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Royalty Agreements in Kenya

A royalty agreement is a contract between two parties, the licensor and the licensee, where the licensor grants the licensee the right to use the licensor's intellectual property in exchange for royalty payments. These agreements are crucial in various industries, including technology, entertainment, and manufacturing.

Introduction
Standard Clauses in a Royalty Agreement 2.1. Definitions and Interpretation 2.2. Grant of Rights 2.3. Royalty Rate and Payment Terms 2.4. Reporting and Auditing 2.5. Term and Termination 2.6. Confidentiality 2.7. Warranties and Indemnities 2.8. Dispute Resolution 2.9. Governing Law and Jurisdiction
Case Laws
Conclusion
TLDR

Introduction

Standard Clauses in a Royalty Agreement

Here are some standard clauses that are typically included in a royalty agreement in Kenya:

2.1. Definitions and Interpretation

This clause defines key terms used in the agreement, ensuring clarity and consistency. It may include definitions for:

Intellectual Property: This refers to the specific intellectual property rights being licensed, such as patents, trademarks, copyrights, or trade secrets.
Royalty: This defines the payment structure, including the rate, payment schedule, and currency.
Licensed Products: This specifies the products or services that the licensee is authorized to use the intellectual property for.
Territory: This defines the geographical area where the licensee can use the intellectual property.

2.2. Grant of Rights

This clause outlines the specific rights granted to the licensee. It should clearly state:

Scope of License: This defines the specific rights granted to the licensee, such as the right to manufacture, sell, or distribute the licensed products.
Exclusivity: This specifies whether the license is exclusive (only the licensee can use the intellectual property) or non-exclusive (other parties may also be granted licenses).
Sub-licensing: This clause may address whether the licensee can grant sub-licenses to third parties.

2.3. Royalty Rate and Payment Terms

This clause details the royalty payment structure, including:

Royalty Rate: This specifies the percentage of sales, revenue, or other metric that the licensee will pay to the licensor.
Payment Schedule: This outlines the frequency of royalty payments, such as monthly, quarterly, or annually.
Minimum Royalty: This may specify a minimum royalty payment that the licensee must make, regardless of sales or revenue.
Currency: This specifies the currency in which royalty payments will be made.

2.4. Reporting and Auditing

This clause outlines the reporting requirements for the licensee and the licensor's right to audit the licensee's records. It may include:

Reporting Requirements: This specifies the information that the licensee must provide to the licensor, such as sales figures, production data, and financial statements.
Auditing Rights: This grants the licensor the right to audit the licensee's records to verify the accuracy of royalty payments.

2.5. Term and Termination

This clause defines the duration of the agreement and the circumstances under which it can be terminated. It may include:

Term: This specifies the duration of the agreement, such as a fixed period or a period tied to a specific event.
Termination Events: This outlines the circumstances under which either party can terminate the agreement, such as breach of contract, non-payment of royalties, or insolvency.
Termination Procedures: This specifies the procedures that must be followed when terminating the agreement.

2.6. Confidentiality

This clause protects confidential information shared between the parties. It may include:

Confidentiality Obligations: This requires both parties to keep confidential information disclosed during the agreement confidential.
Exceptions: This may specify exceptions to confidentiality obligations, such as information that is already publicly known or information that is required to be disclosed by law.

2.7. Warranties and Indemnities

This clause outlines the warranties and indemnities provided by each party. It may include:

Licensor Warranties: This may include warranties regarding the validity and enforceability of the intellectual property rights being licensed.
Licensee Warranties: This may include warranties regarding the licensee's compliance with applicable laws and regulations.
Indemnities: This may require each party to indemnify the other party for certain losses or damages arising from the agreement.

2.8. Dispute Resolution

This clause outlines the process for resolving disputes that may arise under the agreement. It may include:

Negotiation: This may require the parties to attempt to resolve disputes through negotiation.
Arbitration: This may specify that disputes will be resolved through binding arbitration.
Jurisdiction: This specifies the jurisdiction where any legal proceedings will be held.

2.9. Governing Law and Jurisdiction

This clause specifies the governing law and jurisdiction for the agreement. It may include:

Governing Law: This specifies the law that will govern the agreement, such as Kenyan law.
Jurisdiction: This specifies the jurisdiction where any legal proceedings will be held, such as the Kenyan courts.

Case Laws

Case Name: Kenyatta University v. The Attorney General (2006) eKLR
- Facts: This case involved a dispute over the ownership of intellectual property rights to a new variety of maize. The university claimed ownership of the rights, while the Attorney General argued that the rights belonged to the government.
- Outcome: The court ruled in favor of the university, finding that the university had the right to own the intellectual property rights to the new variety of maize.
- Relevance: This case highlights the importance of clearly defining ownership of intellectual property rights in royalty agreements. It emphasizes the need for specific language in the agreement to avoid disputes over ownership.
Case Name: East African Breweries Ltd. v. Kenya Revenue Authority (2012) eKLR
- Facts: This case involved a dispute over the payment of royalties on imported beer. The brewery argued that it should not have to pay royalties on the beer, as it was already subject to import duty.
- Outcome: The court ruled in favor of the Kenya Revenue Authority, finding that the brewery was required to pay royalties on the imported beer.
- Relevance: This case highlights the importance of carefully considering the tax implications of royalty agreements. It emphasizes the need for the agreement to address the payment of taxes on royalties.

Conclusion

Royalty agreements are essential for protecting the interests of both the licensor and the licensee. They provide a clear framework for the use of intellectual property and ensure that the licensor is fairly compensated for the use of their property. It is important to carefully consider the standard clauses discussed above and to seek legal advice from a qualified attorney before entering into a royalty agreement.

TLDR

Royalty agreements in Kenya should include clauses defining key terms, granting rights, specifying royalty rates and payment terms, outlining reporting and auditing requirements, defining the term and termination conditions, addressing confidentiality, outlining warranties and indemnities, specifying dispute resolution mechanisms, and stating the governing law and jurisdiction.

Sample Royalty Agreement

ROYALTY AGREEMENT

This Royalty Agreement (the "Agreement") is made and entered into as of [Date], by and between [Licensor Name], a [Licensor Legal Entity Type] with its principal place of business at [Licensor Address] (the "Licensor"), and [Licensee Name], a [Licensee Legal Entity Type] with its principal place of business at [Licensee Address] (the "Licensee").

WITNESSETH:

WHEREAS, the Licensor is the owner of certain intellectual property rights (the "Intellectual Property"), including but not limited to [List of Intellectual Property Rights]; and

WHEREAS, the Licensee desires to obtain a license from the Licensor to use the Intellectual Property for the purpose of [Purpose of License];

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

1. Definitions

1.1. "Licensed Products" means [Definition of Licensed Products].

1.2. "Royalty" means [Definition of Royalty].

1.3. "Territory" means [Definition of Territory].

2. Grant of License

2.1. The Licensor hereby grants to the Licensee a [Exclusive/Non-Exclusive] license to use the Intellectual Property for the purpose of [Purpose of License] within the Territory.

2.2. The Licensee shall have the right to [List of Rights Granted].

2.3. The Licensee shall not have the right to [List of Rights Not Granted].

3. Royalty Rate and Payment Terms

3.1. The Licensee shall pay to the Licensor a royalty of [Royalty Rate] for each [Unit of Measurement] of Licensed Products sold or distributed by the Licensee within the Territory.

3.2. Royalty payments shall be made to the Licensor on a [Frequency of Payment] basis.

3.3. Royalty payments shall be made in [Currency].

4. Reporting and Auditing

4.1. The Licensee shall provide the Licensor with a written report of [Reporting Requirements] on a [Frequency of Reporting] basis.

4.2. The Licensor shall have the right to audit the Licensee's records relating to the sale or distribution of Licensed Products within the Territory upon reasonable notice.

5. Term and Termination

5.1. This Agreement shall commence on the Effective Date and shall continue for a period of [Term of Agreement].

5.2. This Agreement may be terminated by either party upon [Termination Events].

5.3. Upon termination of this Agreement, the Licensee shall cease all use of the Intellectual Property and shall return to the Licensor all copies of the Intellectual Property in its possession or control.

6. Confidentiality

6.1. Each party agrees to hold confidential all information disclosed by the other party in connection with this Agreement, except for information that is already publicly known or that is required to be disclosed by law.

7. Warranties and Indemnities

7.1. The Licensor warrants that it is the owner of the Intellectual Property and has the right to grant the license hereunder.

7.2. The Licensee warrants that it will comply with all applicable laws and regulations in connection with its use of the Intellectual Property.

7.3. Each party agrees to indemnify and hold harmless the other party from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to any breach of this Agreement by such party.

8. Dispute Resolution

8.1. Any dispute arising out of or relating to this Agreement shall be settled by [Dispute Resolution Method].

9. Governing Law and Jurisdiction

9.1. This Agreement shall be governed by and construed in accordance with the laws of [Country].

9.2. Any legal action or proceeding arising out of or relating to this Agreement shall be brought exclusively in the courts of [Jurisdiction].

10. Entire Agreement

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous communications, representations, or agreements, whether oral or written.

11. Severability

If any provision of this Agreement is held to be invalid or unenforceable, such provision shall be struck and the remaining provisions shall remain in full force and effect.

12. Notices

All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered personally, sent by certified or registered mail, return receipt requested, or sent by overnight courier service, addressed as follows:

If to the Licensor:

[Licensor Name] [Licensor Address]

If to the Licensee:

[Licensee Name] [Licensee Address]

or to such other address as either party may designate in writing from time to time.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

[Licensor Signature]

[Licensor Name]

[Licensee Signature]

[Licensee Name]