CAN ANOTHER COMPANY OWN UNASSIGNED IP ASSETS HELD BY A DISSOLVED COMPANY? THE LEGAL POSITION IN KENYA
Every now and then, a scenario arises whereby a client wishes to assign intellectual property rights such as patents, trade marks, copyrights, industrial designs or utility models, held by a dissolved company.
For context, we shall consider Civil Appeal No. 251 of 2017, Consolidated with 252 & 253 of 2017 Doshi Ironmongers Limited (Appellant) versus Thermos Hong Kong Limited (Respondent) (‘the Thermos Case’). In this matter, the Appellant submitted that by the date of execution of the deed of assignment of trade mark number 17003 THERMOS (word) from Thermos Ltd to Thermos KK, Thermos Ltd had been wound up on 21/12/2001.
The Appellant contended that a wound up company had no existence nor capacity to execute the deed of assignment. That in any event, by the time Thermos KK allegedly assigned its title to Thermos Hong Kong Ltd, it was not the registered owner of the trade mark number 17003 THERMOS (word). That, it had no capacity under Section 27 of the Trade Marks Act to purport to assign the trade mark.
Allowing the appeal on other grounds, the High Court did not delve into the Appellant’s submissions. Even so, the matter put into focus a scenario that arises from time to time. That is; what happens to unassigned intellectual property assets upon dissolution of a company in Kenya? The Trade Marks Act, the Industrial Property Act, 2001 or the Copyright Act, 2001 do not appear to have an answer to this question. We therefore have to look elsewhere for an answer.
Section 905 (1) of the Companies Act, 2015 provides that property, which had not immediately been distributed or disclaimed before the dissolution of a company, vests in the State with effect from the (date of) dissolution of the company. An exception is where the Attorney General executes a notice of disclaimer in respect of the property vested in the State, in terms of Section 906 of the Companies Act, 2015. The position under section 905 (1) is similar to that under the English Companies Act and therefore not unique to Kenya.
Section 905 (2) of the Companies Act, 2015 provides that for the purposes of the section, property of the former company includes leasehold property and all other rights vested in or held on trust for the former company, but does not include property held by the former company on trust for any other person.
Following the definition of property under Section 905 (2) above, the words “all other rights vested in” can be construed to include intellectual property rights (as defined under Section 878 (7) of the Companies Act, 2015).
Section 905 (3) of the Companies Act, 2015 mandates the Attorney General to give notice to the public, upon becoming aware of the vesting of the property. In the notice, the Attorney General is mandated to set out the name of the company and the particulars of the property.
In terms of section 905 (4) of the Companies Act, 2015 any person who would have been entitled to receive all or part of the property before dissolution of the company may apply to Court for an order vesting all or part of the property in that person. Upon hearing such an application, the Court may decide any question concerning the value of the property, the entitlement of any applicant to the property and the apportionment of the property or compensation to two or more applicants.
We have seen the procedure that relates to apportionment of property vested in the State can be elaborate, costly and time-consuming. For this reason:
- Parties need to be prudent and ensure that all intellectual property rights, such as patents, trade marks, copyrights, industrial designs or utility models are assigned before a company is dissolved. If that is not done at the right time, the intellectual property rights shall vest in the State. When that happens and if the above described Court procedure is not completed, the Kenya Industrial Property Institute or the Kenya Copyright Board do not have powers to register such an assignment.
- Where the business of the company that owns the intellectual property rights is acquired by another company. Proper assignments must be entered into and registered with the relevant registries at the right time before the company selling its assets and business is dissolved/wound up.
- Proper due diligence should be done to ensure that before a company is wound up, all assets that it owns, and in this case its intellectual property, is assigned to the rightful third parties. This can be done by reviewing the company’s records and conducting proprietorship searches at the intellectual property registries.
- There is a real risk that at the time of dissolution of a company, the parties involved may not have visibility of all intellectual property rights owned by the company (especially where the rights are unregistered) and as such an intellectual property register should be maintained through the life of the company.
- A deed of assignment of all intellectual property rights can also be entered into between a company and its successor prior to the company’s dissolution and the successor can effect the deed subject to ensuring that all formalities are observed and legal and contractual requirements met.