Understanding Licence Agreements in South Africa: Legal Requirements and Key Considerations.

Licence agreements are a common form of legal agreement in South Africa, used to govern the relationship between a licensor and a licensee in relation to the use of intellectual property. In this article, we'll explore the legal requirements and key considerations for licence agreements in South Africa, including the purpose of licence agreements, the legal requirements for compliance and the potential benefits and risks associated with licence agreements.

What is a License Agreement?

A license or licensing agreement is a written document that allows one party (licensee) to use and/or earn revenue from the intellectual property of the owner (licensor). A license agreement also regulates the rights and obligations of the parties pertaining to the license.

What is the Purpose of a Licensing Agreement?

By entering into a licensing agreement, you ensure that you are legally protected by having necessary and requisite legal permission to use another persons intellectual property. In the absence of a licence agreement, you may infringe on copyright laws and risk being sued or fined.

A licensing agreement doesn't give you ownership over another entity's intellectual property, but it does allow you to use it as long as you are following the terms and conditions contained in the license agreement.

Ownership in the rights to the intellectual property are retained by the licensor, as opposed to an outright sale or assignment of rights (where the ownership in the rights actually passes from one person to another).

Some of the common purposes of licence agreements include:

• Commercial exploitation: Licence agreements can provide a way for intellectual property owners to exploit their intellectual property commercially, by granting others the right to use the intellectual property in exchange for compensation.

• Technology transfer: Licence agreements can facilitate the transfer of technology between parties, by allowing licensees to use the licensor's intellectual property in their own products or services.

• Legal protection: Licence agreements can provide legal protection for both parties, including protection of intellectual property and liability for damages.

Types of Licensing Agreements

Licensing Agreements can come in a variety of forms and cater for various industries and applications. Some examples include, inter alia:

• Exclusive licence: this give the licensee the right to use the intellectual property to the exclusion of all persons including the licensor. In other words, only the exclusive licensee has the sole right to use the intellectual property rights licensed.

• Non-exclusive licence: this gives the licensee the right to use the intellectual property, but does not restrict the rights of the licensor or other parties in any way. The licensor retains the right to license the work to third parties and to simultaneously use the rights licensed itself.

• Sole license: gives the licensee the right to use the intellectual property to the exclusion of all persons, except the licensor. A sole licence is similar to an exclusive licence except that the licensor also retains the right to use the intellectual property rights licensed.

Remuneration in terms of a License Agreement

A licensor can be remunerated for the licence granted to the licensee either directly or indirectly.

Direct remuneration entails remuneration by way of payment of money which can be structured in a number of ways. The most common ways are via, inter alia, a upfront lumpsum payment, an annual licence fee, an initial payment coupled with monthly or annual royalty payments, or simply just royalty payments.

Indirect remuneration entails remuneration in kind (i.e. not via a cash)

Foreign Licensor

Foreign entities have the option to license into South Africa without establishing a branch office or subsidiary. 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) may need to be procured for the outward payment of licence fees and royalties to a foreign company.

Benefits and Risks of Licence Agreements

Licence agreements can offer several benefits for both the licensor and the licensee, including:

• Commercial exploitation: Licence agreements can provide a way for intellectual property owners to exploit their intellectual property commercially, by granting others the right to use the intellectual property in exchange for compensation.

• Technology transfer: Licence agreements can facilitate the transfer of technology between parties, by allowing licensees to use the licensor's intellectual property in their own products or services.

• Legal protection: Licence agreements can provide legal protection for both parties, including protection of intellectual property and liability for damages.

However, licence agreements also carry risks for both parties, including:

• Legal obligations: Both parties may become legally obligated to perform the obligations of the licence agreement, and failure to comply with the agreement can result in legal action.

• Commercial risk: The licensee may face commercial risks associated with the use of the licensed intellectual property, such as quality control and regulatory compliance.

• Contractual risks: Licence agreements may have complex contractual obligations, and parties must ensure that they understand their legal rights and obligations before entering into a licence agreement.

Conclusion

Licence agreements are an important legal agreement in South Africa, used to govern the relationship between a licensor and a licensee in relation to the use of intellectual property. By understanding the legal requirements and potential benefits and risks associated with licence agreements, parties can make informed decisions and take proactive steps to protect their commercial interests and ensure compliance with legal obligations.

Barter McKellar’s specialist commercial attorneys have extensive experience with the drafting, vetting, reviewing and negotiating of licence agreements. If you would like to set up a consultation, contact our offices today.