Cross-Border Licensing Deals: What Multinational Pharma Should Know About Kenyan Contract Law

When a multinational pharmaceutical company licenses a molecule, a manufacturing process, or a product dossier into Kenya, or licenses Kenyan-developed technology out to a foreign partner, the deal does not run on the licence agreement alone. Cross-border licensing in Kenya sits on top of a registration requirement at the Kenya Industrial Property Institute, withholding tax on every royalty remittance, competition law limits on exclusivity, and a medicines regulator that will not deal with a foreign entity directly. These requirements are not optional add-ons; they affect whether the licence is enforceable and whether royalties can be paid out at all.

Registering the Licence Contract with KIPI

The Industrial Property Act, 2001 treats licence contracts involving a foreign licensor as something the state reviews, not just a private matter. Section 68 requires all licence contracts, including later modifications, to be submitted to the Kenya Industrial Property Institute (KIPI) for registration. Section 69 lets KIPI’s Managing Director refuse registration where a clause imposes unjustified restrictions on the licensee that are prejudicial to Kenya’s economic interests. In practice this catches clauses forcing the licensee to buy inputs only from the licensor when local alternatives exist, disproportionate royalty rates, grant-back of improvements without compensation, export restrictions or resale price fixing, and disputes referred exclusively to a foreign law with no connection to the transaction.

Section 70 provides that if the Managing Director does not flag a defect within ninety days, the contract is deemed registered, and registration filed within sixty days of conclusion takes effect retroactively. The Tribunal can also order repayment of royalties if the underlying patent is later found invalid or revoked. The practical point is to have Kenyan counsel check the licence against these restrictions before signature, since a grant-back or exclusive foreign-supply clause standard elsewhere can trigger a refusal here.

Governing Law, Arbitration, and Enforcement

Kenyan contract law generally respects party autonomy on governing law and dispute resolution, subject to the KIPI restriction on wholesale foreign-law dispute clauses noted above. Arbitration is the standard mechanism multinational licensors use to avoid Kenyan courts, and the Arbitration Act, 1995 provides the enforcement backbone. Section 36(2) confirms that an international arbitration award is recognised as binding and enforced in Kenya under the New York Convention, to which Kenya is a signatory. Section 37 limits the grounds for refusing enforcement to a closed list: incapacity, an invalid arbitration agreement, lack of proper notice, an award exceeding the scope of reference, improper tribunal composition, an award not yet binding or already set aside, fraud or corruption, non-arbitrability under Kenyan law, or conflict with Kenyan public policy. That narrow, convention-compliant list is why a well-drafted arbitration clause, seated in Kenya (often under the Nairobi Centre for International Arbitration) or offshore, remains enforceable against a Kenyan licensee’s assets.

On the money side, Kenya abolished exchange controls in 1993 and imposes no general restriction on remitting royalties or technical fees abroad. The practical bottleneck is documentation, principally proof that withholding tax has been accounted for and, for technology transfer agreements, evidence of KIPI registration.

Withholding Tax on Royalty Payments

Royalty payments to a non-resident licensor attract withholding tax, and a Kenya Revenue Authority public notice confirms the rate is 20% for non-residents, against 5% for residents. This is deducted at source before the balance is remitted, and it is a final tax rather than a payment on account. Kenya’s double taxation agreements can reduce this for licensors resident in a treaty partner state, commonly to somewhere in the 10% to 15% range, though the exact figure depends on the treaty in force and should be checked before a deal is priced, since relief is not uniform across agreements. Licensors should build the applicable rate into royalty pricing from the outset and confirm whether their home jurisdiction credits the Kenyan withholding.

Competition Act Limits on Exclusive Licensing and Distribution

Where the deal includes exclusive distribution or an exclusive manufacturing licence for the Kenyan market, the Competition Act, 2010 is directly relevant. Section 21 prohibits agreements between undertakings that have the object or effect of preventing, distorting, or lessening competition in Kenya, unless exempted, and section 21(3) singles out arrangements that fix prices or trading conditions, divide markets or allocate customers and territories, involve collusive tendering, impose minimum resale prices, or limit production or market access. An exclusive licence or distribution appointment is not automatically unlawful, but combining territorial exclusivity with resale price maintenance or a blanket ban on the distributor stocking competing products invites scrutiny from the Competition Authority of Kenya. Sections 25 to 30 allow an exemption application on exceptional public policy grounds, such as a contribution to technical progress or exports, but this must be applied for in the prescribed form in advance, not raised as a defence after the fact.

PPB Registration and Protecting Undisclosed Know-How

A commercial licence for a pharmaceutical product cannot be separated from the regulatory route to market. The Pharmacy and Poisons (Registration of Health Products and Technologies) Rules, 2022 require a foreign applicant to appoint a local representative in Kenya, a citizen, permanent resident, or Kenyan-incorporated company. The Board will not hold a marketing authorisation in the foreign licensor’s name directly, so the licence agreement needs to identify who holds the Kenyan authorisation and how that entity’s obligations to the licensor are documented; the commercial licensee and the PPB registration holder need not be the same party but should be closely aligned.

Where the deal transfers know-how or a dossier not covered by a registered patent, protection depends on contract rather than a standalone property right. Kenya has no dedicated trade secrets statute; confidentiality rests on the common law doctrine of breach of confidence, contractual non-disclosure obligations, and the general TRIPS standard on undisclosed information that Kenya absorbs through its constitutional provisions on ratified international law. The licence agreement’s confidentiality clause, its definition of protected know-how, and its survival period after termination are doing the real protective work here, not any registry filing.