Highlights Of The Federal Competition And Consumer Protection Act Of Nigeria

Competition in any economic environment tends to promote productivity and innovation, which then creates an enabling environment for economic development and employment. An economy where competition thrives is an attractive destination for foreign direct investments,

 

Introduction

Competition in any economic environment tends to promote productivity and innovation, which then creates an enabling environment for economic development and employment. An economy where competition thrives is an attractive destination for foreign direct investments, just as its benefits result in lower prices, multiple choices and improved quality of goods and services.

A developing economy such as Nigeria may be particularly vulnerable to practices which discourage competition and respect for consumer rights. This is typically due to the absence of a strong regulatory framework, weak social and economic infrastructure and licensing regimes which facilitate the ease of doing business.

It is against this backdrop that we, at Alliance Law Firm, welcome the introduction of the Federal Competition and Consumer Protection Act (FCCPA) 2018, which represents a more robust attempt to address the anti-competitive practices and weak consumer rights culture prevalent in Nigeria. It avowed objectives include the provision of more comprehensive protection for consumers by preventing abuse and institutionalizing a more effective framework for penalizing restrictive trade and business practices.

Scope of Application of the FCCPA

The  FCCPA applies to all commercial activities undertaken in the country for profit and satisfaction of public demand, whether undertaken by privately or publicly held corporate entities, corporate bodies in which either the Federal, a State or Local Government has controlling stake or agencies of the Federal Government.

Framework for Regulation

The FCCPA repeals the Consumer Protection Act, Cap 25, Laws of the Federation of Nigeria, 2004, establishes the Federal Competition and Consumer Protection Commission (“the Commission”); and the Consumer Protection Tribunal (“the Tribunal”) to facilitate efficient, fair and competitive markets in Nigeria.

The primary responsibility of the Commission is to administer and enforce the provisions of the FCCPA and any other legislation relating to competition and the protection of consumers. Its powers include compelling all manufacturers and suppliers to certify that their goods and services meet minimum quality standards and to seal up the premises of such manufacturers and suppliers where such standards have been breached.

The Tribunal shall adjudicate over all conducts prohibited under the FCCPA and its decisions shall be binding on the parties and registrable at the Federal High Court (for the purpose of enforcement only) because in the hierarchy of courts, the Tribunal has equivalent powers to the Federal High Court. Consequently, judicial reviews of the Tribunal’s decisions lie to the Court of Appeal.

Subject only to the constitution of the Federal Republic of Nigeria, the provisions of the FCCPA shall override the provisions of any other enactment in so far as it relates to competition and consumer protection matters.

 

Competition

The FCCPA makes copious provisions relating to the limitation of restrictive agreements which tend to promote monopolies; empowerment of the Commission to investigate abuse of dominant position, creation of monopolies in the market place for goods and services, and where corporate bodies subject to such investigations choose not to cooperate, impose appropriate fines to ensure compliance. Also, it makes specific provisions for mergers and acquisitions and seeks to regulate such consolidations in such a manner as would prevent anti-competition practices and violate the letters and spirit of the FCCPA.

Consumer Protection

By way of promoting consumer protection, the FCCPA addresses the question of price regulation as a tool for strengthening protection of consumers. It also makes elaborate provisions for consumer rights and how the Commission and the Tribunal may intervene to offer guarantees and protection. Furthermore, it stipulates the duties of manufacturers, distributors and suppliers of goods and services the breaches of which entitle consumers to seek redress as appropriate. The provisions concerning the enforcement of consumer rights detail the relevant steps that consumers may adopt in the enforcement of their rights and the protection that the legislation provides in securing those rights.

Conclusion

Without an iota of doubt, the enactment of the FCCPA and its introduction into Nigeria’s competition and consumer protection landscape is a long overdue development. Nigeria’s economy is replete with examples of perennial consumer rights’ abuses and anti-competition practices. It is hoped that the more robust nature of the FCCPA would provide a veritable platform for engendering a climate of respect for consumer rights and progressive competition practices.

CONTRIBUTORS:

ROSE ADAJI

DOYIN FADARE

CHISOM SAM-OBASI

Executive Order 7 Of 2019 On The Road Infrastructure Development And Refurbishment Investment Tax Credit Scheme

Pursuant to the powers conferred on him by the Constitution of the Federal Republic of Nigeria and the provisions of section 23(2) of the Companies Income Tax Act (CITA)[1], the Nigerian President, Muhammadu Buhari, GCFR, recently signed into law, Executive Order No. 007 of 2019

 

 

REVIEWING THE COMPANIES INCOME TAX (ROAD INFRASTRUCTURE DEVELOPMENT AND REFURBISHMENT INVESTMENT TAX CREDIT SCHEME) AND RELATED MATTERS

 

  1. INTRODUCTION

Pursuant to the powers conferred on him by the Constitution of the Federal Republic of Nigeria and the provisions of section 23(2) of the Companies Income Tax Act (CITA)[1], the Nigerian President, Muhammadu Buhari, GCFR, recently signed into law, Executive Order No. 007 of 2019 to be cited as the Companies Income Tax (Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme) Order, 2019 (“EO7 of 2019” or “the Scheme”).

EO7 of 2019 comprises six paragraphs, with each containing several sub-paragraphs, and deal with issues ranging from establishment of a management committee charged with responsibility for implementing and administering the Scheme to the issuance of the road infrastructure tax credit itself.

The main objective of the Scheme is to accelerate road infrastructure development for balanced economic growth in Nigeria by granting approval to private sector entities to construct and refurbish eligible roads across the country in exchange for tax credits, which could then be applied against company income tax payable. Thus, the motivation for the Scheme derives from the desire to take advantage of private sector funding and discipline to enhance road infrastructure development in the country. The Scheme has a life span of ten years reckoning from the commencement of EO7.

Upon inauguration of the Scheme, the President[2] indicated that it would provide another opportunity to demonstrate the commitment of the administration to conceive, design, develop and deliver Public Private Partnerships (PPPs) with notable investors in order to close the road infrastructure gap in the transportation sector due to revenue shortfalls that have hampered government’s efforts to fully fund critical projects. The President further explained that through these innovative funding mechanisms, government would be able to address the challenges of project funding, cost variation and completion risks that have plagued the development of the nation’s critical roads infrastructure assets.

Under the Scheme, companies that are, for instance, disposed to spending their own funds on constructing roads to their factory and business locations, will recover their construction costs by paying reduced taxes, over a period of time. Consequently, the Scheme focuses on the development of eligible road infrastructure projects in an efficient and effective manner in order to create value for money and guarantee participants in the Scheme timely and full recovery of their construction/project costs by way of company income tax credits.

It bears noting that there are existing infrastructure tax credits provided by the Companies Income Tax Act (as amended) (“CITA” [3]) and the Pioneer status incentives granted under the provisions of the Industrial Development (Income Tax Relief) Act (“IDITRA”)[4]. Without doubt, some of the burning questions that may agitate the minds of potential and actual participants of the Scheme include whether participation under the Scheme would bar enjoyment of other infrastructure tax credits provided for under the CITA and whether there are any advantages that the terms of the Scheme offer in comparison with its predecessors? This article would attempt a review of the provisions of the EO7 of 2019, CITA and other infrastructural tax relief regimes, and their potential to accelerate infrastructural growth in Nigeria.

 

  1. EXISTING TAX INCENTIVES ON INFRASTRUCTURAL DEVELOPMENT

In the past, government has intervened through, inter alia, trust funds and tax incentives to address Nigeria’s infrastructural deficit.

A company operating in Nigeria is expected to pay the rate of 30 kobo for every naira in respect of the total profits for each year of assessment.[5] Section 23 (2) of CITA generally empowered the President to exercise his discretion to exempt by order‐

(a)  any company or class of companies from all or any of the provisions of this Act; or

(b)  from tax all or any profits of any company or class of companies from any source, on any ground which appears to it sufficient.

The various tax incentives on infrastructure and funds established under legislation in Nigeria are as follows:

 

  1. Pioneer status under the provisions of the Industrial Development (Income Tax Relief) Act
  2. Rural investment allowance
  3. The Companies Income Tax (Exemption of Profits) Order 2012
  4. Road Trust Fund 2017
  5. Presidential Infrastructure Development Fund 2018

 

  1. Pioneer Status under the provisions of the Industrial Development (Income Tax Relief) ActPioneer status is a tax incentive which exempts the applicant company from corporate income taxes for an initial three-year period which is renewable for one or two years.[6]

 

  • Rural investment Allowance:

 

It is important to note that section 34 of the CITA contains provisions which aim to encourage companies to invest in rural areas and provide the infrastructure/facilities incidental to such investments, by way of government offering a rural investment allowance. However, a major reason for the ineffectiveness of this incentive scheme is the requirement for the relevant trade or business to be sited in a location that is at least 20 kilometres away from similar amenities provided by the government[7]. Also, the incentive does not permit companies to carry forward the allowance whenever it cannot be fully exhausted[8]. EO7 of 2019 doesn’t share these limitations. For the purpose of more clarity, the provisions of sections 34 and 40 of CITA are reproduced below:


Sections 34 and 40 (11) of CITA on  Rural investment allowance:

(1) Where a company incurs capital expenditure on the provisions of facilities such as electricity, water, tarred road or telephone for the purpose of a trade or business which is located at least 20 kilometers away from such facilities provided by the government, there shall be allowed to the company in addition to an initial allowance under the Second Schedule to this Act an allowance (in this Act called “rural investment allowance”) at the appropriate per cent certain as set out in subsection (2) of this section of the amount of such expenditure:

 Provided that where any allowance has been given in pursuance of this section, no investment allowance under section 32 of this Act shall be due or be given in respect of the same asset or in addition to the allowance given under this section.

 

(2) The rate of the rural investment allowance for the purpose of this section shall be as follows

(a)        no facilities at all…………….  100%

(b)        no electricity……………………. 50%

(c)        no water………………………….  30%

(d)        no tarred road……………………15%

(e)        no telephone………………………5%

 

(3) For the purpose of this section the rural investment allowance shall be made against the profits of the year in which the date of completion of the investment falls and the allowance or any fraction thereof, shall not be available for carry forward to any subsequent year whenever full effect cannot be given to the allowance owing to there being no assessable profits or assessable profits less than the total allowance for the year the investment was made.

 

Section 40(12) of CITA, however, provided that a company shall not be allowed to claim the investment tax relief for more than 3 years and the relief shall not be available to a company already granted pioneer status. 

Save as has been stipulated in paragraph 4(15), E07 of 2019, which prevents a participant who has enjoyed a road infrastructure tax credit on an eligible road from benefiting from any other tax credit, capital allowance, relief or incentive on project costs incurred on an eligible road, there is no restriction as to how long the tax credit granted under EO7 of 2019 may be enjoyed.

 

 

  •  The Companies Income Tax (Exemption of Profits) Order 2012

    The Companies Income Tax (Exemption of Profits) Order, 2012 (the “Order”) was made by the President in exercise of his powers under section 23(2) of the Companies Income Tax (CIT) Act, Cap C21, Laws of the Federation of Nigeria, 2004 (as amended).

    The Order was made on 27 April 2012, but was only made public on October 4, 2012. The Order had a commencement date of 27 April 2012 and was designed to be in force for 5 years from the commencement date.

    Paragraph 3 of the Order granted qualifying companies a CIT exemption of 30% of the cost incurred in providing infrastructure or facilities of a public nature. Based on the paragraph, “infrastructure or facilities of a public nature” include: power (electricity); roads and bridges; water; health, educational and sporting facilities; and other facilities as may be approved from time to time by the Minister of Finance and published in the Federal Government Gazette upon the recommendation of the Federal Inland Revenue Service (FIRS).

    The Order provided that the Infrastructure Tax Relief (ITR) will be granted in addition to the usual deductions allowed in respect of the costs incurred under the relevant provisions of the CIT Act, “and shall form part of the deductible expenses of the company”. In effect, the ITR was treated as an allowable expense to be deducted in arriving at assessable profits, and not as a relief to be set off against assessable profits. An ITR was claimed by a company in the assessment period in which the infrastructure or facility is provided.

    To qualify for ITR, the relevant infrastructure and/or facilities must have been completed by the company and available for use by the company and the public or the community where the infrastructure/facilities are sited. However, the Order provided exceptions where public use is impracticable or an exemption is obtained from the Minister of Finance.[9]

     

  •  Road Trust Fund 2017

    The Federal Executive Council at its meeting on Thursday, 26 October 2017, approved the establishment of Road Trust Fund (RTF). RTF was conceptualized as a PPP initiative by Federal Ministry of Finance (FMF) and Federal Ministry of Power, Works and Housing (FMPWH). The aim is to incentivize private sector participation in the development of federal road infrastructure through a tax credit scheme.

    RTF is a revision of the infrastructure tax relief (ITR) incentive under the erstwhile Companies Income Tax (Exemption of Profits) Order, 2012. ITR granted companies that incurred expenditure of public nature (including road construction), tax relief of 30% of the cost of incurred on providing the infrastructure. The relief is enjoyed via deduction from the income tax of the company.

    Unlike ITR, RTF operated under a collective model to mobilize private capital from companies which were used to undertake road projects through stand-alone collective infrastructure funds using a special purpose vehicle. It involved financial intermediaries which were expected to promote RTF projects and solicit for funds from interested companies. The design and cost of the roads were approved by the FMPWH and also certified by the Bureau of Public Procurement (BPP).

    Expected benefits for companies who took advantage of the Scheme include:

    • 100% recovery of costs incurred on road infrastructure as tax credit against total tax payable over a three-year period
    • Accelerated depreciation to enable cost recovery in 3 years rather than 4 years for standard assets
    • Ability to intervene in roads critical to a company’s business

       Some of the benefits of the RTF to the country include:

    • Increased funds for road development and accelerated road provision across the nation
    • Alternative funding to the government for road infrastructure development which will reduce pressure on the federal budget
    • Efficient delivery of road projects and reduction of project costs.[10]

 

  •  Presidential Infrastructure Development Fund 2018

The federal government on May 17, 2018, announced the establishment of a Presidential Infrastructure Development Fund (PIDF), which is to be managed by the Nigeria Sovereign Investment Authority (NSIA).

The fund is to be invested specifically in critical road and power projects across the country.

The National Economic Council (NEC) has also authorised the initial transfer of $650 million to the NSIA from the Nigeria Liquefied Natural Gas (NLNG) Dividend Account, as seed funding for PIDF.

This initiative was to eliminate the risks of project funding, cost variation and completion that have plagued the development of the nation’s critical infrastructure assets  such as the 2nd Niger Bridge, Lagos to Ibadan Expressway, East—West Road, Abuja to Kano Road, Mambilla Hydroelectric Power over the last few decades.[11]

 

  1. REVIEW OF THE COMPANIES INCOME TAX (ROAD INFRASTRUCTURE DEVELOPMENT AND REFURBISHMENT INVESTMENT TAX CREDIT SCHEME) ORDER 2019

The E O 7 of 2019, to be cited as the Companies Income Tax (Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme) Order, 2019 approved a tax credit scheme to attract private sector involvement in the provision of road infrastructure assets across Nigeria. The Scheme is expected to be in force for a period of 10 years from its commencement; and the President of the Federal Republic has the power to amend the Order from time to time as may be deemed necessary. A participant in the Scheme can be any company registered in Nigeria, a pool of companies or institutional investors.

It is an Order comprising 6 paragraphs which deal with the recital to the order; the establishment of the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme; the Road Infrastructure Tax Credit; issuance of Road Infrastructure Tax Credit Certificate; utilization of the Road Infrastructure Tax Credit; the interpretation clause and citation. The order also contains two schedules. Schedule one deals majorly with the composition and functions of Scheme’s management committee; information required to be submitted to management committee by applicants seeking to be participants in the Scheme; requirements for issuance of the tax credit certificate and conditions for transfer of a tax credit certificate. Schedule two relates to the memorandum of understanding (template) which would be entered with participants after the President has approved an eligible road project.

An attempt to provide more granular details of the various paragraphs in the Order appears below.


The Road Infrastructure Tax Credit (RITC)[12]

The Scheme entitles Participants[13] to utilize the project cost incurred in the construction or refurbishment of eligible roads as a credit against companies income tax that is payable. In doing so, Participants are afforded a single uplift equivalent to the prevailing Central Bank of Nigeria Monetary Policy Rate (MPR) plus 2% of the Project Cost[14].  And where such uplift is granted, it shall not constitute taxable income in the hands of the Participant or a Beneficiary[15].

Participants are at liberty to utilize this RITC from the relevant fiscal year in which the project is incurred, until it is fully utilized. However, the amount of RITC that may be utilized in any year of assessment shall be limited to 50% of the company’s income tax payable by the Participant for that year of assessment. Where there is any unutilised tax credit, it shall be available to be carried forward by the Participant to subsequent tax years.

However, as with similar schemes in the past, where a Participant takes benefit of the RITC under the Scheme, it shall not be entitled to claim any other tax credit, capital allowance, relief or incentive on the Project Cost incurred in respect of that Eligible Road[16] under any law in force in Nigeria.

 

            Administration and Implementation of the Scheme

The responsibility for administering and implementing the Scheme belongs to the Road Infrastructure Refurbishment and Development Tax Credit Scheme Management Committee (“the Committee”) set up under EO7 of 2019.[17]Also, the Committee will approve the issuance of RITC certificates to Participants annually, in proportion to the Project Costs incurred by them in that year. Furthermore, the Committee is charged with the task of registering Participants under the Scheme. Other agencies of government have been empowered to play different roles under the Scheme and these other agencies are as follows:

 

  1. Federal Ministry of Finance
    The Federal Ministry of Finance is in charge of the establishment and maintenance of funds for the operations and management of all road projects executed under the Scheme. 
  2. Federal Ministry of Works

    This Ministry has three major roles to play in relation to the Scheme and they are as follows:

    • Publication of the design and specification of Eligible Roads;
    • issuance of contract award letter following approval of road infrastructure development contract where it may be required; and
    • carrying out periodic quality control inspection exercises. 
  3.  Bureau of Public Procurement (“Bureau”)

    All costs and contractors would be scrutinized and approved by the Bureau in line with legal requirements. The Bureau will ensure that costs are not inflated and that unqualified contractors are not engaged for the projects.

     

  4. Federal Inland Revenue Service (FIRS)

Under the Scheme, the FIRS is required to undertake the following major actions:

  • Issuance of certificates to Participants through the Committee;
  • maintenance of a registrar of Participants and Beneficiaries and a record of issued RITC certificates to Participants and Beneficiaries of the Scheme;
  • preparation of an annual return of all RITCs;
  • updating of the record of issued RITC certificates, de-registration of old Participants and issuance of new certificates to new Beneficiaries.

 

Eligible Participants[18]


The following identified class of entities is eligible to participate under the Scheme:

  • Companies (other than a corporation sole) registered under CAMA or any other law in force in Nigeria.
  • Pool of companies operating through a special purpose vehicle registered with and designated by Securities and Exchange Commission (SEC) for the purpose of the Scheme.
  • Institutional investors duly registered as a company or companies under Companies and Allied Matters Act of any other law in force in Nigeria.
    The Road Infrastructure Tax Credit Certificate[19]

It is important to mention that Participants cannot benefit from the Scheme unless they have been issued with a RITC certificate. When the Committee has approved the Participant’s application for RITC, the FIRS shall then issue a RITC certificate to such Participant on an annual basis.


Application of Road Infrastructure Tax Credits (RITCs)

The following rules shall regulate the manner in which tax credits secured under the Scheme may be applied by a Participant to the payment of company income tax until fully utilized.

  • It bears mentioning from the outset that even where a company possesses a RITC certificate, no tax credit shall be applied for settlement of company income tax unless claimed by a Participant or Beneficiary[20] in its tax returns for the year of assessment.
  • Participants in the Scheme are entitled to recover the cost incurred by them in the construction or refurbishment of Eligible Roads as credit against companies income tax (“CIT”) payable. However, such companies are limited to utilizing the tax credit obtained to defray a maximum of 50% (fifty percent) of the CIT payable for the relevant year of assessment. However, that limitation is dispensed with where the Participant has been involved in the construction or refurbishment of Eligible Roads in Economically Disadvantaged Areas[21].
  • Participants are also entitled to a single uplift, equivalent to the CBN Monetary Policy Rate plus 2% of the Project Cost. This uplift will not be subject to tax.
  • A Participant is entitled to dispose of or transfer its RITC to other companies in the same manner a security may be sold in a relevant securities exchange.
  • An unused RITC within the year of assessment can be carried over by the Participant or Beneficiary to a subsequent tax year. This is clear departure from earlier tax relief measures which tend to impose timelines for their enjoyment[22].

Requirements to be fulfilled before a Private Company can benefit from the Scheme:

  • Registration and certification by the Committee as a Participant or representative of a Participant of the scheme;
  • designation as a Beneficiary under the Scheme;
  • provision of evidence of certification of the Project Cost by the Committee;
  • tax credit must be claimed by the Participant in its tax return for that year of assessment;
  • Evidence that the project is economically viable, cost efficient and can be completed in a timely manner (within 12 to 48 months).

Tradability and Registration of Road Infrastructure Tax Credit (RITC) Certificate

An exciting introduction by the Scheme is the ability of holders of the RITC certificate to trade it as a financial instrument on a relevant securities exchange and have same registered accordingly. Consequently, Participants are at liberty to undertake a disposal of the whole or part of their certificate to willing buyers on a relevant securities exchange in the same manner as they would shares, bonds and other securities. However, such sale must be reported to the Committee, which will then have to de-register the Participant and register the new Beneficiary.

Furthermore, where such Participant or Beneficiary indicates that it no longer wants the certificate for trade on the relevant securities exchange, it shall notify the Committee and provide evidence of its de-registration. EO7 of 2019 further states that the tax credit may qualify as an asset in a Participant’s or Beneficiary’s financial records and will have to comply with International Financial Reporting Standards (IFRS). However, although the essence of the Scheme is to offer tax credits to Participants, any gains arising from the disposal of the tax credit will be subject to tax.

 

 

  1. POTENTIAL IMPACT OF THE ROAD INFRASRUCTURE TAX CREDIT SCHEME ON THE EASE OF DOING BUSINESS ENVIRONMENT

One of the major ways in which the Ease of Doing Business in any country may be incentivized is the interventionist role that government plays in providing an enabling environment and attracting private sector capital and discipline towards the acceleration and enlargement of infrastructural development; this then triggers direct industrial growth, with attendant positive impact on inflationary trends, employment rate, per capita income and other growth indices.

 

Arguably, the RITC Scheme under review is a welcome introduction into our tax regime; aimed at enabling interested Participants better manage their tax obligations in such a way that guarantees an upward growth trajectory for profits, goodwill and corporate citizenship. Some of the more apparent improvements on previous tax relief systems include:

 

  • Better articulated framework for the administration, implementation and control of a tax credit scheme, which specifically delineates the scope of power, authority and obligations of the different stakeholders and what their limitations are. There is clarity of purpose and vision.
  • Characterization of tax credits obtained under the Scheme as tradable securities, which has never been an attribute of similar schemes in the past. This quality makes a tax credit a potential asset on a company’s balance sheet which could prove pivotal in balance sheet management.
  • The absence of any limitation as to how long a tax credit may be utilized. In other words, a tax credit may continue to be carried forward until fully utilized by a Participant or Beneficiary.
  • Ability of a Participant or Beneficiary to apply the tax credit secured to defray up to 100% of its company income tax payable in a year of assessment, if the tax credit was obtained in relation to a road infrastructure construction or refurbishment concerning an Economically Disadvantaged Area[23]. This would otherwise not be available to a Participant or Beneficiary whose tax credit arose out of a road project constructed or refurbished in other areas.
  • The Scheme is a specific road infrastructure tax credit initiative designed to consolidate expansion of road infrastructural development in Nigeria on a scale that has, perhaps, not been experienced before.
  • There is clarity and no conflict with previous tax relief schemes. For example, the provisions of EO 7 of 2019 provides that “A participant entitled to a Road infrastructure tax credit on an eligible road shall not be entitled to claim any other tax credit, capital allowance, relief or incentive on the project cost incurred in respect of that eligible road project under any law in force in Nigeria, in addition to the Road Infrastructure tax credit”[24]. The implication of this is that a Participant or Beneficiary of a RITC cannot claim any other infrastructural tax incentives existing under any law in Nigeria using the same Eligible Road Project.
  1. POTENTIAL CHALLENGES WITH THE SCHEME

Without question, the Scheme represents a bold step towards closing the road infrastructural gap in the country.  However, we anticipate that its implementation would not be without some teething challenges, which, unless addressed, could limit the promise that it offers. The Committee may need to, through recommendations and proposed amendments to the President, secure clarity around some critical aspects of the Scheme. Some of the more topical areas have been discussed below:

 

  • The definition of “Eligible Road” seems to be within the exclusive discretion of the Minister of Finance[25]. Potential investors, participants and beneficiaries have no way of planning ahead or budgeting under the Scheme as they all have to await the pleasure of the Minister on the choice of roads to select for the purpose. Is the Scheme specifically for federal roads or are state roads also contemplated, given that states and local governments are also entitled to a share of company income tax revenue?
  • Reckoning that road infrastructural development is usually a capital intensive exercise, chances are that companies may, from time to time, consider debt as an option for raising required funding in order to ultimately enjoy tax credits. There does not appear to be any consideration for borrowing and its related costs as a component of “Project Costs”[26]. While it is arguable that the intention of the uplift (plus two (2) percent of the Project Cost) may be to compensate for borrowing cost or time value of money expended, suffice it to state that it may not sufficiently address the accruing costs on borrowed funds which apply on an ongoing basis. As presently constituted, potential investors may be circumspect about deploying debt as an option under the Scheme.
  • It would appear that the life span of the Scheme is ten (10) years[27] from the date of commencement of the EO7 of 2019 i.e. 25th January, 2019. Thus, the presumption is that Participants or Beneficiaries under the Scheme would cease to enjoy tax credits after 25th January, 2029 or thereabouts. If this is the intention of the Scheme that would mean that only companies that can complete their road infrastructure projects before that expiration date would be attracted to the Scheme. The question may arise; what would happen to uncompleted projects by that date or unutilized tax credits?
  • In the event that a Project Cost is not approved, how will the associated costs be treated? In practice FIRS takes the rebuttable view that unapproved costs are also not allowable for tax purposes.[28]
  • While the Scheme may have provided for the procedure to be followed before tax credits can be issued, it has not taken care of what remedies are open to aggrieved participants or beneficiaries who, having satisfied all requirements for such issuance, are, nevertheless, denied tax credit certificates; or scenarios in which such tax certificates have been issued but are still not honoured by relevant agencies of government. The provision for arbitration in the Memorandum of Understanding may not be a one-size-fits-all resolution mechanism for disputes especially when the associated costs of arbitration are capable of eroding whatever gains may have been secured under the Scheme.
  • The preparedness of the government of the day to respect the letters and spirit of the EO7 of 2019 as a veritable tool for re-energizing development of Nigeria’s road infrastructure assets is critical to the success of this intervention.
  1. CONCLUSION

It is the expressed intention of the Federal Government of Nigeria to provide adequate facilities for the free mobility of people, goods and services throughout the federation, for the purpose of national integration and protecting the rights of citizens to engage in legitimate economic activities concerned with the production, distribution and exchange of wealth, goods and services[29]. Thus, the establishment of this Scheme is a step in the right direction.

 

One of the critical success factors for any government policy is the political will to committedly honour the letters and spirit of the policy framework it has, itself, designed for execution. The absence of sincerity of purpose exhibited by some leaders in this respect has frequently led to policy summersaults or abandoned and uncompleted projects; or where completed, such projects have proven to be of substandard quality.

 

Many public utilities and industries, typically, perform below optimal efficiency and revenues levels owing to the stereotypical mindset that government resources belong to all and to no one in particular. In other words, there is a stark absence of ownership commitment in so far as government assets are concerned. It is in the light of this dismal performance of public sector-managed projects and services and the astronomically high cost of executing them, that it is always a breath of fresh air when government breaks from its stranglehold on construction of public/social infrastructure by inviting private sector partnership to deliver on socio-economic services that it has perennially failed in.

 

Typically, in PPP arrangements, the private partner is compensated through either: User-based payments (i.e., toll roads, airport or port charges), availability payments from the public authority [i.e., PFI] etc. or a combination of the above. In user-based payment structures, the government or public authority often needs to provide some financial support to the project to mitigate specific risks, such as demand risk, or to ensure that full cost recovery is compatible with affordability criteria and the public’s ability to pay. Government support mechanisms can take many forms, such as contributions, investments, guarantees and subsidies, but they should be carefully designed and implemented to allow for optimal risk allocation between the public and private sectors. When government support is present, the objective is to increase private capital mobilization per unit of public sector contribution.[30]

 

It is the earnest expectation of the authors that government would continue to observe international best practices in partnering the private sector mindful of the imperative of using the Scheme to promote ease of doing business in Nigeria. The Scheme has not been conceptualized as a charity or philanthropic venture. On the contrary, it has been designed to directly profit Participants by improving their capacity to enhance value for their stakeholders.

 

If well managed, it could signpost a fresh beginning towards addressing the debilitating road infrastructure deficit apparent in every part of Nigeria. Early indications suggest that it may have begun to attract the interest of serious minded investors, who have the pedigree to take on gigantic projects and execute them with distinction.[31] Government must continue to act consistently and with integrity in the implementation of the Scheme in order to gain and sustain the trust of the private sector even more.      

 

THIS ARTICLE WAS JOINTLY AUTHORED BY SIMEON OYAKHILOME OKODUWA AND ROSE ADAJI, BOTH OF WHOM CARRY ON PRACTICE AT ALLIANCE LAW FIRM.

 

CONTRIBUTORS: CHISOM SAM-OBASI AND DOYIN FADARE

 

REFERENCES:

[1] Companies Income Tax Act; CAP C21, Laws of the Federation of Nigeria(LFN), 2004

[2] https://www.vanguardngr.com/2019/01/buhari-signs-executive-order-7-to-tackle-roads-infrastructure/ accessed on 11th February, 2019.

[3] Companies Income Tax Act, CAP C21 LFN, 2004

[4] Please see list of additional 27 industries/products granted pioneer status by the federal executive council on Wednesday, august 2, 2017 via https://www.vanguardngr.com/2017/08/fec-approves-27-new-industries-pioneer-status/ accessed on 15/2/2019.

[5] See section 40 of CITA

[6] See https://pwcnigeria.typepad.com/files/pwc-regulatory-alert_pioneer-status_august-2017.pdf accessed on 15/2/2019

[7] Section 34(1) , CITA

[8] Section 34(3), CITA

[9]Victor Onyenkpa, Newsflash on The Companies Income Tax (Exemption Of Profits) Order, 2012 website

http://www.mondaq.com/Nigeria/x/203002/Corporate+Tax/Newsflash+On+The+Companies+Income+Tax+

Exemption+Of+Profits+Order+2012 accessed on 11th February , 2019

[10] FG introduces infrastructure tax credit scheme through Road Trust Fund, [website] https://blog.deloitte.com.ng/fg-introduces-infrastructure-tax-credit-scheme-through-road-trust-fund/ accessed on February 11, 2019

[11] Lekan Paul. FG Establishes Presidential Infrastructure Development Fund, https://www.abusidiqu.com/fg-establishes-presidential-infrastructure-development-fund/ accessed on February 11, 2019

[12] See Paragraph 2, EO7 of 2019

[13] A “Participant” is defined under paragraph 5; EO7 of 2019 to include companies (other than corporate soles) registered under CAMA, a pool of companies under a Special Purpose Vehicle designated by SEC to operate under the Scheme and institutional investors registered as companies under CAMA.   

[14] “Project Costs” are defined under paragraph 5; E07 of 2019 as any expenditure incurred by a participant for the construction or refurbishment of an eligible road but as certified by the Scheme’s management committee. In other words, the committee shall exercise a discretion as to what costs may be allowed as part of “Project Costs”.

[15] Pursuant to paragraph 5; EO7 of 2019 a “Beneficiary” means a company appointed by a Participant to utilize the whole or part of the road infrastructure tax credit initially issued to such a Participant under the Scheme or a person who has purchased the rights to utilize the said tax credit.

[16] See Paragraph 5; EO7 of 2019 where “Eligible Road” has been defined to mean a road approved by the President as eligible for the purpose of the Scheme upon recommendation by the Minister of Finance, which is subsequently notified to the participant and then published.

[17] See Paragraph 1; EO7 of 2019

[18] See note 13

[19] See Paragraph 3; E07 of 2019

[20] See note 15

[21] See note 16

[22] Section 40(12) CITA

[23] Pursuant to paragraph 5; EO7 of 2019 “Economically Disadvantaged Area” means an area in any geopolitical zone/state designated as “Economically Disadvantaged” by the President upon the advice of the Minister of Finance, who, for this purpose, shall have regard to matters including the average income level of the inhabitants vis-a-vis the minimum wage, the availability of infrastructure and volume of economic activity.

[24] See Paragraph 4(15) of E07 of 2019

[25] See note 19

[26] See note 14

[27] See Paragraph 1(3); EO7 of 2019

[28] Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme

 https://pwcnigeria.typepad.com/files/pwc-tax-alert_road-infrastructure-development-scheme_jan2019.pdf accessed on February 11, 2019.

[29] See Recital to EO7 of 2019

[30] Aliyu Idris & Ors, Public Private Partnership in Nigeria and Improvement in Service Delivery: An appraisal; OSR Journal Of Humanities And Social Science (IOSR-JHSS) Volume 10, Issue 3 (Mar. – Apr. 2013), PP  63-71e- ISSN: 2279 – 0837, p-ISSN: 2279 – 0845. http://www.iosrjournals.org/iosr-jhss/papers/Vol10-issue3/L01036371.pdf

 

Learning Some Of The Nuances Of Patents Registration In Nigeria

A patent is an exclusive grant or right issued by the relevant government authority within a country in order to ensure the protection of new inventions, developments, technical solutions or improvements which are considered …

Introduction

 

A patent is an exclusive grant or right issued by the relevant government authority within a country in order to ensure the protection of new inventions, developments, technical solutions or improvements which are considered to have created a positive modification in the way(s) the earlier inventions were made or utilized.  Patent rights are like any other property rights which allow the inventor to benefit from his or her own invention. Invention means a solution to a specific problem in the field of technology[1]. These rights, just like every other intellectual property right, were first outlined in Article 27 of the Universal Declaration of Human rights[2], which sets forth the rights and benefits derivable from the protection of moral and material interest resulting from authorship of any scientific, literary or artistic production.[3]

The value of a patent is to then accord the inventor an exclusive market monopoly for a defined period of time towards maximizing the potential commercial benefits accruable from the invention. The patent thus incentivizes the inventor; providing fertile ground for enhanced productivity and the creation of more inventions.[4]

In the course of registering patents in Nigeria, some stakeholders i.e. inventors, professionals and the like, have internalized certain myths, which have no grounding in law and the practice of registering patents. This article seeks to inter alia, engage the process and importance of patents registration, and demystify some of the emerging stereotypes associated with the process, some of which actually impede the speedy completion of registration.

Brief summary of the process involved in the registration of patents In Nigeria

 

It is important to note that the law applicable to the registration of patents in Nigeria is the Patents and Designs Act of 1970.

 

The Patents and Designs Act provides that a patent may be granted for an invention where:[5]

  1. The invention is new.
  2. It constitutes an improvement upon a patented invention and is also new. It does not matter that such invention is similar to an earlier one. What matters is that the new invention satisfies all the requirement of novelty[6]. Once these two conditions are satisfied, the Invention will be deemed patentable.[7]
  3. It is capable of industrial application (useful).
  4. Inventions, the publication of which may discourage immoral or offensive behavior (although not expressly provided for in the Act). The TRIPS Agreement (Article 27.2) further specifies that members may exclude from patent protection certain kinds of inventions, for instance, inventions, the commercial exploitation of which would contravene public order or morality[8].

 

To ensure that a patent in Nigeria is duly registered, the first step is to confirm that the innovation has not already been patented, by conducting a search.

The under listed items are the requirements involved in processing the registration of patents in Nigeria[9]:

  • A petition or request for a patent signed by the applicant or his agent and containing the applicant’s full name and address[10];
  • A specification which includes a claim or claims in duplicate; plans and drawings, if any, in duplicate;
  • In appropriate cases, a declaration which is signed by the true innovator requesting that he/she be mentioned as such in the patent and giving his name and address[11];
  • A signed power of attorney or authorization authorizing an agent to act on behalf of the owner of the innovation in cases where the application is made by an agent[12];
  • An address for service in Nigeria in cases where the applicant’s address is outside Nigeria[13];
  • Payment of the prescribed fees[14].

Once an application for the registration of a patent is granted, the patent is valid for 20 years[15].

Some of the nuances that have become associated with the process of patent registration have proven to be merely clogs in the wheel of the registration process. We have sought to engage the more prevalent ones only in the succeeding paragraphs.

  1. An inventor needs not conceal details of the invention in order to avoid intellectual theft.

 

Some Nigerian inventors  wrongfully assume that the legal requirement to fully disclose details of one’s invention in the specification of claims form, plans and drawings, inadvertently exposes one’s invention to intellectual theft. Nothing could be further from the truth.

Indeed, the correct position is that, in the course of ensuring compliance with the legal requirement to fully disclose the details of one’s invention in the requisite forms, one is, in fact, afforded legal protection from intellectual theft. This is because under intellectual property law, the issuance of a patent gives the applicant (Inventor) the exclusive right over the invention[16]. This in turn bars third parties from making, selling, importing and utilizing any patented invention except with the consent of the inventor or after a period of twenty years from the date of conclusion of the filing of a patent application may have elapsed.[17]

Prospective applicants are therefore encouraged to rest, assured in the irrefutable knowledge that, they suffer no risk of theft if they disclose full details of their invention, and to take advantage of patents registration by fully disclosing those details, as failure to do so is what may, in reality, expose one’s invention to intellectual property theft.

Protection for innovators through registration under the Patents and Designs Act was reinforced in the case of Arewa Textiles Plc .v. Finetex Ltd.[18], where the Court of Appeal held to the effect that the right to apply for letters of patent with respect to an invention was not a mere moral adjuration but a duty under section 24(1) of Patents and Design Act to register assignment, transfer or interest held in a patent, if an inventor desires the protection of the law. This decision was followed in the case of Bedding Holdings Limited v INEC & 5 Ors [19].

 In this case, the plaintiff was a limited liability company registered in Nigeria and specializing in the general fabrication and manufacture of products such as Transparent Ballot Boxes and Collapsible Polling Booths. The plaintiff contended that it had acquired patents rights over the process and application of Direct Data Capture machines for the compilation and collection of various biometric information.  The first defendant is the federal government agency responsible for the conduct of elections in Nigeria while the 4th to 6th defendants were companies engaged by the 1st and 2nd defendants to procure Direct Data Capture machines and related items required to compile the Nigerian Voters’ Register.

The plaintiff filed the suit at the Federal High Court, Abuja seeking special damages in the sum of N17,258,820,000.00 (Seventeen Billion, Two Hundred and Fifty Eight Million, Eight Hundred and Twenty Thousand Naira Only) and alternatively, injunctive orders protecting its intellectual property rights and general damages of N20,000,000,000 (Twenty Billion Naira).The defendants denied infringing any rights and the 4th defendant counter claimed for the revocation of the patient rights.

Dismissing the counter claim of the 4th and 6th defendants, judgment was entered in favour of the plaintiff as he had proved his case from the preponderance of the evidence before this court. While he tendered evidence to show that he has the right to the said intellectual property, none of the defendant’s claimed to have any. Some of the defendants’ also did not even adduce any evidence in this case, to show that they did not infringe seriously on the plaintiffs two patented products.

 

  1. Details of inventions must not be publicly disclosed before filing an   application for patent registration:

Despite the legal  requirement to make a full disclosure in the course of applying for Patent Protection by specifying claims and drawings, this should in no way, manner or form lead one to making the mistake of publicly disclosing details of one’s invention before the registration of the  patent[20]. Therefore, publication by oral disclosure, by document or by prior use will invalidate novelty and render the product unpatentable[21]. A clear distinction between these two scenarios needs to be internalized from the outset.

However, an exception to the above rule is where an inventor, over the course of an official exhibition, displays his invention within a period of 6 months before filing the patent application[22].

  1. 3. Ideas are not patentable but there are no requirements to have an actual prototype

Under the laws of patent registration, ideas cannot be patented. As a result, inventions submitted for patent registration must be supported with a detailed written description of the invention such that a specialist in the field to which the invention pertains can understand the realities of the said idea.

This is not to suggest that ideas are not valuable. It is of course, undeniable that an idea is an essential first step towards any invention; obviously, nothing will happen without an idea which makes ideas a valuable tool for any innovation. Ideas are not monetarily valuable and without some identifiable manifestation of the idea, there can be no intellectual property protection obtained and no exclusive right will flow. The advisable means to protect an idea would be by executing a confidential and non-disclosure agreement at the early stage of an invention for the purposes of protecting such idea. However, if such agreement is breached, one could only sue for breach of contract. So, the goal of an invention should be to go beyond the level of an idea and progress to towards something concrete that will amount to an invention.

 

  1. 4. Patents on plants, Animals or other biological processes cannot be obtained in Nigeria

The Registry for Patents, Trade Marks and Designs does not grant patents in respect of plants, animals, varieties and biological processes for the production of plants. However, this is not the position in foreign jurisdictions like South Africa, Kenya and the United States of America.

See Section 1 (4) of the Patents and Designs Act, Chapter 344, Laws of the Federation of Nigeria, 2004 which provides as follows:

 

(4)       Patents cannot be validly obtained in respect of-

  • plant or animal varieties, or essentially biological processes for the production of plants or animals (other than microbiological processes and their products);

(5)       Principles and discoveries of a scientific nature are not inventions for the purposes of this Act[23]

  1. Obtaining a patent in a foreign jurisdiction does not amount to the protection of the invention in Nigeria

In view of the fact that patents are territorial in nature, it is important to note that each country owns its patents. In light of that, an inventor who registers a patent in a foreign country but fails to register same in Nigeria cannot sue for infringement of his patent in Nigeria. To sue for infringement of patents in Nigeria, any patent obtained from a foreign jurisdiction must also be registered in Nigeria.

However, this is different where the foreign country is a convention country to Nigeria. So long as there is in force an order declaring a country to be a convention country, a patent application or a design application in Nigeria, if an earlier corresponding application for the protection of an invention or the legislation of a design has been made in that convention country, shall be treated as having been made on the date when that earlier application was made. However, such earlier application must be made, in the case of an invention, twelve months before the date of application in Nigeria; while for designs, more than six months from the day of application in Nigeria[24].

Provided that this subsection shall not apply where the earlier application was made.

Where an inventor has filed an international application under the Patent Cooperation Treaty, the Trademarks, Patents and Designs Registry in Nigeria shall rely on the International Search Report thereby providing an opportunity for the inventor to save search fees.

In other words, after the filing of an international patent registration application in line with the requirements of the Patent Corporation Treaty, an international search report will be issued to the applicant/ inventor. In the circumstance, the patent registry in Nigeria would then consider same as an evidence of a prior art.

In a nutshell, it bears reiterating that the above issues are critical elements for individuals or companies to bear in mind before or during the course of undertaking patents registration in Nigeria. Failure to comply with these rules could lead to non-registration of such designs and even in cases where such designs are already registered, the Court could render such registration null and void[25].

THIS ARTICLE WAS WRITTEN BY BLESSING AJUNWO-CHOKO

[1] WIPO, Intellectual Property Handbook ([WIPO 2004 2nd edn], WIPO  Publication NO.489(E))18.

[2] United Nations Universal Declaration of Human Rights 1948.

[3] The importance of intellectual property (Patent, Copyrights and Trademark) was first recognized by the two fundamental intellectual treaties administered by World Intellectual Property Organisation (WIPO), the Paris convention for the protection of industrial property in 1883, and the Berne convention for the protection of literary and artistic works in 1886.

WIPO believes that Intellectual property is native to all nations and relevant in all cultures, and has proven to have contributed to the progress of societies. The great Africa-American chemist and inventor, George Washington Carve, born in the 1960s recognized the truth of this message. Carve is the inventor of crop rotation method for conserving nutrient in soil and he also discovered hundreds of new use for crops such as peanuts, which created new markets for farmers in United States of America.

[4] Section 2(2) of the Patents and Designs Act, Cap P2LFN 2004 accords statutory protection on the right of the true inventor. The section provides that the true inventor is entitle to be named as such in the patent, whether or not he is the statutory inventor and the entitlement in question shall not be modified by a contract.

Section 2(4) of the Patents and Designs Act states that where an invention is made in the course of employment or in the execution of a contract for the performance of specified work, the right to patent in the invention is vested in the employer or as the case may be in the person who commissioned the work. Provided that where the inventor is an employee, then if his contract of employment does not require him to exercise any inventive activity but he is making the invention through the use of data or means which his employment has provided or put at his disposal or the invention is of exceptional importance, he is entitled to fair remuneration taking into account his salary and the importance of the invention.

[5] Section 1(1)(a)&(b) of the Patents and Designs Act states that  an invention is patentable :

  1. If it is new, results from inventive activity and is capable of industrial application; or
  2. If it constitutes an improvement upon a talented invention an also is new, results from inventive activity and is capable of industrial application.

[6] F.O. Babafemi, Intellectual Property: The law and Practice of Copyrights, Trademarks, Industrial Designs in Nigeria (1st edn, Justinian Books ltd.2007) 354.

[7] James Oitomen Agbonrofo v. Grain Haulage and Transport Ltd [1998] f.h.c. 1. 236.

[8] WIPO, Intellectual Property Handbook ([WIPO 2004 2nd edn], WIPO  Publication NO.489(E))18

[9] Section 15(1),  Patents and Designs Act

[10] Section 15(1)(i) & (ii), Patents and Designs Act

[11] Section15(1)(b)(ii),  Patents and Designs Act

[12] Section 15(1)(b)(iii),  Patents and Designs Act

[13] Section 15(1)(a)(ii), Patents and Designs Act

[14] Section 15(1)(b)(i), Patents and Designs Act

[15] Section 7(1), Patents and Designs Act

[16] Sections 6(1) and 19, Patents and Designs Act;  See further Dyktrade Ltd v. Omnia Nig. Ltd. [2000] 12N.W.L.R.(Pt. 680)8.

[17] Section 25(1) of the Patents and Designs Act provides that the rights of a patentee or design owner are infringed if another person, without the licence of the patentee or design owner, does or causes the doing of any act which that other person is precluded from doing under Sections 6 or 9 of the Act, as the case may be.

[18] Arewa Textiles Plc v. Finetex Ltd. [2003] 7 N.W.L.R. (Pt. 819) 322

[19] Beddings Holding Limited v INEC &5 Ors (2014) 3CLRN

[20] Section 13(3), Patents and Designs Act

[21]F.O. Babafemi, Intellectual Property: The law and Practice of Copyrights, Trademarks, Industrial Designs in Nigeria (1st edn, Justinian Books LTD. 2007) 350.

[22] Section 13(4), Patents and Designs Act

[23] Lindley J. in the case of Fox v. Kensington and Knightsbridge Electric Lighting Co. Ltd (1891) 8 R.P.C. 277, stated that “An invention is not the same thing as a discovery. When Volts discovered the effect of an electric current from the battery on a frog’s leg, he made a great discovery, but no patentable invention”.

[24] Section 27(2), Patents and Designs Act

[25] Section 22,  Patents and Designs Act

To Deal Or Not To Deal: Legal Issues Arising From Recording Label Signings In Nigeria’s Entertainment Industry

The creative sector in Nigeria contributed approximately N239 billion (i.e. 2.3%) of its Gross Domestic Product (GDP) in 2016[1]. The Federal Government of Nigeria (FRN) has forecasted that through the instrument of its Economic Recovery and Growth Plan (ERGP), the creative industry would be able to contribute approximately $1Billion to

Introduction

The creative sector in Nigeria contributed approximately N239 billion (i.e. 2.3%) of its Gross Domestic Product (GDP) in 2016[1]. The Federal Government of Nigeria (FRN) has forecasted that through the instrument of its Economic Recovery and Growth Plan (ERGP), the creative industry would be able to contribute approximately $1Billion to Nigeria’s GDP by 2020.[2] Given this huge potential, the significance of ensuring that creative minds are enabled to thrive in an environment that stimulates their creative juices for the long term benefit of society cannot be over emphasized.

The challenges that beset the creative sector in Nigeria are numerous, some of which include piracy, lack of government support, weak regulatory environment, dearth of funding and ignorance, just to mention a few. While the organized private sector and government may have initiated a number of interventions to help sanitize the industry, there is still a lot of work to be done.

Creative minds are the soul of the industry; it is thus disheartening to learn of how several talented artists have entered into contracts perceived to be unfavourable, oppressive and unfair. This must be juxtaposed against the position of producers and record labels that these artists not only entered into those contracts with their eyes open, they also fail to recognize that investments made need to be recouped and returns on them maximized. This then leads inexorably to the enquiries that this article seeks to address. What considerations should guide contracting parties when entering into binding entertainment agreements? What are the red flags? What fundamental terms should the parties look out for? When is it appropriate to just walk away? Guided by the responses to these concerns, it is hoped that all parties would be better equipped to deal seamlessly, going forward.


Legal Framework

Intangible rights in an article, a play, an engineering design, a piece of artwork, an invention, computer software or a song are generally protected by intellectual property rights laws. Owing to their intangible nature, they have proven to be more prone to theft and abuse. Thus, creators of such rights have come to require protection encapsulated in various intellectual property rights laws. The major intellectual property rights protected under our laws are:

 

  1. Patent and Designs Act CAP P2 LFN 2004 which protects inventions that show technological progress;
  2. Trademarks Act CAP T13 LFN 2004 which protects slogans, words and symbols that distinguish different brands of goods and services in the market place;
  3. Copyright Act CAP C28 LFN 2004 concerns the protection of literary works, musical works, artistic works, cinematography films, sound recordings and broadcasts.

Although, there are other intellectual property rights such as Trade Secrets and Right of Publicity that are not protected by specific local legislations such as the Uniform Trade Secrets Act which applies in the United States, they are nevertheless protectable in Nigeria. While Trade Secrets protect confidential proprietary information that belong to a business from unathorised use, the use of which accords that business a competitive edge; Right of Publicity or Image Rights preserves the right of an individual to use ones name or likeness exclusively for commercial purpose.

That being said, Nigeria is one of the signatories to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS agreement establishes the connection between international trade and intellectual property law. Being administered by the World Trade Organisation (WTO), TRIPS sets out the minimum standards that govern intellectual property issues across member states of the WTO, of which Nigeria is also a member. Article 39 of TRIPS provides specifically for the protection of trade secrets. Confidentiality and Non-Disclosure Agreements form part of the protective measures that may be adopted by trade secrets owners.

For this article, we shall focus principally on copyrights which are governed by the Copyright Act Cap C28, Laws of the Federation 2004. Where sufficient effort has been expended on making the work e.g. a musical work, and it has been reduced into a definite medium of expression, the author i.e. musical artist, should first seek protection under the Act by registering a copyright over his work preparatory to entering into contractual relations with a recording label in order to record his work for commercial purpose.


Diving straight into the “show”

Just like any other contract, an entertainment contract is a legal agreement between named parties by which an intended relationship is created and regulated. For an artist who seeks to enter into legal relations with a record company, it does help to proceed with due caution, given the uncertainties that are typically associated with musical works. For instance, a seemingly acceptable album could become totally unsought after due to changes in the mood of the public, which then affects its commercial value and success. In such circumstances, the potential for either or both parties to suffer losses becomes real.

It is no secret that the entertainment industry in Nigeria has experienced an upward surge in the last couple of years, both in terms of musical and cinematography works. Nigerian music can be heard from small bars in Kampala and Johannesburg to the large clubs in Paris, and in the heart of Manhattan. This is in no small way due to the exceptional work of pioneer artists such as Sunny Ade, Fela Anikulapo Kuti, Oliver de Coque, Onyeka Onwenu and in more recent years, Tuface (Tubaba), Don Jazzy, D’Banj but to name a few. However, at the moment, our international recognition and respect in the music world could be credited to current raves such as Davido, Wizkid, Tiwa Savage and Burnaboy.

In contrast to the stories of despair in the industry, in January 2016, a massive indicator of the phenomenal progress being made by the Nigerian Music Industry crystalized with Davido inking a deal with Sony Music Worldwide. Over the last couple of years, Davido and Wizkid have both received international recognition for their musical talents including Channel O Music Video Awards, MTV Africa Music Awards, BET Awards, MTV Europe Music Awards and All Africa Music Awards. This was important as it served as validation for the efforts made over the years to grow the industry in Nigeria and Africa. It also meant that one more barrier towards the worldwide domination of Afro-centric music genre had been lowered. In the not too distant future, other acts like Wizkid, Burnaboy and Mr. Eazi could hope to win similar awards and sign deals with other foreign labels, and further underscore the value to be gleaned from the Nigerian music scene.

It is no surprise, considering the continuing success of Davido and Wizkid that a lot of young men and women, mostly from modest backgrounds, are now chasing their music dreams in an attempt to, putting it colloquially, ‘blow’, and as a result, are flocking to a seemingly already saturated industry. Because of this saturation and combined with the overwhelming rate of poverty in the country, many find themselves in positions where they are forced to accept whatever terms and conditions are offered to them. This is why exploitation is so rampant in the industry.

In the same vein, the media power houses such as  record labels and producers spend millions of naira to promote these artists who, usually, have little or no vocal training and tend to be extremely rough around the edges; needing polishing. They view young music talents, and perhaps, rightly so, as their pieces of investments. These investments could either be good, in which case they make profit for the label, or bad i.e.  result in zero profits or even cost the label resources in the form of money and time. This reality underscores the importance of ensuring that both parties seek protection under the law.

The music industry is rife with tales of exploitation and conflict. In the last couple of months, we have been inundated with stories of some artistes who, in seeking to extricate themselves from unfavorable contractual situations, found themselves at loggerheads with label bosses unwilling to compromise. At the root of these issues lie feelings of exploitation and bad faith. The artists feel they have not been given a fair deal while their label executives are of the disposition that the artists have contractual obligations that just simply must be respected. This points to a climate of ignorance and misinformation where artists who don’t know any better execute agreements that aren’t in their best interests. This misinformation coupled with socio economic factors like material deprivation and a lack of appreciation for professional advice are some of the root causes of the exploitative practices we’ve heard of.

The Importance of a Good Team

As a budding artist, it would be a disservice to assume that these big names ‘made it’ relying solely on their (undeniable) talent.  A crucial component of the success story of any artist is the establishment of a good team. A structured team handles the non-creative aspects of being a star for the artist and allows him/her to maintain a level headed imaginative flow, ensuring that his career remains progressive outside the walls of his innovative sphere.

Four major kinds of representatives that are absolutely crucial to representing recording artists, performers, and songwriters in the music industry, whether they be upcoming or more mainstream artistes are personal managers, agents, creative directors, and arguably, most importantly, lawyers.

Lawyers, in this writer’s opinion, are the most important representatives because they are the ones to draft and review these record deals and incorporate the protective provisions that prevent exploitation and disenchantment.


The Almighty Contract

What is a record deal? According to Wikipedia, a record deal is a “legal agreement, that is a contract, between a record label and a recording artist (or group), where the artist makes a record (or series of records) for the label to sell and promote”.

A record label, or record company, is a brand or trademark associated with the marketing of music recordings and music videos while a recording artist is a musician who records music, or who fills in missing musical parts on a song. Examples of such are a pop music star or a rapper who has a contract with a record label.

There is probably no subject in the music industry more frequently discussed, yet more confounding, than the subject of recording deals. Recording contracts are very important because they are, perhaps, the most important singular form of protection both parties have when entering into a business relationship. If done right, they are impenetrable and offer a balanced relationship between the two parties. If done wrong, one party suffers and the relationship deteriorates in the course of time.

Although, there is no one model recording contract used by all record companies, as each company is unique in the fact that it has its own fundamental layout which is used as the basis for negotiations, the majority of record deals are structured in a standard way. They employ the same concepts, and look quite similar. This is especially true in the case of major label contracts.

Thus, there are basic elements that every recording contract should have. Although, this varies from country to country, there are several that apply across board. These are:

 

  1. Term of Contract
  2. Release Commitments
  3. Exclusivity
  4. Royalties
  5. Auditing Rights
  6. Recording Costs and Recoupment1. Term of Contract

No lawyer worth his salt would advise an artist to sign a contract with an initial term exceeding one year. Typically, the length of an initial recording contract is for a period of one year. This is usually followed by a number of option periods, where the record label is within its right to renew a contract for additional time periods if she likes the work the recording artist is producing. This limitation i.e. inserting a term of one year, prevents a record label from effectively controlling the life and creative work of an artiste for an unreasonable amount of time. In Nigeria, it is not uncommon for record labels to offer more than a year’s deal. Due to very limited sources of income, artistes are usually offered a minimum of two years, with option periods to extend. Signing these types of contracts is not advisable simply because of the dynamic nature of the industry; a penniless artist could prove successful from one song and become a megastar. Consequently, it is very important for an artist to keep his options open. There are numerous cases of unscrupulous record labels using five, sometimes ten-year terms, locking their artists into long-term contracts that compromise their artists’ creative lives and financial futures. It is important, as an artiste, to be vigilant and pay proper attention to the terms of contract. Or better yet, find a competent entertainment lawyer to review it with a combing eye.

 

2. Release Commitments

If a record label fails to release a record as promised, the artiste should be able to terminate the deal, with the option to buy back the recordings, so they can be licensed to another label, or perhaps self-released. This clause is very important to protect the artiste, and prevent stagnancy. Without a release clause from the label, there will be no guarantees that the label will actually do the work to get the album produced, packaged, and adequately distributed, and also pump the necessary finance, as stated in the contract, into the artiste’s career. A typical release clause is essentially a promise from the record label that it will release at least one project, usually an album, during the first part of the contract term. If the necessary tracks required for a record have been duly prepared, and the label fails to release the record, the artiste should then be allowed to walk away from the contract. In addition, the artiste should think about negotiating a minimum marketing spend as part of the release commitment, which should include tour support. This makes the record label to be at risk financially if the investment doesn’t pan out; forcing them to actually spend money to market creativity, thus ensuring all the hard work invested by the artist pays off.


3. Exclusivity

Although, this protection usually favors the label, it is essential to be added to this article to provide an unbiased view of both sides. A typical recording contract gives a recording company the exclusive right to all of the artiste’s recorded work during the length of the contract. In other words, the artist cannot record any material for any other record company for as long as said contract is subsisting. Usually, the “exclusivity” clause in recording contracts is very broad, and gives the record company the exclusive rights to the artiste’s performances in all creative avenues, from long-form concert videos to use of their music soundtrack in films, including name ownership rights. Notwithstanding, there are labels, however, that will agree to a clause in the recording contract allowing the artist to do a specified number of ‘outside’ projects per year.

Whether an artist can get this will depend on the particular label involved, the bargaining power of the artist and the legal prowess he has backing him/her i.e. how good his lawyer is. Traditionally, the record company does not have any right to share in any of the artist’s live performance income. However, given the current state of the record business, there have been moves by major record labels to change this policy, potentially permitting the label to have a stake in their artists’ live performance/touring income, as well as merchandising income (income from the sale of t-shirts, hats etc.)


4. Royalties

In an ideal situation, where the revenue rate awarded to an artiste is indeed reasonable, it is still imperative to be wary of hidden deductions. Before paying an artist even one kobo in revenue, the record label is permitted to recoup much of its expenses through deductions. This is understandable as labels can spend as much as 100 million naira on an artist in the attempt to make him/her ‘blow’. Standard deductions include recording, video production and promotion, the cost of CD and DVD packaging, costs of adding projects to digital music sites such as Apple music and so on. However, some record labels sneak in obnoxious and enormous deductions that all but guarantee the artiste will never receive a cheque. It is important to look out for deductions based upon the record label’s general costs of doing business, for example deductions of record label owners’ salaries and benefits. Another form of obnoxious deductions are those unlimited deductions for travel, hotel stays, cars, meals and entertainment, and other costs that give the label a blank cheque and a devious record label could use these to rack up a lavish deduction at the expense of the artiste.

 

5. Auditing Rights

This is an important clause that enables the artiste to audit the record label on revenue payments. It is not uncommon for artistes to ask how they can ensure their record label is being honest about the total number of albums or tracks sold, and the total amount of money gotten from performances. Without transparency measures put in place such a candid correspondence and detailed documentation of records, the relationship between an artist and its label can quickly turn contentious. An audit provision is the best way to prevent this type of breakdown in transmission before it occurs. The typical audit clause gives the recording artist the right to hire a third party auditor to go through the books and records and make sure they’re indemnifying the artist what he or she is entitled to under the terms of the contract. Typically, the artist must pay for this type of audit. However, a well drafted audit clause should require that the record label pay for the audit if a large discrepancy is found in the course of auditing.

 

6. Recording Costs and Recoupment

This usually requires the record company to pay the monetary value of the recordings done for the label, subject to the specific limitations stipulated in the contract. Although, the record company will give an advance for the costs, it will have the right to reimburse itself out from the artiste’s royalties.

 

 6.1 Ensure the percentage rate is reasonable.

It is common knowledge that record sales are almost non-existent in Nigeria. This is because of the rampant piracy and flagrant copyright infringement that goes on in the industry. Because of this, labels are compelled to find additional ways to make more from artists in order to have a shot at making a profit.

The trend in recording contracts is what is known as the 360 deal. This is a deal that gives the label access to any income that an artist may earn while under contract and not just record sales. To find anything but a 360 deal of some type for a new artist today is very unlikely. Signing a new artiste is a gamble and because of the notoriety of piracy in the country, labels make most of their investment back through performance fees (show money) and digital sales to cover costs and make the gamble safer. Profits from these sales are then shared between the label and artiste.

Although, profit sharing rates differ wildly based upon an artiste’s past successes, there’s a general ballpark number for revenue rates that every artiste should know. A good lawyer will ensure that the intellectual property of the artiste is not underpriced or undervalued. Some record labels prey upon unsuspecting artistes by offering relatively large upfront signing bonuses, giving their artists an initial yet fleeting feeling of success. But in return, the contract gives the artist a ridiculously low revenue rate, ensuring that the label, and not the artist, will reap all the long-term rewards of artistic success.

 

Remedies open to a recording artist after execution of a recording contract

Although, this article essentially focuses on what to do before entering into a record label contract, it does not imply that those who are already contracted in unfavorable contracts have no remedy whatsoever. Let’s now examine some of the remedies available for persons who wish to escape such contracts.

  1. Damages for breach of contract

A record deal is a contract and one of the basic objects of the Law of Contract is to ensure that the expectations of the parties to the contract are safeguarded. In view of the fact that our society appreciates the prospective value to be exchanged between consenting parties as something well worth promoting, the law of contract fosters such relationships by giving parties a predictable platform for placing reliance upon and enforcing bargains.

Expectations are at the core of all contracts. Whenever two parties exchange promises, this prompts reciprocal expectations.  Where one side’s expectations are not met, contract law entitles the aggrieved party to respond in a way that, at least, conceptually, restores that party to the position he or she was before committing to the contract. The principle of law established in case law is that the aggrieved party should be placed in a position he or she would have been if the promise had been executed.

Compensating an aggrieved party for a failed expectation on a promise in an entertainment contract ordinarily involves payment of damages by the promisor which is often more significant than what reimbursing the promisee may have required. Likewise, protecting the promisee by requiring the breaching party to disgorge benefits received under a restitution analysis would usually produce a smaller recovery for the victim of a breach.  In providing an opportunity for an aggrieved promisee to recover in the broadest terms, contract law encourages wealth-producing transactions (for instance record deals) and creates a strong incentive for productive dependence on the commitments of the promisor.

Suffice it to say that in a complex credit-oriented economy such as ours, protecting the expectations of parties is a critical factor if investment capital is to be channeled towards entertainment contracts, which is a wealth-producing activity.

II. Vitiating Elements in a contract

Even after a contract has been executed between the parties, certain elements may exist in the formation of the contract, which then renders such a contract void or voidable. There are certain vitiating qualities which, if present in a contract, could operate to invalidate such a contract and then entitle the party at the receiving end to repudiate obligations undertaken.   When a contract is said to be void, it means it is lacking of any legal effect or force, and is unenforceable in the eyes of the law. On the other hand, where a contract is described as voidable, it means that the contract is ordinarily valid and binding unless avoided or declared void by a party to the contract, who, feeling aggrieved, is taking a positive step under the contract to invalidate same.

Some of the vitiating elements that may exist in a contract include fraud, mistake, lack of capacity, duress, misrepresentation, undue influence or abuse of fiduciary relationship. Where any of these vitiating elements exist in a recording contract in respect of which the recording artist is the victim, such a contract is voidable at the instance of an artist, who is then at liberty to take action to render the contractual terms unenforceable. Conversely, an artist who has been a victim may subsequently ratify such a contract by his or her conduct.

Consequently, although a valid contract may have been consummated between the parties to the contract, the features named above, could offer an aggrieved weaker party, which is typically the recording artist, a fresh vista of remediation and a second opportunity to ensure that adequate safeguards are incorporated in a recording contract of his dreams.

 

6.3         Equitable Remedies

6.3.1      Unconscionability

This is an equitable remedy open to an aggrieved party seeking redress in an imbalanced contract. An unconscionable contract is one that is unusually harsh and shocking to the conscience. It is a type of contract that leaves one party with no real, meaningful choice, usually due to major differences in bargaining power between the parties. Unconscionable contracts are very one-sided and drafted to benefit only one party; the drafting party. The basis of reliance on unconscionability in contracts is highlighted in Portman Building Society v Dusangh[3] as impropriety, unfair advantage taken of a disadvantaged position, morally culpable behavior and overreaching or oppressive result. If an artiste can successfully prove these elements are present in his situation, the court would most likely rule in his/her favour.

Where a contract does not contain a remedy clause, it could then be made voidable making use of the equitable remedies in the law. In National Commercial Bank Jamaica Limited v Stephen Hew[4], Lord Millet opined, “One of the grounds on which equity intervenes to give redress where there has been some unconscionable conduct on the part of the defendant… the doctrine involves two elements; One, there must be a relationship giving to the necessary influence and two, the influence generated by the relationship must have been abused”. This principle was reiterated in the Supreme Court case, Alhaja K.F. Ibiyeye v. A.A. Fojule & Ors[5] where it was decided that “It is not every contract that is entered into that a court of equity will carry into execution…”[6] These decisions can be relied upon by an artiste as equitable remedies where such an agreement has, unwittingly, been signed.

6.3.2      Quantum Meruit

Quantum meruit means “the amount he deserves” or “as much as he has earned”. It is an equitable remedy that is available under Nigerian law. The principle was explained in Alfotrin Ltd v. A.G, Fed[7], “The law is settled that where a plaintiff can prove the rendering of services under an unenforceable contract, the contract is admissible as evidence of the value of the services rendered and he may recover on a quantum meruit basis. Put differently, where work is done or services are rendered by the plaintiff at the request of the defendant and of which the defendant has had the benefit, the plaintiff can recover the value of the work done or services rendered on a quantum meruit. The law provides remedies for cases of unjust enrichment and thus to prevent one from retaining some benefit derived from another which it is unconscionable that he should keep. Such remedies, strictly speaking, are different from remedies in contract or tort and are recognised to fall within the common law remedy of quasi contract”[8]. In Olaopa v. O.A.U. Ile-Ife,[9]  Honourable Justice Wali reiterated that the basis for a claim of payment on a quantum meruit is a contract.[10]

By virtue of this principle, a signed artiste would be awarded monetary compensation for services rendered if the scale of remuneration was not fixed or agreed upon in the contract. The law imposes the obligation to pay a reasonable sum to the plaintiff on the basis of quantum meruit.

6.3.3    Unfair Contract Terms

“Generally, a Court of law will not interfere with terms of contract freely entered into by parties; the attitude of the courts towards contracts is that parties are bound by the terms contained in their contract agreement without any subdivision or addition. The court has no power to rewrite for them their contract. That being said, a Court of law will look into such terms if they appear unfair”.[11] There are certain voidable elements of contracts, one of which is concensus ad idem (a meeting of the minds), thus where it is shown that both parties were not operating on the same wavelength, the courts may choose not to enforce such contracts.

In determining such contracts that could be considered unfair, the principle of a contract of adhesion was stipulated by Honorable Justice Eso in Sonnar Limited v Nordwind[12], “The contracts of adhesion referred to by Mr. Mbanefo are usually contracts where the parties are not equal. They are usually contained in standard forms of contract – a ‘take it or leave it’ sort of transaction. These contracts are concentrated in relatively few hands and the terms are usually not negotiated between the parties thereto. The party with the bargaining power dictates the terms. The weaker party is presented with a form and asked to ‘sign here’. He does of course. Nothing happens until trouble arises… In England, the Law Commission has looked into the matter and taken care of it. In Gillespee Bros. and Co. Ltd v. Roy Bowles Transport Limited 1973 Q.B. 400, Lord Denning suggested the reasonableness test. An objective test of reasonableness could easily be an answer to the problem posed by contracts of the nature that imports inequality in the parties”[13].

In most cases, the label has all the cards; the recording artiste, who is the weaker party and desperate to launch himself/herself into the music world for fame and commercial success, is typically faced with the  ‘take it or leave it’ scenario described by the Honourable Justice of the Supreme Court above. Clearly, this constitutes the lot of a lot of budding artists and characterizes the relationship with their record labels. More specifically on the point, ample comfort for recording artists to escape such contracts was provided in the English contract law decision of Macauley v Schroeder Music Publishing Co Ltd[14] where a 21 year old music artiste was adjudged to have been trapped in a disproportionate record label contract or deal, and the court decided to release him from it.

 

CONCLUSION

Suffice it to mention that there is a current buzz of creative talents in the music and entertainment industry in Nigeria. Consequently, the need to enter into recording contracts would expectedly experience an upsurge. Both parties to a recording contract need to recognize the value of negotiating balanced and fair clauses that protect each other’s interests. Professional expertise in this area is readily available and the parties are well advised to take advantage of them. It serves no useful long term purpose for either party to seek to exploit the order as those scenarios merely breed distrust, discontent and ultimate termination of a relationship which may otherwise have proven considerably beneficial to all sides.

Music artists, being traditionally the weaker party, must internalize the imperative of not allowing their desperate pursuit for success get in the way of reasoned and impassioned pre-contractual negotiations leading up to contract execution. It is hoped that this piece would help provide useful guidance to recording labels, budding and more established artists as they all embark upon the honest pursuit of their dreams.

 

Written by:

Onye Rumuna & Simeon Okoduwa

REFERENCES:

[1] Culled from vanguardngr.com and assessed on 1st Nov. 2018; Excerpts of a speech made by the Vice President of the FRN at the re-launch of the Dome, an entertainment and recreational facility in Abuja.

[2] Ibid

[3] Portman Building Society v Dusangh [2000] 2 All ER (Comm) 221

[4] National Commercial Bank Jamaica Limited v Stephen Hew C.L. 1996/N-049

[5] Ibiyeye v. Fojule (2006) 3 NWLR (Pt.968) 640

[6] Ibid

[7] Alfotrin Ltd v. A.G, Fed (1996) 9 NWLR (Pt. 475) 634

[8] PER IGUH, J.S.C (P. 35 Paras. C-G)

[9] 1997, 7 NWLR (Pt. 512)

[10] PER WALI, J.S.C. (P.24, Paras. B-C)

[11] Afrotech v MIA & Sons Ltd (2000) 12 sc (Pt. 11) 1 at page 13

[12] Sonnar Limited v Nordwind, (1987) NWLR (Pt.66)520

[13] PER ESO, J.S.C (1987) NWLR (Pt.66)520

[14] Macauley v Schroeder Music Publishing Co Ltd (1974) 1 WLR 1308

Genericide: A Threat To Dominant Trademarks

Turning a product/trademark into a household name might be the end game for every trademark owner but this can quickly turn into a nightmare when consumers perceive the trademark as …

 


INTRODUCTION

Turning a product/trademark into a household name might be the end game for every trademark owner but this can quickly turn into a nightmare when consumers perceive the trademark as the name of the product itself. The trademark will lose its distinctiveness due to its popularity and rival businesses like vultures could then quickly descend on the trademark! Once these rival businesses convince the courts that the trademark has lost its distinctiveness, they could then become entitled to the use of the trademark thereby making the trademark the victim of GENERICIDE.1

Twitter in a bid to protect its trademark stated in its Initial Public Offer filing that “There is a risk that the word ‘Tweet’ could become so commonly used that it becomes synonymous with any short comment posted publicly on the internet, and if this happens, we could lose protection of this trademark.” 2 Google also published rules of proper usage of its entire trademark following several suits to make google a generic term.3 This article seeks to examine the meaning of a generic trademark and how to protect a trade mark from genericide.

 

WHAT IS A TRADEMARK?

In order to comprehend the meaning of a generic trade mark, and how some marks fall into the public domain (through a process known as “genericide”) or become generic, one first has to understand what the basic functions of a trademark are.

The Black’s Law Dictionary4, defines a trademark as “A distinctive mark of authenticity, through which the products of particular manufacturers or the vendible commodities of particular merchants may be distinguished from those of others”.

Under section 67 of the Trademarks Act5 (the Act) “ Trademark means, except in relation to a certification trademark, a mark used or proposed to be used in relation to goods for the purpose of indicating, or so as to indicate, a connection in the course of the course of trade between the goods and some person having the right either as proprietor or as registered user to use the mark whether with or without any indication of the identity of the person, and means, in relation to a certification trade mark, a mark registered or deemed to have been registered under Section 43 of this Act”.

In Ferodo Limited & Anor v. Ibeto Industries Limited6, the Court per Mustapher, JSC defined a trademark as “A distinctive picture which would indicate to a purchaser of an article bearing it, the means of getting the same article in future, by getting an article with the same mark on it”.

From the above, it is clear that the primary function of a trademark is to distinguish the manufacturer or originator of the goods or services as being separate from the services and goods produced by other businesses which may be of a similar kind. The trademark sets the specific product apart from similar ones in the market and helps to create a niche for it.

In confirming this, Section 9 (2) of the Act provides that the major requirement for a mark to be registrable is distinctiveness and defined ‘distinctive’ as “….adapted, in relation to the goods in respect of which a trademark is registered or proposed to be registered, to distinguish goods with which the proprietor of the trademark is or may be connected in the course of trade from goods in the case of which no such connection subsists, either generally or, where the trademark is registered or proposed to be registered subject to limitations, in relation to use within the extent of the registration.”

Thus, a mark that is no longer capable of being distinguished in the manner above cannot serve the primary function of a trademark and, hence, cannot be registered or continue to be registered as a trademark as captured in section 13 of the Act. Examples of such marks as provided in sections 11, 12 and 13 of the Act include marks not being, according to its ordinary signification, a geographical name or a surname, deceptive or scandalous marks, names of chemical substances, identical and resembling trademarks which resemble such a trademark as to be likely to deceive or cause confusion.

However, the main focus of this work are marks, which are initially distinctive and qualify for registration, but for one reason or the other become incapable of being distinguished or which, over time, lose their quality of distinctiveness.  Once a trademark has lost this distinctive quality or function, it will no longer be qualified to act as a trademark. Accordingly, a trademark that is not capable of distinguishing, within the meaning of Section 9(2) of the Act, is liable to be removed from the Register of Trademarks.7

Consequently, a trademark owner must, at all costs, strive to save his/her valuable trademark from genericide and falling into the public domain.

 

WHAT IS A GENERIC TRADE MARK?

A generic trademark, also known as a proprietary eponym or genericized trademark, is a term which, owing to its popularity, has become the generic name for a particular class of goods and services, to the dislike of the trademark owner. It is an unintended outcome for a trademark owner whose brand has grown and become well known in the market place. We shall broach some of the more common and household examples that many of us can relate with in the course of this article.

The term or trademark used to describe a particular good or service may start out as a normal trademark, however, the term may become so popular or dominant that the general public, against the wishes of the trademark’s holder, now refer to all classes of the product or service by the trademark of that particular good or service. When this occurs, the trademark is said to be genericized. While the long term objective of the trademark holder is to become a household name, there is a thin line between a household trademark and a generic name, which if crossed, could lead to unpleasant consequences. It then becomes incumbent on the trade

mark holder to deliberately exercise caution in the quest to make the mark well known so as not to lose its distinctiveness.

Over the years certain trademarks such as Cellophane, Laundromat, Aspirin, Escalator and Thermos have become generic marks. In other words, these once distinctive trademarks have become descriptive over time or they now generally define a class of goods such that they no longer serve to identify the goods of a particular manufacturer.

 

HOW DOES A TRADEMARK SUFFER GENERICITY?

 

A trademark does not just lose its status and fall into genericity by effluxion of time. There are certain conditions which must be satisfied before a trademark loses its distinctive quality. In this respect, unless and until a court of competent jurisdiction or the Registrar of Trademarks formally finds and rules that a trademark has fallen into the public domain, the genericity or otherwise of a trademark will remain a matter of conjecture. For example, the trademark, Milk of Magnesia was found by the Federal High Court in Smithkline Beecham Plc v. Farmex Ltd8 to have become generic and thus cannot be registered as a trademark. Thus, the power to declare that a trademark has fallen into the public domain (i.e. become generic) lies exclusively in the courts; an individual cannot suo motu declare a trademark to be generic.

Suffice it to reiterate that trademark owners must consciously avoid the process of genericide in order to protect their trade marks.

 

SPECIFIC MATTERS TO OBSERVE TOWARDS PREVENTING A TRADEMARK FROM BECOMING GENERIC

 

  1. Use Mark as Adjectives and not as a Noun

The trademark holder should monitor the trademark, to ensure that it is used correctly. The mark should be used as a proper adjective, not as a noun or pronoun. Adverts in relation to the products should be couched in such a way that the mark is not used as a noun or pronoun rather, as an adjective, modifying a noun.

The trademark should be followed by the common descriptive name of the product it modifies.

Examples:

CORRECT: use SOFI sanitary pad, to feel comfortable and beautiful

WRONG: use SOFI, to feel comfortable and beautiful

CORRECT: Use SAMSUNG television

WRONG: use SAMSUNG

Another way of checkmating the use of the trademark is by adding the word ‘brand’ while defining or advertising the trademark.

Example:

JOD brand stapler

RIHI brand noodles

Also, the trademarks should not be used as common descriptive adjectives; rather, they should be used as proper adjectives.

Example:

CORRECT: Jeans made from SHAG materials are very comfortable

WRONG: SHAG jeans are very comfortable

 

  1. Use Mark as Adjectives, not as Verbs

The mark should be used as an adjective and not as a verb.

Example:

CORRECT: Please make four copies of the report on the Xerox copier

WRONG: Please XEROX this report

 

  1. Avoid variations of the trade mark

The trademark owner should take steps to ensure that there is no variation of the mark by users. There should be no misspellings, humorous forms, abbreviations, plural uses, and most importantly, avoid the combination of the trademark to form other words.

 

  1. Police the Trademark

A trademark holder should always be minded to police his mark. Once he notices misuse by any individual or corporation, he should take steps/measures to halt such misuse.

An example is the recent advert by INDOFOOD for their INDOMIE noodles. In the advert, a young girl was telling a man not to call other brands of noodles INDOMIE “if it’s not INDOMIE, don’t call it INDOMIE”. The advert clearly shows that INDOFOOD is policing their trademark, lest it becomes generic.
 

  1. Do not use the Trademark Possessively

A trademark is not a generic name so it does not own anything. As such, it should not be used possessively.

Example:

WRONG: SAMSUNG’s beauty is in its sleekness.

CORRECT: The SAMSUNG cell phone’s beauty is in its sleekness.

 

  1. The Trademark being a noun should also not be used in a plural form

Example:

WRONG: our SAMSUNGs are strong

CORRECT: our SAMSUNG cell phones are strong

 

  1. Use the trademark Notice

A trademark notice should follow the mark as often as possible or at least, it should follow the mark the first or most prominent time it appeared. If the trademark is registered, and the Trademarks Registry has issued a certificate of registration to the trademark holder, the ® symbol should be used to mark the trademark. If the mark is not registered, TM or SM should be used. However, it should be noted that using TM or SM does not guarantee protection for your trade mark under the Trademarks Act.

Alternatively, a footnote or text notice with a statutory notice could also be used. Example, STID is a trademark of Winners Corporation, registered in the Nigerian Trademarks, Patent and Design Registry.

 

  1. Trade Name Usage

A mark may be used alone as a proper noun when used as a trade name to refer to a trademark holder’s business. Be that as it may, when it is used as a brand in connection with a product or service, the trademark should be distinguished from the words surrounding it and where possible, followed by reference to the generic product or service that it modifies.

 

  1. Educate the Public

Often times, misuse of a trademark occurs due to lack of education rather than wrongful intent. The classic example of the misuse of Indomie to represent all brands of noodles underscores this point. Trademark owners should thus educate the general public including their staff, distributors, dealers, consumers etc. on the proper use of the trademark.9

Failure to follow these guidelines could be fatal to a trademark owner. Genericide could occur, and the erstwhile well-known trademark could lose the ability to protect the proprietor’s rights.

Certain trademarks in Nigeria have become somewhat descriptive of the goods they relate to and may be in danger of becoming generic. Arguably, names such as Indomie, Vaseline, Gala, Maggi, Spaghetti and Flit fall into this category.


CONCLUSION

Suffice it to reiterate that genericity is an insidious process that stalks any popular trademark. It is analogous to the dreaded blood-sucking mosquito that chases after humans to feast on.

Trademark owners are encouraged to undertake deliberate and painstaking efforts to protect the brand by inter alia internalizing some of the principles already discussed in this article and ensuring strict compliance (by every member of their staff, agents and the general public) with those guidelines, for the use of the trademark.

In the event of misuse by the public, the trademark owner should quickly contact a trademark attorney who will provide guidance and direction on the necessary steps to be taken in order to avoid the loss of proprietary interest in the trademark, loss of a brand arising from several years of intellectual input and hard work, and consequential damage to revenue streams ordinarily accruing from the use of the trademark.

 

AUTHORS: SOMTOCHI UNACHUKWU AND SIMEON OKODUWA


REFERENCES

  1. Simon Tulett, ‘Genericide’ Brands destroyed by their own success. Business Reporter, BBC News of 28th May, 2014. <available at https://www.bbc.com/news/business-27026704> accessed on the 13th of August, 2018.
  2. Twitter initial public offer of October 3, 2013.<available at https://www.sec.gov/Archives/edgar/data/1418091/000119312513390321/d564001ds1.htm > accessed on 13th of August, 2018.
  3. Rules for proper usage of Google.<available at http://www.google.com/permissions/trademark/rules.html > accessed on the 13th of August, 2018
  4. Bryan Garner, Black’s Law Dictionary, 6th edn, pg 1493
  5. Trademarks Act, Cap T 13, Laws of the Federation of Nigeria, 2004
  6. Ferodo Limited & Anor v. Ibeto Industries Limited (2004) 5 NWLR (Pt. 866) 317
  7. Ufuoma Akpotaire; Nigerian law Intellectual Property Watch,>available at https://nlipw.com/cancellation-of-a-registered-trademark-two-minute-lesson/
  8. Smithkline Beecham Plc v. Farmex Ltd, (FHC. 2003) 46 NIPJD 880/97
  9. International Trademark Associations Bulletin Vol. 66 No.20

Requirements for Listing on the Main Board of the Nigeria Stock Exchange

The Nigeria Stock Exchange [NSE] is the ideal destination in terms of equity capital for companies with sound corporate fundamentals. Getting listed on the NSE is like getting into an exclusive club…

The Nigeria Stock Exchange [NSE] is the ideal destination in terms of equity capital for companies with sound corporate fundamentals.

These companies must be imbued with a growth mentality and a genuine desire to compete on a global stage. Getting listed on the NSE is like getting into an exclusive club, which explains the number of publicly traded companies on the Exchange – 71, as at August 10 2018.

Though there are only 71 at this point in time, the conditions for being enlisted on the NSE are not so daunting for brands that have made corporate governance their watchword.

The first recorded enlistment of a capital market-like financial transaction in Nigeria was in 1946 – “the flotation of a 300,000 pounds bond by the colonial government to implement its 10-year development plan.” More than 70 years on from that epochal event, the Nigeria Capital Market has grown to a valuation of over N13 trillion by August 3, 2018, with more than 70 companies listed and being traded – both local and foreign.

The CEO of the NSE, Oscar Onyema was reported by the Punch Newspaper, after the recent admission of Notore Chemical Industries Plc. onto the main board of the NSE, to have stated that “We encourage more local players to explore the different opportunities in the capital markets for raising long-term capital.”

Listing on the main board of the Nigeria Stock Exchange has 3 standards i.e. Standards A, B and C with each standard having its own degree of compliance in relation to a specific requirement[1]. Consequently, the requirements of listing on the main board of the Nigeria Stock exchange are set out below with the corresponding degree of compliance under Standards A, B and C.

The requirements for listing on the Nigeria Stock Exchange are as follows:

 

 1.     Pre-tax profit

Standard A requires that a company seeking to list on the main board of the NSE must provide cumulative pre-tax profits from continuing operations of not less than NGN300million over the last 3 years, with at least NGN100 million pre-tax profit in 2 of those years.

Standard B requires that such a company as described above must provide cumulative pre-tax profits from continuing operations of not less than NGN600 million over the last 1 or 2 years

Standard C makes no requirement for a company as described above to provide cumulative pre-tax profits

 2.     Market Capitalization

While Standards A and C make no market capitalization requirement concerning a company seeking to list on the main board of the NSE, Standard B requires that such a company’s market capitalization must not be less than NGN 4 billion at the time of listing (based on the issues price and issued share capital).

  3.     Operating Track Record

Standard A requires that a company seeking to list on the main board of the NSE must provide 3 years minimum operating track record. Standard B also requires a minimum of 3 years operating track record. However, as an alternative, it also permits evidence of 3 years minimum operating track record of a core investor in the company.  

Standard C requires a company as described above to provide 2 years minimum operating track record

4.     Financials

While Standard A requires that a company seeking to list on the main board of the NSE must provide 3 years financial statements, the most recent of which must not be more than 9 months old at the time of submission of the listing application, Standard B also makes the requirement provided under Standard A but in addition provides an alternative  requirement which is evidence of a strong technical partner with substantial equity holding and involvement in the Issuer’s (the company) management, who has a minimum of 3 years operating track record and financial statements.

Standard C requires a company as described above to provide financial statements with the date of the last audited accounts not being older than 9 months

5.     Public Float

While Standards A and B require that a company seeking to list on the main board of the NSE must offer a minimum of 20% of each class of equity securities of its shareholding to the public to hold,

Standard C requires a company as described above to offer a minimum of 15% of each class of equity securities of its shareholding to the public to hold

6.     Shareholders Equity

While Standard A requires that a company seeking to list on the main board of the NSE must have not less than NGN3 billion in shareholders’ equity, Standards B and C make no requirements of such a company as described above in terms of shareholders’ equity.

7.     IPO Lockup Period

Standards A, B, C require Promoters and Directors of a company seeking to list on the main board of the NSE to retain 50% of shares pre- Initial Public Offering (“IPO”) for 12 months from the date of listing.

8.     Public Shareholders

Standards A and B require that the number of public shareholders in a company seeking to list on the main board of the NSE must not be less than 300 (for equity shares) while Standard B requires that the number of public shareholders in a company seeking to list on the main board of the NSE shall not be less than 51 (for equity shares)

9.     Annual Listing Fees

All companies seeking to list on the main board of the NSE under Standards A, B, and C are required to pay annual listing fees based on market capitalization subject to a maximum amount as prescribed by the NSE fee schedule which is currently NGN4.2 million.

10.     Business Operations

All companies seeking to list on the main board of the NSE under Standards A, B, and C are required to be registered as a Public Limited Liability Company under the provisions of the Companies and Allied Matters Act CAP C20 Laws of the Federation of Nigeria

 

11.     Accounting Standard

 All companies seeking to list on the main board of the NSE under Standards A, B, and C are required to comply with the International Financial Reporting Standard (IFRS) in line with the Securities and Exchange Commission (“SEC”) regulations.

12.     Allotment

All companies seeking to list on the main board of the NSE under Standards A, B, and C are required to have their securities to be fully paid up at the time of the allotment in line with SEC requirements for minimum threshold for a successful offer.

 

13.     Continuing Obligation requirement of the NSE’s Listing, Disclosure & Transparency Rules

Companies listed under Standards A and B are required to submit quarterly, semi-annual and annual statements together with annual certification on the adherence to corporate governance. Companies listed under Standard C are also required to submit quarterly, semi-annual and annual statements together with annual certification on the adherence to corporate governance. However, an additional requirement for companies Listed under Standard C is that they must retain a designated adviser for as long as they are listed

Undoubtedly, the NSE’s objective is to get as many Nigerian companies to pass the 10 rules set by the Exchange because listing a company means it has passed stringent checkups, and the more compliant companies listed on the NSE, the better the economy.

The most influential factor in the growth [expansion] of an enterprise is funds, and there is no better source of relatively cheaper funds than the capital market as opposed to the comparatively higher cost of funds securable from financial services institutions owing to high interest rates.

Apart from the listing requirements above, an interested party must comply with “the relevant provisions of the Companies and Allied Matters Act, Cap. C20, LFN 2004, the Investments and Securities Act, 2007, the Rules and Regulations made thereunder and other relevant statutory requirements.”

 

[1] See Listing Requirements  issued by the Nigeria Stock Exchange

 

Bilateral Currency Swap Agreement Between Nigeria and China

With bilateral trade volume growth of 30% between Nigeria and China between January 2017 and November 2017, there was a good argument for the two countries to enhance their trade relationship…

With bilateral trade volume growth of 30% between Nigeria and China between January 2017 and November 2017, there was a good argument for the two countries to take measures to enhance their trade relationship through a Currency Swap arrangement.

The growth in actual terms – about $12.3 billion necessitated the move to facilitate the provision of adequate local currency liquidity for trade between the two countries without recourse to a third-party currency i.e. the US Dollar.

The Swap deal is, in part, designed to make the Naira readily available and accessible to Chinese businesses and, in reciprocity, guarantee access to the Renminbi (RMB) for their Nigerian trading partners. Being moderated by the Central Bank of Nigeria, it will ensure that 15 billion Chinese Yuan is exchanged for N720 billion, over a three-year period. As part of its operational dynamics, bi-weekly bidding sessions in Renminbi have been instituted to accommodate only trade-backed transactions.

While this bilateral agreement could, among other benefits, help promote access to liquidity for trade between the two countries and enable indigenous manufacturers source machinery and raw materials more easily, it is not without potential challenges which, if not well managed, could prove counter-productive for the Nigerian economy.

What then are the merits and demerits associated with this initiative? Should Nigerians be concerned about this agreement? What steps could the Federal Government of Nigeria adopt to address the potential pitfalls that may emerge in the course of executing the agreement? How should Nigeria tackle the trade imbalance between the two countries?

Looking to learn more about this? Click here to download Alliance Law Firm’s White Paper on The Bilateral Currency Swap Deal between Nigeria and China

Class action suits as the trigger to grow Nigeria’s economy

Nigerians are said to be the sixth happiest group of people on earth according to 2017 World Happiness Reportalthough that report has

Nigerians are said to be the sixth happiest group of people on earth according to 2017 World Happiness Reportalthough that report has not helped or accelerated the country’s development. This ranking has come about, arguably, because of the penchant for Nigerians to settle for anything and everything.

The biggest enterprises in Nigeria – from banking to telecoms, are almost certain that they will get away with almost anything even though Nigeria’s constitution and the statutes applicable to those sectors provide the legal and regulatory framework that ensure companies operating within the shores of the country can be held accountable for any offensive conduct.

Access to timely justice is a critical index for measuring the quality of life ofa people and the level of confidencethat investors (local and foreign)may have in committing their resources within any country.

Although, Class actions as a dispute resolution vehicle is a recent phenomenon within Nigeria, it remains an efficacious tool for resolving mass disputes because it possesses several benefits which include redressing the economic inequalities that may exist between the litigants;promoting a speedier resolution of disputes by combining several suits, that would otherwise have been filed as multiple suits, into one; and reducingthe risk of the judiciary potentially making conflicting findings of fact and law, as it most probably could if it had to determine each cause of action separately.

Unfortunately, althoughfew cases have been initiated as class actions at the Federal High Court of Nigeria, none, however, has been fully litigated and concluded with final judgment delivered to bind the class members and provide judicial guidance for class litigations in Nigeria.

The above sentiments are captured in the book “Class Actions in Nigeria” authored by Uche Obi,SAN, ManagingPartner at Alliance Law firm. Beyond some of the challenges to class actions highlighted above, the learned silk has stated further that “Another deterrent to Class Actions is the growing trend in Nigeria for States, through their Attorney Generals, to take up claims on behalf of a section of the public instead of a certified class action as was experienced in the Pfizer cases.

“Sometimes, in addition to civil proceedings, the States initiate criminal proceedings against culpable persons as experienced in the Pfizer cases.

“This growing trend is perceived in some quarters as capable of undermining the proliferation of class actions in Nigeria. A major back down on this trend is that there is the territorial limitation to the standing of a State Attorney General to act on behalf of individuals and institutions that are not within its State in general terms.”

What are the real benefits of class action suits?

MrObi, SAN, explains that deploying the tool of class actions could help hold companies in the services sector accountable to the people. He opines that,if Nigerian businesses were thus held to the highest standards, they would have no other option but to improve their services and deliveries or face litigation from the ‘people’.

“This is particularly the case in this era of change in attitude and/or behaviour and of expectation of a high standard of service delivery to Nigerians.”

Considering the culture of impunity in Nigeria, service providers appear reluctant to meet expectations of a higher standard of service delivery.

The import of this for consumers is that, if this mode of dispute resolution is embraced, there is an enhanced opportunity to exercise their legal rights by seeking justice through the courts against service providers found to have breached their duty of care and responsibility and other legal commitments to their consumers.

When our society develops to the point where class actions against public enterprisesand service providers in the private sector become more regular [not frivolous] and successful, these corporates would become constrained to deliver excellent services or fold up. Ultimately, this new consciousness would have the net effect of helping oureconomy grow and become more competitive.

Why organisations must invest in Corporate Governance

Most Nigerian Companies see Corporate Governance as an expensive, cumbersome, slow and retrogressive process but in truth,

Most Nigerian Companies see Corporate Governance as an expensive, cumbersome, slow and retrogressive process but in truth, it is the only proven way for a company to grow and thrive.

Here’s why.

Organisations in Nigeria are already encumbered by various delimiting factors, which are generic to the country but the continued absence of Corporate Governance values has further eroded the gains that could have accrued.

The ability to create sustainable wealth through the building of enterprises and companies, individuals, shareholders, directors and boards must attain a level of Corporate Governance that dovetails attentively with the Companies and Allied Matters Act [CAMA] repealed and re-enacted by the Nigerian Senate on May 15, 2018majorly to ease the burden on small companies.

Whether it would be the impetus needed to fire the country forward is another matter entirely. But whatever the size or scope of the business, Corporate Governance still applies.

The economic climate in Nigeria has not had enoughstimuli to build strong institutions over time – companies that have been and continue to exist and meaningfully contribute to the country’s development because there continues to be a lack of proper adherence to CAMA (not Karma).

The issue of Corporate Governance is a wide-ranging one that can be the enabler of a greater Nigeria in a world now more defined by openness and collaboration, governments and companies have to be driven by much more than just avarice and profit.

As an entity [Nigeria], even though operating a democratic form of governance does not totally align or have an abiding culture of transparency and accountability – the two important factors that drive Corporate Governance.

Havard Business Review believes, “Corporate Governance 2.0 asks the functional question: What goals are the activists, governance rating agencies, boards, and everyday shareholders all trying to achieve?

The answer is clear: insulation from frivolous litigation, but meaningful exposure to liability in the event of a dereliction of duty in the boardroom.”

The subject of liability is a responsibility enabler. This makes Corporate Governance so important and of urgent need for Nigeria’s economic reforms but it will only bear fruit [for all the people] when the proper laws of Corporate Governance oversee the rules of all business engagement.

As long as companies and enterprises run foul of their law of formation and association, the more these corporations flout the laws and get away with it, the more the economy will be run aground.”

Many companies in Nigeria do not have the proper alliance between the board of directors and the shareholders – with both parties not knowing how they are beholden to each other. One or two ‘strong’ directors run many companies, with the rest of the board and shareholders as mere spectators.

Section 299 and 300 of CAMA explains in totality the rights of the shareholder. As a Corporate and Commercial transactions law firm, we try to sensitize organisations on this and how it affects their firms.

Corporate Governance is not CSR

All said and done, Corporate Governance must not be confused with Corporate Social Responsibility [CSR], which is the continuing commitment by business entities to behave ethically and contribute to economic development while improving the quality oflife of the work force and their families as well as of the local community and society atlarge.

Being socially responsible means not only fulfilling legal expectations but alsogoing beyond compliance and investing “more” into human capital, the environment andthe relations with stakeholders.

The Nigerian constitution, and by alliance CAMA, must be tasked to do more! Nigeria, as an entity has been a powder keg of ability and potential – now the building blocks – the corporations, ministries, parastatals, must all be in correct alliance with the law to enablethat potential to be transformed into quantifiable results.

“It [Corporate Governance] goes beyond philanthropy and compliance, and addresses how companies manage their economic, social, philanthropic and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community and the public policy realm,” says Michael W. Peregrine, in a publication on Havard Law website.

It is all about impact on the country and her people. To properly deliver the dividends of democracy amid the prevalence of a free market economy, Corporate Governance must move beyond lip service to exploits of decisive actions.