IP in business transactions: UK (England and Wales) overview
A guide to intellectual property law in the UK (England and Wales). The IP in business transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.
To compare answers across multiple jurisdictions, visit the IP in business transactions Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-mjg.
Overview of main IPRs
A patent is a registered right. Registration is through the UK Intellectual Property Office (UK-IPO) or, for a European Patent designating the UK, the European Patent Office. Full details of the registration process, forms and fees are available on the relevant website www.ipo.gov.uk or www.epo.org. Protection will run for 20 years from the date of filing the application (subject to an extension of up to five years for medicinal products, veterinary products or plant protection products to compensate the patentee for regulatory delay, and a possible further six months for paediatric extensions).
To be patentable an invention must:
Be novel (not anticipated).
Involve an inventive step (non-obvious).
Be capable of industrial application.
Be sufficiently described in the patent.
Not be within the scope of a statutory exclusion.
To be registered as a trade mark, a sign must:
Be capable of being represented graphically (that is, clear, precise, self-contained, easily accessible, intelligible, durable and objective).
Be distinctive and non-descriptive, unless the mark has acquired distinctiveness through use.
Not be otherwise objectionable on absolute grounds (including because it has become customary in the trade, is contrary to public policy or would deceive the public, amongst other grounds).
Be registrable on relative grounds (that is, it is not identical to or confusingly similar with a third party's mark).
Certain categories of mark are excluded from registration, including if use of the mark is prohibited by law, the mark is a specially protected emblem or was applied for in bad faith.
To obtain a UK trade mark registration, an application can be filed before the UK-IPO. The cost of filing an application is:
GB£200 for one class (discounted to GB£170 for online filing) (as at 1 March 2012, US$1 was about GB£0.6).
GB£50 for each additional class.
It is also possible to file an application for a Community trade mark (CTM), which covers the 27 member states of the European Union (EU), plus any additional member states as and when they join. To obtain a CTM registration, an application can be filed before the Office for Harmonisation in the Internal Market (OHIM). The cost of filing an application is:
EUR1,050 for three classes (discounted to EUR900 for online filing) (as at 1 March 2012, US$1 was about EUR0.8).
EUR150 for each additional class.
International Registrations (IR) designating the UK and/or the EU can also be filed before the World Intellectual Property Organization (WIPO).
A UK and CTM registration is initially protected for ten years from the filing date. This can be renewed indefinitely for further ten-year periods on payment of a renewal fee.
An unregistered trade mark will be protected under the common law tort of passing off in the UK if it has acquired sufficient goodwill. For a finding of passing off, it is necessary to prove in addition to goodwill that that there has been a misrepresentation that has or is likely to deceive or confuse consumers and that as a consequence, damage has been suffered. The evidentiary burden of establishing passing off is high.
Copyright is an unregistered right that arises automatically. The owner of copyright in a work has the exclusive right to copy and authorise copying of that work, as well as related acts such as:
Communicating the work to the public.
Literary, dramatic, musical and artistic works.
Sound recordings, films or broadcasts.
The typographical arrangement of published editions.
Copyright subsists in all such works once they are recorded and lasts for between:
A minimum of 25 years from the end of the year of first publication (in the case of copyright in typographical arrangements of published editions).
70 years from the end of the calendar year of the death of the author (in the case of literary, dramatic, musical or artistic works) depending on the type of work in question.
Databases can be protected by both copyright (as literary works) and by the sui generis database right. The sui generis right lasts for 15 years from the end of the calendar year in which the database was either:
Published (whichever is the earlier).
Only databases in which there has been a substantial investment in obtaining, verifying or presenting the contents qualify for database right protection.
There are two types of design rights, registered and unregistered.
Registered designs. It is possible to obtain design registration in the UK (UK registered design) or across the whole EU (Registered Community Design, or RCD). The laws regulating UK registered designs and RCDs are similar.
A design means the appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture or materials of the product or its ornamentation.
In order to be validly registered, a design must:
Have individual character (that is, form a different overall impression on the informed user than any prior designs).
Not fall within the statutory exemptions, including:
comprising only features which are solely dictated by the product's technical function;
being contrary to public policy or to accepted principles of morality; or
comprising a specially protected emblem (for example, royal symbols or national flags).
UK designs are registered by the UK-IPO. Guidance on the application procedure is available online (www.ipo.gov.uk). RCDs are registered before OHIM. Guidance on the application procedure is available online (oami.europa.eu). International protection for a design may also be obtained under the Hague Convention. However, the UK is not currently a member of the Hague Union, such that UK designs do not benefit from this system, but RCDs may apply for international protection under the Hague Convention.
Following registration, a design is protected for an initial period of five years from the filing date. Protection is extendable for five year periods on payment of a renewal fee up to a maximum of 25 years.
Unregistered design right. There is a substantial difference in the laws relating to UK unregistered design rights and Community unregistered design rights. Both apply in the UK. UK unregistered design rights will arise in a design that:
Is an aspect of the shape or configuration (whether internal or external) of the whole or part of an article.
Has been recorded in a design document or an article has been made to the design.
Is a qualifying design (that is, designed by a qualifying person, commissioned by a qualifying person, designed by someone employed by a qualifying person, or first marketed in a qualifying country by a qualifying person).
Is not subject to a statutory exemption.
Protection starts when the design has been recorded in a design document or an article has been made to the design and expires on the lesser of:
15 years from either:
when the design was first recorded; or
when the article was first made.
Ten years from when the articles were first marketed.
An unregistered Community design right (UCD) also arises under EU law if a design is first disclosed in the territory of the EU. UCDs have the same legal conditions as RCDs (see above, Design rights: Registered designs), except that the right only lasts three years and that infringement requires copying.
Confidential information can be protected against misuse, provided the information in question:
Has the necessary quality of confidence.
Is subject to an express or implied duty of confidence.
No registration is necessary (or possible).
For further information about the main IPRs, see Main IPRs: UK
There are numerous databases and search tools that allow the searching and monitoring of UK and European granted patents and patent applications. The UK-IPO website allows online searching of its records for example, to check whether a patent remains in force or to identify the proprietor and registered licensees of a patent (follow the Online Patent Services link at www.ipo.gov.uk). The esp@cenet database is freely accessible through the European Patent Office website (www.epo.org) and provides access to more than 70 million patent documents.
For freedom to operate searches, prior art searches or to set up a watch service, it is advisable to contact a firm of patent attorneys or a specialist search firm.
The UK-IPO, OHIM and WIPO trade mark databases can all be searched to identify registered or applied for trade mark rights with effect in the UK:
UK-IPO register, available at www.ipo.gov.uk/types/tm/t-os/t-find.htm (UK applications/registrations, CTM applications/registrations and IRs designating the UK and/or EU).
CTM register, available at http://oami.europa.eu/CTMOnline/RequestManager/en_SearchAdvanced_NoReg (only CTM applications/registrations and IRs designating the EU).
WIPO database, available at www.wipo.int/romarin (only IRs designating the UK and/or EU).
It is advisable for trade mark proprietors to put in place watch services to identify later filed UK, CTM or IR applications that are similar to their registered marks. On notification of a potentially conflicting mark, there will be an opportunity for the trade mark owner to oppose registration of the application. Numerous commercial watch services are available.
The UK-IPO and OHIM design databases can be searched to identify rights with effect in the UK:
As for trade marks, it is possible to subscribe to a watch service to identify later filed potentially conflicting rights. This is less common than trade mark watching given the difficulty of searching and the inability to oppose a design application before registration.
Renewal fees (for UK patents and European patents designating the UK) must be paid annually from the fourth anniversary of the filing date. Renewal is by submission of Form 12 to the UK-IPO and payment of the necessary fee (on a sliding scale from GB£70 in the fifth year to GB£600 in the twentieth year).
After expiry of the six month late renewal period, an application to the UK-IPO must be made to restore a lapsed patent (reasons for failing to renew on time will be required).
UK and CTM registrations are initially protected for ten years from the filing date. They can then be renewed indefinitely for further ten year periods on payment of a renewal fee. Renewal fees in the UK are GB£200 for one class, plus GB£50 per additional class. CTM renewal fees are EUR1,500 for three classes (discounted to EUR1,350 for online renewal) and EUR400 for each additional class.
UK and CTM registrations may become vulnerable to revocation for non-use if the subject mark has not been put to genuine use (that is, use to create or preserve a genuine market presence rather than mere token use) in the UK or EU (as appropriate) for the registered goods and services in the five years following registration. The registration will remain valid and enforceable until if and when challenged by a third party.
Trade mark registrations may also be challenged if the subject mark has become generic for customary use. To avoid this risk, trade mark owners should always use their trade mark correctly, for example, with the ® symbol and always as a noun (never as a verb).
Following registration, UK registered designs and RCDs are protected for an initial period of five years from the filing date. Protection is extendable for five year periods on payment of a renewal fee up to a maximum of 25 years. Renewal fees vary in each jurisdiction and increase for each further renewal.
Freedom to operate searches can be conducted by a firm of patent attorneys or a specialist search firm. Well conducted searches should greatly reduce the risk of infringing a third party's patent rights.
Clearance searches should always be conducted in each jurisdiction and for all goods and services in relation to which the trade mark is proposed to be used. To identify all relevant potentially conflicting rights in the UK, the registers of the UK-IPO, OHIM and WIPO should all be searched. Various commercial search services are available. It may also be advisable to conduct searches of the internet for any unregistered trade mark rights which may prevent proposed use of the mark. If a conflicting right is identified, appropriate measures may need to be taken to clear the mark for use and registration (for example, through obtaining the earlier right holder's consent, a co-existence agreement, acquiring the earlier mark or filing non-use revocation proceedings).
Watch services are also useful to identify later filed applications that a trade mark owner wishes to prevent from registering by filing opposition proceedings. Searches of the internet and general market monitoring will help to identify third party use that may infringe a trade mark owner's registered rights. If any use, application or registration of concern is identified, immediate steps may need to be taken (that is, opposition and/or infringement proceedings) to avoid missing an opposition deadline or because the risk of being estopped from bringing proceedings later through acquiescence.
It is useful to regularly monitor websites such as eBay (and other online marketplaces) and YouTube to identify any infringing use that needs to be prevented. Online marketplaces often have a notify and take down system which can be utilised by trade mark owners (for example, eBay's VeRO program) which can be very effective.
Customs can also be notified of registered trade mark rights to seize infringing products at the border.
Parties should avoid copying the whole or a substantial part of a copyright work (bearing in mind that substantiality is assessed qualitatively not quantitively). Evidence of independent creation is the best defence to a copyright infringement claim. As with monitoring trade mark infringement, general commercial checks can be made of competitors' activities using online search engines.
Design clearance searches are conducted less often than trade mark searches, as they are slow, expensive and include a very large field to search (including all patent, trade mark and design databases in the world).
In the event that a registered or unregistered design owner becomes aware of any infringing use, swift steps to seek to prevent that use are advisable.
If a business operates in an industry in which confidential information is particularly important, it can conduct checks and (if appropriate) interviews with incoming employees or consultants to ensure that they do not intend to use any confidential information of a former employer in their new role.
The main steps in an IP audit to determine the content of an IP portfolio are as follows:
Identify the registered and unregistered IP which the entity owns or uses. Ideally, the entity should provide a detailed breakdown, by product and service, and by type of IP right.
Proprietorship searches of publicly available IP registers and commercial databases should be conducted to confirm title, geographical and substantive scope, status, renewal and expiry dates, encumbrances and oppositions.
Ask about validity and infringement risks, challenges, proceedings and settlements.
IP licences granted to or by the entity should be reviewed for their exclusivity, scope, duration, payment, restrictions and any onerous clauses.
Check IP provisions of agreements with key employees, consultants and other third parties to confirm titles and rights to IP created.
Review the entity's IP policies and manuals to help assess IP management.
Having reviewed its IP portfolio, the entity can assess its IP strategy, which might include focussing resources on prosecution, maintenance, defence and enforcement of core IP, while abandoning IP of little commercial importance.
Patents, patent applications and rights in patents or patent applications may be assigned. For the formalities of patent assignment in the UK see Question 7.
It is possible to assign to a third party a mark that is the subject of a UK or CTM application or registration or IR designating the UK and/or EU. The assignment can relate to the mark as a whole or a part of it (for example, the mark may only be assigned in respect of certain goods or services, for certain territories or for use in a particular manner). Registered trade marks can be assigned either in connection with the goodwill of a business (in which case the acquirer would also have the right to bring a claim for passing off) or without.
Unregistered trade marks can also be assigned to a third party, but only with the goodwill of a business.
Assignments of registered trade marks are deemed to be made subject to any registrable transactions recorded on the register (for example, exclusive licences).
Copyright in both existing works and those created by an author in the future can be assigned. For the formalities of assignment of UK copyright, see Question 7.
Both registered and unregistered designs are capable of being assigned to a third party. Such assignments can relate to the design as a whole or a part of it (for example, the design may only be assigned for existing or future rights or for certain territories).
Assignments of registered designs are deemed to be made subject to any registrable transactions recorded on the register (for example, exclusive licences).
There are no statutory rules regarding the assignment of confidential information, but the two key considerations are ensuring that:
All relevant information (and supporting material) is properly transferred to the assignee.
The assignor is appropriately restricted from continuing to use the information in question in the future.
A patent assignment must be in writing and signed by or on behalf of the assignor (prior to 1 January 2005, both parties to the assignment needed to sign). Such assignment must be registered at the UK-IPO (see Question 1) within six months to provide notice to third parties, to claim priority over parties claiming rights under later transactions and to avoid losing the ability to recover legal costs in respect of proceedings brought for infringements occurring prior to registration. An exception to the bar on recovering costs applies where the court or Comptroller of Patents is satisfied that it was not practicable to register the assignment within the six month period (and it was registered as soon as possible thereafter).
To be effective, the assignment of a UK registered trade mark must be in writing and signed by or on behalf of the assignor. Assignment of CTM registrations must be signed by both the assignor and the assignee. It is also advisable for any assignment of goodwill (that is, unregistered trade marks) to be in writing and signed by the assignor.
The assignment of a registered trade mark should be recorded at the UK-IPO or OHIM (as appropriate) as soon as possible (and, for the UK, within six months) after the assignment has taken place. Until the assignment has been recorded, the transaction is ineffective as against a third party who acquires a conflicting interest in/under the registered trade mark in ignorance of the assignment.
In respect of UK registered trade marks, if the mark is infringed before the assignment is recorded, the court will not award the assignee costs in respect of proceedings for such infringement unless the assignment has been recorded within six months of the transaction occurring (or the court is satisfied that it was not practicable for recordal to be made before the end of that period and that recordal occurred as soon as practicable thereafter).
A copyright assignment must be in writing and signed by or on behalf of the assignor. The same rules apply to assignments of database right.
The assignment of UK design rights (registered or otherwise) must be in writing and signed by or on behalf of the assignor. The same approach is recommended for RCDs and UCDs.
For registered rights, the assignment should be recorded on the UK-IPO or OHIM register (as appropriate) as soon as practicable. If the assignment is not recorded, the assignment document must not be admitted in any court as evidence of the title in the registered design (unless the court directs otherwise). Until the assignment of an RCD has been recorded, the transaction is ineffective as against a third party who acquires a conflicting interest in/under the RCD in ignorance of the assignment.
An assignment of a UK registered design will not be recorded on the register unless the proprietor owns all related UK unregistered design rights. Where UK unregistered and registered design rights (owned by the same person) co-exist, assignment of the unregistered right must be taken to also assign the registered right (unless a contrary intention appears on the face of the agreement).
While the terms included in assignments vary, the following provisions are typical:
Definition of the IP being assigned, with schedules identifying registered rights and key unregistered rights.
Operative assignment provision covering the IP being assigned, with full or limited title guarantee, including rights to sue for past infringements.
The amount payable for the IP.
Warranties and/or indemnities regarding the assigned IP (see Question 15).
Further assurances provision (this is particularly important where there are registered rights where assignment must be recorded at IP registries).
General boilerplate provisions, governing law and jurisdiction.
IP (patents, trade marks (registered or unregistered), copyright, design rights (registered or unregistered) and confidential information) may be licensed on:
An exclusive basis (that is, to the exclusion of the owner and all others).
A sole basis (that is, to the exclusion of all others save for the owner).
Non-exclusive basis (that is, the licensee and owner may use the IP and the owner may grant licences to others).
Common limitations include territory, type of licensed activities, duration and field of use. Rights under licences may be made sub-licensable or assignable, depending on the terms of the licence.
Enforcement rights are set out in the Patents Act 1977, Copyright Designs and Patents Act 1988 and Trade Marks Act 1994, although those rights may be varied by contract.
Although rare, a patent may be subject to a compulsory licence (at the order to the IPO Comptroller) after three years from the date of grant of the patent. Similarly, unregistered designs are subject to a licence of right (to make, sell or import) in the last five years of their subsistence. Ideally, the terms of such licences should be agreed between the parties, but the IPO Comptroller can decide if they cannot reach agreement.
Typically, trade mark licences provide that goodwill benefits the trade mark owner. Know-how is often licensed with patents, and is usually subject to use and confidentiality restrictions.
A written licence signed by licensor and licensee is recommended. There is no requirement to record the licence on the patents register, but failure to do so within six months of signing the licence could lead to loss of the licensee's right to claim costs for patent infringement and/or loss of priority to a good faith purchaser for valuable consideration without knowledge of the licence.
Licences of registered trade marks must be granted in writing and signed by the licensor. There is no requirement to record a licence of registered trade mark rights on the trade mark register, although the effect of not recording will be similar to that for patents. Furthermore, unless the parties agree otherwise, registration also gives the licensee the right to require the trade mark owner to take action against infringers and the licensee may bring infringement proceedings in its own name if the trade mark owner does not. Registration ensures that the licensee's losses are taken into account for infringement proceedings.
An exclusive copyright licence must be in writing and signed by the licensor. There are no equivalent requirements for sole or non-exclusive licences, but it is recommended that they are made in writing and signed by both parties (not just the licensor, as required by statute for exclusive licences). In general, a licence of copyright will be binding on all successors in title, except good faith purchasers for valuable consideration without actual or constructive knowledge of the licence. There is no official copyright register, so it is not possible to record a copyright licence.
An exclusive licence of registered/unregistered designs must be in writing and signed by the licensor. There are no equivalent requirements for sole or non-exclusive licences, but it is recommended that they are granted in writing and signed by both parties (not just the licensor, as required by statute for exclusive licences). A licensee of a registered design should record the licence. Failure to do so means that a successor in title may not be bound by the licence if it is a good faith purchaser for valuable consideration without knowledge of the licence. Furthermore, the licence cannot be admitted in court as evidence unless recorded.
There are no formal requirements for agreements concerning confidential information. A written agreement, permitting use of confidential information with clear obligations of confidentiality is recommended. There is no official register of confidential information.
The terms of an IP licence vary depending upon the circumstances, but typical terms include the following:
A clear description of the IP being licensed, often including a schedule of registered rights and key unregistered rights (if applicable).
An operative grant clause, specifying:
exclusivity (exclusive, sole or non-exclusive);
duration (specified term or perpetual/irrevocable) and geographical scope (worldwide or territory specific);
field of use.
An obligation not to use the licensed IP outside the scope of the licence.
Payment (for example, upfront lump sum, milestone payments, royalties).
Acknowledgements by the licensee (for example, the licensed IP is owned by the licensor and licensed to licensee, any goodwill resulting from the licensee's use of a licensed trade mark will benefit the licensor).
Obligations to use and exploit the IP, particularly where licences are exclusive.
Quality control and monitoring provisions regarding use of IP (these are particularly important for trade marks).
Requirement to notify the licensor of infringement by a third party, infringement of a third party's IP and any challenges to the licensed IP, and a requirement to assist the licensor in conducting any claims arising. A licensee (particularly an exclusive licensee) may have the right to enforce the licensed IP.
Sub-licensing and assignment of rights, with restrictions.
Warranties and indemnities in respect of the licensed IP (see Question 15).
Provisions regarding improvements (for example, improvements may be included in the licence if created by the licensor, or licensed back to the licensor if created by the licensee, subject to competition law considerations).
Termination events (for example, material breach, challenge to the validity of the licensed patents or insolvency) and consequences.
Further assurances, including assistance with recording of the licence on IP registers.
General boilerplate provisions, governing law and jurisdiction.
Taking security over IP may be appropriate if IP is a key business asset. Security may be granted over all types of IP, although security over registered IP provides greater certainty for lenders because the security may be recorded on the patents, trade marks or designs registers, as applicable.
Valuation of IP for the purposes of giving security is difficult because the value of an IP asset is subject to change for example, it may:
Be infringed and not enforced.
Be successfully challenged.
Be allowed to lapse or expire.
Otherwise lose value (for example, due to defective branded products).
The security agreement should seek to safeguard the lender's interests in all these respects.
The main interests taken are legal mortgages or charges (fixed or floating).
In a mortgage, the legal/equitable title to the IP will be transferred to the lender. Once the debt has been repaid, the IP will be reassigned to the borrower. In the meantime, the lender will usually grant to the borrower a licence back of the IP.
Under a fixed or floating charge, title remains with the borrower. However, a borrower cannot sell IP which is the subject of a fixed charge. A borrower can deal with IP that is the subject of a floating charge in the ordinary course of business, until the floating charge crystallises on the occurrence of default events.
Both mortgages and charges must be in writing. Strictly, (since 1 January 2005) a mortgage need only be signed by the borrower, but usually both the borrower and the lender sign security agreements.
The mortgage or charge should be recorded at the IPO within six months of the creation of the charge. Failure to do so could mean that the transaction is ineffective against a person acquiring a conflicting interest without notice.
Mortgages and charges in respect of companies registered or with a place of business in England and Wales should be registered at Companies House within 21 days from the creation. Failure to do so may result in a fine and the surety being void against a liquidator or creditor until registered.
Whilst section 893 of the Companies Act 2006 permits a Secretary of State to order that a charge/mortgage registered in one register (that is, at the IPO) does not need to be registered at Companies House, it is common practice to record on both registers.
Where IP assets span a number of jurisdictions, it is worth checking what local requirements and formalities exist.
The first step in a share sale or asset sale is to make full enquiries of the seller to obtain an inventory of, and information about, the IP owned and/or used by the target. Proprietorship searches of relevant public registers and commercial databases should also be conducted to confirm:
Geographical and substantive scope.
Renewal and expiry dates.
Encumbrances and challenges.
Searches of the IP registers and at Companies House may also need to be conducted to check for encumbrances such as licences, mortgages, charges or other security interests (see Question 13). The results should be cross referenced against the details provided by the seller. Further enquiries of the seller may be required if there are inconsistencies.
The entity should be asked about validity and infringement risks, challenges, proceedings and settlements. Issues affecting core products or services will require further investigation and analysis. Sometimes a purchaser will want to conduct freedom to operate searches. Assessment of the actual or potential impact on the target's business will be required.
IP licences granted to or by the entity should be reviewed for their exclusivity, scope, duration, payment and restrictions. It is necessary to check whether rights have been correctly licensed, whether there are onerous provisions, change of control provisions (in the case of a share sale) or restrictions on assignment (in the case of an asset sale).
Provisions of agreements with key employees, consultants, collaborators and other third parties should be checked to confirm good title to IP created and sufficient rights in that IP.
The entity's IP policies and manuals should be reviewed to help assess IP management. Issues identified in the due diligence may affect the purchase price and/or the structure of the deal.
Due diligence can inform the appropriate type and extent of contractual comfort. Warranty protection in a share sale or asset sale depends on the transaction and the relative bargaining power of the parties. Typical warranties might cover the following:
The target is the sole legal and beneficial owner of all right, title and interest in and to the relevant IP and that the IP is free from any encumbrances (for example, licences, options, mortgages, charges or other security interests).
The list of the target's registered IP (as identified by the seller and verified by the buyer) is accurate and complete.
The use/exploitation of the relevant IP will not infringe the IP rights of any third party.
The IP is not (and has not been in the past) infringed by a third party.
There have been no breaches of confidentiality (often this is restricted to a certain time period).
In the case of the sale of software, there may be additional warranties in respect of the use of open source.
Each of these warranties is subject to negotiation, and if given they may be qualified by the awareness of the seller, materiality thresholds and/or time periods. In addition, the seller may disclosure against all of these warranties thereby impacting the degree of comfort they give to the buyer.
IP indemnities are less common than warranties, and often are restricted to specific risks identified during due diligence and/or disclosure (for example, litigation of IP or potential defects in IP ownership). The indemnity provides the buyer with a contractual right to recover losses from the seller incurred as a result of the covered risk materialising.
Pay out under warranties or indemnities may be limited, for example, claims may be time barred or capped.
In a share sale, the IP assets remain owned by the target. Therefore, no additional transfer documents are required, unless there will be an assignment or licence of IP owned by a company in the target's group which is not being purchased.
If important IP licences granted to the target terminate on a change of control then the buyer will need to negotiate with the licensor for a new licence or waiver.
The title to each IP asset sold must be transferred. Typically, a written assignment is included in the body of the sale agreement (in which case the buyer may require confirmatory assignments to be executed by the seller) or stand-alone documents annexed to the sale agreement. Once the transfer has taken place, the relevant IP registers will need to be updated to reflect the new owner of the IP in accordance with local law requirements. Often parties include a further assurances provision to ensure that all necessary action is taken to perfect the transfer.
IP licences must be assigned (which may require consent of the licensor) or novated. The buyer may require the seller to obtain consent to the licence transfer or novation as a condition precedent of the transaction.
Parties often create joint ventures when entering into collaborative research and development projects to develop and market new products. Joint ventures may be set up as separate legal entities (companies or partnerships) or contractually. Competition issues should be considered at the outset. The main IP points to consider are:
Licences of background IP or know-how owned by the parties which may be needed in the joint venture (whether existing at the start of the joint venture or developed independently whilst the joint venture is ongoing).
Warranties and indemnities in respect of the background IP (see Question 15).
Provisions regarding new IP created in the joint venture (ownership, licences to the parties or third parties, restrictions, responsibility for and costs of maintaining, prosecuting, defending and enforcing IP).
Confidentiality. Often the development of a new product is sensitive and will be subject to strict confidentiality requirements (if one party is in academia, it may wish to publish the results of the joint venture's findings, whereas the commercial party may wish to keep the findings confidential).
Non-compete. Each party entering into a joint venture may not want the other party to compete with the business of the joint venture, and so appropriate restrictive covenants may be imposed, subject always to competition law considerations.
Termination. The fate of the IP needs to be considered if the joint venture ceases.
Courts and competition authorities in the UK can apply both EU and UK competition law. The provisions in each are similar or identical and both prohibit anti-competitive agreements and the abuse of a dominant position. The main UK provisions are set out in the Competition Act 1998 (CA), which will apply where there is an effect on trade in the UK. The provisions apply to undertakings, which are broadly defined as entities which engage in economic activity.
Agreements between undertakings, decisions by associations of undertakings or concerted practices are prohibited if they (section 2(1), CA):
May affect trade within the UK.
Have as their object or effect the prevention, restriction or distortion of competition within the UK.
This is often referred to as the Chapter I prohibition and covers both formal and informal agreements and concerted practices, as well as decisions of trade associations.
An agreement will infringe the Chapter I prohibition only if it has an appreciable effect on trade in the UK. The Office of Fair Trading (OFT) has regard to the Notice on agreements of minor importance (OJ 2001 C368/13) when determining whether there is an appreciable effect. Generally, an agreement will not have an appreciable effect if:
The parties are competitors and have a combined market share below 10%.
The parties are non-competitors and their combined market share is below 15%.
This protection is not available for the most serious restrictions of competition for example, price fixing agreements, limitation of sales and allocation of markets and customers.
Certain exemptions may apply that mean an agreement that would otherwise infringe the Chapter I prohibition will not do so (see Question 20).
Typical IP related agreements that may fall within the scope of the Chapter I prohibition are:
Technology transfer agreements.
IP litigation settlement agreements.
Research and development agreements.
Abuse of a dominant position
Section 18(1) of the CA prohibits an abuse by one or more undertakings of a dominant position within the UK, or any part of it, which may affect trade in the UK. This is referred to as the Chapter II prohibition. A dominant position is a position of economic strength in a specific market and is likely to arise where an undertaking has a market share of more than 50%, although it may arise at lower market shares in certain situations, for example, where there are barriers to market entry. Ownership of an IP right will not, in itself, place a company in a dominant position although it may be a relevant factor in assessing dominance.
It is important to note that undertakings are permitted to hold a dominant position. They must not, however, abuse that position. The examples of abuses set out in Chapter II mirror those that apply under Article 102 of the Treaty on the Functioning of the European Union (TFEU). Examples of abuse that are particularly relevant in the IP context include:
Refusal to licence.
Mergers in the UK are regulated by the Enterprise Act 2002 (EA). Merger filings in the UK are voluntary and can be notified to the OFT if:
The turnover of the enterprise being acquired exceeds GB£70 million in the UK.
Following the transaction, the merged entity will supply at least 25% of the goods and services affected by the merger in the UK (or, if this was already the case, if there is an increase in this market share).
Mergers may be modified or prohibited if they are likely to result in a substantial lessening of competition in the UK. Mergers are unlikely to be modified or prohibited if they are in markets of insignificant importance (that is, markets of less than GB£10 million).
The authorities may intervene if they have concerns over a merger, even if it has not been notified.
In relation to IP transactions specifically, if revenue can be attributed to the IPRs being acquired, then the acquisition of those IPRs may result in the merger being reviewable.
If a merger falls within the scope of the EU merger regime, UK law will not apply and the merger must be notified to the European Commission under Regulation 139/2004.
Whilst this response sets out some of the most common competition law issues that arise in the exploitation of IPRs, this area of law is complex and the issues outlined below are only examples of the issues that can arise.
IP licence agreements, whether in pure form or as part of a wider co-operation, for example, research and development, often contain restrictions on both licensor and licensee. These should be drafted to ensure that they do not constitute a restriction of competition under Chapter I (see Question 18). An agreement that infringes competition law may be unenforceable in its entirety, although if only one part of an agreement infringes the Chapter I prohibition, that part may, in certain circumstances, be severed from the rest of the agreement. In general, parties will seek to bring their agreement within one of the block exemptions (see Question 20).
Patent settlements may infringe competition law where they restrict the ability of a company to compete on the market, in particular, after expiry of the relevant patent. Settlements, which contain a value transfer from the originator company to a generic company, either in the form of a direct payment or in the form of a licence, distribution agreement or a side-deal are particularly likely to raise competition law concerns.
Technology pools (where parties assemble a package of technology which will then be licensed to the contributors and/or other parties) may raise competition law concerns where they reduce competition and result in a lack of innovation. However, the competition authorities recognise the pro-competitive effects, such as reduced costs. Although technology pools, as multi-party licensing arrangements, fall outside the scope of Regulation (EC) 772/2004 on the application of Article 101(3) of the TFEU (formerly Article 81(3) of the EC Treaty) to categories of technology transfer agreements (Technology Transfer Block Exemption Regulation) (TTBE) (see Question 20), the individual licences granted to third parties may be block exempted if they fulfil the conditions set out in the TTBE. Further guidance on technology pools is available in the Notice providing guidelines on the application of Article 101 of the TFEU (formerly Article 81 of the EC Treaty) to technology transfer agreements (OJ 2004 C101/02) and in Practice note: Transactions and practices: UK Intellectual property transactions (www.practicallaw.com/0-107-3689).
Although a dominant company is generally not obliged to licence its IPRs, there are certain circumstances where a refusal to license constitutes an abuse. Dominant companies should take care when ceasing to license an existing licensee. An abuse may also arise if a dominant company refuses to license essential IPR which could, for example, prevent the development of a secondary market, or when it charges excessive or discriminatory royalty rates.
Agreements which fall within the Chapter I prohibition may be lawful if they can be brought within certain exemptions or exclusions. There are currently no national block exemptions relevant to IPRs but EU block exemptions apply to UK agreements under the parallel exemptions regime (section 10, CA) where an agreement would be covered by an EU block exemption if the agreement had an appreciable effect on trade between EU member states. The protection offered by parallel exemptions is not absolute. Where an agreement benefits from a parallel exemption but nevertheless has significant adverse effects in the UK, the OFT may impose conditions on, vary or cancel the exemption.
The main exemption that applies to agreements involving IPRs is the TTBE. The TTBE applies primarily to licensing agreements between two parties relating to patents, know-how or software copyright. Agreements of this type will not fall within the Chapter I prohibition providing the following conditions are satisfied:
Actual or potential competitors have a combined market share below 20%.
Non-competitors have a combined market share of less than 30%.
The agreement does not contain restrictions classified as hardcore in the TTBE.
For a more detailed analysis of the TTBE provisions, see Practice note: Transactions and practices: UK Intellectual property transactions (www.practicallaw.com/0-107-3689).
Other typical clauses which may cause competition law concerns are:
Exclusive grant back obligations.
Exclusive assignment back obligations.
No challenge clauses.
Exploitation/development by the licensee of its own technology if non-competing.
These so-called excluded restrictions do not benefit from the TTBE and must be assessed under Article 101(1) and 101(3) TFEU.
Where the primary purpose of an IP agreement is research and development, it may be able to benefit from Regulation (EU) 1217/2010 on the application of Article 101(3) of the TFEU to certain categories of research and development agreements (Research and Development Block Exemption). Further guidance on this is available in Chapter 3 of the Notice providing guidelines on the applicability of Article 101 of the TFEU (formerly Article 81 of the EC Treaty) to horizontal co-operation agreements (OJ 2001 C3/02).
If an agreement does not fall under a block exemption, it may still be excluded from the Chapter I prohibition under section 9 of the CA. Parties must assess whether the agreement satisfies the following section 9 criteria, it:
Contributes to improving production or distribution, or to promoting technical or economic progress.
Allows consumers a fair share of the resulting benefit.
Does not impose on the parties to it restrictions which are not indispensable to the attainment of those objectives.
Affords the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
As section 9 of the CA mirrors the equivalent EU provisions (Article 101(3) TFEU), the UK competition authorities have regard to appropriate EU case law and the Commission Notice on Guidelines on the application of Article 81(3) of the Treaty (now Article 101(3) TFEU) (OJ 2004 C101/97).
It is not possible to gain an exemption from the Chapter II prohibition (see Question 18). An arrangement which has been exempted from the Chapter I prohibition may therefore still give rise to an infringement of the Chapter II prohibition.
There are some additional exclusions set out under the CA however, these only apply in limited circumstances and are beyond the scope of this chapter.
It is a defence to trade mark infringement in the UK if the use of the third party mark is in accordance with the seven rules for a lawful comparative advertisement under Directive 2006/114/EC concerning misleading and comparative advertising (CAD). The CAD has been implemented in the UK by the Business Protection from Misleading Marketing Regulations 2008) (SI 2008/1276) (BPMMR).
The CAD and BPMMR permits use of a third party trade mark without consent in an advertisement so long as the advert satisfies all of the following criteria, it:
Compares goods or services meeting the same needs or intended for the same purpose.
Objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price.
Does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities or circumstances of a competitor.
For products with designation of origin, relates in each case to products with the same designation.
Does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products.
Does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.
Does not create confusion among traders, between the advertiser and a competitor or between the advertiser's trade marks, trade names, other distinguishing marks, goods or services and those of a competitor.
The Advertising Standards Agency is an independent industry body responsible for monitoring advertisements in the UK in accordance with various codes of practice which incorporate and expand on EU and UK advertising laws, including the CAD and BPMMR. These laws and codes broadly serve to prohibit misleading, illegal, indecent, dishonest or untruthful advertising.
Employees and consultants
Unless otherwise agreed in writing, the employer will generally own IPR created by an employee in the course of his employment.
Employees who make patented inventions where the patent and/or the invention are of outstanding benefit to their employer are statutorily entitled to compensation. In relation to patents that were applied for before 1 January 2005, compensation is only payable if the patent (rather than the invention) is of outstanding benefit.
Except in relation to UK design rights and database rights, external consultants are the first owners of IPR they create unless otherwise agreed in writing. Therefore, it is highly advisable, to have a written agreement in place with any consultant who is likely to create any IPR, under which the consultant assigns any such IPR to the person retaining the consultant. Such agreements should, where appropriate, also require the consultant to provide copies of any relevant supporting materials.
In relation to UK design rights, the person commissioning the design is the first owner of the design right. In relation to database rights, the person who takes the initiative in, and assumes the risk of, obtaining, verifying, or presenting the contents of the database is the first owner of the database right in the database. It will, therefore, depend on the work carried out and risk assumed by the consultant in each case whether or not a consultant will own the database right in a database he has created.
A licensor receiving royalty payments under the licensing of the main IPRs in the UK will be subject to tax on those amounts. The licensor will be subject to corporation tax if it is a UK company or trading through a permanent establishment in the UK. The licensor will be subject to income tax if is an individual or a non-UK company trading in the UK, or if the IPR is a UK IPR (for example, it is a UK registered trade mark or patent).
The licensor will also be able to deduct certain expenditure when calculating its UK tax liability. There are a variety of exemptions and specific regimes available to licensors of certain IPRs in the UK, for example, research and development allowances, IT-related products and the patent box, which will be introduced in the Finance Act 2012.
A licensor will never have to account for withholding tax as this is withheld by the payer of certain payments. The UK imposes withholding tax at 20% on payments of royalties in respect of patents. However, if the licensor is within the charge to corporation tax or able to benefit from an exemption under the terms of a double tax treaty with the UK, then no withholding obligation arises. Royalties arising in respect of other IPRs such as trade marks are not subject to withholding tax at all. Copyright royalties are only subject to UK withholding tax if the licensor is outside the UK.
If a lump sum is received concerning a licence of IPR, the tax treatment depends on whether the IPR was created before or after 1 April 2002. For more information regarding the tax treatment of lump sums, see Question 25.
A UK licensor licensing IPRs to a UK licensee is required to charge and account for VAT on the supply of that IPR. If the licensee is outside the UK, no obligation to account for VAT arises (although a licensee within the EU may have to charge itself local VAT under a reverse charge mechanism). If the licensor is outside the UK, but the licensee is in the UK, the licensee is obliged to account for VAT through the reverse charge mechanism.
Sums received on the disposal of IPRs by a company that is tax resident in the UK, or trading in the UK through a permanent establishment, are subject to corporation tax.
The tax treatment of the proceeds following a disposal of IPRs will depend on when the IPRs were created. For IPRs created after 1 April 2002, receipts and expenses from IPRs will be taxed on an income basis broadly following their accounting treatment. This means that for IPRs recognised in the seller's balance sheet, any profit on sale is subject to corporation tax as an income receipt. For any IPRs not recognised in the balance sheet, corporation tax is payable on the sale proceeds as an income receipt. In both cases, reliefs are available to defer the payment of tax by reinvesting (or rolling over) the sale proceeds into other IPRs.
For IPRs created before the new regime came into force, lump sums will be taxed in accordance with capital gains tax principles. The seller will, therefore, be subject to corporation tax on the gain. Proceeds arising on a sale of patents are specifically treated as an income receipt, as are proceeds arising on a sale of copyright unless the copyright is held as an investment.
The purchaser of UK patents is, potentially, obliged to withhold tax from a capital sum paid to a non-UK resident seller, if the patents were created or acquired before 1 April 2002. However, no such obligation arises if the seller is entitled to relief under the terms of one of the UK's double tax treaties.
Any royalties received on a sale of IPRs are taxed according to the treatment described in Question 24, regardless of when the relevant IPR was created or acquired.
Payments received on a sale of IPRs will be subject to VAT as described in Question 24. However, if the IPRs are sold as part of a business by one UK company to another, the sale may be outside the scope of VAT if it constitutes a transfer of a going concern.
No stamp duty is payable on the transfer of any IPRs.
The UK is a party to the following international IP treaties:
WIPO Berne Convention for the Protection of Literary and Artistic Works 1971 (Berne Convention).
Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure 1977.
Locarno Agreement Establishing an International Classification for Industrial Designs 1968.
WIPO Madrid Agreement for the Repression of False or Deceptive Indications of Source of Goods 1891.
WIPO Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks 1989.
WIPO Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks 1957.
WIPO Paris Convention for the Protection of Industrial Property 1883 (Paris Convention).
Patent Cooperation Treaty 1970.
WIPO Patent Law Treaty 2000.
WIPO Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms 1971.
WIPO Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations 1961.
Strasbourg Agreement Concerning the International Patent Classification 1971.
WIPO Trademark Law Treaty 1994.
International Convention for the Protection of New Varieties of Plants 1961.
WIPO Convention Establishing the World Intellectual Property Organization 1967 (WTO agreement).
WIPO Copyright Treaty 1996.
WIPO Performances and Phonograms Treaty 1996.
Patents are national rights. Only UK patents (or UK designations of European patents) are enforceable in the UK.
Trade mark owners from outside the UK may apply for trade mark protection in the UK, but foreign IPRs are not otherwise recognised in the UK. Only trade mark rights with effect in the UK are recognised by UK courts, including:
UK trade mark applications/registrations.
CTM applications/registrations (which have effect in all 27 EU member states).
IRs designating the UK and/or the EU.
Trade marks entitled to protection under the Paris Convention or WTO agreement as a well known trade mark.
To take proceedings for passing off, goodwill must be demonstrated in the UK (as opposed to reputation). Goodwill solely overseas is not sufficient.
The UK recognises copyright owned by nationals of countries who are signatories to the following conventions:
Universal Copyright Convention.
Registered design rights. Design owners from outside the UK may apply for registered design protection in the UK, but foreign registered designs are not otherwise recognised in the UK. Only registered design rights with effect in the UK are recognised by UK courts (that is, UK registered designs and RCDs). However, an RCD must have been first disclosed in the EU.
Unregistered design rights. A design created abroad may only obtain unregistered design right protection in the UK where:
The design is a qualifying design (that is, it has been designed by a qualifying person, commissioned by a qualifying person or designed by someone employed by a qualifying person) (see below).
The first marketing of articles made to the design has been undertaken by a qualifying person in a qualifying country.
A qualifying person means a citizen or habitual resident of a qualifying country, or company formed under the law of a qualifying country. A qualifying country means the UK or any other EU member state, the Channel Islands, the Isle of Man, any UK colony or any country designated as having reciprocal protection.
Unified patent court
In April 2011, the European Commission published a draft Regulation on Enhanced Co-operation on Unitary Patent Protection and a further draft Regulation on the Translation Arrangements for such protection. Shortly afterwards, in October 2011, a draft agreement for the creation of a unified patent court (UPC) was produced, which sought to avoid problems raised in an earlier ruling by the Court of Justice of the EU.
The UPC project has now gathered considerable momentum. By 1 December 2011, the draft text of the translation Regulation had been agreed at a political level by the Legal Affairs Committee of the European Parliament. On 5 and 6 December 2011, the Competitiveness Council of the EU met to agree the key points of the Unitary Patent, the translation arrangements and the draft agreement for the UPC.
The key outstanding point that could not be agreed was the seat of the Central Division of the UPC and this remains unsettled. Detailed Rules of Procedure for the UPC are being drafted.
Following the publication on 18 May 2011 of Professor Ian Hargreaves' review of the UK's IP laws, the UK government has been taking forward many of the recommendations made in the report. Among other things, the report recommended:
Establishing a cross-sectoral Digital Copyright Exchange to facilitate licensing.
Introducing new copyright exceptions for format-shifting, parody, non-commercial research and library archiving.
Creating a scheme for the use of orphan works.
The government is expected to make formal proposals for legislation to implement these recommendations in spring 2012.
Digital Economy Act 2010
In March 2012, the Court of Appeal rejected an appeal by BT and TalkTalk regarding judicial review of the provisions of the Digital Economy Act 2010, which impose obligations on internet service providers (ISPs) aimed at reducing online copyright infringement. Subject to an appeal to the Supreme Court, it seems that Ofcom will now be able to publish the final version of the initial obligations code that will set out how some of the key obligations on ISPs operate. The finalisation of the code has been held up since 2010 when the judicial review proceedings were commenced. However, the code itself is not expected to become effective before 2013.
Review of financial remedies for design infringement
The UK-IPO has also given some consideration to the harmonisation of financial remedies available for unintentional infringement under Regulation (EC) 6/2002 on Community designs and the Registered Design Act 1949. However, the outcome of this is yet to be announced.
The Max Planck study
The Max Planck Institute for Intellectual Property and Competition Law has produced its Study on the Overall Functioning of the European Trade Mark System, which has set out a number of recommendations including in respect of the effect of genuine use of a CTM in one member state only and the possible removal of the requirement for a trade mark to be capable of graphical representation so that new types of representation are not stifled.