In an earlier post here, a fellow blogger opined that the Movable Property Security Rights Bill, 2016 would herald a new dawn of intellectual property (IP) financing in Kenya. The purpose of the Bill was to provide for the use of movable property as collateral for credit facilities and to establish a collateral registry to facilitate registration of interests in movable property. The Bill was aimed at enabling Kenyans to use their IP rights, including copyright, patents, trademarks, certificates for industrial designs, certificates for utility models, and other related rights, to create security rights through which they can acquire credit facilities. This blogger is now pleased to report that the Bill has now been signed into law as Movable Property Security Rights Act, 2017.

Despite the clear benefits of this new legislation for IP commercialisation, a few concerns have arisen. One commentator notes as follows:

“A major challenge in implementation, however, is the lack of capacity of IP asset valuation services in Kenya. Valuation is key because assigning a monetary value is necessary for any collateral to be useful. A financial institution ordinarily seeks comfort from the fact that the collateral put up is valuable in relation to the amount it advances to a borrower. The bill is silent on the issue of the valuation of intangible assets, but this may be addressed through regulations if the bill is enacted into law. Another area of potential concern for financial institutions is the extent of effectiveness of the security right, both as between the parties and as against third parties. This may call for a deeper look into how the law will be implemented, especially for IP assets which have no formal registration process in Kenya such as copyright. For registered assets, successful implementation would also require harmonisation with the various registry systems to ensure, for instance, that encumbrances are noted on the register to restrict assignment or licensing by an owner without the financier’s consent”

Another commentator has echoed similar concerns about the legislation as follows:

“we wait to see how the provisions of the law will be effected because there is a need to set up institutions to facilitate this. Again, financial institutions may need to restructure or set up new departments to implement the law. The Act provides for what are known as security agreements which encumber the intellectual property rights in favour of the lender. Even as the new law is effected a few things need to be considered. Various laws allow for transmission or assignment of intellectual property rights to third parties such that it still is possible to use IPR as collateral under the existing legislation. The lenders may need to conduct thorough due diligence on the intellectual property rights in question, including valuation to ascertain risk. There are very few intellectual property rights valuers in the market and the principles of valuation are not well set out.”

All in all, the general consensus appears to be that the move to allow IP as collateral will not take place overnight. The express recognition of IP in this legislation represents a significant shift from the pre-existing view that IP is not a reliable asset whose value can be ascertained to facilitate financial transactions. This new legislation will encourage financial institutions to work with IP offices and other stakeholders to accept IP as collateral to offer loans and other forms of support to creators and inventors in the country.