Distribution Royalties Not Subject to Customs Duty: Bata Shoe Company Kenya v. Kenya Revenue Authority

BATA KENYA_SHOE_326015189

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’.

In light of the TLA, KRA assessed the customs duty payable by Bata Kenya to include the royalties payable by the latter to Bata Brands. To support its position, KRA stated that Paragraph 9(1)(c) of the Fourth Schedule of the EACCMA provides for two conditions to be satisfied to establish chargeability of royalties namely the royalty payment relates to the goods being valued and the royalty is paid pursuant to a condition of sale. In the case of Bata Kenya, KRA argued that both these two conditions were satisfied.

In reply to KRA’s arguments, Bata Kenya asserted that Paragraph 9(1)(c) of the Fourth Schedule of the EACCMA was not applicable as the royalty payments to Bata Brands were not related to the goods being valued and that the royalty paid was not pursuant to a condition of sale. On the non-relation between the royalty and the goods being valued, Bata Kenya argued that its resale prices are different from the prices at which the products are imported. On the question whether the royalty was a condition of sale, Bata Kenya urged the court to construe the term “condition of sale” based on the legal relationship between the licensee and the licensor and third parties.

The court ruled in favour of Bata Kenya and stated in part:

The royalty fees, in my view, are paid for the use of the trademarks in Kenya and they have nothing to do with the prices of imported products. (…) I therefore agree with the Applicant [Bata Kenya] that the Respondent [KRA] is asking it to pay taxes which it is not obligated by the law to pay. As per the TLA, the royalty payments are made on the sales proceeds after tax. The royalties paid are therefore too remote from the value of the imported goods. The Respondent has therefore stepped out of its boundaries and the remedies of judicial review are available to the Applicant.

Comment:

In arriving at its decision, the court faced a formidable obstacle, namely the case of Republic v. Kenya Revenue Authority Ex Parte Beirsdorf East Africa Ltd [2011] eKLR (the Beirsdorf case), a High Court decision by Musinga J (as he then was). In the Beirsdorf case, the court found that that the manufacturing and distribution royalties payable by Beirsdorf East Africa to Beirsdorf AG should be added to the customs value of the imported products since the royalties were being paid as a condition of sale. In making this finding, the court in the Biersdorf case stated as follows:

“In my view therefore, payment of royalties by the applicant to Biersdorf is a condition of sale of their imported patented goods. I agree with the respondent that if royalties were not a condition of sale anyone would be at liberty to import, manufacture or even distribute Biersdorf’s products without permission of the patent holder. That would be an unacceptable trade practice. The relevant law must be interpreted in a manner that makes economic sense.”

The Biersdorf case would therefore appear to be a departure from other commonwealth countries where the courts have construed the term “condition of sale” in the legal sense as opposed to in the ordinary economic sense. However, in the present case of Bata Kenya, the court rightly departed from the ruling in the Biersdorf case after making a critical analysis of the relationship between the licensee and the licensor and third parties. In the Biersdorf case, there was no intermediary between the Biersdorf (parent company) and Biersdorf (subsidiary company operating in East Africa). Therefore, as a condition of the subsidiary manufacturing and distributing the parent company’s patented goods, the subsidiary company was obliged to pay to parent company manufacturing and distributing royalties. It follows therefore that if the subsidary company were to refuse to pay such royalties it would not be able to manufacture and/or distribute Biersdorf patented goods within East Africa.

Bata Kenya’s case is clearly different from the Biersdorf scenario, in that there are several intermediaries between the trade mark licensee and the trade mark licensor. According to the court in the present case, the existence of intermediaries between Bata Brands and Bata Kenya creates remoteness in the nexus between the sales and the royalty payments by the latter. This remoteness means that the the royalty payments cannot be said to be a condition of the sale.

As explained above, Bata Kenya imports its products from manufacturers in China and it pays a buying commission/service charge to BSS onward transmission to CFS. As a result, the TLA between the Bata Brands and Bata Kenya has no nexus between the purchases made by the latter from China through BSS.

Digital Migration Case: Why Court of Appeal Reasoning is Flawed on Intellectual Property

signal set top box tv diagram

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.

Television Woes and Intellectual Property Litigation: CFC Stanbic Magnate Show and Samantha’s Bridal Show

Kenya has had two High Court rulings in two separate cases in the space of two weeks, both dealing with copyright infringement in television shows. In this blogpost, these rulings will be analysed bearing in mind that both these cases are still on-going.

In the case of Oracle Productions Limited v Decapture Limited & 3 others [2014] eKLR (the Magnate case), Oracle claimed Decapture and others have infringed the latter’s copyright in its reality game show. Oracle is the copyright owner of a literary work describing a reality game show styled “Young Entrepreneurs” and registered with the Kenya Copyright Board as KCB 0831. Decapture is the copyright owner of a literary work describing a reality game show titled “The CFC Stanbic Bank Magnate” (the Magnate show) and registered with the Kenya Copyright Board.

Oracle issued a notice to Decapture and others to produce at the trial the audio visual production of all the broadcast episodes of the Magnate show. Decapture did not comply with Oracle’s notice, necessitating the latter to file a notice of motion to compel Decapture to make the discovery on oath. As many may know, pre-trial discovery is provided in the law of civil procedure so as to allow litigants to be furnished with relevant and necessary documentary material before the trial so as to assist them in appraising the strength or weakness of their relevant cases, thereby expediting the hearing and reducing costs of litigation.

Decapture and the other defendants opposed the notice to produce on three main grounds, namely:
1) They should not be compelled to hand over its intellectual property to its competitor.
2) They has incurred a lot of expenses and cannot therefore provide the materials sought for free.
3) The materials sought are unnecessary and irrelevant since no copyright subsists in the plaintiff’s concept or idea.

The Court allowed Oracle’s application to compel discovery and stated as follows:

From the competing claims disclosed in the pleadings, the plaintiff [Oracle] obviously requires full discovery of the disputed materials to get a fair trial. I thus find the materials sought on discovery are relevant and necessary. The materials have been broadcast and I am at a loss how the intellectual property of the 1st defendant [Decapture] will be lost merely by discovery. The proposal by the 1st defendant [Decapture] to only play the productions in court on the date of the trial would ambush the plaintiff [Oracle]. It would leave the plaintiff holding the short end of the stick. The question of costs of making the copies is not beyond recompense if the 1st defendant [Decapture] or any other defendant prevails at the trial. In a synopsis, the defendant [Decapture] will not suffer prejudice not compensable in costs. The rights of the plaintiff [Oracle] to discovery outweigh that inconvenience.

This blogger is not in total agreement with this ruling in the Magnate case. It is disappointing that the court did not stop to interrogate the relevance and necessity of fixations of broadcasts being produced in a case where the alleged infringement relates to literary works. The ruling ought to have been clear on the purpose of the broadcasts in establishing copyright infringement of Oracle’s literary work otherwise the discovery would amount to a fishing expedition, at best.

In the case of Nonny Gathoni Njenga & another vs Catherine Masitsa & another [2014] eKLR (the Wedding Show case), Nonny finds herself in a similar position as Oracle in the Magnate show case. Nonny is the copyright owner of a literary work describing a wedding show styled “The Baileys Wedding Show with Nonny Gathoni”. Catherine is the copyright owner of a literary work describing a wedding show titled “Samantha’s Bridal Show”.

Nonny successfully applied to court for an order restraining Catherine from infringing in any way on Nonny’s copyright in the literary work. Recently, Nonny was back in court claiming that despite the previous order, Catherine went ahead to infringe Nonny’s said copyrighted literary work in violation of the Court’s Orders. Therefore Nonny claimed that Catherine should be committed to civil jail for contempt of court. According to Nonny, the alleged infringement took place when Catherine caused the broadcast of Samantha’s Bridal Show.

In support of its case alleging copyright infringement, Nonny produced three (3) DVDs “taken not from one show but a series of shows over a period of time”. In reply, Catherine questioned the admissibility of the DVDs arguing that they were secured illegally and that they “constituted an infringement of property rights.”

Although the court ruled in favour of Catherine, the following passage in ruling is significant:

In light of the above analysis and having already stated above that the DVDs attached by the Plaintiffs are not accompanied by a Certificate as required under the evidence Act, it therefore follows that the said DVDs are inadmissible as evidence.
However, in the interest of justice, it is my view that the Plaintiffs are at liberty to produce such certificate for the admissibility of the said evidence. When that is done, the Court will be able to examine the evidence and evaluate the probative value of the said DVDs as well as the authenticity. The Respondent has alleged that the DVDs were obtained illegally, however that cannot be ascertained at this stage until the Certificate is filed and the Court is able to determine the source of the DVDs.

This blogger is not in total agreement with this ruling in the Wedding show case. First and foremost, the court appears to have made the same mistake as in the Magnate case ruling. The court in the Wedding show case appears to have accepted as a matter of both fact and law that the fixation of broadcasts by Catherine serves as automatic proof of copyright infringement in Nonny’s literary work. However, this blogger believes that the court will have an opportunity to redeem itself when it delves into the probative value of the DVDs. Secondly, there is an interesting issue that arises in the Wedding show case namely, whether KTN can file a counterclaim for copyright infringement as a result of the unauthorized fixation of its broadcasts by Nonny.

All in all, this blogger will be following the developments in these two cases closely.

Sony Holdings Ltd v. Sony Corporation: Unfettered Discretion of the Registrar of Trade Marks to Extend Time?

sony holdings Trade mark advertisement

We think it is arguable whether, under rule 102 of the Trademarks Rules, the Registrar has unfettered discretion to extend time. – Court of Appeal at Nairobi.

The case of the Republic Ex-Parte Sony Holdings Limited v Registrar of Trade Marks & another [2014] eKLR (the “Sony case”) becomes one of a handful of intellectual property (IP) related cases to find its way to the Court of Appeal. It is an important case as it invites the judicial arm of government to determine whether executive arm of government, through the Registrar of Trade Marks has acted outside the law in exercising its statutory functions.

The Sony case arose way back in 2009 when Sony Holdings applied for the registration of two trademarks (a word mark, and a word device). Sony Holdings submitted the proposed trademarks for registration by way of two letters dated 18th May 2009. The Registrar of Trademarks wrote back to Sony Holdings on 8th September 2009, giving notice of refusal to register the trademarks. The Advocate’s wrote back to the Respondent asking that he reconsider his refusal. The Respondent then gave approvals for the marks to be advertised in the Industrial Property Journal. The advertisement was done on 31st May 2011 as appears above and below.

sony holdings word mark

However, on 26th January 2012, the Registrar of Trade Marks wrote to Sony Holdings, informing the latter that an extension of time had been granted to Sony Corporation to lodge a notice of opposition. Sony Holdings wrote back to the Registrar of Trade Marks on 29th February 2012 indicating its objection to the extension of time. The Registrar did not respond to the content of this last letter and instead wrote to Sony Holdings informing it that a notice of opposition had been filed on behalf of Sony Corporation, and asked Sony Holdings to file a counter statement within 42 days.

Therefore Sony Holdings’ case before the High Court was that the Registrar’s exercise of discretion in extending time to file the notice of opposition was illegal, irregular and wrongful. Warsame J. sitting in the High Court dismissed Sony Holdings’ application and held that the Registrar had not exceeded its statutory authority in extending the time for filing the notice of opposition. In this judgment, the learned judge makes two important points relating to judicial review in intellectual property administration. First and foremost, the High Court dismisses the internal exhaustion rule in administrative law which would require that an aggrieved party exhausts all avenues of recourse available under the enabling statute before approaching the courts for a review. In the present case, the court disagreed and stated that:

I am of the view that the present application is properly before the court because the Applicant [Sony Holdings] has alleged that the Respondent [the Registrar] acted in excess of his jurisdiction. An action taken in excess of jurisdiction can only be quashed by way of judicial review orders.

The second important point made by the High Court relates to the principle of legitimate expectation. This principle states that if a public body leads a person to expect that the public body will, continue to act in a way then the latter should not, without an overriding reason in the public interest, resile from that representation and unilaterally cancel the expectation of the person that the state of affairs will continue. In other words, for a legitimate expectation to arise, there must be a promise or representation that arises from the public body, that would be reasonably expected to continue. In the present case, the court explained why Sony Holdings could not rely on the principle of legitimate expectations as follows:

The fact that the trademarks had been advertised did not necessarily mean that the trademarks would as of right be registered. In fact, there was no representation to the Applicant that these marks would definitely be registered once the advertisement in the journal had been done.

Recently the Court of Appeal heard and determined an application by Sony Holdings for an order that pending the hearing and determination of the it’s appeal from the judgment of the High Court that there be a stay of opposition proceedings pending before the Registrar of Trademarks or any action under the Trademarks Act by the Registrar.
Sony Holdings argued that the substance of the appeal is the legality of the opposition proceedings before the Registrar and if the proceedings continue to conclusion then the substance of the appeal would be lost. Sony Corporation in reply argued that Sony Holdings would have a right of appeal or review to the High Court on the merits of the opposition proceedings and for that reason there would be no prejudice to Sony Holdings should the opposition proceedings before the Registrar of Trade Marks proceed to conclusion.

The Court of Appeal rejected Sony Holdings’ application for stay stating that any party dissatisfied with the decision of the Registrar would have recourse to the Courts.

Meanwhile, the root cause of this dispute remains the wide discretion given to the Registrar under Rule 102 in matters of extension of time. How does one establish whether such discretion has been exercised unreasonably, in bad faith or in disregard to the law?

This blogger will be keenly following the developments around this case both before the Registrar and the Court of Appeal.

Jubilee Government Scorecard One Year Later: Waiting for Intellectual Property Organisation of Kenya

gado editorial cartoon April 10 2014 daily nation

As many readers may know, the Jubilee government of President Uhuru Kenyatta, his Deputy William Ruto and his Cabinet mark the end of their first year in office this month. To this end, Gado’s comic in today’s Daily Nation newspaper depicts Kenyatta and Ruto being accused of copyright infringement by the immediate former president Kibaki. The message is clear: the Jubilee government is literally singing the same tune as the previous government.

As this blogger has previously noted, Kenyatta has been very supportive of the creative economy and has on several occasions reiterated his administration’s commitment to creating a conducive environment for creators to reap from their intellectual property (IP) assets. However, Kenyatta’s lasting mark on IP in the past year was the decision to reform all state corporations and parastatals in Kenya which has set in motion plans to merge the copyright office, the industrial property office and the anti-counterfeit agency into one national IP office. (See this blogger’s comments on the merger here and here).

According to recent media reports, the heads of the various government parastatals spent the month of March at the Kenya School of Government deliberating and making recommendations to the Jubilee Government on the best ways to merge the various state agencies across the various sectors, including intellectual property administration and enforcement. Unconfirmed whispers received by this blogger indicate that the proposed name for the new IP body is the Intellectual Property Organisation of Kenya (IPOK) which will be composed of three directorates (Copyright and Related Rights, Industrial Property and Anti-Counterfeit). This new body, IPOK, will be run by a Director-General, much like the African Regional Intellectual Property Organisation (ARIPO) or the World Intellectual Property Organisation (WIPO).

Regardless of the new IP body’s format, it is clear that members of the Jubilee Cabinet will play a crucial role to ensure that this body functions smoothly and delivers on the expectations of Kenyans. In particular, the Cabinet Secretaries in charge of Industrialisation, Justice and Culture will play the greatest role to midwife and steer the operationalisation of the proposed IP body. In a recent publication titled “Cabinet Scorecard”, the Star newspaper used the following rating to gauge the performance of the Jubilee Cabinet over the past year:

“A. You are doing an excellent job

B. Good, but room for improvement

C. You are okay

D. Get your act together

E. Resign

F. Please fire him, Mr President”

According to the Star, no member of the Executive obtained an “A” grade with Kenyatta being the highest scorer with a “B” grade. The Cabinet Secretary for Industrialisation, Adan Mohammed was among the lowest scorers with a “D” grade.

The scorecard reads in part:

“A year later, no one can say with certainty whether he [Mohammed] has done anything let alone inspire change. Nothing much has been heard of his ministry and nothing has reverberated on the ground from the golden touch everyone expected from him…It is no surprising therefore that in the ministry’s website, only three events appear in the “news and events” category one year later.”

Many will recall that Mohammed’s docket is the parent ministry for two out of the three IP agencies to be merged, namely the Kenya Industrial Property Institute (KIPI) and the Anti-Counterfeit Agency (ACA). Furthermore, it is widely speculated that the Industrialisation Ministry may be charged with direct oversight and supervision over the new IP body.

As the Jubilee government enters the second year of its administration, this blogger will continue to review the highs and lows of the Executive, including the current national IP offices, in promoting, supporting and protection the IP rights of the Kenyans.

High Court Orders Government to Operationalise Copyright Tribunal in PERAK Case Against KAMP and PRiSK

pub kenya perak

In a judgment delivered recently, the High Court in the case of Republic v Kenya Association of Music Producers (KAMP) & 3 others Ex- Parte Pubs, Entertainment and Restaurants Association of Kenya (PERAK) [2014] eKLR has ordered the State to set up the Competent Authority established under the Copyright Act to hear and determine the dispute between PERAK and the related rights collective management organisations KAMP and PRiSK with respect to the latter’s tariffs for communication to the public.

As many may know, the Pubs, Entertainment and Restaurants Association of Kenya (PERAK) is the largest single entity representing owners and managers of the major restaurants, pubs and entertainment venues in Kenya. PERAK is registered under the Societies Act as a welfare Organization and its main objective is to bring together operators with a view of resolving common problems in the hospitality industry, developing a code of conduct for its members, engage in social responsibility activities and generally to help members comply with various regulations governing the hospitality industry.

The gist of the PERAK’s judicial review action is summarised in the following three orders which were sought from the court, namely:-

“1. That this Honourable Court be pleased to grant an order of prohibition to prohibit the 1st and 2nd Respondents from arbitrarily imposing and collecting high tariffs/license fees and other levies from the Applicant’s members’ business premises using a wrong tariff structure and generally harassing, intimidating and confiscating their business equipment throughout the Republic of Kenya.
2. That this Honourable Court be pleased to grant an order of mandamus compelling and directing the 3rd and 4th Respondents to hear and determine the dispute between the Applicant and the 1st and 2nd Respondents in relation to the high license fees charged and /or tariffs charged/levied using a wrong tariff structure by the 1st and 2nd Respondents.
3. The costs of this Application be provided for.”

In the court’s judgment, PERAK succeeded to prove that it had locus standi to institute proceedings on behalf of its members in addition to order no. 2. However PERAK was unsuccessful on order no. 1. With respect to order no. 3, the court declined to make any order as to costs.

Comment:

This blogger is surprised by PERAK’s poor form in mounting its judicial review suit against KAMP and PRiSK. This was clearly manifest from several unsubstantiated allegations, inaccurate and outrightly false statements of the provisions of the law by PERAK.

The most significance of this judgment can be found in the last four paragraghs where the court examines whether the government can and should be compelled to give effect to section 48 of the Copyright Act. On numerous occasions (see some examples here, here, here and here) this blogger has emphasised the need for Kenya to immediately operationalise the Competent Authority aka the Copyright Tribunal which is established under the Copyright Act to hear and determine disputes between users and CMOs.

Therefore this blogger is elated that the High Court has seized the opportunity to state clearly that the Government, in particular the Office of the Attorney General and Department of Justice can no longer rely on the same old excuses as reasons for not facilitating the operations of the Competent Authority.

To quote the court:

“The only reason advanced by the Kenya Copyright Board why the Competent Authority cannot fulfil its said statutory duty is that the Competent Authority is yet to be operationalized owing to budgetary and administrative challenges and hence the same is not functional. Article 47(1) of the Constitution provides that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. Article 21(1) of the Constitution on the other hand provides that it is a fundamental duty of the State and every State organ to observe, respect, protect, promote and fulfil the rights and fundamental freedoms in the Bill of Rights. It is therefore upon the State to facilitate the Competent Authority so that it can undertake its statutory duties. To fail to do so amounts to abdication of the Constitutional duties imposed upon the State and in applying a provision of the Bill of Rights this Court is enjoined by Article 20(3)(b) of the Constitution to adopt the interpretation that most favours the enforcement of a right or fundamental freedom.
Adopting the said approach, this Court is not satisfied that the reason advanced by the Kenya Copyright Board warrants the state being absolved from the performance of its statutory duties taking into account the fact that the Competent Authority is already in the office.”

The ball is therefore squarely in the government’s court to operationalise the Competent Authority failing with PERAK will be at liberty to return to court for contempt orders against the Kenya Copyright Board.

The Problem with Private Copying Remuneration in Kenya

50 bob movies by wamathai dot com

Private copying can be defined as the act of making any copy for non-commercial purposes by a natural person for his/her own use. Kenya’s Copyright Act defines it as the making of a single copy for the personal and private use of the person making the copy. Although the right of reproduction under copyright law is exclusive, Kenya is among many jurisdictions worldwide that limit the application of the reproduction right to activities that can be qualified as private copying, the reasoning being that it is practically impossible to grant permission to large numbers of individuals, or to monitor the use consequently made of it. It follows that private copying is allowed under the condition that a fair compensation is paid to the authors and other rights holders for loss of revenues or harm caused to the rights holder whose work had been copied. Private copying levy (or the audio blank tape levy as it known in Kenya) is currently the only efficient mechanism which allows creators to be compensated for widespread copying of their works for private/domestic use. It therefore follows that the blank tape levy would be applicable to blank CDs, tapes, cassettes, DVDs, VCDs, USB Disks, MiniDiscs, Memory Cards, Mobile Phones among others. It is yet to be operationalised in Kenya despite being provided for under section 28(3),(4),(5) and (6) of the Copyright Act.

In December 2013, this blogger discussed here that one of the proposed amendments to the Statute Law (Miscellaneous Amendments) Bill, 2013 related to the provisions of audio blank tape levying provided under Section 28(5) of the Copyright Act. The effect of this proposed amendment was that the blank tape levy be collected by KECOBO and then distributed to the registered CMO representing the owners of sound recordings, currently known as the Kenya Association of Music Producers (KAMP). However, this blogger argues that this section 28 (in both its current and proposed form) is unconstitutional and ought to be fundamentally amended so as to address the economic rights of all rights holders.

The WIPO International Survey on Private Copying Law and Practice 2012 explains that where private copying remunerations are gathered by collective management organisations (CMOs), these societies are appointed by the government or by rights holders. According to the Survey, these CMOs must be representative of each variety of rights holders namely the authors, performing artists and producers. In some jurisdictions, a distinct CMO exists dealing solely with private copying levy and the board of such a CMO is comprised of the various rights holders’ representatives.

From all the 30 countries selected for the Survey, it is clear that there are two main categories of rights holders who benefit from the royalties collected for private copying: copyright holders and the related rights holders. The copyright holders appear to take the lion’s share of the collections with countries like Switzerland and Canada recording an authors’ share of 58%. All in all, the share for copyright holders appears never to be less than 30%.

Meanwhile, back in Kenya, the related rights CMO representing sound producers (KAMP) has recently published a public notice on it’s official website which reads in part:-

“The Kenya Association of Music Producers and Performers Rights Society of Kenya Stakeholders Meeting on Blank Media Levy concluded by setting an unopposed tariff of 6% of import price at the point of sale on the aforementioned equipment. KAMP and PRISK by virtue of Sections 28 (5) and 30 (8) will commence collections May of 2014.”

According to section 28(4) of the Act, the royalty payable for private copying can only be set in one of two ways: through agreement with stakeholders or by the (non-existent) competent authority. The question which therefore must be asked is which one of the two ways was used and what was the rationale behind the percentage figure of 6% purportedly agreed upon pursuant to the Act.

Assuming that the conditions of section 28(4) of the Act have been met, it would follow that the audio blank tape levy would only be applicable to KAMP and not PRiSK. This is because the section refers only to audio recording equipment and audio blank tape and not video. In addition, according to the WIPO Survey, the only jurisdiction with a tariff of 6% (of the import price) is Lithuania and this tariff covers both copyright and related rights holders, as illustrated in the table above.

However there is a fundamental question which remains unanswered, namely: is the current private copying levy provision under section 28 constitutional? The blogger argues that the answer must be no. In all the countries studied in the WIPO Survey above, copyright holders were allocated a substantial share of collections from the respective private copying levies. However, the Kenyan Act only refers to owners of sound recording. It is therefore possible to argue that section 28(3),(4),(5) and (6) are unconstitutional for two cardinal reasons, namely the discrimination of rights holders contrary to Article 27 of the Constitution and the deprivation of property contrary to Article 40 of the Constitution.

Vindicating Your Intellectual Property Rights: Penny Galore Ltd. v. Amani Women’s Group

grey kura necklace by goop dot com

Earlier this week, Amani Women’s Group posted a blog article here after receiving a Cease and Desist Demand Notice from Penny Galore Ltd. In the explicit Demand Notice, Amani is accused of infringing Penny Galore’s rights under both copyright and the law of passing-off with respect to the latter’s handmade necklace branded and marketed widely as the Kura Necklace. According to Penny Galore’s counsel, Coulson Harney, the necklace is “made up of bone quills that are creatively decorated around a ring necklace which is joined by a hook and comes in various colours such as grey, cream and black”.

Penny Galore alleges that Amani has substantially copied and/or reproduced the Kura Necklace Grey and that Amani are selling this infringing work at its shops to individuals and/or independent traders. Therefore Penny demands that Amani immediately stops all dealings with its alleged infringing necklace and that all pieces of the disputed Amani neckace must be destroyed. In addition, the Demand Notice requires that Amani provides a written promise not to infringe on Penny Galore’s rights in the Kura Necklace. Of course, Penny Galore’s counsel has threatened to sue Amani if the latter does not comply with the Demand Notice.

Comment:

This blogger submits that this is an important lesson on protection of one’s intellectual property rights. From the little information that is publicly available, there is no doubt that Penny Galore has and continues to invest heavily in commercialising its products and its brand, both of which are protected under the intellectual property (IP) system. The sole fact that Penny Galore has engaged the services of (high-end) IP counsel in this matter demonstrates that it is willing to invest in protecting the IP rights subsisting its various products that have been made available to the public.

On the other hand, it is clear that Amani enjoys equal IP protection as Penny Galore with respect to its unique creations. Therefore, Amani can and should rely on the IP system to defend any unfounded claims made against its products by anyone, including Penny Galore.

Based on Penny Galore’s demand notice and Amani’s website alone, it is impossible for any third party, including this blogger, to ascertain what the alleged infringing necklace looks like and whether there is an objective similarity between the above necklace and the Kura Necklace. However, most IP commentators would agree that necklaces, in their material form, are the subject of copyright protection as artistic works defined in section 2(1) of the Copyright Act.

A good illustration of the required standard of proof for copyright infringement in an artistic work may be found in the case of Macmillan Kenya Publishers v Mount Kenya Sundries Ltd Civil Suit No. 2503 of 1995. In this case, Macmillan Kenya Publishers claimed its rights under copyright has been infringed with respect to its maps “Kenya Tourists Map”. Macmillan argued that the “Kenya Travellers’ Map” by Mount Kenya Sundries Limited was similar to the Macmillan’s maps save for some changes made in certain aspects of the maps’ details.

The court ruled in favour of Macmillan and stated as follows:-

As was pointed out in Alternative Media Ltd vs Safaricom Ltd (2005) 2 KLR 253, infringement of copyright arises not because the Defendant’s work resembles the Plaintiff’s, but because the Defendant had copied all or a substantial part of the Plaintiff’s work. In the case before me, the Plaintiff has submitted evidence which I find to be both sufficient and credible, that its maps (PEx 6 and PEx 7), were copied by the Defendant in the production of the Defendant’s map (PEx 8), and I find the Defendant fully liable for the infringement of the Plaintiff’s copyright.

The above-cited Alternative Media case is the leading case in relation to copyright infringement of artistic works. In that case, the court found that Safaricom had infringed Alternative Media’s rights under copyright with respect to artistic works created by the latter. These works of art were used by Safaricom on it’s 250 Shillings Scratch Cards without Alternative Media’s authority.

Regarding the law of passing-off, the central enquiry is whether the public is likely to be confused into believing that Amani’s necklaces are, or are connected with, those of Penny Galore. The underlying rationale behind passing off is to ensure that competitors within the same market do not engage in any acts aimed at interfering with the goodwill between each business and its customers.

Therefore although Penny Galore appears not to have registered its necklaces, the provisions of section 5 of the Trade Marks Act are clear that:-

“No person shall be entitled to institute any proceeding to prevent, or to recover damages for, the infringement of an unregistered trade mark, but nothing in this act shall be deemed to affect rights of action against any person for passing off goods.”

In the case of Githunguri Dairy Farmers Cooperative Society Limited v. Uplands Diaries Limited 2009 eKLR, the court found that the features and design of Uplands’ milk packaging were strikingly similar to Githunguri’s Fresha Milk packaging and that the latter’s market survey confirmed that there is confusion in the market.

In arriving at this ruling, the court stated as follows with respect to passing-off:-

The principles to bear in mind when considering a claim under the tort of passing off, is the plaintiff must prove reputation of good will connected with the goods which are known by the buyers by distinctive get up or feature. Secondly, the plaintiff must prove the defendant either intentionally or not, misrepresented to the public leading them to believe that the defendant’s goods are the plaintiffs. The plaintiff has also to prove that they have suffered damages because of the erroneous believe caused by the defendants’ misrepresentation.

The above principles may be useful to Amani as they craft a response to Penny Galore’s Demand Notice.

In light of the above, this blogger looks forward to seeing Amani’s comprehensive evidence showing that the Kura Necklace falls part of the traditional cultural expressions of African and Kenyan communities, as Amani appears to have suggested in its blog article. In the meantime, this blogger is not convinced by Amani’s attempts to portray its dispute with Penny Galore as “bullying” or a case of David versus Goliath.

It is indeed disappointing for Amani to resort to comments such as:

“Kenya is 50 years old and its seems we are still under control of people wanting to make money on the backs of poor wananchi, its not fair … Or may it is just if you have money and success, you think you are entitled to step on whoever you please while you try to make yourself richer”

All businesses, large and small alike, must be alive to possible IP issues in their operations and develop effective IP strategies. Perhaps this is an important lesson not just for Amani but other businesses in the creative and innovation sectors.

Anti-Homosexuality Law and Intellectual Property Collide: Denver David Robinson vs. Red Pepper Uganda

Uganda gay pride. Photo by David Robinson © 2012

In a recent article in the New York Times here, it is alleged that Ugandan tabloid newspaper Red Pepper infringed the copyright of Denver David Robinson, the photographer behind the photographic project titled: “We Are Here: LGBTI in Uganda” which was published by The Advocate, an American L.G.B.T. magazine here.

From an intellectual property (IP) perspective, this blogger aims to discuss Robinson’s claim against Red Pepper and the extent to which the provisions of fair use under Ugandan copyright law would be applicable. In addition, this blogger will also consider the moral rights issues that may arise in this case.

Robinson, a gay man, explains that his photo essay of the LGBTI community in Uganda was a result of his stay in the East African country in 2012. His work featured the photographs of a dozen members of the community who told their stories. Although The Advocate has taken down Robinson’s work from its site, some of Robinson’s photographs can be viewed on the GLAAD site here.

On February 24, 2014, Ugandan President Yoweri Museveni signed Uganda’s Anti-Homosexuality Bill into law. This Bill was first introduced in 2009 by David Bahati, a Member of Parliament, with the intention of criminalising same-sex relations whereby a person considered as homosexual would receive the death penalty, or life imprisonment.

Robinson alleges that following this presidential assent, Red Pepper ran a series of stories aimed at “outing” LGBTI persons in Uganda and that these stories all used his photographs from The Advocate publication. He explains it thus:

The Red Pepper, published an article titled “Homosexuality Could Cause Mental Illness — Medics.” One of the photographs accompanying the article was one — also published by The Advocate — that I had taken at Uganda’s very first pride parade in 2012, showing two Ugandans with broad smiles. The Red Pepper had not contacted me or sought my permission.

On many days since, similar stories and photographs have been published. The worst for me and my activist friends came on Feb. 28, when the Red Pepper reprinted — again, without permission — a version of my photo essay for The Advocate. The feature was retitled “Top Ugandan Gays Speak Out: How We Became Homos.”

With regard to the copyrightability of Robinson’s photo essay, Uganda’s Copyright and Neighbouring Rights Act, 2006 is identical to Kenya Copyright Act, 2001. Both Acts provide that Robinson’s work is eligible for copyright as both an artistic and a literary work.

The next step for Robinson is to establish that there is an objective similarity between his original work and the work published by Red Pepper. In this regard, Robinson says:
“Although the Ugandan participants and I knew that the photos and stories might someday be used against us, we never thought the entire project would be stolen wholesale.”
This wholesale theft alleged by Robinson would sufficiently be proved by a side-by-side comparison between the photographs published by tabloid and those taken by Robinson for publication in The Advocate.

The final leg in Robinson’s copyright infringement suit will be to show that there is a causal connection between his original work and Red Pepper’s infringing copy. This causal connection would be established by showing that his work was accessed from The Advocate, a publication made available online since February 2013.

In reply to Robinson’s claim, Red Pepper may decide to challenge the photographer’s locus standi (legal standing) to bring this copyright suit. This is because the original work copied was by The Advocate, which is a separate entity from Robinson. In this connection, it is clear that the infringement is confined to the economic rights contained in sections 9(a) and (f). Therefore it would be important to interrogate the nature of the relationship between Robinson and The Advocate to determine who has the locus standi to bring a suit for copyright infringement of the economic rights. However, it is clear that Robinson would have locus standi to bring a copyright infringement suit with respect to his moral rights to claim authorship of the work and object to any distortion, mutilation, alteration or modification of the work as provided under sections 10(1)(a) and (c) of the Ugandan Act.

However, Red Pepper may be able to counter Robinson’s copyright infringement claim by relying on the defence of “fair use” as provided under section 15 of the Ugandan Copyright Act. This defence appears to be an option for Red Pepper due to the following remarks made by Robinson:

I had been given a byline as if I were one of the newspaper’s reporters. Some words were changed, and the photographs were cropped to cut out my copyright watermark. The Advocate was neither contacted nor credited.

Like Kenya’s Act, Uganda’s Act contains several general exceptions and limitations to the exclusive rights granted to copyright owners. It follows that whatever falls within the exceptions and limitations constitutes lawful conduct and therefore liability for infringement would be excluded. With specific reference to the present case, section 15(1)(e) states as follows:

The fair use of a protected work in its original language or in a translation shall not be an infringement of the right of the author and shall not require the consent of the owner of the copyright where the work is reproduced, broadcast or communicated to the public with acknowledgement of the work, in any article printed in a news paper, periodical or work broadcast on current economic, social, political or religious topic unless the article or work expressly prohibits its reproduction, broadcast or communication to the public;

In this regard, it is not disputed that Red Pepper used the photographs in the reporting of current events however the question for the court to determine is whether the author of the work was acknowledged as such. It is clear that this determination will entail a discussion of what would objectively amount to acknowledgement under the Ugandan Copyright Act.

This blogger will be keenly following the developments in this case as it proceeds to court.

What Kenya is Missing: South African Copyright Tribunal Sets Aside License Tariff for Use of Sound Recordings

PicknPay

It is recommended that a tariff to be set by the tribunal should neither be too high nor too low, but a tariff which the owners of the royalty will realise profits on the one hand and the consumers will purchase voluntarily. It is hard, in my view, to satisfy the preferences of either party. It has already been indicated that I am not tasked to judge as to which case is superior in law but to set a tariff that may be said to be reasonable. – Foschini Retail Group (Pty) (Ltd) and 9 (Nine) Others v South African Music Performance Rights Association (0003/2009) [2013] ZAGPPHC 304 at Paragraph 76.

Recently this blogger reported a major victory for Kenya’s related rights collective management organisations (CMOs) when the court upheld their statutory mandate to license for the communication to the public right (See here). It is clear that the majority of these disputes between the related rights CMOs and users arise because the latter contest the license fees charged by these CMOs. The genesis of this contestation stems from the users’ perceived “double taxation” of paying both a copyright CMO on the one hand and the related rights CMOs on the other hand.

In this regard, this blogger has argued on several occasions (see here, here and here) that the Competent Authority must be immediately operationalised to deal with the rising cases of CMO-user disputes. Meanwhile, in South Africa, the Copyright Tribunal (equivalent to the Competent Authority under the Kenya Copyright Act) has recently issued a landmark judgment in which it set aside the license tariff for retailers as fixed by the South African Music Performance Rights Association (SAMPRA) holding that the tariff was not reasonable and proceeded to set a tariff to be applied by SAMPRA. In addition, the Copyright Tribunal ordered SAMPRA to pay the the retailers’ costs of referring the matter to the Tribunal.

For Kenya, this judgment is of great importance as the tariff determined by the Copyright Tribunal in South Africa is significant lower than that of the concerned related right CMO in Kenya. Therefore this blogger submits that there is a need for a review of all tariffs set by related rights CMOs using the methodology of the South African Copyright Tribunal.

In the present case, the retailers, namely Foschini Retail Group (Pty) (Ltd), Pepkor Retail Limited Stores, Just Kor Fashion Group (Pty) (Ltd), Mr Price Group Limited, Pick ‘n Pay Retailers (Pty) (Ltd), Truworths Limited, New Clicks SA (Pty) (Ltd), Dunns Stores, Metrotoy (Pty) (Ltd) and Young Designers Emporium (Pty) (Ltd) contended that SAMPRA had unilaterally set a tariff, and that it basically adopted a take-it-or-leave-it approach, when demanding payment. The retailers claimed that the tariff was inflated and without economic justification. They said that they had tried to negotiate with SAMPRA, but that the parties had been unable to reach agreement, hence they referred the matter to the Copyright Tribunal for determination.

As many know, the South African Music Performance Rights Association (SAMPRA) is a national, non-governmental, organization that licenses to third parties specific copyrights that vest in record companies that are members of the Recording Industry of South Africa (RiSA). It is therefore clear that SAMPRA’s equivalent in Kenya is the Kenya Association of Music Producers (KAMP).

In response to the retailers’ contentions, SAMPRA claimed that its tariff was reasonable. It stated that its tariff was bench-marked with international best practice, with reference to the UK, Australia and Canada being mentioned. SAMPRA’s tariff was based on the square meterage of the ‘audible area’, in other words those parts of the store where the music can be heard even if they are inaccessible to customers. Therefore according to SAMPRA’s tariff, the annual fee for a store of 51 to 100 square metres was ZAR 1000.00, whereas the annual fee for a store of 201- 300 square metres was ZAR 2000.00.

The Tribunal agreed with the retailers that the SAMPRA’s tariff was too high, even compared with lower tariffs in developing countries such as Australia. The Tribunal also agreed with the retailers that SAMPRA’s take-it-or-leave-it approach in setting its tariff was wrong both under the Copyright Act and the Collecting Society Regulations. In this connection, the Tribunal found that it would not be in the interest of justice to “cut and paste” the international practice without engaging the market forces prevailing in South Africa.

Therefore the Tribunal was of the view that tariff to be set must be a tariff that “optimizes public welfare”, in other words “a tariff that is neither too high nor too low, by which the service providers would realize profits, whereas the consumers would purchase voluntarily”. The Tribunal therefore set a tariff which, for example, saw the annual cost for shops of 50 to 100 square metres drop down to ZAR 389.00, whereas the annual fee for shops of 200- 300 square metres was set at ZAR 620.00.

As alluded to above, the tariff set by the Tribunal does not compare favourably with KAMP’s tariff here in Kenya. According to KAMP’s recent tariffs available here, the annual cost for shops of 50 to 100 square metres is currently set at KES 6500.00 which is approximately ZAR 650.00. In other words, a Kenyan shop half the size of a South African shop pays twice as more in license fees per year.

In light of the above, this blogger submits that there is a pressing need for the relevant government agencies to intervene and regulate the license tariffs, terms and conditions imposed by CMOs in Kenya to protect the public interest.

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