Signing documents

IP and the new Companies Act

The new Companies Act, 71 of 2008 (“the Companies Act”) has been in force for some time which incorporates the recommendations made in King III (“King III”).

Whilst neither the Companies Act nor King III refer specifically to Intellectual Property (as Intellectual Property is a valuable and core asset in most companies, particularly in the case of those companies whose very existence and competitive business edge relies on the development of new Intellectual Property and the protection thereof) the proper and accurate identification, valuation, maintenance and protection of Intellectual Property must surely be included in the exercise of the duty of care that directors now owe to the company in terms of the “Standards of directors conduct” that is set out in section 76 of the Companies Act.

King III devotes an entire chapter to IT in which it is stated that “…in the exercising their duty of care, directors should ensure that prudent and reasonable steps have been taken in regard to IT governance” (King III p 15): in this regard, King III requires that:

  1. The Board should be responsible for IT governance;
  2. IT should be aligned with the performance and sustainability of the company;
  3. IT should be managed in terms of a delegation of responsibility;
  4. IT investment and expenditure should be properly managed;
  5. IT should be part of integrated risk management and be subjected to audit by the risk and audit committee.

The principles set out in section 76 are an attempt by the legislator to “codify” the common law principles of the duty of good care and fiduciary duties of directors and does not relate or refer specifically to Intellectual Property. “IT” however, could very easily be read as “IP”, as the section has been crafted in general terms.

Thus, it is our view, the same principles should be applied to the management of Intellectual Property and that companies should, as soon as possible, begin the process set out above. Failing which, Boards of Directors could run the risk of criticism from shareholders and other stakeholders, should their Intellectual Property come under threat with subsequent negative consequences on the company.

Directors, be aware and beware…

 

Pietro Calicchio and Mariette Malan, our specialists in this field, are available to chat through the above and provide you with more detail.