Intellectual Property Rights from Publicly Financed Research Development Bill [B46-2008]: Department Response to Public Submissions

Science and Technology

05 August 2008
Chairperson: Mr G Oliphant (ANC)
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Meeting Summary

The Department of Science and Technology gave its response on the issues raised by different stakeholders during the second public hearing on the Intellectual Property Rights from Publicly Financed Research Development Bill. Whilst the DST accepted some of the recommendations made at the previous meeting, and suggested the removal of certain disputed sections of the Bill, it  emerged that other provisions would likely be retained in the final version or amended to accommodate concerns. The Department’s response identified the key issues emerging from stakeholder engagement with the Bill, such as the contested relationship between some of the Bill’s provisions and the regulations that were intended to implement them. The definition of various terms constituted a major area of concern, particularly regarding phrases like ‘ intellectual property’ ; ‘ non-monetary benefits’ ; ‘ commercialisation’  and ‘ net revenue’ . Advice was sought from the State Law Advisor concerning the appropriate use of terminology as well as clarification of the legal implications of certain clauses in the Bill, including the provisions related to dispute resolution. A significant portion of the response also dwelt on the issue of benefits to the public good and the Bill’s objectives towards accelerating innovation and technology transfer in a South African context. It also dwelt on the implications on international trade relations of the Bill in a global context by addressing concerns related to collaborative research and development initiatives and the status of foreign intellectual property creators with respect to benefit sharing. Significant progress was made towards the finalisation of the Bill and the Committee was hopeful that the Bill could be passed within the next month or so. Some suggestions were also given that stakeholders must be informed of these responses, and the manner by which they could be brought up to date was discussed.

Meeting report

Intellectual Property Rights from Publicly Financed Research Development Bill (the Bill): Department of Science and Technology (DST) Response to public submissions
Dr Philemon Mjwara, Director General, Department of Science and Technology, tabled a document giving a summary of the submissions in respect of the Bill. He outlined the main issues to which his responses would be directed, and said that he would highlight these submissions with a view to proposing ‘high-level’ suggestions about how the Bill could deal with them.

He summarised the main issues as including issues around regulations. Some submissions raised concerns about the Bill making reference to regulations, whilst other submissions suggested that certain clauses were to be moved to regulations. Another issue was that of definitions; a number of those making submissions had suggested text for the enhancement or change of certain definitions. Dr Mjwara pointed out that there could be substantial implications for interpretation and that there was a need to bear in mind certain subtleties. He cautioned that there was a need to avoid unintended consequences that could hamper international research and development collaboration, particularly bearing in mind that research and development was done in collaboration with others within the international research and development enterprise. Further issues around benefit-sharing were raised. The question of the public good had been raised, with reference to how the Bill addressed the need that its benefits accrued to the ordinary man on the street. Dispute resolution had also been raised, as the point was made that the Bill provided for disputes to be resolved in the Courts but gave no alternatives. Finally he would address the comments on the classifications of institutions, and whether these should be included in the Bill

Dr Mjwara proceeded to give a re-cap of the Department’s process with this Bill, highlighting the main developments since the publication of the Bill for public comments in May 2007. In particular he highlighted the Intellectual Property Rights (IPR) stakeholder workshop, the appointment of an international expert review team and an international benchmarking study involving the USA and Canada.  Dr Mjwara  also took the Committee through a list of the documents provided by the DST for their response to the Committee.

Dr Mjwara then moved on to give the specific responses. In response to the issues raised about regulations, he quoted the principle stated by the Portfolio Committee that: regulations were intended to support implementation of the law as set out in the Act. He pointed out that the concerns expressed by the stakeholders would be accommodated by the establishment of a working group to work on a framework for these regulations. He also indicated that a framework document had been handed over to the Committee at a previous hearing, that this would give the stakeholders an indication of the likely regulations and that the Department was willing to continue working with them towards the finalisation of these regulations.

Regarding the issue that provisions in the Bill with a prescriptive nature ought to be removed, Dr Mjwara noted that some stakeholders had proposed removal of certain clauses because they felt that the content was more appropriately dealt with in the regulations. He indicated that Clause 5(1)(c) stipulated a period of 90 days within which to make a disclosure to the National Intellectual Property Management Office
(NIPMO) for personnel involved with research and development. At the public hearings, it was expressed that this period of 90 days was too prescriptive and that such a matter should not be included in the Bill. The DST was of the opinion that it should be retained as a clause which signalled intent. He argued that any misgivings about the 90 day period could be cured by the insertion of a phrase permitting an extended period as may be prescribed by regulations as contemplated in clause 5(1)(e). Other prescriptive matters in the Bill could also be retained to show intent, but clarified with regulations; such as clause 5(1)(h) that concerned reporting to NIPMO on a bi-annul basis.

On the issue of the definition of ‘ funding agency’ , Dr Mjwara pointed out that some institutions, for example, South Africa National Energy Research Institute (SANERI) and Eskom raised issues about the definition of ‘funding agency’. He proposed that the definition could be amended to address the concern that such institutions were excluded, and that a new definition that provided that a funding agency ‘ means the State or an organ of the State or a State Agency or instrument to the extent that it funds research and development’ .

Concerns were raised on the definition of Intellectual Property (IP), and there had been a submission that it had the potential for unintended consequences in the sense that it could prevent universities from doing their business of publishing thesis, dissertations and other academic works. Dr Mjwara  proposed an alternative definition of IP to address the concerns, which would exclude copyrighted works such a thesis, dissertation, article, handbook, or any other work that in the ordinary course of  business was associated with conventional academic work. This definition would allow universities to continue in their academic enterprise and would ensure that traditional academic outputs were not threatened by legislation.

With regard to the definition of technology transfer and ‘commercialisation’, a concern had been raised about the fact that technology transfer was not defined in the Bill. The DST, whilst acknowledging the importance of this term, pointed out that nowhere was it used in the Bill and that for those familiar with this concept, the term ‘commercialisation’ was sufficient for the purposes of this legislation. An attempt to define technology transfer in the Bill would have to address the complexity of defining from whom to whom transfers occurred, and whether ‘ people transfer’  was included in the term. 

Similar responses were given to the concerns about ‘defensive use’ as some stakeholders stated that the term ‘ commercialisation’  should not include ‘defensive use’. The DST believed that there was no problem with a company adopting an approach of ‘defensive use’ as a strategic measure. However, to legislate in the interests of one sector or entity in favour of such strategic measures would not be possible.

On the issue of benefit-sharing, Dr Mjwara said that the definition of ‘ non-monetary’  benefits had been contested. It was not impossible to calculate such values, as evidenced by existing practices, especially by legal entities that recognised the existence of non-monetary consideration or value for accounting purposes. It was therefore left to the parties in an IP transaction to determine what was fair consideration or value in respect of the IP transaction.

Mr Oliphant asked for clarification whether Dr Mjwara was suggesting that this form part of the Bill or part of the regulations.

Dr Mjwara responded that the definition should not be removed from the Bill.

Concerns had been expressed around International research and development collaboration, including a concern on the use of the terminology ‘ throughout the world’ in clause 11(e). Dr Mjwara said that DST was in support of the intent that where IP was created with public funds, this was not limited to South Africa, and the government should have a right to exploit this IP for the emergency needs of South Africa where such manufacturing ability did not exist in the republic. Addressing the concern that the Bill could be a disincentive to foreign researchers, he proposed the removal of the references to ‘ South African citizens and ordinary residents’  in the benefit sharing sections. This suggestion came about on the understanding that if foreign nationals were prevented from accessing the benefits of their IP, then it would be a disincentive. Furthermore, the DST was of the opinion that the individual labour policies related to the employment contracts of such foreign nationals were capable of addressing concerns about the removal of IP from South Africa through institutional benefit-sharing policies that would guide such individuals.

Benefit-sharing had been criticised by a number of submissions. The Bill had stipulated that 20% of gross revenues must go the IP creator. DST believed that the need to protect IP creators was paramount and therefore proposed that this clause be retained. Dr Mjwara suggested, however, that in view of the desire by institutions to first recover the costs associated with IP protection and commercialisation, this stipulation should be adjusted. It was proposed that the 20% stipulation on gross revenues would apply up to the first R1 million  of revenue. This would address the need to incentivise and protect IP creators. Thereafter, IP creators would be entitled to 30% of net revenues, to address the institutions’ concerns related to recouping of research and development costs. The nature of the costs deductible from gross revenue for the determination of net revenue was a matter he proposed should be prescribed by regulations. It was proposed that since the Bill made provision for the establishment of a fund for commercialisation, the imperative of funding research and development by institutions could not be used by institutions as something that might compromise their cash flows, since in effect they would have been co-funded.

Concerns were then raised about the need to ensure that the Bill benefited the public good. DST had now proposed that clause 2(1) be amended and he tabled the proposed wording, as follows: ‘ The object of this Act is to make provision that intellectual property emanating from publicly financed research and development is identified, protected and utilised and commercialised for the benefit of society, whether it be for a social, economic, military or any other benefit to the ordinary persons of the Republic. Other changes in clause 2(2) were made to require recipients of funding from a funding agency to assess, record, and report on the benefits for society of publicly financed research.

Dr Mjwara noted that concern had been expressed about the fact that other dispute resolution mechanisms were not provided for in the Bill. He noted that Sections 3 and 4 of the Promotion of Administrative Justice Act (PAJA) would be applicable.

The Chairperson requested the State Law Advisor to clarify the position regarding the issue of dispute resolution.

The Chairperson also requested clarification on the phrase ‘ordinary persons of the Republic’ as used by the DST in its recommendations for public benefit under clause 2(1). He wanted to know if this was a legally acceptable way of defining the public.

Ms Desiree Swartz, Senior State Law Adviser, Office of the Chief State Law Adviser, responded to the query on dispute resolution by giving the view of her Office that the references in the Bill to PAJA were adequate since that Act mades sufficient provisions for administrative processes, and has passed constitutional standards.

Ms Swartz suggested, in regard to the phrase ‘ ordinary persons of the Republic’  that reference should rather be made to ‘people of the republic’. There was some debate regarding the meaning of the phrase ‘ordinary person’, providing some humorous moments for the meeting.

Mr McLean Sibanda, Senior Patent Attorney, Innovation Fund, remarked that the intention had been to promote the public good in IP utilisation efforts. However, the DST accepted the recommendation by the State Law Advisers and was confident that this, together with the amendments proposed for clause 2, would adequately deal with the social good.

The Chairperson went through the presentation, page by page, asking also for clarification on minor issues.

The Chairperson noted that the issue that had been raised during the public hearings on foreign law had not been addressed by Dr Mjwara’s response to the Committee. The question had been asked as to what extent foreign law would apply to the South African jurisdiction.

Mr Sibanda responded that the IP law differed from country to country. He cited that  computer programmes which in the USA enjoyed the protection of both patent and copyright law might be protected only by copyright law whilst in South Africa. The importance of maintaining these differences, as opposed to harmonisation, was to protect against the exploitation of publicly financed research off-shore.

The Chairperson noted that there might still be applicable foreign law to be considered and he suggested that the Department should reflect more on this rather than looking at the issue from the perspective of just any other law. He also suggested that there may be a need for IP law to extend into labour matters because of the danger of exploitation as a result of IP creators being ‘contracted out’ of their IP.

Ms N Madlala-Routledge (ANC) referred to the issue of commercialisation and wanted to know if this concept could be expanded to the situation where an application could be made, and the IP applied, but where commercialisation may not occur.

Mr Sibanda responded that on the question of application of IP as an alternative to commercialisation, it was the DST’s view that the current definition provided for that by the use of the words ‘ adapted’ or ‘used for any purpose’. 

Another Member wanted clarification on how the DST’s suggested definition of IP would operate with employment contracts and labour laws.

Mr Sibanda said that the Department had been advised against delving into this area during the consultative process, and that it was a matter that was best left to contract negotiation between researchers and institutions.
Mr J Blanche (DA) expressed his worry that if computer programmes were protected by US law, what would be the position where some people could be developing education programmes or programmes covering work done by local government.

Mr Blanche, reverting to previous discussions on Clause 2, also suggested that in place of the words ‘ ordinary people’  the word ‘ citizens’  could be used.

Mr Sibanda responded that the computer programmes would be protected in terms of South African copyright law, but in the USA they would be protected under both copyright and patent law. As an example he indicated a situation where UCT might develop an educational programme for Microsoft. South African law would give copyright protection to that programme but by USA law there could be a patent application. UCT would still be able to claim copyright. If this difference were to be removed by the adoption of foreign IP law, this could lead to the situation where Microsoft may decide to apply for patent protection, and thereby make this IP inaccessible to UCT. That was the danger that the DST wished to highlight to the Committee.

An ANC Member asked the Committee whether this legislation was going to assist in the promotion of innovation in South Africa.

Dr Boni Mahlomakulu, Deputy Director-General, DST, pointed out the existence of a tier and said the legislation was necessary in order to protect local IP since without it the tier would not have enough to commercialise, since most research and development took place at universities and research institutions. The legislation was therefore a critical part of South Africa’s innovation strategies.

Further Submissions by the DST on Annexure 2
Mr Mclean Sibanda referred to Annexure 2, which was an extended version of the submissions made earlier by Dr Mjwara. He wished to highlight some issues not covered in Dr Mjwara’s responses.

Mr Sibanda noted the existence of inconsistencies in language in the use of words such as ‘derived’; ‘emanating’ and ‘arisen’. The Department had therefore decided to adopt the use of the word ‘emanating’ throughout the Bill for consistency. He also referred to recommendations by the University of Pretoria regarding the definition of ‘department’ and referred the question of whether this should be changed to the State Legal Advisers. Several other similar definitional issues were dealt with relating to ‘revenues’ and ‘recipient’.

Mr Sibanda said that a more important issue was the amendment of the definition of IP in an attempt to clarify the relationship between local IP law and foreign law. Certain errors in the Bill were also pointed out such as the use of Generally Accepted Accounting Practices (GAAP) instead of International Financial Reporting Standards (IRFS).

The Chairperson summarised the amendments suggested by the Department to clean up the Bill with respect to errors and inconsistencies as well as to promote clarity. He raised the issue whether ‘gross revenue’ should not also be defined, in light of the fact that net revenue was defined in the Bill. He pointed out that it was important that the Committee should get a profile of what IP was currently held by the State to enable monitoring on how effective the Bill was. He asked the State Law Advisors to comment on the proposal for changes to the definition of ‘department’. 

Ms Swartz responded that the Office of the State Law Adviser did not have any objection to the recommendation that the definition be changed as suggested in Annexure 1.

The Chairperson briefly addressed the issue of cost of consultation of foreign experts.

The Department indicated that each of the two experts from Canada and the USA were paid an honorarium of R100 000 each and that the Department also incurred personnel travelling costs as a result of the consultations. The Department also indicated that there was an IP agreement with Japan to enable South Africa to benefit from their expertise.

The meeting was adjourned.

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