Technology Transfer and Licensing Agreements in Kenya’s Life Sciences Sector

Technology transfer and licensing agreements in Kenya are not purely private bargains. Under the Industrial Property Act, 2001, licence contracts relating to patents, utility models and industrial designs are submitted to the Kenya Industrial Property Institute (KIPI) for registration in the patent register, and the Institute’s Managing Director may refuse registration if the terms are harmful to Kenya’s economic interests. Any life sciences company bringing pharmaceutical, diagnostic or biotech know-how into Kenya, whether by licence, joint venture or technology transfer, should draft with that screening in mind. This article explains how the screening works, which clauses are caught, and what the statute implies when a contract is silent.

Registration of licence contracts

Section 68(1) of the Industrial Property Act provides that all licence contracts, including modifications, shall be submitted to the Institute for registration in the patent register. Any party to the contract may petition, with the prescribed documents and fees. The Managing Director must issue a receipt that proves the filing and its date, and if no receipt is issued within fourteen days the petitioner may rely on other evidence. Under section 68(4), the Managing Director shall refuse to register a contract that has not complied with the formal requirements or that cannot be registered under section 69. If the contract can be registered, section 70 requires the Managing Director to register it and issue a certificate of registration. Decisions of the Managing Director can be appealed under section 112.

Prohibited terms under section 69

Section 69 is the substantive check. The Managing Director may refuse to register a licence contract if he considers that a clause imposes unjustified restrictions on the licensee so that, taken as a whole, the contract is harmful to the economic interests of Kenya, and the effect of the clause is one of those the section lists. The listed effects include requiring the licensee to:

• import technology when substantially similar technology could be obtained on the same or better terms without importation;
• pay a price, royalty or other consideration disproportionate to the value of the technology;
• acquire materials from the licensor or designated sources, or be prevented from using materials from other sources, unless that is practically necessary to ensure product quality;
• sell the products exclusively or principally to persons the licensor designates;
• make improvements available to the licensor without appropriate consideration;
• accept price-fixing for sale or resale of the products;
• accept a clause that exempts or restricts the licensor’s liability for defects inherent in the technology;
• stop using the technology after the contract expires, subject to the licensor’s patent rights;
• submit disputes to a governing law other than Kenyan law, or to courts located outside Kenya; and
• accept a contract duration that is unreasonably long relative to its economic function.

This is a summary, not the full list, and section 69 should be read in full against the draft. Two items catch foreign templates most often: the foreign governing law and forum clause, and the licensor-friendly liability exclusion. A pharmaceutical licence drafted on an English or Swiss template, with a London seat and a blanket exclusion of liability for defects in the technology, will not meet section 69 as written. Consider whether the draft can be restructured, for instance by separating the Kenyan licence from a wider multi-country agreement so that the Kenyan instrument carries Kenyan law and forum terms.

What the statute implies when the contract is silent

Section 64 sets default rights for a licensee. In the absence of a contrary provision in the licence contract, the licensee may do any of the acts referred to in section 54 in respect of the invention, utility model or industrial design without limitation as to time, in the whole of Kenya and in any field of use. Also in the absence of a contrary provision, the licensee may not grant any third person permission to do those acts, so sub-licensing is not implied. A licensor that wants a field-limited, time-limited or territory-limited licence therefore has to say so expressly. The same applies to a licensee that needs sub-licensing rights for a contract manufacturer or distributor.

Employee and commissioned inventions

Ownership of research outputs matters in every technology transfer. Section 32 of the Act provides that, absent contractual provisions to the contrary, the right to a patent for an invention made in execution of a commission or an employment contract belongs to the person who commissioned the work or to the employer. Where the invention is of exceptional importance, the employee has a right to equitable remuneration taking into account his salary and the benefit the employer derives. Section 32(2) extends the rule to an employee who was not required to do inventive work but made the invention using data or means available through the employment. For research collaborations with universities, institutes and contract research organisations, do not rely on the default rule. State ownership, licence-back rights and publication rights in the research or transfer agreement itself.

Regional patents and other instruments

Section 59 of the Act deals with regional applications, grants and registrations under the Harare Protocol, which is how ARIPO patents take effect in Kenya. If your licensed technology is protected through ARIPO rather than a national Kenyan patent, confirm with counsel how that grant takes effect in Kenya before you value the licence.

Technology transfer in life sciences also uses instruments beyond a patent licence. Material transfer agreements for samples and prototypes, confidentiality agreements, joint venture agreements and know-how licences each need their own drafting checklist, and a joint venture should define who manages filings, licensing and disputes. Not every one of these is a registrable licence contract under section 68, so decide at the outset which instruments must go to KIPI and which do not.

Royalties, tax and sequencing

A licence bringing foreign technology into Kenya usually sends royalties back to the licensor. Royalties paid to non-residents are subject to withholding tax under the Income Tax Act, and double taxation treaties may reduce the rate. Agree which party bears the tax at term sheet stage, and confirm the rate and any treaty relief against the current Act and treaty text before the economics are fixed. Where the transfer depends on local manufacture, align the commercial milestones with the manufacturing licence under section 35A of the Pharmacy and Poisons Act, as discussed in our guide to pharmaceutical manufacturing licensing and EPZ incentives, so the agreement does not assume a plant that is not yet licensed.

Frequently asked questions

This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.