Sunday 21 August 2016

The Role of The Nairobi Securities Exchange. Kenyan Capital Markets Law

What is the role of the Nairobi Stock Exchange and what role has it played in the economy of Kenya?

What is a stock exchange? A stock exchange can be basically defined as an organized market where stock, bond[1]and shares are issued, bought and sold through brokers and dealers[2]. It constitutes a part of the capital market. Institutions seeking long term funds are dominant in the stock market. Long term funds can be described as funds obtained for a time frame that exceeds one year[3]. The stock exchange is also included[4].
In a stock exchange there are new issues and second hand shares. New issues are shares that are being issued from a company that is floating its assets for the first time whereas second hand shares which constitute a larger part of the stock market are shares that have been circulating in a market for some time. They are therefore attractive to invest in especially with accurately predicted information. 
The stock market can be at a particular place but the growth of electronic transactions does not favor a centrally located physical location[5].
According to the Capital Markets Act a securities exchange is means a market, derivatives exchange, securities organization or other place at which securities are offered for sale, purchase or exchange, including any clearing or settlement, with or without novation, or transfer services connected therewith[6]’.
The Nairobi Stock Exchange was established in 1954 under the Societies Act. Previously in the 1920’s it was a European only affair. Africans were only allowed to trade in 1964[7]
Who are the key stakeholders?
1.      Investors: investors make up a fundamental part of the stakeholders. They introduce money in exchange for shares. Investors need;
Information about the market that is timely and accurate, to be relied upon or that gives a true and fair view of companies in the stock exchange.
Investment opportunities that can increase their wealth by making profits
Security, they need protection of their investments by ensuring that the issuers are not fraudulent or partake in activities that injure the investor
Investor seek for an avenue of wealth creation and given the viability of the stock exchange it is suitable
Investors need transparency of the stock exchange which would enable them to make an integral based monitoring of their activities
Investors need an arbitration avenue in the event that disputes arise and given that the courts are clogged with case backlog. This alternative dispute resolution method will enable a timely settlement.
Investors at many times are lay people who do not possess skills to predict and work the stock exchange[8] as such they need to be educated on the technical mode of operation of the stock exchange[9].
The Nairobi Stock exchange provides all the above outlined services to investors by providing an effective and efficient transparent avenue for price discovery of shares of the different listed companies and an avenue for wealth creation and management[10].
2.      Issuers
Issuers have a number of needs;
Issuers prefer a liquid market[11] as an alternative to raise money as compared to a security based bank loan. Stocks are considered liquid because they can be rapidly sold and the act of selling has little impact on the stock's price[12].
Issuers need a low cost of capital, these are funds that a business uses to run the business, issuing of shares provides this opportunity to raise low cost capital.
Issuers need a vibrant competition from potential investors on their shares. This broadens the market and thus more investors.
The Nairobi Stock exchange provides for issuers an opportunity to unlock their value, to enhance their profile in the capital market; it raises the shareholder’s value and lastly raises the governance standards[13].
3.      Media
The media are stakeholders in the stock market their needs include;
Information on the stock market and clarification on matters that are beyond common knowledge, the Nairobi Stock Exchange provides the media with accurate and timely financial information[14].
4.      Government
The government is a stakeholder in the capital market; the government also needs to raise funds for its corporations. It uses the capital markets as a barometer of the economy. It also needs a body to execute its policies. The Nairobi Stock Exchange provides the government with a platform for policy implementation and capital raising[15].
5.      Market intermediaries
These include the other people who are involved in the capital market such a guarantors, underwriter and lawyers etc. the need business opportunities, transparency and a chance to enjoy economies of scale. The Nairobi Stock Exchange provides a robust capital market infrastructure for market intermediaries to conduct their business.

How have the various roles of the Nairobi Stock Exchange described above enhanced the Kenyan economy?
The Nairobi Securities Exchange provides for an avenue of resource mobilization directly from the public, this lowers the cost of raising capital and thus more profits from less capital this has the effect of boosting the economy.
The government taxes dividends of companies and as such increases government revenue which in the long run enhances the government ability to monitor the capital markets and thus boosts the Kenyan economy.
The Nairobi Stock exchange educates investors on how to interpret financial information and thereby equipping them with key skills in trading and as such this boosts the economy by enhancing better traders that make better informed decisions that lead to more profit.
The Nairobi Stock Exchange gives room to the growth of related financial services sector e.g. insurance pension schemes, which nurture the spirit of savings. In the long run this boosts the economy by diversifying financial services.
The Nairobi Stock Exchange encourages high standards of accounting and management of resources. It also allows public disclosure that gives effective efficiency in the capital growth process and ultimately the economy as a whole[16].
The Nairobi Stock Exchange facilitates equity financing[17]. Equity financing is the method of raising capital by selling company stock[18] to investors. In return for the investment, the shareholders receive ownership interests in the company[19]. Equity financing is preferred to debt financing. Most countries, both developed and undeveloped, have been trying to do away with debt financing - especially during recessions.
The Nairobi Stock Exchange enables futuristic funding in most of the developing countries, where venture capital in mostly unavailable such as Kenya.

Bibliography
Acts
1.      Capital Markets Act
Books/Articles
2.      Rose. W. Ngugi, Development of the Nairobi Stock Exchange: A Historical Perspective, KIPPRA Discussion Paper No. 27(2003)
3.      Dr. Jacob Gakeri, ‘Regulating Kenya’s Securities Markets: An Assessment of the Capital Markets Authority’s Enforcement Jurisprudence’
4.      Aduda J et al, The Determinants of Stock Market Development: The Case for the Nairobi Stock Exchange, International Journal of Humanities and Social Science, Vol. 2 No. 9; May
Internet Sources



[6] Sec 2
[7] Rose. W. Ngugi, Development of the Nairobi Stock Exchange: A Historical Perspective, KIPPRA Discussion Paper No. 27(2003)
[8] Dr. Jacob Gakeri, ‘Regulating Kenya’s Securities Markets: An Assessment of the Capital Markets Authority’s
Enforcement Jurisprudence’
[9] Aduda J et al, The Determinants of Stock Market Development: The Case for the Nairobi Stock Exchange,
International Journal of Humanities and Social Science, Vol. 2 No. 9; May

Saturday 20 August 2016

What is the Accuracy of the Ruling in Beiersdorf East Africa Limited v Emirchem Products(2002) in Light of the Ruling in Lords Healthcare v Salama Pharmaceuticals (2007) ? Kenyan Intellectual Property Law

A proprietor of a trademark has the exclusive use of the mark and any person who wishes to use it has to do so with a license from the protection’
-         Per Mbaluto, J. In Beiersdorf Ag v Emirchem Products Ltd. 2002 KLR 1,7.

Discuss the accuracy of this statement in the light of the ruling in Lords Healthcare v Salama Pharmaceuticals, Civil Suit 334 of 2007 (Okwengu, LJ).

Facts
Beiersdorf East Africa Ag v Emirchem Products Ltd: In the seminal ruling by Judge Mbaluto that was delivered at the Nairobi High Court, the plaintiff had been manufacturing and selling products such as soaps, toilet paper, oils for the skin etc. under the registered trademark Nivea Crème worldwide for many years. One of the plaintiff’s products was Nivea petroleum jelly was sold in a rectangular jar. On the face of it was written Nivea and immediately below were the words pure petroleum jelly.

The defendant was manufacturing and selling a product that was called Nivelin pure petroleum jelly. The plaintiff’s grievance was that the defendant’s product was so similar to the plaintiffs registered trademark that it constituted infringement and that the defendant was also liable for passing off.  The plaintiff approached the honourable high court to seek for an interlocutory injunction and was granted.

Lords Healthcare v Salama Pharmaceuticals: In the jurisprudential ruling that was delivered by Judge Okwengu at the Nairobi Milimani High Court, the plaintiff was a distributor of medicine that bore the registered trademark ‘Budecort-200’ Budesonide Inhaler’. The defendant was also distributing medicine under the name ‘Budecort-200 inhaler’. The product is manufactured by a company in India called Cipla Ltd. The manufacturer had an agreement with the plaintiff that the plaintiff would be the sole distributor of the product in Kenya.  The defendant had also registered its interest with the manufacturer and was a parallel importer. The plaintiff represented by Senior Counsel Oraro unsuccessfully sought for an interlocutory injunction.

Differences between the two decisions that affect the question
The defense strategy- in the Nivea case the defendant alleged that the marks are not deceptively similar whereas in the Lord healthcare case the defense claimed that the products and the mark are the same as such no question as to deceptive similarity arose.
In the Lord Healthcare case there was an international registered trademark that belonged to the manufacturer and there was also a similar local registered trademark that belonged to the plaintiff. There was therefore conflict as to whether the local registration was valid. There was no conflict of international and national registration of the trademark in the Nivea case. The international registration was under the Paris Convention which Kenya is a signatory to.
In the Lord Healthcare case the manufacturer who supplied both the plaintiff and the defendant was the same whereas in the Nivea case the plaintiff was the manufacturer and distributor of its products through its subsidiary.
 In the Nivea case the plaintiff apart from claiming infringement also claimed passing of whereas in the Lord Healthcare case the plaintiff main weapon was only infringement.
In the Nivea case the plaintiff had acquired immense goodwill for distributing his products from 1971 to 2002 whereas this was not so in the Lord Healthcare case.
In the Nivea case there was the likelihood of bad faith by the defendant as he was the formerly employed production manager. He resigned without giving clear reasons and set up the defendant company.
In the Lord Healthcare case the certificate of registration did not provide that the certificate was for use in legal proceedings.
Section 7(1) of the Kenya Trademarks Act guides us that the proprietor of a trademark has the exclusive use to the use of the mark and anyone else who intends to use the mark must seek permission. Prof Lionel Bentley in his book Intellectual Property Rights[1]asserts that the presumption is that when a mark is registered it is deemed to have been registered duly. However this presumption is rebuttable. The facts are that in the Lord Healthcare case there was an international registration of the same mark under the Paris Convention under which Kenya is a signatory as such the Plaintiffs similar mark should not have been registered as there is a conflict between two registrations as there were to different people, the manufacturer and the plaintiff, as such the national registration was invalid.
The restatement of section 7(1) of the Trademarks Act by Judge Mbaluto was good law. However in light of the decision by Judge Okwengu we find that section 7(1) is inaccurately limited as it does not take into account particular extraneous circumstances. These circumstances include;
1.      The fact that international registration of the mark is not considered.
2.      The fact that a certificate for registration must indicate if it for use in legal proceedings.
3.      The fact that a parallel importer does not gain exclusive rights to use a mark in relation to parallel importers.
4.      The fact that can a parallel distributor register a mark that is similar to products that are sold by other distributor and thereby gain exclusive rights to the mark?
5.      The fact that a distributor can only register a mark that is for a distinct product to gain exclusive use and not in relation to a product that is lawfully supplied to other distributors by the manufacturer.
6.      The fact that a registered trademark owner who is a manufacturer must himself first grant an exclusive license to a distributor in order for the distributor to have exclusive rights to sue and therefore gain locus.section7(1) must consider the intricate detail of locus standi in light of the new circumstances that were evident in the Lord Healthcare case
7.      The fact that an exclusive right to distribution does not encompass the exclusive right to use a mark.
The above outlined circumstances must be deeply considered by a court of law in order to determine exclusive use of a mark. There cannot be an iota of doubt as to the exclusive use of a mark.  As such the ruling by Judge Mbaluto was to some extent inaccurate as it did not fathom these circumstances.
Bibliography
1.      The Kenya Trademarks Act
2.      Beiersdorf Ag v Emirchem Products Ltd. 2002 KLR 1,7
3.      Lords Healthcare v Salama Pharmaceuticals, Civil Suit 334 of 2007
4.      L. Bently, Intellectual Property Law, 4th edn, Oxford University Press




[1] L. Bently, Intellectual Property Law, 4th edn, Oxford University Press