Technology Transfer Agreements in Nigeria: Importance, Regulatory Framework, and Compliance Requirements

Technology Transfer Agreements in Nigeria: Importance, Regulatory Framework, and Compliance Requirements

Introduction

Businesses acquire technical expertise, trademarks, patents, and proprietary knowledge from foreign entities through a Technology Transfer Agreement. However, these agreements must comply with the National Office for Technology Acquisition and Promotion (NOTAP) regulations and must be registered with the office within 60 days.

This article explores the significance of technology transfer agreements, the legal and regulatory framework governing them, and key compliance requirements for businesses in Nigeria.

What is a Technology Transfer Agreement?

A Technology Transfer Agreement (TTA) is a contractual arrangement between a foreign entity and a Nigerian company, under which the foreign entity grants rights to use its technology, know-how, trademarks, or other intellectual property. These agreements are critical for sectors like manufacturing, telecommunications, agriculture, oil and gas, and financial services where technological innovations are key to business growth.

Common Elements of a TTA

1. Patent Licensing: Permission to use patented technology.
2. Supply of machinery or plant.
3. Provision of operating or managerial staff
4. Trademark Licensing: The right to use a foreign company’s brand name or logo.
5. Franchising: A business model where a foreign company grants rights for a local company to operate under its brand.
6. Software Licensing: Permission to use proprietary software under specified conditions.
7. Supply of technical expertise in the preparation of operating manuals, plans and other forms of technical assistance including training of the local workforce.

Regulatory Framework for Technology Transfer in Nigeria

The regulation of technology transfer in Nigeria is primarily governed by the National Office for Technology Acquisition and Promotion Act (NOTAP Act), Cap N62, Laws of the Federation of Nigeria (LFN) 2004. The Act mandates the registration of all TTAs with NOTAP within 60 days to ensure alignment with national development objectives.

Objectives of NOTAP Registration

1. Ensure Nigeria derives maximum benefits from foreign technology: NOTAP evaluates agreements to confirm that the technology being imported will significantly benefit the Nigerian economy and promote technological advancement.
2. Prevent capital flight by evaluating the reasonableness of fees paid for technology: By assessing the financial terms of TTAs, NOTAP ensures that fees for technology transfer are fair and do not lead to unnecessary capital outflow.
3. Encourage local adaptation and development of technology: NOTAP promotes the modification and improvement of imported technology to suit local conditions to foster domestic innovation.
4. Protect Nigerian businesses from unfair contractual terms in TTAs: The agency reviews agreements to safeguard local companies from clauses that may be detrimental to their interests.

Registration Requirements for Technology Transfer Agreements

To register a TTA with NOTAP, companies must submit:

1. A duly executed copy of the agreement between the Nigerian and foreign parties: This includes all signed contractual documents detailing the terms of the technology transfer.
2. Details of technology to be transferred, including technical specifications: Comprehensive information about the technology, its applications, and specifications must be provided.
3. Financial terms, including royalty payments, service fees, and other charges: A breakdown of all financial obligations associated with the agreement is required.
4. A justification for the agreement, demonstrating its economic benefit to Nigeria: Companies must explain how the imported technology will benefit the Nigerian economy and contribute to technological development.
5. Provisions for training and capacity building: NOTAP requires TTAs to include clauses on training Nigerian employees to facilitate technology absorption and local expertise development.

Registration Process

1. Application Submission: The Nigerian company submits a formal application to NOTAP, including all required documents.
2. Preliminary Review: NOTAP assesses whether the agreement aligns with national development goals and ensures the terms are fair.
3. Technical Evaluation: Experts review the agreement’s provisions to confirm that the technology transfer benefits the Nigerian economy.
4. Fee Assessment: NOTAP evaluates whether the fees for technology transfer are reasonable and justifiable.
5. Approval or Modification: If the agreement meets compliance standards, NOTAP grants approval. If issues arise, modifications may be required before final registration. When reviewing TTAs, NOTAP ensures that:
   • Fees charged for technology transfer are not excessive.
   • The agreement provides for technology adaptation and localisation.
   • There are no restrictive clauses preventing Nigerian companies from modifying or improving the technology.
6. Issuance of Certificate: NOTAP issues a Certificate of Registration upon approval,  enabling the        Nigerian company to make legally recognised payments to the foreign party. The certificate of          registration is usually valid for three years and may be renewable from time to time depending          on the nature of the TTA.

Post-Registration Compliance

After obtaining the certificate of registration, companies must:

1. Ensure periodic reporting on the implementation of the agreement.
2. Obtain NOTAP’s approval for any amendments to the agreement.
3. Provide records of training and local capacity development to demonstrate compliance with technology localisation requirements.

Legal Consequences of Non-Compliance with NOTAP Registration

Restriction on Foreign Payments

As provided in Section 7 of the NOTAP Act, failure to register a TTA means that:

The Central Bank of Nigeria (CBN) will not process foreign exchange requests for royalty payments, service fees, or other charges related to the agreement, i.e. the Nigerian company cannot remit funds abroad to the foreign entity under the agreement.

In Stanbic IBTC Holding Plc v Financial Reporting Council of Nigeria & Anor (2018) LPELR-4650 (CA), the Court of Appeal held that the failure to register a technology transfer agreement results in restrictions on payments to the foreign recipient rather than invalidating the contractual obligations. In essence, the contract does not become void or unenforceable, but foreign payments will be restricted.

Regulatory Sanctions

Companies that fail to register TTAs may face regulatory scrutiny from NOTAP and other agencies such as the CBN and the Federal Inland Revenue Service (FIRS). Potential penalties may include fines and financial penalties imposed by NOTAP and tax disallowances on expenses related to unregistered technology agreements, leading to higher corporate tax liabilities.

Benefits of Technology Transfer Agreements for Nigerian Businesses

1. Access to Advanced Technology: Nigerian businesses can acquire cutting-edge innovations to improve productivity.
2. Skills Development: Employees gain knowledge from foreign partners through training and technical assistance.
3. Competitive Advantage: Companies improve their efficiency and gain a stronger foothold in the market.
4. Economic Growth: Technology transfer supports local industries, contributing to job creation and GDP growth.

Best Practices for Drafting a Compliant Technology Transfer Agreement

To ensure compliance with Nigerian regulations, companies should:

1. Engage legal experts to draft TTAs that align with NOTAP guidelines.
2. Ensure reasonable fees are charged for technology transfer.
3. Avoid restrictive clauses that prevent technology adaptation and innovation.
4. Clearly define intellectual property rights, ensuring local companies can modify and improve the technology.
5. Register the agreement with NOTAP within 60 days from the date of execution of such contracts.

Conclusion

Technology Transfer Agreements (TTAs) are a linchpin for Nigeria’s industrialisation and global competitiveness. To harness their full potential, businesses must successfully navigate NOTAP’s regulatory requirements. By registering TTAs, negotiating equitable terms, and adopting best practices, Nigerian businesses can unlock the benefits of technology transfer, mitigate legal and financial risks, and drive sustainable growth.