 10(10)(c). This case involved the question whether the assignment of a trade mark from a South African company to a foreign company constituted a contravention of Regulation 10(1)(c). The Court seemed to differentiate further between the transfer of rights in a patent, and the assignment of (the rights in and to) trade marks, both of which are, of course intellectual property rights. In the Reddot case, the Court held that the rights in a patent application constituted capital for purposes of Exchange Control Regulations. However, in this matter, the Court found that to interpret Regulation 10(1)(c) to include the assignment of a trade mark, amounted to an approach that was too expansive and broad and, consequently, that such an approach would be erroneous. This view was further supported by reference to the rule of interpretation of statutes which dictates that where a contravention is visited by a penalty, the wording of the prohibition must be narrowly and strictly interpreted. Contraventions of the Regulation are subject to a fine of R250 000, or a 5 years imprisonment, or both. The Court went on to point out that there was no law which explicitly requires Treasury approval for the transfer of intellectual property rights and that the exchange control manual which now specifically refers to intellectual property and which has been published by the Treasury (presumably as a result of the Reddot case), would not be applicable to this matter. The Court agreed with the respondent's argument that the drafters of the Regulations had never considered intellectual property to fall within the ambit of the Regulations and that commercial sense, in any event, suggested that Regulation 10(1)(c) was not intended to apply to intellectual property rights because the commercial impact of this would restrict trade and industry. For these reasons, the Court concluded that no case had been made out that the 1998 assignment agreement constituted a contravention of Regulation 10(1)(c). Regarding the second point, the Court found that the Legislature intended the penalty imposed in the Exchange Control Regulations to be a sufficient punishment for non-compliance and that it did not also wish to render an agreement invalid in the case of non-compliance. It was of the view that a grave injustice would result if the 1998 assignment agreement were to be declared null and void ab inito, particularly in light of the fact that the agreement had been concluded more than 11 years previously and that there had been no duty on the applicant to tender any form of restitution in exchange for the return of the intellectual property. Finally, the Court briefly dealt with the issue of prescription and found that the claim for the return of the trade marks had become prescribed. Chris Job Partner chris@adamsadams.co.za Werina Griffiths Professional Assistant werina-g@adamsadams.co.za |
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| 9/06/2012 | ||
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The firm practises directly in several Southern African countries and through long-established associates in others.
