PERFECTION OF INTELLECTUAL PROPERTY ASSETS AS COLLATERAL FOR FINANCING IN KENYA

The use of intellectual property (IP) assets as collateral for financing has gained prominence globally as businesses seek innovative ways to secure funding. 

In Kenya, this practice is increasingly relevant given the rapid growth of the intellectual property sector and the need for alternative financing mechanisms. 

This article explores the legal framework for the perfection of IP assets as collateral in Kenya, citing constitutional and statutory provisions, as well as relevant jurisprudence. Additionally, it briefly examines practices in select African countries to provide a comparative perspective.

LEGAL FRAMEWORK IN KENYA

1. Constitutional and Statutory Provisions

1.1. The Constitution of Kenya, 2010

The Constitution of Kenya recognizes and protects intellectual property rights under Article 11, which states that “the State shall promote and protect the intellectual property rights of the people of Kenya.” 

This provision underscores the importance of IP rights and their role in the economic and legal framework of Kenya.

1.2. The Copyright Act, 2001

The Copyright Act provides protection for literary, musical, and artistic works. It allows for the assignment and licensing of copyright, which can be utilized as collateral. 

Section 34 of the Act stipulates the need for written agreements for the assignment of rights, which is crucial for the perfection of IP as collateral.

1.3. The Trade Marks Act, 2012

The Trade Marks Act facilitates the registration and protection of trademarks in Kenya. Section 21 of the Act allows for the registration of a trademark, which can then be used as collateral. 

The Act also outlines the procedure for registering a security interest in a trademark, which is necessary for its perfection as collateral.

1.4. The Patents Act, 2014

The Patents Act provides for the protection of inventions. Section 16 allows for the assignment and licensing of patent rights, and Section 21 provides for the registration of such assignments and licenses. This registration is essential for the perfection of patent rights as collateral.

1.5. The Personal Property Security Act, 2017

The Personal Property Security Act governs the creation, perfection, and enforcement of security interests in personal property, including IP assets. Section 6 of the Act provides that a security interest in IP must be registered to be enforceable. 

The Act requires the registration of the security interest with the relevant IP office to perfect the collateral.

2. RECENT JURISPRUDENCE

2.1. Kenya Commercial Bank Limited v. Samuel Ochieng’ Otieno [2020] eKLR

In this case, the court addressed the enforcement of a security interest over IP assets. The decision underscored the necessity of proper registration of IP interests to ensure enforceability. The court emphasized that failure to register the security interest renders it unenforceable against third parties.

2.2. National Bank of Kenya Limited v. Fina Bank Limited [2018] eKLR

This case involved the priority of security interests in IP assets. The court ruled that registration of the security interest determines its priority over other claims. This case reinforced the principle that perfection through registration is critical for the effectiveness of IP as collateral.

PERFECTION OF IP ASSETS AS COLLATERAL

3.1. Registration Requirements

To perfect IP assets as collateral in Kenya, the following steps must be taken:

Copyrights: Execute a written agreement for the assignment or license of the copyright and register the security interest with the Kenya Copyright Board (KECOBO).

Trademarks: Register the trademark with the Kenya Industrial Property Institute (KIPI) and file a notice of security interest with KIPI.

Patents: Register the patent with KIPI and ensure that the security interest is recorded to be enforceable.

3.2. Enforcement and Priority

The registration of security interests ensures that the lender's claim is enforceable against third parties. The priority of the security interest is determined by the order of registration, with earlier registrations taking precedence.

COMPARATIVE PERSPECTIVE: SELECT AFRICAN COUNTRIES

4.1. South Africa

In South Africa, the use of IP as collateral is governed by the Copyright Act, 1978, the Trade Marks Act, 1993, and the Patents Act, 1978. The Intellectual Property Laws Amendment Act, 2013, introduced provisions for the registration of IP security interests. South Africa has a similar approach to Kenya regarding the registration of security interests.

4.2. Nigeria

Nigeria's legal framework for IP collateral includes the Copyright Act, 2004, the Trade Marks Act, 1990, and the Patents and Designs Act, 2004. The Companies and Allied Matters Act, 2020, includes provisions for the registration of security interests, including IP assets. Nigeria’s approach emphasizes registration with relevant IP offices to perfect security interests.

4.3. Ghana

In Ghana, the Copyright Act, 2005, the Trade Marks Act, 2004, and the Patents Act, 2003, govern the use of IP as collateral. The Industrial Property Act, 2011, provides for the registration of security interests. Ghana’s legal framework is consistent with Kenya’s in terms of the importance of registration for perfection.

CONCLUSION

The perfection of intellectual property assets as collateral for financing in Kenya is governed by a well-defined legal framework that includes constitutional provisions, statutory requirements, and recent jurisprudence. 

The process involves registering the IP assets and the security interests with relevant authorities to ensure enforceability. 

Comparative practices in South Africa, Nigeria, and Ghana reflect similar principles, emphasizing the importance of registration for the effective use of IP as collateral. 

As the use of IP assets in financing grows, ongoing legal developments and comparative insights will continue to shape best practices in Kenya and beyond.

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Intellectual Property East Africa LLP is a participating consultancy within The SLS Group.