The IP Strategy can only be implemented if the two companies have a formal relationship that (a.) allows the offshore company to use the legacy, South African IP, (b.) allows the offshore company to further develop and own future IP, and (c.) allows the offshore company to appoint the South African company to perform certain development services on its behalf.

These goals are met by a separate License and Service Agreement. Both these agreements are integral features of the IP Strategy. Both should be prepared on an arm’s length basis.

The License Agreement allows the offshore company to commercialize the “Legacy IP” globally outside of SA, in return for a license fee which will need to be set in the course of the transfer pricing process. Importantly, the License Agreement will also permit the offshore company to further evolve the licensed IP and own that IP (provided that it actually performs the functions leading to that new IP – this will be managed through the IP Strategy).

The Service Agreement provides for the offshore company to own the new IP created in the course of the services on the basis that the offshore company performs the critical IP creation functions as set out in the IP Strategy, so as to anchor IP offshore from the start. Any IP that is created by the South African company in the course of delivering the services to the offshore company should be assigned to the offshore company. SARB’s permission must be obtained for the assignment of that IP, but this is commonplace. The Service Fees will also require to be set in the course of the transfer pricing process (usually done as part of the same project as the license fees).