A recent spate of initial public offerings, high-profile mergers and acquisitions, and litigation has thrust intellectual property (IP) into an increasingly critical position in global economics. However, many organizations often fail to understand the value of and the risks to their IP, even when that IP accounts for a high percentage of the company’s value.

Additionally, changes witnessed in the global economic environment have influenced the development of business models where IP is a central element establishing value and potential growth. In Kenya, though financial institutions are slowly adapting to this norm, very few loans are extended to I.P owners using I.P as security alone, and there is a high preference of traditional assets as security. Most financial institutions tend to include I.P on all assets debentures agreements that cover a range of the company’s assets. The fear to extend the said loan is mostly based on the fact that intellectual property being intangible, it is quite difficult to ascertain the value. Additionally, in case of default lenders have the fears of having a hard time in enforcing their rights over I.P. Another problem that has made Kenyan lenders refrain from issuing loans using intellectual property as security is the fact that until recently Kenya never had a legal framework of registering securities using Intellectual property.

This situation was improved a bit after the enactment of the Moveable Property Securities Right Act in 2017. The Act under its preamble recognize that it was enacted to facilitate the use of movable property as collateral for credit facilities, to establish the office of the Registrar of security rights, and to provide for the registration of security rights in movable property and related purposes. Movable assets under the act are described as movable, any tangible or intangible assets. Intangible assets are defined to include receivables, choses in action, deposit accounts, electronic securities, and intellectual property rights. The Act establishes a registry whose main purpose is to receive, store and make accessible to the public information on registered notices with respect to security rights and rights of non-consensual creditors. The said registry is an electronic one as per the provisions of the Movable Property Security Rights (General) Regulations, 2017.

In as much as there is progress in the registration of I.P securities, there is still fear among financial institutions that the same is not adequate. It is in this vein that we propose the need to transfer the Intellectual property security registration to Kenya Industrial Property Institute. The institute is established to consider applications for and grant industrial property rights, screen technology transfer agreements and licenses, provide to the public, industrial property information for technological and economic development and promote inventiveness and innovativeness in Kenya.

 This being the institute charged with the registration of industrial property, it would be prudent to allow it to carry on with registration of securities over intellectual property. K.I.P.I would be best placed to register the said securities as it is also charged with the initial registration of the I.P. This would in turn allow centralization of intellectual property registry as there is no current requirement for registration of security at the KI.P.I registry.

Additionally, just as the Lands Registry provide accurate information on Land and any encumbrance thereon, K.I.P.I would be best placed to provide better insight on any registration and any encumbrance created on I.P. This would in turn allow a financial institution to conduct a quick search on the actual ownership of I.P and any encumbrance thereon. This would in turn secure lenders as they would know if there are any pledges made by owners of intellectual property. Additionally an independent and centralized Registry would allow lenders to register any security on I.P quickly and easily. The current register is a bit complicated, as it is used to register more than one collateral. Lastly an independent combined registry at K.I.P.I would make enforcement of intellectual property securities right in case of default easy. 

 

Comparative Study.

 In the United Kingdom, Security over IP rights is registered at the Intellectual Property Office. This is an executive agency of the Department for Business Energy and Industrial Strategy responsible for among other things maintaining register of intellectual property in the United Kingdom. Any security take over using intellectual property should be registered at the IPO as soon as possible once the relevant security interest has been granted. Failure to register a transfer on a legal mortgage of patents and registered trademarks, within 6 months, make any infringements committed to the transferee unenforceable. Additionally, the registry helps to make documents of a mortgage or charge over registered designs admissible in court and the same is viewed as a title of the mortgagee or chargee to the relevant interest. 

 In the United Kingdom, therefore, registration at the IPO acts as notice to a future transferee or chargee that someone other than the security provider has an interest in the relevant IP. This guards against the lender losing its security interest to a subsequent transferee or chargee. 

It will be prudent for Kenya to come up with such legislation and registry to facilitate ease of doing business.

 

This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary as set out in the article should be held without seeking specific legal advice on the subject matter. If you have any query regarding the same, please do not hesitate to contact the following: Virginiah Nduta or Joseph Muhuni vide virginiah@wamaeallen.com  or joseph@wamaeallen.com respectively.

Virginiah is a promising transactional advocate specializing in Real Estate and Securitization, Banking and Finance.

Advocate Trainee, 2020
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