Introduction
Kenya’s Moveable Property Security Rights Act of 2017 (“the Act”) marked a significant step forward in enabling individuals and entities to access credit by allowing the registration of security rights in movable property. Before its enactment, those lacking traditional tangible assets often faced difficulties in securing loans from financial institutions. The Act broadened the scope of acceptable collateral, explicitly including intellectual property rights, aligning with the Constitution of Kenya 2010’s mandate to support, promote, and protect the intellectual property of Kenyans. The Act’s primary objectives are to foster consistency and certainty in secured financing, enhance access to credit, and streamline the registration of security rights in movable assets through the Registrar and the Registry. Defined as “intangible assets,” intellectual property rights are recognized as movable property under the Act, opening new avenues for leveraging creative capital. This article delves into the key provisions of the Act concerning the use of intellectual property as security, the process of creating and enforcing these security rights, the existing challenges within the Kenyan context, and draws a comparative perspective with Singapore.
Creation and Enforcement of an Intellectual Property Security Right
The Act outlines that a security right is established through a security agreement, adhering to Part II of the legislation. This creation is contingent upon the grantor possessing rights in the asset being encumbered or having the authority to encumber it. According to the Act, a valid security agreement must:
- Be documented in writing and signed by the grantor (the borrower).
- Clearly identify the secured creditor (the lender) and the grantor.
- Provide a description of the secured obligation (the loan or debt), except in cases involving the outright transfer of receivables.
- Accurately describe the collateral, which in this context is the intellectual property right.
In the event of a debtor’s failure to meet their obligations, both the grantor and the secured creditor can exercise their rights as stipulated under Part VII of the Act, within the security agreement itself, or as provided by any other relevant written law. These rights encompass the creditor’s right to sue, the debtor’s right of redemption, and the creditor’s right to dispose of the collateral to recover the outstanding debt.
Challenges Faced in Kenya Regarding IP Collateralization
Despite the progressive nature of the Moveable Property Security Rights Act, several challenges hinder the widespread use of intellectual property rights as collateral within Kenya:
- Valuation of Intellectual Property Rights: Accurate asset valuation is paramount in collateralization. However, the valuation of intellectual property rights in Kenya presents a significant hurdle due to the limited number of professionals with the expertise to determine their worth. The intangible nature of IP further contributes to the reluctance of financial institutions to accept it as collateral, often preferring immovable property with more predictable and appreciating values, perceived as lower-risk assets.
- Non-Registration of Intellectual Property: While ownership of intellectual property arises upon creation, formal registration provides financial institutions with greater confidence through documented proof of ownership and accountability. The prevalence of non-registered IP owners in Kenya can thus limit their access to credit through this mechanism.
- Unpredictability of Income from Royalties: The historical controversies and occasional accusations of mismanagement surrounding Collective Management Organisations (CMOs) have fueled uncertainty regarding the reliability of royalty income. This unpredictability makes financial institutions hesitant to rely on future royalties as a stable source of repayment.
- Lack of Awareness: Despite the inclusion of intellectual property rights under the Act, a lack of awareness persists among creatives regarding this alternative avenue for accessing credit and investment. Sensitization efforts within the creative community are crucial to promote its adoption.
- Lack of Harmonization in Intellectual Property Laws: The existence of various separate laws governing intellectual property (Copyright Act, Trademarks Act, Industrial Property Act, Anti-Counterfeit Act) creates a sense of complexity and potential volatility, undermining the confidence of financial institutions in using IP as collateral. The proposed Intellectual Property Bill, 2020, aims to address this by merging institutions and harmonizing legislation.
- Lack of Specific Regulatory Framework: While the Act outlines the creation and enforcement of movable property security rights, it lacks specific provisions tailored to the unique characteristics of intellectual property. This absence of specific mechanisms for accountability and checks and balances creates uncertainty for both borrowers and lenders. KIPI has proposed amendments to the Trademark Act to address the hypothecation of trademarks as security.
Kenya could significantly benefit from adopting strategies similar to Singapore, which include a unified intellectual property office, a national IP strategy, and a supportive environment for recognizing and utilizing intellectual property rights as collateral. This would align with Kenya Vision 2030’s goal of developing an efficient and globally competitive financial sector. The proposed amendments to the Trademark Act, the implementation of the broader IP Bill, and the creation of a specific regulatory framework for the collateralization of intellectual property are crucial steps towards strengthening Kenya’s financial sector. The use of intellectual property as collateral offers benefits such as access to untapped collateral, quicker returns on research and development, and the capture of additional value.
Conclusion: Empowering Kenyan Innovation Through IP Collateralization
The inclusion of intellectual property rights under Kenya’s Moveable Property Security Rights Act presents a significant opportunity to unlock financial resources for Kenyan creators and innovators. By recognizing the inherent value of creative assets as collateral, the Act has the potential to democratize access to credit and fuel economic growth within the intellectual property-rich sectors. However, the practical realization of this potential is currently hampered by challenges such as the difficulty in IP valuation, the prevalence of unregistered IP, the perceived unpredictability of royalty income, a lack of widespread awareness among creatives, the fragmented nature of existing IP laws, and the absence of a specific regulatory framework for IP collateralization.
Addressing these challenges through targeted interventions is crucial. This includes investing in the development of IP valuation expertise within Kenya, incentivizing the registration of intellectual property rights to provide lenders with greater security, fostering transparency and trust within Collective Management Organizations, conducting comprehensive awareness campaigns targeting the creative community, and expediting the harmonization of IP laws through the proposed Intellectual Property Bill. Furthermore, the development of a specific regulatory framework that addresses the unique characteristics of IP as collateral, potentially drawing lessons from successful jurisdictions like Singapore, is essential to build confidence among financial institutions and streamline the process.
For Kenyan authors, artists, inventors, and businesses looking to leverage their intellectual property for financial gain, understanding the provisions of the Moveable Property Security Rights Act and staying informed about developments in IP law and regulation are key.