Exchange control clauses in licence agreements

Darren Olivier has written an interesting post about exchange controls and South African law, on the IP Finance blog (today).

This is a familiar subject to the drafter (or draughter) of IP licence agreements.  Below is a typical example of a clause that might be found in a detailed licence agreement:

“Exchange controls. If at any time during the continuation of this Agreement the Licensee is prohibited from making any of the payments required hereunder by a governmental authority in any country then the Licensee shall within the prescribed period for making the said payments in the appropriate manner use its best endeavours to secure from the proper authority in the relevant country permission to make the said payments and shall make them within 7 days of receiving such permission. If such permission is not received within 30 days of the Licensee making a request for such permission then, at the option of the IP Company, the Licensee shall make the royalty payments due in the currency of the relevant country either to a bank account designated by the IP Company within such country or to an associated company of the IP Company designated by the IP Company and having offices in the relevant country designated by the IP Company.”

In our experience, exchange controls have mainly been an issue when dealing with licensees based in certain Far Eastern countries.  Typically, the licensee must seek permission from a Government department before making the payment to a licensor based in another country.

We are not aware of exchange controls still existing in EU countries.  In the UK, for example, they were abolished in 1979.  This blogger remembers a family holiday in Majorca in 1968, when the limit on exporting UK currency was £35 per person (the amount was written in our passports for some reason), and the weekly hotel cost (full board) at the Santa Ana hotel in Majorca was £28.

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