LEGAL PLATFORM : Role of intellectual property rights in banking business

The environment in which private commercial banks and other financial institutions operate in Tanzania is becoming increasingly competitive.

The number of institutions offering the services has considerably increased in the last two decades.

They serve and fight for the same customers and market. On the other hand, recent shift of government policy that all public institutions must hold their accounts with the Bank of Tanzania (the central bank) adds another layer of changing market dynamics which may significantly affect the private bank’s liquidity and cash flows.

In these circumstances, it is crucial for private banks to rethink and revisit their business strategies so as to remain competitive. Notably, the mission statements of most leading private banks in Tanzania make reference to the need of being “innovative” and provide services which are customer oriented.

Admittedly, there are many approaches which commercial banks may deploy in order to achieve their stated goals so as to remain relevant and competitive in the market.

Let’s discuss how these institutions can effectively use the system of intellectual property rights protection within their broad business strategies.

To most commercial banks’ executives the idea of linking intellectual property rights to banking business may sound a bit alien or at best peripheral to their core institutional business strategies. Such erroneous perception is not a surprise. To many businesses; issues of intellectual property rights are either not understood, or not being appreciated as crucial elements to the business.

Therefore, it is fitting that I should start by a brief overview of the intellectual property rights (IPR) system.

This refers to a form of intangible assets which are recognized and protected through a defined system of laws. These laws are broadly branched as trademarks (brands), patents, industrial designs, copyright, and integrated circuits, to mention just few.

Recently, the role of IPR in business has attracted a lot of attention from enterprises in developed as well as in emerging markets. The paradigm shift is attributed to the growing empirical evidence which point to the fact that a proper and carefully natured enterprises’ IPR strategy gives companies competitive edge in the market.

Recent banking initiatives in developed and emerging markets are finding that assets of corporation are increasingly concentrated in intangible assets in the form of copyright, goodwill in trademarks, software patents, and trade secrets.

In the asset-based lending market, too many examples have emerged of transactions where control over IPR and intangibles is recognized as being an important variable.

Other countries are already introducing drastic changes in their financial and banking legal regimes to accommodate IPR as one of the central issues in their business such as the acceptance of intangible assets as a form of collateral and making them bankable.

For instance, Malaysia and Singapore are introducing guarantees to facilitate IP-backed lending; Denmark and India support the development of IP marketplaces; Germany has sought to articulate the ‘Wissensbilanz’ to assist financial analysis of individual firms; Brazilian banks experiment with IP audits prior to lending.

China has set out its policies to become a world leader in technology by 2050 which has included the establishment of targets for the creation of “indigenous IPR”, while Hong Kong has set up an Innovation and Technology Fund targeting IP-rich businesses with a $5 billion injection as long ago as 1999 (Source: Report of United Kingdom (UK) Intellectual Property Office titled: Banking on IP? The Role of Intellectual Property and Intangible Assets in Facilitating Business Finance - 2013/2014.)

Looking at the commercial banks in Tanzania, I have come to realise that they have at their disposal myriads of products and service packages that may attract intellectual property protection.

In addition, the institutional brands, corporate colours and the overall trade dress of the banks, software technologies, and confidential information in their institutional market survey reports or feasibility studies are all crucial to their business plans.

Understandably, the banks would not want their competitors to have access to this important proprietary information (tools) which ideally gives them an edge over the rest. Yet, in most banks there is no system in place to protect these IP related assets.

In view of the changing market dynamics, the crucial questions for the banks are: Does the bank have proper records of all its intellectual property related assets? What will happen if such proprietary information (with IPR in it) is accessed and used by the competitor? What will happen when an employee (who had access to such information) moves to the competitor? Are there any contractual restrictions on disclosures? Does the bank have in place the Confidentiality Agreements with employees? If the agreements are in place, what is the content of such agreements?

All these questions call for the banks to carry out the Institutional Intellectual Property (IP) Audit. This is a specialized assignment which must be carried out by a person with an established, extensive knowledge and experience on matters of IPR and business.

One of the objectives of undertaking the institutional IP Audit is to create the institutional IP Asset Portfolio which may serve other important roles to the bank such as adding the layer of deductible expenses for tax planning purposes, making the bank more competitive by thwarting competitors from copying or imitating the bank’s brands and other copyrightable materials, and enhancing the negotiation powers of the bank such as in software licensing transactions.

In the forthcoming articles, I will discuss the role of specific laws of intellectual property rights to the banks such as the law on trademarks, patents and copyright.

Dr Mwakaje is an advocate and partner at NexLaw Advocates