Intellectual Property and Tax Law: Bata Shoe Company Kenya v. Kenya Revenue Authority

Picture1 Bata Kenya Blog

Recently, the High Court delivered an interesting judgment regarding the chargeability of intellectual property (IP) royalties and license fees for purposes of customs duty valuation. In the case of Republic v Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) Limited [2014] eKLR the Kenya Revenue Authority (KRA) issued a partial demand notice to Bata Kenya requiring the latter to make a total payment of KES 90,489,947.00 to The Commissioner of Customs Services within 30 (thirty) days from November 24, 2010. Despite several exchanges, KRA and Bata Kenya were unable to agree on the total amount of taxes owed by the latter. Bata Kenya then moved to court under judicial review proceedings seeking for KRA’s notice to be quashed on the grounds that distribution royalties are not subject to customs duty as they are not royalties related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of the sale of the goods being valued within the meaning of Rule 9(i)(c) of the Fourth Schedule to the East African Community Customs Management Act, 2004 (EACCMA).

Bata Kenya owes its entire existence to two separate agreements namely, a Trade Mark License Agreement (TLA) with Bata Brands and an Agreement on commission/service charge with China Footwear Services Limited (CFS) and Bata Shoe (Singapore) Pte Ltd (BSS). An overview of the TLA entered on 1st January, 2006 between Bata Brands (as the licensor) and Bata Kenya (as the licensee) states that the latter is allowed to use the ‘BATA’ trademark for all its business activities in Kenya (known as the Territory). In return, Bata Kenya is required to pay 2% of the total annual sales “after all withholding and other taxes, levies or dues of all kinds imposed by any authority in the Territory”.
In clause 10 of the agreement, one of the conditions for early termination of the TLA is non-payment of the royalty. As per clause 11 the effect of termination would mean that Bata Kenya would cease trading in products with the trademark ‘BATA’.

Read the full article here.

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Digital Migration Case: Flawed Reasoning by Court of Appeal on Intellectual Property Issues

Signet Kenya Limited, Star Times Media Limited, Pan Africa Network Group Kenya Limited and GOTV Kenya Limited are hereby prohibited from broadcasting any content from Royal Media Services Limited, Nation Media Group Limited and Standard Group Limited without their consent, pending the hearing and determination of the intended appeal. – Ojwang & Wanjala, SCJJ in Communications Commission of Kenya v Royal Media Services Limited & 10 others [2014] eKLR.

There’s an interesting saying about intellectual property (IP) adjudication in Kenya which states that: “most of the time, the outcome may be right but the reasoning is often wrong.” The recent decision by a three-judge bench of the Court of Appeal in the case of Royal Media Services Limited & 2 others v Attorney General & 8 others [2014] eKLR (digital migration case) is a clear illustration of the above saying. Although the matter is currently on appeal before the Supreme Court, this blogpost intends to analyse the reasoning of the Court of Appeal’s majority and minoirty judgments in this matter.

Two out of the three appellate judges (Nambuye and Maraga JJA) set aside the judgment of Majanja, J in the High Court (discussed by this blogger here) and made two IP-related findings in their separate but concurring judgments, namely:-

1. THAT the learned Judge erred in law in holding the Appellants’ intellectual property rights were not violated by the Respondents in broadcasting the Appellants’ programs and content without their consent.

2. THAT the learned Judge erred in law in holding that infringement of intellectual property rights could not be the subject of a constitutional Petition.

It is this blogger’s considered opinion that the above majority view of the Court of Appeal is fundamentally flawed as the Court of Appeal (curiously) arrives at two determinations on IP issues without any reference to any IP legislation.

For instance, the learned appellate judge Nambuye JA at paragraph 91 states that: “I do appreciate that the content both developed and acquired from 3rd parties fits the definition of intellectual property”. To support her position, the judge cites the definition of “property” under the Interpretation and General Provisions Act Cap 2 Laws of Kenya and Article 260 of the Constitution of Kenya.

It is trite that neither Cap 2 nor the Constitution contain a definition of “intellectual property”. The definition of intellectual property depends on the specific subject-matter and the correlated rights which are contained in various pieces of legislation.

In similar fashion, Maraga JA at paragraph 64 states that: “to allow any broadcaster to air FTA programmes of others without their consent amounts to infringement on the IPRs of the owners of those programmes.” However the learned appellate judge does not define and explain which specific intellectual property subject matter and/or specific right(s) in that subject-matter have been violated. In addition, Maraga JA does not set out any accepted test under intellectual property law for infringement.

Despite the Court of Appeal’s flawed reasoning as illustrated above, the outcome of the case is right on the issue of IP infringement. From an intellectual property perspective, all broadcasts are recognised as a category of copyright works under section 22(1). Therefore broadcasters are recognised as holders of neighbouring/related rights under copyright law, like producers and performers. Broadcasters have the right to authorize or prohibit the following acts as defined in the Copyright Act:
(a) Rebroadcasting of their broadcasts
(b) Fixation of their broadcasts;
(c) Reproduction of such fixations;
(d) Communication to the public of their television broadcasts if such communication is made in places accessible to the public against payment of an entrance fee

Section 35(1) provides that if any of the above acts are done by any person without the authority of the broadcaster, the latter’s rights under copyright are infringed. Subsection 4 of this section provides that infringement is actionable at the suit of the rights holder (assignee or exclusive licensee as the case may be) and the latter may be entitled to a wide array of reliefs including damages, injunction, accounts, delivery up, reasonable royalty, among others.
For this reason alone, this blogger agrees with Majanja J’s reasoning in the High Court that IP infringement claims cannot be the subject of a constitutional petition.

This blogger will continue to keenly monitor and update readers on the developments in this matter as it is heard by the Supreme Court.