IP yours!

LAST week I wrote in my column that South Africa had to look at getting serious on intellectual property (IP) regulations if we wanted to stimulate investment in our technology sectors.

I noticed it attracted some top quality replies in the comments section, from which I quote verbatim. This includes: "Your idiotic comment about IP laws put me off. One of the few things that makes South Africa a better place to innovate than the US is that patent trolls can't extort money from true innovators."

There was also this beaut: "Intellectual property laws' is a term used by lawyers that want to sound important, there is no such thing! You have Copy Right law, and Patent law."

As usual, those who throw stones don't leave their full names. But there was a comment from Justin Stanford from 4Di Capital, who said that intellectual property laws were "key inhibitors in the longer term and greatly add to the cost of investing!".

Don't get me wrong - when it comes to the US, I am definitely in the camp which wants more busty Dallas Cowboy cheerleaders and fewer lawyers. The point I was trying to raise is that things done in the IP space can influence venture capital investment in local start-ups.

For instance, are you aware that a local tertiary institution such as the University of Cape Town cannot commercialise its IP if it enters into a joint venture with the likes of Harvard, Stanford or the Massachusetts Institute of Technology?

This has to do with legislation on where these institutions receive financing for their projects, as well as IP laws governing the movement of products, trademarks and research across borders.

Gosh, there is a real incentive for academics to pursue research and development activities and share skills and knowledge with international counterparts.

Off-putting aspects

Another grey area for investors and innovators is whether they will have any protection of their intellectual property if they receive funding from a South African government organisation, such as the Industrial Development Corporation.

As things stand under the Intellectual Property Rights from Publicly Financed Research and Development Act, the government has the potential to step in and take control of the IP and commercialise it for its own purposes.

You are not going to foster any closer cooperation between the venture capital sector, public financing institutions and innovators if the status quo stands.

Feedback from another intellectual property - their title not mine - lawyer: "Exchange control restrictions on the transfer of patents and intellectual property are acting as a disincentive on investment in early stage technologies."

On top of this, there is a court case on the go which debates the issue whether companies require exchange control approval for any international transfer of patent rights - something which makes a big difference to the valuation of start-up businesses seeking local or international investment.

With most venture capital firms avoiding investment in early stage start-ups which don't have the potential to go international and sell products across various geographies, this is a key issue. Especially if the exit strategy for the investor involves selling the business and its associated IP to international firms.

The feedback I've received from legal and venture capital experts is that there are some interesting developments in the intellectual property markets that will have a key impact on investment in technology firms in South Africa.

For this reason, it is important that the right role players have an opportunity to interact with government and international stakeholders to adopt policies which are beneficial to investment in local business.

- Fin24.com