Intellectual Property Rights from Publicly Financed Research Development Bill [B46-2008]: Public hearings

Science and Technology

30 July 2008
Chairperson: Mr G. Oliphant (ANC)
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Meeting Summary

The Committee heard five submissions that raised several legal drafting issues, stressing the need for clarity, and also raised matters of principle and policy in the Intellectual Property Rights from Publicly Financed Research Development Bill (the Bill). It was noted by a few presenters that not only should the law create certainty, but should be capable of implementation for efficient intellectual property management. There was a need to balance commercialisation with innovation, research and development. There was a need to determine the scope of the rights of intellectual property creators, and to determine the nature, extent and principles according to which benefits could be shared between intellectual property creators, the research institutions to which they were affiliated, and the organs providing the funding for research and development activity. The point was also made that there had been little contribution in the consultation process from small, medium and micro enterprises.

Contributors from the Agricultural Research Council (ARC) and the Council for Scientific and Industrial Research (CSIR) argued that by prescription of 20% of revenues to go to intellectual property creators would hinder competition between institutions, would interfere with arrangements already in place, created uncertainty because the “revenue” was not defined, and that if this provision were to be retained, then at the very least clause 10 must be re-written. The Committee was concerned that the lack of prescription could give rise to exploitation, whereas the institutions claimed that this was not so, that most were paid over this amounts anyway, that the allocation should be directed to those researchers whom the institutions wished to grow and retain, and that guidelines could be created without legislating in cases where this was necessary. 

The input from the University of Pretoria emphasised the need for academic freedom in implementing the Act and pointed out the implications of the Bill’s definition of ‘’intellectual property” and the regulations related to disclosures.

A joint submission, by Anglo Operations Ltd, Anglo Platinum Ltd, Sappi Ltd and Sasol Ltd, addressed the possible conflicts with international intellectual property legislation, but said that this could be cured by the provisions in clause 15. The concept of defensive use of intellectual property rights was addressed in detail, and it was stressed that this legislation must also take into account the practical realities of business.  The territorial jurisdiction was questioned. It was necessary to nourish the relationship between research institutions and private industry. The question of “full cost’ funding, similar to what was outlined previously, was touched upon. Copyright and publication of student theses must also be considered, and it was suggested that this matter was best left to negotiation, as was currently the case.

The South African National Energy Research Institute asked that it be included in Schedule 1, which listed the statutory institutions recognised for the purposes of the Bill, and motivated its request by giving a background to the organisation and its operations, structure and research projects and funding. 

Members asked a number of questions of clarity and debated at some length the main issues outlined, stating that these would form the basis of further negotiations and discussions around the Bill.

Meeting report

Intellectual Property Rights from Publicly Financed Research Development Bill: Public hearings

Professor Naidoo, University of Pretoria, (UPE) Submission
Professor Naidoo, University of Pretoria, supported the spirit and intent of the proposed legislation. However, he expressed several reservations on the drafting, suggesting that amendments were needed to improve the legislation’s ability to enable and support the protection of intellectual property emanating from publicly financed research.

He submitted that the Bill and its implementation must not in any way hinder the enterprise of teaching and knowledge generation. Secondly, it was suggested that there was a need for an alternative to court proceedings through a dispute resolution mechanism to provide for the eventuality of a dispute between the National Intellectual Property Management Office (NIPMO) and any entity that received funding from a funding agency to undertake research and development. Thirdly, it was recommended that exclusive licensing should be specifically enabled (not just allowed) by the legislation to cure any ambiguity. This submission recognised exclusive licensing as a key tool to encourage private sector development and venture capital investment. Fourthly, comment was made on the provisions relating to the conditions for intellectual property transactions with particular focus on clause 11(e) which allocated an irrevocable and royalty-free licence that authorised the State to use, or have the intellectual property used throughout the world, for the health, security and emergency needs of the republic. Professor Naidoo pointed out the need for definitions of the conditions under which the State could exercise such a right, to give clarity on the way that this provision would operate in reality. It was also necessary to explicitly spell out the mechanisms for such declarations and to harmonise the Bill with South Africa’s international obligations, especially the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) 

Prof Naidoo re-affirmed the value of universities as the primary developers of new knowledge and knowledge workers, pointing out that they produced the human capital required for an innovation driven economy. There was a need to position universities in the social fabric in a closer proximity to communities than to other structures or institutions. He also pointed out that the regulatory environment should aim at ensuring conditions in which the innovation passion could thrive and that universities would continue to partner with the legislature and government in taking this process forward.

A Member asked a question on the Broad Based Black Economic Empowerment (BBBEE) and asked Prof Naidoo to clarify his statement that there were compliance issues at play. She asked if he had practical illustrations for his statements.

Professor Naidoo responded by stating that this was a minor point that he had made, and he had argued that legally there was no equity in the BBBEE arena, but only compliance.

Another Member asked for further clarity on the suggestion for provision for dispute resolution procedures.
Prof Naidoo responded that the current wording of clause 9 seemed to suggest that if there were any dispute between NIPMO and the recipient, then recourse could only be had to the court to solve the matter. He suggested that the legislation should aim rather for this to be the exception. Therefore there was need to make provision for alternative dispute resolution mechanisms.

Another question was raised on clause 11.

Prof Naidoo responded that clause 11 of the Bill was concerned with the exclusive licensing of intellectual property. The University of Pretoria endorsed exclusive licensing. His comments on clause 11(e) of the Bill, which empowered the State to have an irrevocable and royalty free licence for use of intellectual property in certain defined circumstances, had been to the effect that if this clause were included, then there should be clarity on the exact nature of the circumstances and conditions for such use.

The Chairperson thanked Prof Naidoo for his contribution and recognised the importance of distinguishing between law and regulations. He expressed the concern, however, that Prof Naidoo appeared to suggest that regulations ought not to be included, stating that in fact they were intended to support the law, and that this would have to be further debated. He was interested to hear the submissions on foreign law and noted that the differences between international and South African definitions would have to be reconciled. 

Agricultural Research Council (ARC) Submission
Ms Nthabiseng Moselakgomo, representative of Agricultural Research Council, reminded the Committee of the ARC’s mandate, which included conducting research, technology and development, technology transfer, promoting agriculture and industry, and ensuring national resource conservation. She noted that the ARC had comments on clauses 9, 10, 12 and 13 of the Bill.

In respect of Clause 9, the ARC took issue with the word “provide” in clause 9(4)(e), as it felt that it was too authoritative and should be replaced with the word “develop”. This particular clause was concerned with the functions of NIPMO and it was the opinion of the ARC that the recipient must be part of the decision making process and that there was a need to relax compliance guidelines so as to afford the recipient an opportunity to manoeuvre, within business constraints, on a case by case basis, subject to NIPMO’s discretion.

With regard to clause 10(1), this stipulated the rights of intellectual property creators to benefit-sharing. The ARC was uncomfortable with the requirement that benefits could only accrue to South African citizens or persons who were ordinarily resident in the Republic until such rights expired. Ms Moselakgomo pointed out ARC’s own reliance on foreign skilled labour and expressed the fear that this section would discourage qualified researchers from foreign countries from participating in any advancement of South African research. She pointed out that foreign employees would eventually leave the country, and that new opportunities could be hampered.

The Chairperson intervened to note that it was a concern that the proceeds or benefits of intellectual property were being repatriated to foreign countries and that for this reason the State was compelled to intervene.

The ARC continued that in regard to clause 10(2), the stipulation for a minimum of 20% of the revenues generated by intellectual property for intellectual property creators should be removed from the Bill. It was suggested that the share of the benefit payable to the creator of intellectual property should left to the discretion of the recipient, largely as a result of existing incentive schemes that adequately remunerated innovators. Alternatively, it was suggested that the stipulation of 20% should apply to net revenue only as opposed to an all embracing gross figure that did not take into account the cost involved in research and development.

The ARC regarded Clause 12(1), which placed restrictions on offshore intellectual property transactions, as a ‘restrictive and cumbersome’ provision that could negatively impact on trade. There was a need to allow flexibility and the ambit of the legislation must require NIPMO simply to be notified of offshore intellectual property transactions for record purposes, and not for approval.

The ARC expressed support for Clause 13, which provided for funding, statutory protection and maintenance of intellectual property rights, but suggested that it be extended to provide for funding for the enforcement of intellectual property rights in recognition of the legal costs involved.

In conclusion the ARC expressed its support for the Bill and indicated the steps that it had already taken towards implementing the new law, by the establishment of an office of technology transfer and an intellectual property policy.

A Member asked if the ARC was involved in the consultative process to the Bill

Ms Moselakgomo responded that ARC would respond to this question at a later stage.

The Chairperson queried the submission about the removal of the 20% minimum, highlighting the problem of exploitation

Ms Moselakgomo responded that institutions should rather have the autonomy to decide on an appropriate amount.

Mr Oliphant commented that while he accepted that point it did not address the danger of exploitation. He did not think that the Committee would agree with that suggestion. 

Joint submissions by Anglo Operations Ltd, Anglo Platinum Ltd, Sappi Ltd and Sasol Ltd.
Ms Morne Barradas, Patent Attorney with Sasol, Mr Theo Doubell, Attorney with Bouwers Intellectual Property Attorneys, and Mr Hugh Lane, Sappi, represented the four companies. They provided a material part, if not the majority of private money being made available for research and development at institutions.

Mr Doubell began by affirming unequivocal support for the Bill and the intentions of the legislature. He made some introductory remarks about the intention of the Bill, and noted that research generally fell into one of the three categories of public, private or co-financed research. The majority of all research and development was co-financed research, and so it was important to consider the fact that the crux of co-financed research was the public/private relationship. If this was not fostered and protected then whatever one wished to get from co-financed research would be at risk. According to Mr Doubell, the primary aspect underlying the relationship was the managing of public funds, the securing of benefit for South Africa in general, and the protection of that relationship. It was necessary to ensure that the commercialisation of research and development was done in a sustainable and viable manner.

Mr Doubell submitted that there was a conflict between this Bill and international intellectual property legislation. International property, internationally, was based on creatorship and rights flowing from there, whereas this Bill was based on public finance and the vesting of ownership in institutions. According to Mr Doubell, a real threat of conflict existed should any challenge be made on the ownership rights of institutions since the prevailing legal position was that intellectual property vested in the creators. This would remain, in his view, regardless of what this Bill said.  However, this potential conflict could be cured, by the existence of a provision in clause 15 for a commercial agreement to be negotiated. However, he said that it still remained unclear how the concept of co-ownership could be realised in practice, considering the inseparable nature of use and ownership. There was a danger that the bargaining process itself could be biased in favour of public institutions. The important principle of certainty and clarity of legislation made it vital that this Bill have precision in the meaning and scope of intellectual property rights, ownership and co-ownership to allow for predictable outcomes that fostered the well-being of the private/public relationship.

Ms Barradas dealt with commercialisation and introduced the concept of defensive use of intellectual property rights. The crux of her argument was that the definition of commercialisation must take into account the practical realities of the business world; for instance, because of market competition it may be unwise to publish research outcomes until an ideal time (such as when an entity had successfully completed research and development and was now capable of commercialising the intellectual property). She pointed at the reality of international competition. SASOL was a relatively smaller company on the global market with fewer resources for research and development activities than other international giants. These scarce resources must therefore be strategically used in innovation and research efforts and in identifying key intellectual property to preserve or protect competitive advantage. Defensive use of intellectual property was thus a viable cost-effective way of achieving these objectives, since market competitors had larger resources at their disposal enabling them to maximise on intellectual property. In the market the control of intellectual property was manipulated for competitive advantage, to ensure the sustained viability of a corporation such as SASOL in a global context. She therefore proposed that the definition of commercialisation in the Bill should include the idea of defensive use. This could be achieved by inserting the words ‘including defensive use’ in the clause concerned.
The next issue concerned the definition of revenue and paid particular attention to the issue of non-monetary benefits. There was uncertainty how monetary benefits were to be shared, valued or otherwise dealt with in terms of clause 10. Therefore non-monetary benefits should be excluded from the definition of revenue. On the other hand, suggestions could be given about how non-monetary benefits could be valued. For example, contrary to the assumption that patent rights would expire after the patent had expired, such rights could be used defensively in ways that were not quantifiable in monetary terms.

A question was raised about the Bill’s territorial jurisdiction, in terms of the provisions limiting foreign intellectual property use. She therefore requested clarification on the relationship between institutions and private industries and how this could be structured. Examples were given of situations where failure to clarify small matters in the legislation could result in unintended results or confusion.

Ms Barradas then commented on conditions for intellectual property transactions. It was submitted that the intellectual property owner should not be restricted from exploiting the intellectual property outside the Republic. She submitted that there was not clarity as to the full ambit of the legislation in a situation where, for example, a patent was registered in South Africa with equivalent registration in USA and Europe.

Ms Barradas remarked that it was important to nourish the healthy relationship between research institutions and private industry, in view of their interdependence and the need to realise the important role that private industry played in commercialising innovation and research and development.

Mr Hugh Lane, representing Sappi, dealt with “full cost” funding, stating that if these costs were paid, the effect was to grant an exemption. The  method of calculating the exemption fee must take into account the different accounting practices by institutions. It was a real task for NIPMO to collaborate the different percentages allocated to direct and indirect costs. He reiterated the need for certainty, especially because of the sensitivities to international competition. He argued that uncertainty was unaffordable for business entities in an environment of global competition, and therefore it would be important to be able to determine costs accurately, such as by being able to refer to “full economic costs”.  Private organisations would be very cautious of committing large sums of money into research only to discover later that they were not entitled to ownership of intellectual property.  Certainty was thus required over the ownership of intellectual property, and suggested amendments were put forward (see detailed presentation).

Mr Lane also addressed an issue arising from the presentation by the University of Pretoria around copyright, and the publication of a student thesis. This was a sensitive issue for private industry. For instance, the publication of a thesis before commercialisation of the research would jeopardize commercial use of the intellectual property, since publication put sensitive information into the public domain. Publication of a thesis made it impossible to fulfil one of the fundamental requirements of a patent, being the requirement of novelty. This was a key matter in the negotiations between organisations and intellectual property creators, and this relationship was likely to be destabilised as result of the uncertainty surrounding ownership under the Bill. It was the belief of the private sector funders that this matter should be left to negotiation, as currently governed the relationship, to allow for flexibility as opposed to trying to impose a “one-size-fits-all” solution. The problem with copyright was that it only protected the way in which words were used in a piece of writing, but not the actual content itself. It was therefore an inadequate protection for “patentable” information. The publication of research work in a thesis was premature in view of the patent registration process in terms of timing.

Mr Lane also went on to identify the definition of intellectual property as too broad because of the word “involved’’, which he suggested required amendment to acquire a more precise meaning. A number of other definitional issues were raised, including, non-monetary benefits. He also cited some drafting matters, such as the verbosity of certain clauses.

In relation to the prescribed minimum of 20%, Mr Lane pointed out that the Competition Act applied, and universities must be allowed to compete. The rivalry between competitors was an attractive environment for innovators. Remuneration should thus be left to in-house schemes and remunerators must be exposed to competition with other institutions, so that if one institution does not adequately remunerate its innovators, then they would move. He submitted in any event that 20% was too low as a minimum, which in alone was reason enough to remove it, but that the greater picture of competition must be taken into account. If the Committee decided that it should remain, then the earlier submissions around net revenue should apply. 

A Member requested clarity on the issue of co-funding and also posed a question on the 20% issue. She wanted to know if there were problems that could arise in future in regard to these suggestions.

Mr Doubell: responded that the co-funding aspect of the Bill may be the most difficult to interpret. He suggested that it would be advisable to move away from attempting to resolve the ambiguity between the law and regulations. In his view, it was important that ownership or the conditions under which it took place in co-funding were spelt out. This was not a huge task but was required for clarity. In regard to the 20% it was, in his view, debatable whether that was a small or large amount. The main problem was that once the percentage was set, it must be applied uniformly across the board. He personally felt that different universities, at different times and in different faculties, had a more or less competitive edge, had a stronger or weaker intellectual property regime, and that any attempts to regulate the funding or benefit split between the researchers and institutions would tend to generalise all the universities and remove the ability of the Minister and MIPMO to take other conditions into account. One of those conditions, as set out earlier, was the non-monetary benefits. He therefore wondered if it was still possible to say that 20% of that must go to the researcher. He was in favour of providing for an apportionment, but said that the actual percentage should not be legislated.

The Chairperson asked for clarification, as there appeared to be a contradiction between earlier submissions to the effect that non-monetary benefits should be removed and the argument that 20% ought not to be stipulated because of the difficulty in valuing of monetary benefits

Mr Doubell reiterated the call for non-monetary benefits to be removed the Bill, for the reason that it was difficult to quantify them and to attempt to do so for purposes of this Bill would be an administrative nightmare. He added that the complexity of funding initiatives made it nearly impossible to devise ways of splitting that money into monetary and non-monetary benefits. He indicated that he would think twice about locking himself into a fixed percentage in a decision to provide finance for research and development. At the end of the day, he concluded, the institution had autonomy to decide about how funds provided by the private sector were to be utilised.

Mr Oliphant commented that he did not think that the 20% stipulation by the Bill represented the full extent of benefit-sharing, but that it was only a minimum that attempted to avert exploitation. The argument presented amounted to letting market forces decide the fate of intellectual property creators. He thought that there was a need for legislation to protect ‘vulnerable” people who needed to be incentivised by the guarantee of at least 20%.

Mr Lane proposed that perhaps it would be useful to examine this from the perspective of intellectual property creators. He submitted that these were usually postgraduate students at institutions of higher learning, who were not accustomed to having huge sums of money available. It was more likely the post-doctoral students and senior academics who probably would be encouraged to stay at the university and incentives schemes would most likely be targeted at that second category of individuals. Therefore, he suggested, there would be no need to place large sums of money in the hands of people who were not accustomed to it as opposed to more senior academic stuff who were the target of university’s incentive schemes.

Mr Doubell said that the 20% was not from the private sector but from the portion belonging to institutions, and therefore not necessarily a private sector issue. He suggested that there was no need to legislate in an area where practices were already in place that adequately governed the interests of researchers and their affiliated institutions.

Mr Doubell noted that clarification was requested on the objection to the exclusion of copyright in a thesis in the definition of intellectual property. He distinguished intellectual property from intellectual property rights and then suggested the substitution of terms in the definition section to reflect a legally correct meaning.

Mr Oliphant queried the submission that the Bill could result in retrospective application.

Council for Scientific and Industrial Research (CSIR) Submission
Ms Rosemary Wolson, Intellectual Property Manager, CSIR, had to be restricted because of time constraints. She noted that the CSIR welcomed the changes in the new law but expressed reservations regarding issues of implementation and the absence of Small, Medium and Micro Enterprises (SMMEs) from the consultative process. She noted that  prior submissions had already made significant input on drafting issues, and had suggested amendments to particular sections, and she would not address these issues again in her oral presentation.

The CSIR held the view that issues of implementation of the legislation should be removed from the Bill and dealt with by the institutions themselves and through regulations. Clause 10, the benefit-sharing provision, was important not only because of the amount of time spent on it in prior submissions. She also pointed out the necessity to ensure that the Bill would achieve its purpose through the wording used.

The CSIR had policies in place to remunerate property creators at a rate of 30%, which was above the percentage stipulated in the Bill. The stipulated figure was therefore in itself not an issue. However it was felt that the apportionment of benefits from research and development between institutions and intellectual property creators should be left to the institutions. It was important to bear in mind that several institutions did have mechanisms, but she was not aware of any institution giving less than 20% to researchers. Indeed the average rate was 30%.  It was her opinion that there was already an established practice that exceeded the minimum and that institutions preferred to retain institutional autonomy. This issue could not be isolated from broader incentive schemes and human resources and finance policies in general. It might at best be a guide to institutions that did not have a particular policy, but she did not feel it was appropriate to legislate for it. She echoed an earlier submission that if the minimum was to be retained then it was important that the question of net or gross revenue be addressed. At the moment the 20% was on gross rather than net revenue. This became an important question for the CSIR, because it would only then be able to determine the amount of money to be invested in intellectual property protection. It would have to know what it could recover from commercialisation, might affect available funding for maintenance costs such as patent prosecution, or limit the funds that would be available for re-investment into research and development of technology. Ultimately institutions may cut back on broader incentives and remunerations schemes, leading to forms of inequity for the intellectual property creator. This was not the intention behind the legislation. The CSIR recommended that the scope of the clause should therefore be confined to the principle that benefits should be shared with intellectual property creators and that policies must be developed at an institutional level to make that possible. Should any minimum be retained in the legislation then it must be strictly limited to net revenue. It may be useful for NIPMO to structure a model benefit-sharing as a guideline for institutions to be able to benchmark their internal policies.

Ms Wolson said that an enabling environment was a key requirement for the establishment of best practice amongst organisations, considering the diversity of approaches to administration. This would be better than the administrative complexities that would result from the Bill. It would also allow for home grown practices that suited South Africa’s peculiar conditions and would allow for flexibility, taking into account that mistakes could be made and learnt from. Legislation was not a pre-requisite for the establishment of a vibrant intellectual property enterprise, as evidenced by comparison with other world-wide systems. Legislation could kick-start a process. This, until now, had been extremely valuable in raising awareness and getting sectors to engage with important issues. However, a fine balance needed to be achieved between stimulating technology and innovation and over-regulating. Technology transfer was only one method to strengthen linkages in the national system of innovation. There was a much broader relationship between industry and research institutions and universities. International collaboration was an important part of building capacity, and the exchange of knowledge and ideas. It was therefore important to ensure that collaborative efforts were facilitated and not hindered by legislation. There was also a need to promote the freedom to operate for research institutions through enabling intellectual property regimes.

Ms Wolson said that there had been little involvement by small, medium and micro enterprises (SMMEs) in the consultative process. This might be that people engaged in them could not find time for involvement in policy issues. However, their lack of input was worrying since one of the objectives of the legislation was to give SMMEs preferential access to opportunities arising from knowledge production from publicly financed research and development. She also said that the legislation should be of public benefit. She noted the need to monitor the Bill for unintended consequences, and called on the Committee to consider appropriate monitoring tools as part of the oversight. 

A Member asked Ms Wolson to define net revenue in terms of the nature of the costs referred to. She was also asked also to expand on her statements relating to effects of the Bill on collaborative research and unintended negative consequences.

Ms Wolson responded that net revenue meant costs generally connected with technology transfer, which would include costs associated with protecting and maintaining the intellectual property, and costs associated with the commercialisation of technology transfer, including substantial amounts related marketing of the technology and market research to determine who the licensees and beneficiaries were likely to be.

Ms Wolson said that her remarks on collaborative efforts were aimed at Clause 15, which envisaged large corporations but did not address other research collaborations. For example this clause appeared to govern collaboration between the private sector and international partners. There was some doubt at the moment concerning collaborations with overseas institutions and public institutions and how they might be affected by the Bill. It may be necessary to insert positive provisions in the Bill to define how such transactions fell into the scope of intellectual property.

In regard to the unintended negative consequences, she stated that this went to the heart of the objectives of the legislation. It aimed to create new South African technology-based companies and to ensure that these companies successfully increased commercialisation of technology. This was supported. However, in practical implementation terms, preference was given to large as opposed to small businesses. Various considerations must be made into what was best for the country. In some operating environments the ability to make quick business decisions would be hampered by a highly regulated environment. Freedom to do business must be balanced carefully with the need to advance the Bill’s objectives

Ms Wolson said that she had been asked whether legislation was necessary to achieve the objectives. She observed that the activity of technology transfer and innovation occurred without legislation in the United Kingdom and Canada. She said that it might not always be necessary to spell out through legislation how everything was done but that the law may be a foundation for principles and minimum standards.

The Chairperson posed a question on the 20% issue, asking what could be done about those who did not do anything for the creators of intellectual property. He asked that, in the event that non-monetary benefits not be included in the stipulation, what alternative ways could be used to share out  such benefits.

Ms Wolson submitted that there may be organisations that did not yet provide for benefit-sharing, perhaps because they had not received any benefits yet. The structure involving NIPMO should be the appropriate framework to guide institutions to allow for preservation of institutional autonomy. She submitted that this in no way implied that institutions were trying to prevent intellectual property creators from benefiting

South African National Energy Research Institute (SANERI) Submission
The representation of SANERI summarised that SANERI wished to be included in Schedule 1, which listed the statutory institutions recognised for the purposes of the Bill. The ARC was one of the other institutions listed in schedule 1. A brief background of the organisation was given and it was mentioned that it was established under a Ministerial Directive in response to concerns from government regarding perceived threats to indigenous energy research capacity. Information was provided on the organisation’s operations, structure, human capital development programmes, research projects and funding structure.

The meeting was adjourned.

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