By Ayebazibwe Edgar
The development of new technologies and viral spread of communication networks have both rendered possible the rise of businesses that own very few tangible assets and owe their success almost within intellectual property.
The Fourth Industrial Revolution is the current and developing environment in which disruptive technologies and trends such as the Internet of things, Big data, Robotics, Virtual Reality and Artificial Intelligence are changing the way we live and work. This age is differentiated by the speed of technological breakthroughs, the pervasiveness of scope and tremendous impact of new systems, mobile supercomputing, Intelligent Robots, Self-driving cars among others.
The practice of securing obligations is an ancient one, with roots reaching back to the code of Hammurabi. The code of Hammurabi is among the ancient codes of laws in human history, laws 49 and 50 of Hammurabi code regulated loans secured by cultivated land. Under the ancient commercial law, tangible property has been regularly employed as collateral, collateral indicates assets that are a subject matter of a security interest. Section 2 of the Security Interest in Movable Property Act, 2019 defines a perfected security as one which is protected from third party claims, simply put, it such security that is properly registered.
By contrast, Intellectual property rights have seldom been used as collateral. Ancient court cases for example in New Ixion Tyre co. versus Spilsburry (1893) 2 Ch. 484 illustrate so, however, throughout the latter half of the twentieth century, the world economy has undergone fundamental transformations.
The relative importance of tangible property has relatively diminished, this is because of the rising debt stress and ever-increasing value though static, unlike real property, Intellectual property is not static.
It is settled in English law that real consensual securities may be created on Intellectual property. Section 105 of the Companies Act, 2012 provides for registration of Charges, a charge is defined under section 2 of the Act as a form of security for the payment of a debt or performance of an obligation consisting of the right of a creditor to receive payment and includes a mortgage.
Section 105(3) of the Companies Act provides that a charge may be registered on goodwill, patent or licence, trademark or on a licence under the Copyright and Neighboring rights Act, Industrial Properties Act, 2014, Trademarks Act 2010 and any other law that establishes such a right. This reveals a fundamental shift from the traditional real collateral to intellectual collateral brought by the harnessed appreciation of intangible assets.
According to the National Intellectual property policy, the total number of IP rights applications filed with URSB for the period 2011 to 2016 were, patents (47), trademarks (15,048), Copyright (353). These are few and according to the Global Innovation Index (GII) 2016, all patent applications made in 2012 and 2011 were foreign, while no local patents of Ugandan origin were filed abroad, in spite of growing capacity for local technology development and adaption in academia, public, formal and informal sectors.
Uganda has been ranked as the world’s most entrepreneurial country by Global Entrepreneurship Monitor (GEM), recording the highest youth entrepreneurs with 55.6 per cent of the youth population involved in new or established businesses.
Uganda’s tech start-up scene is taking shape with a series of innovators rolling out Applications to address gaps in the market. Behind this rise in innovation is a tale of frustration among most tech-starts in terms of financing their operations to become profitable companies, fortunately, the law has provided for mechanisms on how startups can use their intellectual property to access credit.
dfcu Bank and Monitor Publications Crown Season 7 Rising Woman Champions, Celebrating Uganda’s Top Women EntrepreneursTo perfect a security interest in intellectual property, the lender must sufficiently describe and record the security interest with the proper governmental authority. This is done with the relevant Registrar at the Uganda Registration Services Bureau, the law provides for different Registrars of Patents, copyrights, Trade Secrets, trademarks, etc.
Intellectual Property due diligence and the proper transfer of all Intellectual Property related assets is critical to ensure a lender is secure. Just as a lender would perform due diligence when real property is pledged as collateral for a loan, including a full title review, all IP assets should be meticulously reviewed prior to closing. It is best practice to have the lender’s counsel or outside counsel conduct an independent review of the transfer and acquisition of all IP assets from the seller to the borrower.
Generally, there are two methods of perfecting security interests in intellectual property assets; by a written security agreement and by assignment of ownership of the intellectual property to the secured party coupled with a license granted back to the pledging party.
Growth of IP assets is predictable despite the high cost of money in Uganda. The Government has established a special fund for innovation in Uganda and subsequently, the establishment of this fund is likely to position the country to being an innovation hub. On August 30 and September 1, the President wrote a letter directing for a fund to be created for ICT innovation.
Rwanda in its quest to become Africa’s ICT hub, has created a $100 million (Shs339 billion) Fund to address funding challenges by Rwandan technology entrepreneurs. The Rwandan government will contribute $30 million (Shs101.7 billion) and they will mobilize the rest from the private sector.
Courts in Uganda have already taken a progressive approach in dealing with such intangible properties specifically on valuation of intangible assets which is very relevant though not expressly addressed by any statutory law. In the case of Irene Kulabako versus Moringa Limited and 2 others[1] Bamwine J. held that the goodwill of the 1st respondent Company was a priced asset. Court relied on the accounting standard for intangible assets, International Financial Reporting Standards of 2009.
The convergence of various fields of technology is already changing the fabric of society. Big data and data mining, Internet of Things, artificial intelligence and block chain are already affecting business models and leading to a social and economic transformations that have been dubbed by the fourth industrial revolution.
Ayebazibwe Edgar is a Legal Associate at Mwesigwa Rukutana & Co. Advocates and Teaching Assistant – Uganda Christian University
