The South African Government introduced the Intellectual Property Rights from Publicly Financed Research and Development Act No. 51 of 2008 (the IPR-PFRD Act) in order to provide for effective identification, protection and utilisation of intellectual property (IP) emanating from publicly financed research and development (R&D). The IPR-PFRD Act establishes the National Intellectual Property Management Office (NIPMO),[1] which is tasked with ensuring compliance with the IPR-PFRD Act. According to this Act, IP is defined as “any creation of the mind that is capable of being protected by law… any rights in such creation… but excludes copyrighted works… in the ordinary course of business, is associated with conventional academic work”.[2]

Publicly financed research and development refers to R&D undertaken using any funds allocated for R&D by a funding agency, be it State, a state agency or an organ of State, with the exclusion of funds allocated for scholarships and bursaries. According to the provisions of the IPR-PFRD Act, IP emanating from publicly financed R&D is owned by the recipient of said funding, which includes any Higher Education Institution, any Science Councils, any institution identified as such by the Minister of the Department of Science and Technology.[3]

A recipient that does not wish to retain ownership of its IP may, after notifying NIPMO of its decision and furnishing full reasons therefor, afford the IP creator an opportunity to own said IP, provided NIPMO elects not to own and seek statutory protection of the IP. Where a private entity has co-financed the R&D, such private entity shall first be offered such opportunity to own the IP. [4] A private entity may become a co-owner of the IP if it contributed to the resources, which may include:

• relevant background IP;
• if there is joint IP creatorship;
• if appropriate arrangements are in place for IP benefit sharing with IP creators; and
• if the institution and the private entity conclude an agreement for the commercialisation of the IP.[5]

The IPR-PFRD Act provides that any R&D undertaken at an institution and funded by a private entity on a full cost basis shall not be deemed to be publicly financed R&D and as such, the IPR-PFRD Act shall not apply thereto. Full cost is understood to mean “the full cost of undertaking the R&D as determined in accordance with international financial reporting standards and includes all applicable direct and indirect costs as may be prescribed”.[6] The indirect costs can include operational costs, costs relating to raw material, the use of laboratory, the use of electricity and water in the laboratory, and the costs associated with the time that each member of a research team of the institution spends conducting the R&D. Every two years an institution calculates an indirect cost recovery rate (ICRR) in line with guidelines[7] and is approved by NIPMO.[8] The approved ICRR is applied to the direct costs to determine the full cost of a project and is considered the best estimate of the direct and indirect R&D costs. However, where it is possible to accurately ascertain the direct and indirect costs of a R&D project, and thus no need to use the ICRR, such project would be deemed to be full cost and the IPR-FPRD Act will not apply.[9]

It must be noted that even if a private entity funds the research at full cost, this does not mean that the private entity owns the IP; it only means that any IP developed during the research project falls outside the scope of the IPR-FPRD Act, leaving it to the contracting Parties to freely negotiate the IP ownership and commercialisation. It is important for a private entity to note that where it wishes to own the IP from any research already conducted, it cannot retrospectively pay the full cost of the research, to transfer the IP emanating from the research out of the control of the IPR-PFRD Act once the IP has been created. It is therefore crucial that the research is fully costed at the commencement of the project, prior to the creation of any IP. In such circumstances, the private entity may negotiate with the institution for an exclusive or non-exclusive, royalty bearing or royalty free licence.[10] Alternatively, where the private entity, not having paid the full cost of the R&D, insists on IP ownership, an institution may seek NIPMO approval for a local assignment, and it must establish that the assignment is in the public’s interest. Where the assignment is an offshore assignment, the institution must show that there is insufficient capacity in the Republic to commercialise the IP locally; and the Republic will benefit from such offshore transaction.

Alternatively, where the research has commenced or been completed and the IP emanating from it is subject to the IPR-PFRD Act, it may be worthwhile for the private entity to settle for co-ownership of that IP. Each institution is mandated to request NIPMO approval (Form IP8 and the actual agreement) for a collaborative agreement prior to the commencement of any R&D activities, provided the four abovementioned requirements of co-ownership have been satisfied. Thereafter, a new agreement with the institution may be concluded in respect of the development of the IP emanating from the research. According to the IPR-PFRD Act, this agreement shall be null and void if the clauses of the agreement are not approved by NIPMO. In this new agreement, the private entity may then undertake to run the development phase at full cost, thereby granting it full ownership of the new foreground IP that emanates. It must however be noted that non-compliance with the provisions of the IPR-PFRD Act renders any transaction between the private entity and the institution void ab initio.

If you need further information and/or assistance with the IPR-PFRD Act and related matters, please contact Danie Dohmen at danie.dohmen@adams.africa or Dr Chris Nyarukowa at chris.nyarukowa@adams.africa.

[1] Section 8(1) of the IPR-PRFD Act

[2] Section 1(c) of the IPR-PFRD Act

[3] SARIMA NIPMO Guide to IP for Researchers (2013) 11

[4] Section 4 of the IPR-PFRD Act

[5] Section 15 (2)(a-d) of the IPR-PFRD Act

[6] Section 15 (4)(b) of the IPR-PFRD Act

[7] NIPMO Guidelines 5.2 of 2021

[8] Regulation 16(1)(g) of the IPR-PFRD Act

[9] NIPMO Interpretation Note 13: Everything you need to know about full cost 2021

[10] NIPMO Interpretation Note 2: Intellectual Property Transaction Approvals

Chris Nyarukowa

Associate | Attorney

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