For Your Own Protection: Why Proposed Anti-Counterfeit Act Amendments Make Sense

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The word ‘Disconnect’ (see caption image above) may be the title of the latest Kenyan blockbuster film but it also embodies the current raging debate over proposed changes to The Anti-Counterfeit Act No. 13 of 2008. In our previous blogposts here and here, we have largely dwelt on the demerits of the proposals contained in the Statute Law (Miscellaneous Amendments) Bill 2018, which if enacted, would radically affect intellectual property (IP) enforcement in Kenya, principally undertaken by Anti-Counterfeit Agency (ACA).

Meanwhile, some readers of this blog, who happen to be IP practitioners specialising in brand enforcement and anti-counterfeiting matters, have rightly pointed out that it is equally important to consider the merits of and benefits expected from the proposed changes to the Act if and when the omnibus Bill is enacted. In particular, this blogpost will focus on the proposals relating to offences and the ‘recordation’ requirements.

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Customs Officers Cannot Enforce Intellectual Property Rights: Court of Appeal Judgment in Kenya Revenue Authority v Doshi Iron Mongers

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In the case of Kenya Revenue Authority v Doshi Iron Mongers & another [2016] eKLR, the Court of Appeal was called upon to determine whether Section 5 of the Customs and Excise Act gives an officer of the Appellant (KRA) under the Act powers, rights and privileges akin to those given to a police officer in execution of his duties under Cap 84 of the Laws of Kenya, in particular that such an officer can enforce intellectual property (IP) rights including raids, arrests and seizure of goods not listed under Schedule 8 of the Customs Act.

In the lower court, the respondents had complained that their warehouses in Mombasa and Nairobi were raided between 1996 and 2006 by the appellant for no rhyme or reason, purporting to search for counterfeit, substandard and uncustomed goods particularly ‘BIC’ biro pens, battery cells, and other items at the behest of companies such as Haco Industries who were the assigned users of the trade mark.

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Tax Law and Intellectual Property: “Shell” Trade Mark Licensee Vivo Energy v. Kenya Revenue Authority

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The High Court recently delivered its judgment in the case of Vivo Energy Kenya Limited v Kenya Revenue Authority [2016] eKLR holding that the Commissioner of Domestic Taxes erred for concluding that a non-exclusive and non-transmissible license to use “Shell” trade marks was a sale of a property giving rise to royalty within the meaning of Section 2 of the Income Tax Act and hence chargeable to tax.

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

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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.

Revenue Service and Copyright Office: Strange bedfellows?

Over the past couple of years, one of the most problematic provisions in the Copyright Act has been, without doubt, section 36, which reads, in part:

“36.

(1) A manufacturer or producer of sound and audio-visual works or recordings shall apply
to the Board. for the authentication of copyright works.

(2) The Board shall authenticate copyright works according to all required documents
furnished to it by the applicant for that purpose and shall issue an approval certificate in the prescribed form to the applicant for authority to purchase an authentication device from the Kenya
Revenue Authority
.

(3) A manufacturer or producer of sound recordings or audio-visual works shall purchase
such authentication device from the Kenya Revenue Authority as may be required to cover the
number of copyright works he intends to sell or distribute.”

10 years since the drafting and enactment of the Copyright Act, section 36 has not been implemented as envisaged with the Kenya Copyright Board (KeCoBo) handling the issuance of the authentication stickers without any involvement from Kenya Revenue Authority (KRA). KeCoBo launched the authentication stickers in 2010 and called it “Anti-Piracy Security Device (APSD)”. This APSD is composed of both a hologram and barcode stickers, sold together by KeCoBo. Earlier this year, IPKenya discussed the APSD here.

KeCoBo has in the past argued that there are two angles to having a voluntary registration system accompanied with authentication of copyright works through the APSD: 1) revenue collection; 2) deterrent against piracy. However the reality is that KeCoBo lacks the resources and infrastructure to ensure that the APSD is available for purchase throughout the country. In addition, the non-involvement of KRA as provided for in the Act has resulted in a number of court cases filed against KeCoBo for acting ultra vires and in breach of the statutory provisions.

The rationale behind section 36 was based on Ghana’s Copyright Office which chose the national internal revenue service to be in charge of issuing authentication stickers to be affixed on all copyright works being sold. The internal revenue service KRA would therefore be best placed to issue these stickers because it was considered that KRA has the necessary infrastructure already in place including offices countrywide as well as measures for security, storage and distribution.

Another compelling factor behind KRA’s consent to be part of the copyright administration process was that it would allow it to levy tax on the audio-visual and musical copyright industries. This sector largely operates in the informal sector of the economy, which is largely untaxed. The added advantage of KRA is also that its Customs Department works at the national borders and can enforce authentication of all imported copyright works coming into the country.

In light of this, KeCoBo will be forced in the very near future to approach KRA and come up with either a Memorandum of Understanding (MoA) or an Agent-Principal Agreement so as to give full effect to section 36. Regardless of what name or shape this agreement takes, it is clear that KRA will solely be responsible for issuing the APSD in all its branches countrywide, collecting the proceeds from the sales of the APSD and accounting for the same to KeCoBo. However, it is almost certain that KRA will levy tax from the proceeds of the APSD sales since those monies are not considered as ‘exchequer revenue’ and also for purposes of covering its costs involved in collection.

KeCoBo on its part would remain the enforcement authority and therefore would have to expand its enforcement actions countrywide to ensure that the APSD is being purchased and affixed on each copyright work being sold, in line with the Act.

It is worth mentioning that KeCoBo has, at several times this year, undertaken to use a portion of the proceeds from the sale of the APSD to set up an “Artists’ Fund” which would be used to conduct awareness campaigns and provide some financial assistance to copyright holders in Kenya. Therefore a meaningful partnership with KRA would ensure that KeCoBo is able to collect enough money to set up this fund as well as run its other operations as mandated by the Act.