INTELLECTUAL PROPERTY AND CONSUMER PROTECTION IN KENYA

By Rose Njeru Friday, November 01, 2019
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Intellectual Property rights (IP rights) are a form of property granted through trademarks, patents, industrial designs, copyrights and geographical indications, among others, that enable the owner to exercise monopoly on the subject of the IP rights. They are not only instrumental in protecting the innovative and creative capacity of owners of IP and promoting competition in various industries, but also have to do with the welfare of the consumers of the goods and services to which they apply. IP rights grant exclusive rights to the proprietors and serve as a link between the consumer and the manufacturer, enabling the consumer to identify and associate products with their respective owners.

Various commentators in Kenya have argued that IP is not subject to competition and consumer protection laws. This argument is based on a flawed assumption that IP is not property per se. Kenyan law has adopted a contrary position in the Constitution of Kenya, 2010 (the Constitution), the Consumer Protection Act, No 46 of 2012 (the Consumer Act) and the Competition Act, No12 of 2010 (the Competition Act).

The Constitution defines property to include any vested or contingent right to, or interest in or arising from, IP. It provides that every person has the right to acquire and own property of any description, including IP. Like every other kind of property or commodity, IP is therefore subject to consumer protection laws in Kenya.

Consumer protection in relation to IP is so central that, for instance, trade mark law is drafted from a consumer’s perspective. A key consideration with issues such as the registrability of trade marks is the perception of consumers towards the marks. For example, when assessing whether one mark is confusingly similar to another, the courts consider whether the casual consumer in a hurry, with an imperfect recollection, would likely be confused when seeing the trade mark.

Protection against anti-competitive behaviour

Because IP rights create monopoly on the IP in favour of the owner, IP law has inherent mechanisms to curb anti-competitive behaviour. These mechanisms include strict examination systems prior to assignment of rights in the IP, opposition proceedings that allow parties to raise objections to the assignment of IP rights, and cancellation regimes. The latter allow third parties to apply to the relevant regulators for expungement of registered IP rights.

To further prevent anti-competitive behaviour, other laws buttress the mechanisms provided in IP law. For instance, Kenya’s Competition Act proscribes restrictive trade arrangements or agreements. Particularly, an agreement that amounts to the use of an IP right in a manner that goes beyond the limits of legal protection is a restrictive agreement, and thus prohibited. In this way, consumers are protected from any abuse of the market by owners of IP rights. 

The Competition Authority of Kenya has issued Consolidated Guidelines on the Substantive Assessment of Restrictive Trade Practices under the Competition Act (the Guidelines). According to these, the use of IP rights in a manner that goes beyond the limits of legal protection would impose unreasonable conditions on licencees of IP rights. Where the licensing arrangement is likely to affect consumers adversely, by for instance affecting the prices, quantities, quality or varieties of goods and services, such agreement would amount to a restrictive trade practice.

Some of the listed examples of what constitutes restrictive trade agreements relating to IP include:

  • territorial restrictions, where a patent licencee is restricted to certain geographic regions or groups of customers;
  • undue influence over the quality control of the licensed patented product beyond what is necessary for guaranteeing the effectiveness of the licensed patent;
  • exclusive licensing agreements such as grant backs and acquisitions of IP rights and cross-licensing by undertakings in oligopolistic markets. This would include patent-pooling agreements whereby firms in a manufacturing industry decide to pool their patents and agree not to grant licences to third parties, at the same time fixing prices and supply quotas. Tie-in arrangements are also restrictive practices, such as requiring a licencee to acquire raw materials solely from the patent holder, thus foreclosing other producers on the market from accessing the licence;
  • vertical price-fixing agreements; and
  • royalty arrangements where the licencee has to pay royalties for the patented product, as well as for unpatented information relating to the patent.

The Competition Act further prohibits any abuse of a dominant position by an undertaking in a market for goods or services in Kenya. Owing to the exclusive nature of IP rights, enterprises may exercise market dominance relating to various goods or services. Abusing such dominance to, for example, prevent the development of a new product or impose unreasonable conditions or prices is detrimental to innovation and consumers’ welfare. The prohibitions in the Competition Act allow consumers to invoke the competition laws to prevent market players from abusing their dominance.

Worthy of note is that certain IP arrangements are exempt from the competition rules discussed above. The rationale is that these arrangements may result in economic efficiencies. Accordingly, the Guidelines identify the following IP arrangements as exempt:

  • an arrangement aimed at exercising an IP right derived under Kenyan law;
  • an arrangement where the undertakings concerned are not competitors and have insignificant market shares;
  • licensing or transfer arrangements where there are no risks of creating or enhancing dominance; and
  • refusal to deal where the refusal does not prevent, restrict or lessen competition.

In recent years, opponents to registration and applicants for cancellation/expungement of trade marks have started basing their applications on the ground that the marks are in contravention of the Competition Act. Though it may be argued that registrars in Kenya do not have the technical capacity and experience to adjudicate on competition matters/arguments, it is an unescapable fact that IP rights do not function in a vacuum, but in a market where other factors such as competition come into play. As a result, Registrars should be adequately trained on competition law and their expertise acknowledged, and/or processes put in place to allow inter-agency co-operation between the Kenya Industrial Property Institute and the Competition Authority of Kenya in adjudicating such matters. Registrars are yet to substantively analyse and rule on matters based on this ground as it is used to complement the traditional grounds for opposition and expungement proceedings.

IP rights and quality of goods and services

The Constitution accords special protection to consumers by granting them the right to goods and services of reasonable quality. The Consumer Act deems the supplier to warrant that the goods or services supplied are of a reasonable quality. The thrust of IP rights is to enable a manufacturer to distinguish his products and services from those of others, enabling consumers to become aware of the advantages of using that particular product. IP rights symbolise the goodwill associated with such products, which is generally assessed by the perception in the public mind as to its quality and specific source.

IP creates a certain expectation of quality in the consumer as to the goods or services they protect. This interlink between IP and a consumer’s expectation was encapsulated in the matter of Mutava J in Agility Logistics Limited & 2 others vs. Agility Logistics Kenya Limited [2012] eKLR. In effect, a consumer or user of the service need only see the mark to link it with certain expectations and standards.

The quality of a product is identified by the consumer through the brand name it is associated with. The quality experienced by the consumer (felt quality) leads the consumer to the same product and brand with the expectation of experiencing the same quality. The manufacturer endeavours to ensure consistency in quality and retain patronage of the loyal customers.

As IP rights enable the manufacturer to distinguish his product from that of others, the consumers continually demand safety and an assurance of quality. Therefore, IP rights guarantee legal remedies to consumers against the owners of such rights in cases where they fail to meet certain quality requirements and expectations.

Conclusion

IP has become a core asset of many businesses in Kenya as more entities recognise the value attached to it. This has led to the increased recognition of IP’s role in national strategies and laws aimed at enhancing competitiveness and generally protecting consumers.

In spite of the positive increase in regulation, there are a myriad of weaknesses within the IP system. Understaffing, backlogs at the respective registries and delays in issuing formal decisions on submissions for opposition and cancellation matters are but a few. These weaknesses undermine the effectiveness of the inherent mechanisms intended to provide a check against anti-competitive behaviour and protect consumers. Some of the challenges can be addressed by simply recruiting adequate qualified and experienced staff.

Ultimately, in developing and managing a business’s IP portfolio and contracting on the IP rights, it is important to keep in mind that IP is a tool for the protection of customers and, as a result, various laws have to be adhered to.