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 global guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-guide.
Overview of main IPRs
In order to patent an invention it must:
Involve an inventive step.
Be capable of industrial application.
Patent protection does not cover:
Scientific or mathematical discoveries, theories or methods.
Literary, dramatic, musical or artistic works.
Ways of conducting certain acts, like playing a game or doing business.
Animal or plant varieties.
Methods for medical treatment or diagnosis.
The design or presentation of information.
Patents are registered rights and applications can be filed with the UK Intellectual Property Office (UK-IPO) or, for UK designations of European patents, the European Patent Office (EPO). Generally, patents give protection for up to 20 years from the filing date (this is extendable by five years for some products).
More information about the registration process and how to apply can be found here:
European patent: www.epo.org/applying.html.
The application process normally takes around four to five years. The UK-IPO fees involved in taking a UK patent application through to grant are currently GB£280 (if filed on paper) and GB£230 (if filed online). The EPO costs in taking a European patent application through to grant costs on average EUR5,655 (if filed on paper) and EUR5,565 (if filed online).
Registered trade marks. These can be filed with the UK-IPO (for UK protection) or with the Office for Harmonization in the Internal Market (OHIM) for an EU-wide registration (known as a "Community trade mark" (CTM)) covering the 28 member states of the EU. Trade mark registrations can be perpetual rights, provided they are renewed every ten years.
In order to register a trade mark, it must:
Be capable of graphical representation.
Not be devoid of distinctive character or be descriptive in relation to the goods or services for which protection is sought (unless it has acquired distinctiveness through use).
Not have become customary in the trade, or generic.
Not be morally objectionable.
Not fall within a number of specifically excluded trade marks (for example, the Royal arms).
Not conflict with earlier rights owned by third parties. The UK-IPO and the OHIM will not examine applications on relative grounds, but applications can be opposed by third parties.
Trade mark applications must contain a specification of the goods and services for which the mark is to be registered. The UK-IPO and the OHIM follow the tenth edition of the Nice Classification system. Following recent case law, use of class headings will no longer be taken to mean that all goods or services in that class are included in the specification. If the intention is to cover all goods or services in a particular class, this should be indicated. In addition, terms in the specification must be sufficiently clear and precise so it is possible to tell the specific goods and services of interest.
More information about the registration process can be found here:
A UK trade mark application usually takes around four to six months and a CTM application takes around six to eight months to gain registration, provided there are no objections or oppositions. The UKIPO fees for filing a UK trade mark application are GB£170 in one class if filed online (GB£200 if filed on paper), and GB£50 for each additional class. The OHIM fees for filing a CTM costs EUR900 for the first three classes if filed online (EUR1,050 if filed on paper), and EUR150 for each additional class.
It is also possible to designate the UK or the EU in an international registration under the Madrid International System through the World Intellectual Property Organization (WIPO). More information can be found here: www.wipo.int/madrid/en.
Unregistered trade marks. It is possible to claim rights in unregistered trade marks by relying on the common law tort of passing off. In order to rely on passing off against third parties, the trade mark owner must both:
Have built up goodwill in the trade mark.
Be able to show that a third party's use of that trade mark would constitute a misrepresentation and would cause them damage.
There is no registration system in the UK for copyright as it arises automatically on creation of the work.
Copyright protects literary, dramatic, musical and artistic works, as well as sound and film recordings, broadcasts and typographical arrangements.
A qualifying person who by their skill and labour creates an original work will enjoy copyright protection for a defined period of time.
In the majority of cases copyright lasts for 70 years from the end of the calendar year of the author's death, although other lessor periods apply for some works (see Practice Note: Copyright: subsistence, duration and first ownership ( www.practicallaw.com/9-583-8805) ).
Registered designs. Registered designs protect "the appearance of the whole or 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". Registered designs last for up to 25 years, and must be renewed every five years.
Designs can be filed with the UK-IPO (for UK protection) or with the OHIM for an EU-wide registration (known as a Registered Community Design (RCD)) covering the 28 member states of the EU.
In order to register a design, it must both:
Have individual character.
It must also not fall within the following specific exclusions to protection:
Where the design is dictated solely by technical function.
Where the design subsists in features necessary so that it can connect to another product(s).
Where the design is contrary to public policy or morality.
More information about the registration process can be found here:
In order to file a design, you will need to provide:
Details of the owner of the design.
Details of the designer if they have not waived their right to be named.
An indication of the product for which the design relates and the Locarno classification number.
Images of the design:
up to seven images can be submitted for each design, and these should cover all views for the aspect of the design that requires protection;
the images should be clear and show the contours, shape and lines of the design drawing;
designs can be represented in black and white or colour and can consist of photographs or line drawings. Following recent case law, our recommendation would be to file line drawings as this is likely to afford broader protection (but this very much depends on the specific item in question).
Neither the UK-IPO nor the OHIM examine design applications on substantive grounds. In light of this, there is no opposition procedure, and a UK design only takes around one month; a RCD takes around a week to gain registration. UK-IPO fee to file a UK design is GB£60. If you wish to protect multiple designs at the same time, it is possible to file a multiple application. Each design would gain individual protection but the UK-IPO costs are reduced to GB£40 for each additional design. A RCD costs EUR350 (OHIM fee), and each additional design filed in a multiple application costs EUR175 (OHIM fee) for the second to tenth design and EUR80 (OHIM fee) for the 11th design onwards.
Right of prior use. The Intellectual Property Act 2014 (IPA) gives a right to a person to continue to use a design that is subsequently registered by another. This means, where a party, acting in good faith and before the subsequent registered design is filed by another, continues to use the design or make serious and effective preparations to use the design, that party can continue to use the design for the purposes that it has, before the filing date of the subsequent design, either used it or made preparations to use the design. Such use will not be an infringement. This right does not apply if it was copied from the design that is subsequently registered. This right is not assignable nor can it be licensed.
Unregistered designs. There are two unregistered design systems that apply in the UK: Unregistered Community Designs (UCD) and UK design right.
Unregistered Community Designs (UCD). The UCD system has the same criteria as for registered designs, but this right only lasts for three years and, in order to rely on it, a party must show that there has been copying.
UK design right. In the UK, as well as UCDs, there is a second separate form of legal protection available for unregistered designs. This design right protects the shape or configuration of the whole or part of an article.
In order to qualify for protection, the design right must:
Not be commonplace in a qualifying country in the design field in question.
Be recorded in a design document, or an article must have been made to the design.
A "qualifying country" includes:
Another member state of the European Economic Community.
Qualification for design right arises by reference to the designer; commissioner or employee; or first marketing of the design.
Designer. To be entitled to design right the designer must be a "qualifying person", which means either:
An individual habitually resident in a qualifying country.
A corporate body or other body having legal personality that:
is formed under the laws of the UK or another qualifying country; or
has in any qualifying country a place of business at which substantial business is carried on.
Employer or commissioner. To be entitled to the design right the design must have been created in the course of employment with a qualifying person (see above, Designer).
First marketing. A design that does not qualify for protection because it was not created by a qualifying person or it was not created in the course of employment with a qualifying person, will qualify for design right protection if it is first marketed by a qualifying person in the UK, the EU or the countries qualifying for reciprocal protection.
Protection lasts for ten or 15 years, depending on the facts. If the design is marketed, then protection will last for ten years from the end of the calendar year in which the design was first marketed. If the design is not marketed within five years, then protection will last for 15 years from the end of the calendar year in which the design was first recorded or an article was first made to the design.
Confidential information is protected by the law of confidence provided the information:
Has the necessary quality of confidence about it.
Is disclosed in circumstances importing an obligation of confidence.
It is therefore important to ensure that confidential information is only disclosed in circumstance importing an obligation of confidence. Practical examples of protecting confidential information include:
Ensuring employment contracts contain clear and precise confidentially clauses appropriate to the employees' roles and seniority.
Providing, where appropriate, information, guidance and training to employees on keeping information confidential.
For employees leaving a business, ensuring that they sign a letter confirming that all company property has been returned.
Restricting access to confidential information to those that legitimately require it within the business.
Depending on the particular circumstances, entering into non-disclosure agreements and also ensuring that in other relevant agreements appropriate confidentiality clauses are implemented.
There is no requirement under UK law to mark confidential documents with "Private and Confidential" or "Confidential". The key is to ensure a consistent approach.
For an overview of confidential information, see Protecting confidential information: overview ( www.practicallaw.com/8-384-4456) .
Domain names must be registered by a domain name registrar (an organisation accredited to manage domain names under the rules of a particular domain name registry, for example, ".org"). A list of registrars can be found here: www.internic.net/regist.html.
Before registering a domain name you must check that it is available. A free of charge availability search can be performed on most retail domain name registrar websites. If trading exclusively in the UK then you may want to consider registering a ".uk" domain name. The registry in charge of .uk domain names is Nominet. More information about .uk domain names and Nominet can be found here: www.nominet.org.uk/uk-domain-names.
Once you have chosen a domain name you must then choose how long you wish to register it for, from between one year to a maximum of ten years. In addition, the registrar will request contact and technical information to keep on record and to submit to Nominet (for a .uk domain). It is also necessary to enter into a registration contract with the domain name registrar, which sets out how your domain name will be managed.
As a guide, a .uk country code top level domain (ccTLD) on average costs around GB£10 to register. There may be additional costs for managing the domain name.
For further information on how to register a domain name see: www.icann.org/resources/pages/faqs-84-2012-02-25-en.
In order to register a company name, the company name must:
Not be offensive.
Not imply a connection with a government organisation.
Not include a "sensitive" word (a list of these is available on the Companies House website).
Not be the same as a company name that is already registered.
Search and information facilities
For UK patents, there are the following searches:
IPsum, to search by publication or application number (see www.ipo.gov.uk/types/patent/p-os/p-find/p-ipsum.htm).
Patents Publication search, to search by publication date (see www.ipo.gov.uk/types/patent/p-os/p-find/p-find-publication.htm).
These searches are very basic. For clearance purposes, it is recommended to have comprehensive patent searches conducted by a patent attorney or to use the UK-IPO's fee-based search service.
For European patents, there is the EPO patent search (espacenet): http://worldwide.espacenet.com/advancedSearch?locale=en_EP.
This database allows searches by title, publication or application number, publication date, applicant or inventor.
For clearance purposes, it is recommended to have comprehensive patent searches conducted by a patent attorney.
To search UK trade marks: UK-IPO database (www.gov.uk/search-for-trademark). Searches can be conducted by application/registration number, owner and mark.
To search Community trade marks: OHIM database (https://oami.europa.eu/eSearch). Searches can be conducted using a wide range of criteria, including application/registration number, mark, trade mark status and owner.
International registered trade marks can be searched on the WIPO database (Romarin) (www.wipo.int/romarin). Searches can again be conducted using a wide range of criteria, including registration number, owner, representative and mark.
The TMview database can be used to search for UK, CTM and international registrations at the same time (www.tmdn.org/tmview/welcome). The database can also be used to search for applications and registration in other territories including most member states of the EU. Searches can be conducted by a range of criteria including mark, owner, class and status.
We would not recommend relying on the results of these searches instead of carrying out full clearance searches. Searches in these databases are limited and will only pick up identical or highly similar marks. For full clearance searches we recommend instructing a trade mark search specialist.
UK registered designs can be searched on the UK-IPO database (www.gov.uk/search-registered-design). Searches can be conducted by number, product, Locarno class and/or proprietor.
Registered Community Designs can be searched on the OHIM database (https://oami.europa.eu/eSearch). Searches can be conducted using a wide range of criteria, including registration number, designer name, owner name, Locarno class and verbal element.
International registered designs can be searched on the WIPO database (Hague Express) (www.wipo.int/designdb/hague/en). Searches can be conducted by registration number, owner, registration date and Locarno class.
We would not recommend relying on the results of these searches instead of having formal design searches conducted. We recommend instructing a design specialist to conduct these searches.
Searches can be made of the Companies House database (http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo ( www.practicallaw.com/1-524-3007) ). Searches can be conducted by company name or company number.
Maintenance of main IPRs
In order to keep UK and European patents in force, renewal fees must be paid each year after the fourth anniversary of the filing date. A patent can be renewed for up to 20 years. Both UK and European patents can be renewed through the gov.uk website (www.gov.uk/renew-patent).
The cost of renewing UK and European patents increases each year, ranging from GB£70 in the fifth year to GB£210 in the 12th year to GB£600 in the 20th year.
Renewals that are filed late, but within one month of the deadline, will not be subject to a late fee. It is then possible to renew a patent in the following five months for an additional fee of GB£24 per month that the renewal is overdue.
If a patent is not renewed during the six-month late renewal period, it is possible to apply to have the patent restored within the next 13 months. The restoration fee is GB£135.
Renewal in the UK. In order to keep UK trade marks in force, registrations must be renewed every ten years from the filing date. UK trade marks can be renewed online on the UK-IPO website (www.gov.uk/renew-your-trade-mark).
Trade mark renewals in the UK cost GB£200 for the first class of goods and services and then GB£50 for each additional class.
It is possible to renew a registration up to six months before it falls due for renewal. It is also possible to renew a trade mark in the six-month period following the renewal deadline for an additional fee of GB£50.
If a trade mark is not renewed during the six-month late renewal period, it is possible to apply to have the trade mark restored within the next six months. In addition to the renewal fees (above), a restoration fee of GB£100 is also payable.
Renewal of a CTM. In order to keep CTM registrations in force, registrations must be renewed every ten years from the filing date. Renewals can be filed using an online form on the OHIM's website (https://oami.europa.eu/ohimportal/en/home).
Trade mark renewals at the OHIM cost EUR1,350 for the first three classes and then EUR400 for each additional class.
It is possible to renew a registration up to six months before it falls due for renewal. It is also possible to renew a trade mark in the six-month period following the renewal deadline for an additional fee of EUR337.50 for the first three classes and then EUR100 for each additional class.
If a CTM is not renewed during the six-month late renewal period, it is possible to apply to have the trade mark restored within the next six months. This costs 25% more than the renewal fees stated above.
Non-use. If a trade mark that is the subject of a UK or CTM registration is not used within five years of registration, or for any subsequent continuous five-year period, they become vulnerable to cancellation for non-use. In order to avoid this it is necessary to show either that there are proper reasons for non-use or that the trade mark has been put to genuine use in relation to the goods or services covered by the registration. Genuine use is considered to be any use of a mark by the proprietor with a view to maintain or create a market share for the goods or services sold under it.
Customary in the trade. A trade mark registration can also become vulnerable to challenge if it has become customary in the trade or generic. Therefore it is important for brand owners to consider implementing a trade mark use policy to ensure the correct use of the trade mark.
Copyright is not registrable in the UK.
Renewal in the UK. In order to keep UK design registrations in force, renewal fees must be paid every five years, calculated from the filing date. A design registration can be renewed for up to 25 years in total. Renewals are requested by submitting form DF9A to the UK-IPO.
Design renewal fees at the UK-IPO increase with each renewal, ranging from GB£130 for the fifth to tenth years to GB£450 for the 20th to 25th years.
It is possible to renew a registration up to six months before it falls due for renewal. Renewals that are filed late, but within one month of the deadline, will not be subject to a late fee. It is then possible to renew a design in the following five months for an additional GB£24 per month that the renewal is overdue.
If a design is not renewed during the six-month late renewal period, it is possible to apply to have the trade mark restored within the next six months. Restoration costs GB£120.
Renewal of an RCD. In order to keep RCD registrations in force, renewal fees must be paid every five years, calculated from the filing date. A design registration can be renewed for up to 25 years in total. Renewals can be filed using an online form on the OHIM's website (https://oami.europa.eu/ohimportal/en/home).
Design renewal fees at the OHIM increase with each renewal, ranging from EUR90 for the fifth to tenth years to EUR180 for the 20th to 25th years.
It is possible to renew an RCD up to six months before it falls due for renewal. It is also possible to renew an RCD in the six-month period following the renewal deadline for an additional fee of 25% of the total renewal fee.
If an RCD is not renewed during the six-month late renewal period, it is possible to apply to have it restored within the next six months. That application costs EUR200.
Confidential information is not registrable in the UK.
Avoiding infringement. As with trade marks, it is best practice to conduct searches (known as "freedom to operate searches") to assess whether there are any earlier rights that would prevent exploitation in a given jurisdiction. Patent attorneys are best placed to conduct these searches.
Monitoring infringement. Periodic patent searches can be conducted covering newly published and granted patents, which allows for the identification of potential infringements at an early stage. There are many forms of patent searching, ranging from those limited to a particular field or particular applicant/proprietor to much wider searches.
Online periodic monitoring of competitors can also be effective. If a suspected infringement is being committed, an anonymous purchase of the potentially infringing item can be made, allowing for an assessment to be made on whether it is infringing. If the purchased item is infringing, the transaction can be used as evidence of infringement in proceedings.
Avoiding infringement. Before using a trade mark, it is best practice to carry out clearance searches in each jurisdiction for the goods and services for which the proposed trade mark will be used. For trade marks that will be used in the UK, the following trade mark registries should be searched:
The United Kingdom Intellectual Property Office (UK-IPO), which contains UK trade mark applications and registrations.
The Office for Harmonization in the Internal Market (OHIM), which contains EU-wide Community Trade Mark (CTM) applications and registrations covering the 28 member states of the EU.
The World Intellectual Property Organization (WIPO), which contains international trade mark applications and registrations, including those designating the UK and/or EU.
Depending on the jurisdictions in which the client's mark will be used, it may also be necessary to search other trade mark registries. For example, if the mark will be used in Ireland checks should be made with the Irish Patent Office.
In-use searches (also known as "common law searches") should also be conducted to assess whether there are any earlier unregistered rights that may be used to prevent use of the proposed mark.
As can be seen, clearance searching is very complicated and we recommend seeking professional assistance from a trade mark search expert to ensure that the proposed marks are free for use.
If an earlier right is identified, steps should be taken to ensure infringement will not be committed. These steps could include:
Obtaining consent from the earlier right holder (whether in the form of a letter of consent or through a co-existence agreement).
Purchasing the earlier right.
Cancelling the earlier right.
If none of those are viable, then the proposed mark should be altered so that it is not similar to the earlier right or, of course, an entirely different mark should be used instead.
Monitoring infringements. A starting point is to set up a watch service so that, if any later trade mark applications are filed, a notification will be received. Some watch services will notify before a later trade mark application reaches the publication stage, giving more time to contact the applicant or if necessary prepare to file an opposition against the registration of the later application (once it is published). Periodic searches of the Internet should also be conducted to identify any infringing use. Depending on your business, this might include searches on, for example, Amazon, YouTube, Facebook, Twitter, Gumtree and eBay.
Avoiding infringement. There is no system of registration in the UK, so no official Government copyright registry exists. Clearance searches can be conducted using the Internet, Google images and Google's reverse image search service, and also competitors' websites, eBay and other online market places. It is often useful to ask a client what inspired them to create the item that you have been asked to clear. This is because one element of a successful copyright infringement claim in the UK is to prove that the defendant substantially (qualitatively not quantitatively) copied the copyright work.
Monitoring infringement. Again, Internet searches are the main option here. The ease of this task will depend on the type of work involved (for example, extracts of text can be copied and pasted into search engines, whereas sound recordings require a bit more creativity, where searching the lyrics and song titles and even genres on online music sites such as iTunes and Grooveshark will assist in identifying possible infringing items to investigate in more detail).
Avoiding infringement. Before a design is used, clearance searches (including online searches) should be considered. These searches are offered by a number of third-party search providers. However, depending on the sector, commissioning full clearance searches for each item is not always viable, particularly if clients operate in sectors that operate a high product turnover, such as fashion. A step down from the full clearance search is to search the Internet, Google images (including reverse images) and the design registries (UK-IPO, OHIM and the Hague System at WIPO). These searches will assist with reducing infringement risk to a manageable level, but of course will not eliminate it.
Monitoring infringement. Periodic monitoring of design registries (UK-IPO, OHIM and the Hague System at WIPO) is important to assess whether there are any potentially infringing designs being filed. In the UK there is no substantive examination procedure, so applicants can register designs that do not meet all the requirements for design protection (for example, filing designs that are not new).
Again, Internet searches can be conducted, using Google images and Google's reverse image search service, and also competitors' websites, eBay and other online market places.
Avoiding breaches. Like copyright, there is no system of registration of confidential information. The objective is to assess whether the information is confidential in nature and disclosed in circumstances importing an obligation of confidence. Consider the client's relevant contracts and communications with the party providing the information. For larger organisations, contract managers may have a recording of the client's confidential obligations.
Monitoring breaches. It is difficult to generally monitor breaches of confidential information and much will turn on the individual business. An example includes former employees setting up business in competition with their former employers, apparently utilising their former employer's trade secrets (such as a particular manufacturing process or chemical formulae). In that situation it may be possible to purchase and reverse engineer products created by the former employee's business to assess whether unauthorised use of trade secrets has occurred.
Identify the intellectual property rights
The first step in any IP audit is to identify the registered and unregistered IPRs owned and/or used by the business. It is usual for the seller in a business transaction to provide a comprehensive list of these IPRs. However, that list must be checked thoroughly by the buyer to ensure nothing is missed.
Registered rights can be identified by proprietor searches on the registries relevant to the jurisdiction(s) of the business. For the UK this would be the UK-IPO, OHIM and WIPO registries. However, the business may have registered rights in other jurisdictions too, so the relevant registries in those jurisdictions need searching. Searching databases such as espacenet, Design View, TM View and WIPO's recently launched Global Brand Database facility will also assist.
Unregistered rights can be assessed by reviewing the business's marketing material, the Internet, the website of the business and other websites such as Facebook and Twitter. This will also allow you to assess whether trade marks identified in the registered rights searches have been used, because UK and Community Trade Mark registrations are vulnerable to cancellation if not used for a continuous period of five years and there are no proper reasons for non-use.
Checking the IPRs
Once the IPRs have been identified, it is necessary to check:
The owner, to ensure the IPR is owned by the correct entity.
The status of the rights and, if applicable, when they need to be renewed.
Any encumbrances (such as security) applicable to the IPRs.
Whether the IPRs have been licensed.
Whether there are any challenges to the IPRs.
Proceedings and challenges
An assessment of whether the IPRs are involved in court or tribunal proceedings, such as challenges to the validity of the IPRs and infringements, can be assessed using online case databases, the press, and searching generally on the Internet. Note that it is usual for the seller to provide warranties on whether any IPRs infringe other rights, or are involved with court or tribunal proceedings.
An assessment should be conducted in relation to any licences (and also any agency and distribution agreements) containing IPR provisions to see the extent of those licences and whether there are any onerous clauses.
Other contracts and documents of the business
The IP provisions in contracts of employment and consultancy agreements should be checked to assess in particular the ownership of rights created during the course of employment and consultancy.
Some (but not all) businesses employ IP Policies and IPR Use-Manuals, so these should be assessed as well. Assessing old IP Policies and Use-Manuals may also go some way to shedding light on the manner of the use of particular rights.
Scope of assignment
Pending and registered patents can be assigned. For further details see Question 7.
Both trade mark registrations and pending applications can be assigned. They can be assigned for some or all of the goods covered by the registration or application, or for use only in a particular way or in a particular place (except for an EU-wide Community Trade Mark (CTM), which must be assigned for the whole Community).
Unregistered trade marks can also be assigned, as they form part of the goodwill of a business.
Copyright in existing and future works can be assigned.
Both registered and unregistered designs can be assigned, though there are some differences, depending on the exact right in question.
Design rights that apply across the 28 member states of the EU, namely Registered Community Designs and Unregistered Community Designs, can only be assigned for the whole of the Community, so ownership cannot be split on a country-by-country basis.
Database rights in both existing and future works can be assigned.
Confidential information is not a clearly defined property right under English law (although it does have commercial value). Therefore, it is not capable of assignment per se. However, it is possible for the rights in and to confidential information to be transferred by way of contract.
A domain name is assignable subject to registry restrictions contained in the registration agreement between the domain name owner and domain name registrar (an organisation accredited to manage domain names under the rules of a particular domain name registry, for example, .com or .uk).
It is also possible for a domain name owner to change their registrar, as detailed in the answer to Question 7.
Formalities for assignment
An assignment is a form of contract and, under English law, either:
There must be consideration for the assignment.
The assignment document must be a deed.
Generally, stamp duty is not payable on the assignment of IPRs in the UK.
The assignment must be in writing and signed by or on behalf of the assignor. If you do not (without good reason) record the assignment of a UK patent at the UK-IPO within six months, no costs will be awarded to the proprietor in a subsequent infringement action. Recording the assignment also serves as notice of your interest in a patent (or patent application) to third parties who subsequently acquire rights in that patent or application. If the assignment is not recorded those third parties are not bound by the interest unless they knew about it.
Until an assignment is recorded it is ineffective against any third party who acquires a conflicting interest in/under the trade mark in ignorance of the assignment.
The signatures required for an assignment to be effective depend on the right being assigned:
UK trade marks. The assignment must be in writing and signed by or on behalf of the assignor. If you do not (without good reason) record the assignment within six months, no costs will be awarded to the proprietor in a subsequent infringement action.
Community trade marks (CTMs). The assignment must be in writing and signed by both the assignor and the assignee. There is no legal timescale prescribing when the assignment should be recorded, but in practice until you do so you cannot deal with the right.
A copyright assignment must be in writing and signed by or on behalf of the assignor. As with all unregistered rights, from a practical point of view it is important to be very clear what is being assigned so that a third party, on looking at the assignment document without any background, would know exactly what was being assigned.
Registered and unregistered design rights must be assigned in writing and signed by or on behalf of the assignor.
For registered rights, the assignment must be registered at the relevant registry.
Where there is an overlap between registered and unregistered design rights in the same design, an assignment of the registered rights serves to assign the unregistered rights (if the proprietor is the same for both), and vice versa, unless there is a contrary intention.
There are no prescribed formalities as confidential information is not recognised as a clearly defined property right under English law, but its transfer can be achieved by way of contract. The contract will need to ensure that the information is clearly identified and transferred and that the assignor gives confidentiality and non-use undertakings.
An assignment of database rights must be in writing and signed by or on behalf of the seller.
For an assignment to take place a domain name registrar typically requires the following new details:
Billing and administrative contacts.
New domain name servers (some domain name registrars allow for these details to be updated online and give the option to assign multiple domain names at once).
In addition, the domain name registrar must seek consent from the existing domain name owner for the assignment to proceed and check that the new domain name holder accepts the domain name and any associated fees.
It is essential that an assignment transfers both ownership and control as it is possible to transfer ownership and still retain technical control (such as the domain name servers, and therefore the website to which the domain name resolves to). If the assignee is acquiring a domain name held by proxy it must ensure that it has a registered entity in that jurisdiction before the domain name can be assigned.
If the domain name owner no longer exists or the assignment runs into difficulties, the domain name registrar might transfer the domain name without the consent of the current domain name holder. In the majority of cases the domain name registrar will require a court order setting out the prospective assignee's rights against the current domain name owner before processing any assignment.
If the domain name registrar is to be changed, the new domain name registrar must obtain express authorisation from the domain name owner to proceed. Once authorisation is received the domain name is unlocked by the current domain name registrar and a temporary authorisation code (auth. code) is issued to enable the transfer (some domain names do not require an auth. code to be transferred). The auth. code must be provided to the new domain name registrar and used before it expires. It is important that the administrative contact remains up-to-date so that the new domain name registrar can confirm the transfer, otherwise the transfer will not complete.
Main terms for assignments
While the terms included in assignments vary, depending on the circumstances of the assignment, the following provisions are typical and should be included (or at least considered) in every case:
Definition of the IPRs being assigned in a clear and coherent manner. This is particularly important for unregistered rights, where there is no registration or application number that can be used.
The assignment clause itself, clearly indicating that the IPRs are being assigned.
Whether the IPRs are being assigned with any title guarantees (see Legal Issues on the assignment of intellectual property rights ( www.practicallaw.com/4-517-1792) ).
The amount payable for the IPRs.
Warranties and/or indemnities regarding the assigned IPRs (see Question 15).
Information that would allow the assignee to enforce the IPRs in the future. For example, for unregistered rights in practice the assignee will need to know the authorship details.
Further assurance provisions. Depending on bargaining power the assignee might promise to pay the assignor's reasonable costs in this respect.
Where the assignment must be recorded at a registry, it is useful from a practical viewpoint to annex the relevant forms so that they can be signed at the same time. An alternative is to give the assignee permission to sign the relevant forms on behalf of the assignor. Otherwise the assignee will need to rely on the further assurance provisions to ensure that the transfer of the IPRs can be recorded.
Whether the assignment includes the right to bring proceedings for past infringements.
General boilerplate provisions, governing law and jurisdiction.
Scope of licensing
IPRs can be licensed either:
Exclusively (that is, the IPRs can only be used or exploited by the licensee).
Solely (that is, the IPRs can only be used or exploited by the licensor and the licensee).
Non-exclusively (that is, the licensor can give additional licences, so that other licensees can be allowed to use or exploit the IPRs in addition to the licensee and the licensor).
Licences are usually limited to certain goods and services, channels of trade, territory and by duration. In addition, the rights acquired under a licence can be sub-licensed or assigned subject to the terms of the licence.
In circumstances where it is established that there has been an abuse of the monopoly rights granted by a patent, a compulsory licence can be granted. This is rare in practice, as provisions under competition law are better suited to dealing with this situation. A compulsory licence can only be made after three years from date the patent was granted.
Another particular rule exists for design rights (which is only relevant to the UK). Here, licences are available as of right during the last five years of the subsistence of the design right. This means that anybody who asks for a licence to use or exploit the design right during those five years is entitled to it.
Formalities for licensing
A licence is a form of contract and, under English law, this can be a simple contract or a deed.
A patent licence should be in writing and signed by or on behalf of all parties. It is prudent to register a patent licence. This will ensure that a subsequent licensee cannot deny knowledge of the licence and allows the earlier licensee to continue to assert their rights. A licence must be registered within six months of the date of the licence agreement to enable the licensee to recover costs from a successful patent infringement proceeding.
A trade mark licence will not take effect unless it is in writing and signed by or on behalf of the licensor. Similarly to patents, it is prudent to register a trade mark licence. This will enable the licensee to call on the proprietor of the trade mark to sue for infringement (if the licence agreement allows) and in some circumstances will allow the licensee to bring proceedings in its own name if the trade mark holder fails to do so. A licence must also be registered within six months for the licensee to recover costs from a successful trade mark infringement proceeding.
An exclusive copyright licence must be in writing and signed by or on behalf of the licensor. There are no equivalent formalities for non-exclusive licences, but it is recommended to still go through the same formalities as for exclusive licences, as in certain circumstances the licensee can sue. An exclusive licensee can sue for infringement but must join the copyright owner in the action or obtain leave of the court. A copyright licence cannot be registered.
An exclusive licence of registered or unregistered designs must be in writing and signed by or on behalf of the licensor. There are no formalities for a non-exclusive licence of unregistered design rights, whereas a non-exclusive licence for a registered design must be in writing. A licensee of a registered design must register the licence, otherwise that licence will not bind successors in title.
There are no formal requirements. It is recommended that a written agreement with clear obligations of confidentiality be entered into. A licence of confidential information cannot be registered.
Main terms for licences
The following typical terms should be included in an IP licence:
Recitals. These set out the background to the licence and can be used to set out the licensor's title to the right and confirm that he has the right to licence it.
Operative provisions. These should specify the scope of the licence, whether the licence is exclusive, sole or non-exclusive (see Question 9), what the licensee has the right to do, in relation to which products and for how long.
Financial matters. These should specify what payments are to be made (for example, is there an upfront lump sum, milestone payments or ongoing royalties). In particular, if the licence is exclusive it may be worth including a minimum royalty provision to give the licensee an incentive to market the product effectively.
Quality control provisions. These should ensure that the licensee produces good quality products or services. Quality control provisions are particularly important in trade mark licences. Owners will want to defend the integrity of any mark to ensure that their goodwill is protected and to prevent their reputation from being damaged. It is common for licensors to have the right to inspect samples or visit the licensee's premises to check the provisions in place. There may also be marketing requirements in relation to advertising and promotion. The licensor may request that this material be cleared with the licensor before use.
Infringements. There should be provisions dealing with who will have the right to bring any proceedings, whether there is an obligation to notify the licensor of third-party infringements or where it may be that a third party's IPRs are being infringed, any challenges to the licensed IPR and a requirement to assist the licensor in conducting any claims arising.
Sub-licensing and assignment of rights. Are these to be permitted? If so, royalty provisions covering sub-licensing should also be included.
Warranties and indemnities in respect of the licensed IPRs. See Question 15.
Termination. Events that lead to termination (for example, material breach, insolvency and change of control) and consequences of termination (for example, licensee may be required to deliver up or dispose of any unsold stock) should be covered.
Further assurances. These may include giving assistance with the recording of the licence on relevant registers.
General boilerplate provisions. For example, governing law, jurisdiction and execution.
Security gives assurance that third parties will acquire any subsequent interest in IPRs subject to a registered security interest. If the IPR in question is a key business asset, taking security should be considered.
Security may be granted over all types of IP. However, security over registered IP is preferred, as it provides greater certainty for lenders. Security over registered rights should be recorded on the relevant patent, trade mark and design registers to ensure that it is properly effective.
In the case of unregistered rights (copyright, unregistered trade marks and unregistered designs), the security taker must rely on its registration of the security against the IPR owner at Companies House. Security over unregistered rights provides much less certainty for lenders and is usually avoided, unless the unregistered IPR is especially valuable.
It is difficult to measure the value of an IP asset when giving security. This is because the value of any IP asset is subject to change. For example, a registration for an IPR could be successfully cancelled by a third party, allowed to lapse or expire by its owner, or a change in its reputation may cause its value to decrease. A security agreement should seek to safeguard the lender's interests in this respect.
Due diligence is important in the process of taking security over IPRs. Verification of the ownership of the IPRs and searches for any earlier conflicting rights should be carried out before the security is taken. This will help satisfy the lender that the borrower's IP portfolio is a viable asset on which a loan can be secured.
The main security interests taken over IPRs are:
A legal mortgage is the most secure and comprehensive form of security interest. Here, the legal/equitable title to the IPRs will be transferred to the lender. When the debt borrowed has been paid back, the IPR is then reassigned to the borrower. Under a fixed or floating charge, no transfer of title or assignment is involved and title therefore remains with the borrower. The nature of a floating charge makes it unsuitable as a method of taking security over unregistered IP.
Both mortgages and charges must be made in writing. A mortgage need only be signed by the borrower. However, for sake of completeness, both the borrower and the lender usually sign security agreements.
Mortgages or charges of UK patents, registered trade marks and registered designs should be registered as soon as possible after the transaction on the relevant register at the UK-IPO.
Under the Companies Act 2006, a company registered in England and Wales must also register certain charges (including mortgages) it creates with the Registrar of Companies at Companies House.
When acquiring a business, or parts of a business, IP due diligence is often carried out to establish what valuable IP assets may exist and what liabilities may arise in the course of the future conduct of the business.
The starting point is usually a search of public databases by owner name. Many national and regional IP offices/registries allow owner-level searches of trade marks, patents and registered designs. An important aspect of this is knowing all of the potential group companies involved in the transaction, so that all possible IP-owning entities are included. Typographical variants in company names such as "Ltd" and "Limited" often appear as different entities, too. Official databases provide comprehensive information such as filing dates, owner details, and expiry dates, and often show whether registered IP rights have encumbrances such as mortgages or licences recorded against them. Public databases usually have a delay of up to 18 months (in the case of patent applications) in information being publicly available, so warranties as to any pending unpublished applications should be provided by the target or the vendor.
Unregistered rights such as copyright and design rights cannot be searched in the same way, so proper enquiries should be made of the target to establish whether there may be any assets of this nature, and whether sufficient documentary evidence exists to demonstrate the transfer of ownership from the creator to the target.
The next step is to obtain copies of, and review, all IP-relevant agreements to which the target may be subject. This could include IP assignments, licences, co-existence agreements, and dispute settlements, among others. These may identify other registered rights in which changes of ownership have not been properly recorded before official registries, or territorial restrictions in the way that certain IP rights may be used. These could also contain change of control provisions, which could be relevant to the contemplated transaction.
The nature of the target's business should be contemplated to establish whether any specific IP risks may exist. For example, business-critical know-how may not have been documented at any time, and may exist only in the minds of key personnel. This could require a careful review of contracts of employment to identify whether there may be risks in those personnel leaving the business. Non-disclosure or confidentiality agreements may exist with partners or potential partners of the target business, and these would show whether trade secrets or other IP-related materials are held by third parties.
The vendor or target (as appropriate) should be asked to provide information relating to settled, pending and threatened claims of IP infringement or validity, both incoming and outgoing (backed up by appropriate warranties and indemnities).
It is also important to check whether the target company owns all relevant domain names. It is common for employees (sometimes a member of the IT department) to be listed as the domain name owner, so it is important to identify the owner and deal with any ownership problems early on to ensure that domain names are properly transferred into the purchaser's ownership and control.
The nature and extent of the warranties and/or indemnities given is, in the main, dependent on the nature, extent and results of the due diligence exercise. There are other factors too, such as the parties' bargaining positions and the commercial importance of the IP to the deal. The business sale agreement or stand-alone IPR assignment (or both) will contain the warranties and indemnities section.
The buyer can expect to receive (or should at least request) the following warranties:
Ownership of IPRs. The seller should warrant that it owns all relevant IPR free of any third-party interests and that the list of IPRs (usually scheduled to the business sale agreement or separate stand-alone assignment) is complete and accurate.
All applicable fees have been paid. It is common for a clause to be included warranting that all fees have been paid in respect of the IPRs. This would include application and renewal fees, and only applies to registered and registrable IPRs.
Confidentiality. The seller warrants that there have been no breaches of confidentiality.
Oppositions and challenges. Here the seller confirms that there are no oppositions or challenges to the IPRs. If there are oppositions or challenges to any IPRs then these should be disclosed to the buyer ordinarily in the disclosure letter or scheduled to the agreement.
Infringement, litigation and settlement agreements. It is usual for the seller, so far as it is aware, to warrant that the business being transferred does not infringe any third-party IPRs and also that no third parties are currently infringing the IPRs being transferred. The seller should also state whether the business is party to litigation concerning IPRs. If there are any, these should be disclosed, together with any settlement agreements binding the target business.
Licences. The buyer can expect the seller to warrant whether there are any licences out and licences to use IPRs. The buyer can also expect the seller to confirm whether those licences have been breached or otherwise whether there are any ongoing disputes in relation to the same.
Software transactions. In deals transferring ownership of IPRs in software being exploited by the target company, it is usual for the seller to warrant that the software contains no open source software, or if it does, that the open source software is scheduled to the agreement with the seller warranting that the software contains no open source software other than that in the schedule.
The above are all subject to negotiation and typically the seller will attempt to limit or qualify the scope of the warranties given.
Also subject to negotiation is whether to include provisions indemnifying the buyer should the warranties be breached. These indemnities are specific to the particular deal.
Transfer of IPRs
The assignment and licensing of IPRs is dealt with at Questions 6 to 11 (inclusive). This section provides a concise overview of how IPRs are transferred in both a share sale and an asset sale.
In a share sale, the purchaser acquires the target with all its assets and liabilities through the transfer of shares. Therefore, all IPRs owned by the target remain owned by the target and no additional transfer documents are required. The exception to this is where there will be an assignment or licence of IP owned by a company in the target's group that is not being purchased.
If any important IP licences (previously granted to the target) terminate on a change of control, the purchaser will need to negotiate a new licence or waiver with the licensor.
In an asset sale, the purchaser acquires some or all of the assets and liabilities of the target, together with the business. The title to each IP asset sold must be transferred to the purchaser. A written assignment is usually included in the body of the sale agreement, or alternatively stand-alone documents are annexed to the sale agreement. Stand-alone documents are recommended where non-UK IPRs need to be transferred, given the large differences in signature and formalities requirements between jurisdictions. In particular it is preferable for reasons of clarity and certainty to include registration numbers for registered IPRs (that is, designs, patents, trade marks and, where registrable, copyright), rather than providing a blank transfer of “all IPRs” or similar.
After the transfer has taken place, steps should be taken to ensure that the records of all relevant IPRs are updated to reflect the new owner in accordance with local law requirements. Many parties include contractual provisions to ensure that this action is taken to conclude the transfer.
IP licences granted to the seller must be assigned or novated to the buyer and the licensor's consent may form a condition of the transaction.
Joint ventures are a common way for parties to develop potentially IPR-rich projects, especially in technical/scientific research and development (R&D) projects where patentable subject matter is contemplated.
There is no fixed form for a joint venture: they can be created just by way of contractual obligation between the parties involved, by legal partnership, or by registration of a dedicated joint venture company in which the parties take defined ownership percentages and have their own dedicated directors taking responsibility for the management of certain aspects of the joint venture business.
Key elements to consider in a joint venture project include:
Proper definition of "background" IP (that is, the rights each partner brings to the project) and "foreground" IP (that is, any rights arising as a result of the work undertaken on the project), and the ownership and cross-licensing position in respect of all of those.
Who will pay for any patent, design or trade mark applications and who will be entitled to make decisions for the prosecution of those applications?
Who will meet the costs of the project and direct the decision making?
Confidentiality obligations and non-compete restrictions.
What is to occur if and when the joint venture is to be terminated?
Main provisions and common issues
The Enterprise and Regulatory Reform Act 2013 (ERRA) created the Competition and Markets Authority (CMA), which, from 1 April 2014, took over the Office of Fair Trading's (OFT) and Competition Commission's competition functions. The main provisions of national competition law are set out in the Competition Act 1998 (CA) and Enterprise Act 2002 (EA) (as amended by the ERRA).
The CA contains two prohibitions based on Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU):
The Chapter I prohibition. Prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices that may affect trade within the UK and have as their object or effect the prevention, restriction or distortion of competition within the UK.
The Chapter II prohibition. Prohibits the abuse of a dominant market position that has, or is capable of having, an effect on trade within the UK.
Also, IP competition issues may arise in the context of mergers. Merger notifications in the UK are voluntary. However, if the relevant thresholds are met, the CMA may open an investigation. The relevant thresholds are that either one or both of the following apply:
Turnover of the target enterprise exceeds GB£70 million in the UK.
Target enterprise will on completion have at least a 25% or more market share in the UK (or a substantial part of the UK) or a 25% or more market share will be increased.
If turnover is due to revenue generated by the purchased IPRs then this could make a merger reviewable.
There are many common issues that can arise between IP and competition law in the UK. These include:
Licencing, know-how and R&D agreements. It is important to assess these agreements for restrictive provisions and care should be taken to avoid conflicting with the Chapter I prohibition. If an agreement falls within the Chapter I prohibition then it will be unenforceable. This can often be avoided by drafting the agreement in question to fit within the parameters of one of the EU block exemptions.
Patent settlement agreements. Care should be taken particularly where agreements restrict a party's use of a patent where that patent has expired.
Trade mark co-existence agreements. Care should be taken particularly where one party has a significant marketing position in relation to the goods or services for which the marks are applied for or registered. Care should also be exercised where an agreement restricts a party's use in a particular locality as this may have a partitioning effect.
Pharmaceutical agreements. Common anti-competitive provisions such as restricting licensees' ability to set prices (although recommended resale prices can be set), and clauses preventing a licensee from conducting R&D or preventing a licensee from exploiting its own technology, could render an agreement non-compliant with competition laws.
Agreements falling within the Chapter I prohibition are unlawful unless drafted in line with one of the EU block exemptions.
Applicable to most IP agreements is Commission Regulation 316/2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to Categories of Technology Transfer Agreements, known as the technology transfer block exemption regulation (TTBER) and the accompanying Commission Guidelines (Guidelines). A summary of TTBER and the Guidelines can be read here.
Potentially, terms that cover exclusivity, area of use and non-compete obligations could restrict competition. Therefore, it is best practice to take advantage of the safe harbour provisions in the TTBER.
The TTBER will apply provided the licensed technology rights have not yet expired or lapsed.
The TTBER applies provided the combined market share of the parties does not exceed 20% of the relevant market (if the parties are competitors). If the parties are not competitors, the TTBER will apply provided the market share of the parties does not exceed 30% of the relevant market.
As mentioned above, particular care should be taken with restrictions dictating a licensee's ability to set prices, as the effect of such a provision would mean that the entire agreement would be excluded from the TTBER. Therefore these terms should be avoided (though it is potentially possible to indicate recommended sale prices).
However, if a clause is an excluded restriction under TTBER, the particular clause will be excluded from TTBER and the rest of the agreement will still enjoy the benefit of TTBER.
Advertising laws can affect the use of third party trade marks and, in some cases, can provide a defence to trade mark infringement.
The most important piece of legislation is European Directive 2006/114/EC concerning misleading and comparative advertising (Misleading and Comparative Advertising Directive) (CAD). CAD has been implemented in the UK by the Business Protection from Misleading Marketing Regulations 2008 (SI 2008/1276) (BPMMR).
The CAD and BPMMR permit the use of a third party trade mark in an advertisement without consent, provided that the advertisement satisfies all of the following criteria:
It is not misleading within the meaning of Articles 2(b), 3 and 8(1) of CAD or Articles 6 and 7 of Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market (Unfair Commercial Practices Directive).
It compares goods or services meeting the same needs or intended for the same purpose.
It objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which can include price.
It 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, it relates in each case to products with the same designation.
It 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.
It does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.
It 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.
In the UK, advertisements are regulated by the Advertising Standards Agency (ASA). The ASA is responsible for monitoring adverts, as well as dealing with complaints, and serves to prohibit misleading, harmful or offensive advertising. The ASA reviews advertisements in accordance with various codes of practice, incorporating EU and UK advertising laws (including the CAD and BPMMR). Further details concerning the ASA can be found at its website (www.asa.org.uk).
Employees and consultants
Generally, the employer will own the IPR created by its employees in the course of their employment, unless there is an agreement to the contrary.
Statute entitles employees to compensation where they create patented inventions that are of outstanding benefit to the employer.
Employers can ensure that adequate IP clauses are included in their employees' contracts of employment to ensure that ownership of the IPRs created during employment remains with the employer.
Generally, consultants own the IPRs they create. Therefore, employers should ensure that the consultancy agreement contains adequate IP clauses ensuring that ownership transfers to the business.
In all cases, whether the business employs, engages with consultants (external/internal) or commissions work, the business should ensure that ownership of IPRs is agreed at the outset.
In the UK, a licensor who is receiving a royalty payment for licensing IPRs will be subject to tax on the amounts received. The licensor will be subject to:
Corporation tax (companies), if the company is tax resident in the UK or trading through a permanent establishment in the UK.
Income tax, if they are an individual who is a UK tax resident/a non-UK tax resident (individual or company) without a branch, agency or other permanent establishment. If the royalties received relate to licensing of UK IPR (for example, a UK registered trade mark design or patent) income tax will also be applicable.
In the UK, certain expenditure can be deducted when calculating tax liability. There are a variety of exemptions and specific regimes available, though the two main reliefs for licensors are:
Research and development (R&D). This provides an enhanced deduction at 230% of qualifying expenditure for SMEs, or a credit refund of 14.5% for surrenderable R&D losses.
The Patent Box. This applies if a company is liable to corporation tax and makes a profit from exploiting patented inventions. The company must own or exclusively license-in the patents and must have undertaken qualifying development on them. The Patent Box provides a 10% corporation tax rate for profits derived from patents and similar rights (from 1 April 2013).
Where IPR was created after 1 April 2002 the amortisation is an allowable expense for calculating the profits chargeable to corporation tax. For IPR created before 1 April 2002 amortisation is disallowed in the tax computation.
The Finance Act 2015 enacted legislation effective from 3 December 2014 that removed the availability of corporation tax deductions for amortisation on internally generated goodwill and customer-related intangible assets following the incorporation of a business.
The summer budget in 2015 also announced proposals to abolish corporation tax deductions for amortisation on some IPRs (specifically goodwill and certain customer-related intangible assets) purchased on or after 8 July 2015. These proposals have not yet been legislated and full details of the implications are not yet available.
In certain circumstances, parties may also be required to deduct and account for UK withholding tax from royalty payments for IPRs. Particular consideration here should be given when royalties are paid across borders. In the UK, withholding tax is set at 20% on royalties for patents. If the licensor is subject to corporation tax for royalties then generally withholding tax will not apply. A licensor may also be exempt from withholding tax in other situations. Copyright royalties are subject to withholding tax if the licensor is outside of the UK. Regarding other IPRs (for example, trade marks), withholding tax will not apply unless the royalty is an annual payment resulting in "pure income profit".
If a lump sum is received concerning the licence of IPR and the licensor is subject to corporation tax payment, the sum payable depends on whether the IPR in question was created before or after 1 April 2002.
Where both a licensor and licensee are in the UK, the licensor must charge and account for UK Value Added Tax (VAT) on the supply of the IPR. If the licensee is a business customer outside of the UK, there is usually no need to account for UK VAT. If the licensor is outside the UK, but the licensee is a business customer in the UK, the licensee will generally account for UK VAT.
Corporation tax is payable if a seller is tax resident in the UK (or trading in the UK through a permanent establishment) and receives sums on the disposal of IPRs. The tax treatment depends on when the IPR was created.
For IPRs created after 1 April 2002 (and purchased before 8 July 2015):
Receipts and expenses are taxed on an income basis.
Any profit from the sale is subject to corporation tax as an income receipt if that IPR is recognised in the seller's balance sheet.
Corporation tax is payable on the sale proceeds as an income receipt if the IPR is not recognised in the balance sheet.
Payments can be deferred by rolling over the sale proceeds into other IPRs.
The Patent Box can also assist in reducing the tax payable (see Question 24).
For IPRs created before 1 April 2002:
Capital gains tax principles are applicable, meaning the seller is subject to corporation tax on any gain.
Proceeds from the sale of patents and copyright are treated as an income receipt (unless the copyright is held as an investment).
Announcements in the 2015 summer budget propose changes to the way in which the disposal of some IPRs (specifically goodwill and other customer-related intangible assets) purchased on or after 8 July 2015 are treated for tax purposes. These proposals have not yet been legislated and full details of the implications are not yet available.
For individuals who are UK tax residents, or who trade through a branch or agency in the UK, tax is treated in a similar way to IPRs created before 1 April 2002. However, the income/capital receipt is subject to income tax or capital gains tax (not corporation tax).
Sales of UK patents by non-UK tax residents can give rise to more complex issues, including possible withholding tax on sums paid to the seller. The treatment depends on whether the non-UK resident seller is an individual or a company trading through a UK permanent establishment and the date of creation of the IPR. The seller may also be entitled to relief under one of the UK's double tax treaties.
Royalties received on a disposal of IPRs are treated in the same way as described above for "taxes payable by a licensor on the licensing of IPRs" (see Question 24). The date of creation of the IPR in question will be irrelevant here.
Payments received on a disposal of IPRs are subject to VAT as described above for "taxes payable by a licensor on the licensing of IPRs" (see Question 24). However, the sale can still fall outside the scope of UK VAT in certain circumstances.
Stamp duty is not applicable on transfer of any IPRs.
The UK is a party to the following international IP treaties, shown in alphabetical order of the name by which the treaty is normally known:
Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure 1977.
Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms 1971.
International Convention for the Protection of New Varieties of Plants 1961 (UPOV Convention).
Locarno Agreement Establishing an International Classification for Industrial Designs 1968.
Patent Cooperation Treaty 1970 (PCT).
Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations 1961 (Rome Convention).
Singapore Treaty on the Law of Trademarks 2006 (Singapore Treaty).
Strasbourg Agreement Concerning the International Patent Classification 1971.
WIPO Berne Convention for the Protection of Literary and Artistic Works 1971 (Berne Convention).
WIPO Convention Establishing the World Intellectual Property Organization 1967 (WTO agreement).
WIPO Copyright Treaty 1996.
WIPO Madrid Agreement for the Repression of False or Deceptive Indications of Source of Goods 1891.
WIPO Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks 1957 (Nice Agreement).
WIPO Paris Convention for the Protection of Industrial Property 1883 (Paris Convention).
WIPO Patent Law Treaty 2000.
WIPO Performances and Phonograms Treaty (WPPT) 1996.
WIPO Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks 1989 (Madrid Protocol).
WIPO Trademark Law Treaty 1994.
UN Universal Copyright Convention 1952.
A detailed list of treaties can be found at: www.wipo.int/wipolex/en/profile.jsp?code=GB.
Patents are territorial rights. Applicants from outside of the UK can apply for a patent. However, only UK patents (or UK designations of European patents) are enforceable in the UK.
Trade marks are territorial rights. Applicants from outside of the UK can apply for a trade mark in the UK. However, foreign trade marks are not enforceable in the UK.
The following rights are recognised by UK courts as having effect in the UK:
UK trade mark applications/registrations.
Community Trade Mark (CTM) applications/registrations. (CTMs give protection in all 28 member states of the EU.)
International applications/registrations under the Madrid Protocol designating the UK and/or the EU.
Trade marks entitled to protection under the Paris Convention as "well known" trade marks. (However, there is no commonly agreed detailed definition of what constitutes a "well known" mark and substantive evidence of reputation will need to be shown to stand a chance of success.)
In the UK a claimant can also bring proceedings against a third party for passing off. In order to succeed, the claimant must first prove (among other things) that they have acquired goodwill in a trade mark. Goodwill must be demonstrated in the UK. Evidence of goodwill outside the UK will not be sufficient to allow a passing off case to be successful.
The UK recognises copyright owned by nationals of countries who are signatories to the following conventions:
Universal Copyright Convention.
Copies of the above treaties can be found at: www.wipo.int/wipolex/en/profile.jsp?code=GB. The claimant will need to prove that they are the true owner of the copyright work.
Registered design rights. Registered designs are territorial rights. Applicants from outside the UK can apply for registered design protection in the UK. However, foreign registered designs are not recognised in the UK.
The following rights are recognised by UK courts as having effect in the UK:
UK registered designs.
Registered Community Designs (having effect in all 28 member states of the EU).
Unregistered design rights. There are two different types of unregistered design protection that have effect in the UK.
First, Unregistered Community Designs (which have effect in all 28 member states of the EU). Anyone can own an Unregistered Community Design and this protection is available for non-UK designs.
Second, design right, which is a UK-specific right. A design created outside of the UK can only obtain design right protection in the UK when:
The design is a "qualifying design".
The first marketing of articles made to the design has been undertaken by a "qualifying person" in a "qualifying country".
A "qualifying design" means that it has been designed by a "qualifying person", commissioned by a qualifying person, or designed by someone employed by a qualifying person.
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, any other EU member state, the Channel Islands, the Isle of Man, any UK colony or any country designated as having reciprocal protection.
The proposals for reform are as follows:
Intellectual Property Act 2014. This Act aims to modernise aspects of the law in relation to patents, copyright and designs. It came into force on October 2014. The Act mainly makes administrative changes to help streamline the design and patent application processes. It also:
amends the definition of "design" for UK unregistered design rights;
brings certain provisions in line with EU law;
makes provision for the Unified Patent Court; and
makes intentional copying of a registered design a criminal offence.
Groundless threats reform. UK law provides a cause of action for those who have been threatened with legal action for alleged infringement of a patent, trade mark or design where that threat is “groundless”. The UK Government recently published a response to the Law Commission’s proposed reforms to this area (see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/406525/Govt_Response_to_Law_Commission_Report_on_IP_threats_final_response_doc_2015_02_13.pdf and http://lawcommission.justice.gov.uk/docs/lc346_patents_groundless_threats.pdf). In the longer term we may see the creation of a new tort of “marking unfair allegations”.
Copyright reforms. The new UK Government is planning to make changes that will affect the use of content including books, music, films and photographs. Further changes will include changes to include greater freedoms to allow use by third parties of copyright works without needing to obtain permission from the copyright owner in certain circumstances (see www.gov.uk/government/news/changes-to-copyright-law).
Section 74 of the Enterprise and Regulatory Reform Act 2013 will replace section 52 of the Copyright, Designs and Patents Act 1988. Section 52 limits to 25 years the duration of copyright in “artistic works” that has been exploited by:
making an industrial process articles falling to be treated as copies of the work; and
marketing such articles, in the UK or elsewhere.
The repeal and replacement of section 52 will mean that articles to which the new section applies will enjoy copyright protection for the life of the author plus 70 years.
Proposals are that this change will come into effect in stages with completion of the repeal to take effect on 6 April 2018.
EU Commission trade mark reforms
Following the publication of a report by the Max Planck Institute for Intellectual Property and Competition Law in 2011, the European Commission published proposals to modernise the EU trade mark system in 2013.The European Parliament adopted the Commission's report, with amendments, in February 2014. These proposals were backed by the European Parliament and EU Council in April 2015. These reforms will cover:
Reductions in trade mark fees, including savings of up to 37% for businesses that seek protection of their CTMs beyond 10 years.
Efficient savings in procedures.
‘Strengthened means to fight against counterfeits’, in particular goods in transit through the EU.
Bringing clarity to trade mark rights and rules (http://europa.eu/rapid/press-release_IP-15-4823_en.htm).
Unified patent court (UPC)
The Agreement on the Unified Patent Court (Agreement) concerns the creation of a unified patent court that will have exclusive jurisdiction for litigation relating to European patents and European patents with unitary effect. The UPC Preparatory Committee published a consultation on the court structure (11 May 2015) as well as court fee proposals (see www.gov.uk/the-unitary-patent-and-unified-patent-court).
*The contributors would like to thank the following people for their contributions to earlier versions of this chapter: Mark Holah, Tom Priem, Samantha Collins and Nevan Chellen.
UK Intellectual Property Office
Description. Official website of the UK Intellectual Property Office.
Office for Harmonization in the Internal Market
Description. Official Website of the Office for Harmonization in the Internal Market (trade marks and designs).
World Intellectual Property Organization
Description. Official website of the World Intellectual Property Organization.
Advertising Standards Authority
Description. Official website of the Advertising Standards Authority, the UK's independent regulator for advertising across all media.
Robert Furneaux, Partner
Professional qualifications. Registered UK Trade Mark Attorney; European Trade Mark Attorney; England and Wales, Solicitor
Areas of practice. Intellectual property.
Rebecca Kaye, Partner
Professional qualifications. Registered UK Trade Mark Attorney; European Trade Mark Attorney; European Design Attorney; England and Wales, Solicitor
Areas of practice. Intellectual property.
Simon Sellars, Senior Associate
Professional qualifications. Registered UK Trade Mark Attorney; England and Wales, Solicitor
Areas of practice. Intellectual property.
Paul Bicknell, Junior Associate
Professional qualifications. England and Wales, Solicitor
Areas of practice. Intellectual property.