Intellectual property investment – the future of the UK economy and effects of Brexit

November 2017  |  SPECIAL REPORT: PREPARING FOR BREXIT

Financier Worldwide Magazine

November 2017 Issue

Following the UK’s withdrawal from the European Union, it has become more important than ever to make the UK appealing to both investors and businesses. The current investments made in UK research and development in all sectors, from which companies derive valuable intellectual property, make a significant contribution to the strength of the UK economy. Therefore, the possible effects of Brexit on intellectual property investment could be critical for the future health of the UK economy.

Intellectual property is the result of creativity, such as inventions, literary and artistic works, designs, trademarks in the form of symbols, names, logos and images used in commerce. Intellectual property protection gives the owner the right to stop others from using, making, selling or importing the protected property without permission from the owner of the intellectual property right. Intellectual property rights can be used to distinguish businesses from their competitors and are often used to enhance a business’s brand, marketing strategy, competitiveness and company value.

Intellectual property rights can therefore be used to both protect revenue, by enforcement via the laws that prevent competitors from infringing the rights, or to produce revenue, through sale or licensing of the rights, often globally. As a result, intellectual property rights are among the most important and valuable assets owned by many businesses. Good robust intellectual property protection thereby enables a business to earn both recognition and reward for its innovation and creativity.

In the UK, some intellectual property is automatically protected by common law, such as copyright, unregistered design rights, unregistered trademarks, database protection and trade secrets. These will be unaffected by Brexit as the laws that protect them are already national laws rather than European. There are further types of protection that a business can apply to register, such as patents, registered trademarks or registered design rights. Although these can be applied for on a national level, most companies avail themselves of the European-wide rights that are available through the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) to protect patents, trademarks and designs.

These offices will continue to function after Brexit and while European patents and European-qualified UK patent attorneys will be unaffected (the European Patent Convention and the European Patent Office are independent of the EU and have always had a number of non-EU members such as Switzerland, Norway and Turkey), European registered designs, trademarks and trademark attorneys face some uncertainty. This will be particularly acute during the period when the EUIPO and the UK national body that represents European-qualified UK trademark attorneys negotiate the status of UK designations in European trademarks and designs, and what rights trademarks attorneys will have to represent their clients before the EUIPO.

Each of the aforementioned forms of protection has different costs and lengths of protection. The cost of obtaining and maintaining intellectual property rights varies greatly depending on the type of protection, but can be very roughly estimated in the range of £1000 to £10,000 for unregistered rights, which still require management, through to £10,000 to £100,000 for patent rights. Some of these patent costs accrue early in the application process, but significantly more is required to overcome objections at national and regional patent offices, followed by increasing yearly renewal fees payable in each territory, so the total cost to obtain a patent ‘globally’ on one invention across its 20-year life can be several hundreds of thousands of pounds. These costs are not likely to increase after we leave the EU, at least for patents, as the system will be unaffected. For trademarks and designs, it is possible that a separate UK registration will be required, but this is not expected to add dramatically to the cost of protection.

However, the cost of defending intellectual property can be significantly greater than the cost of obtaining it. Large court cases may cost in excess of £1m, although disputes are most commonly settled in the early stages and cost perhaps tens of thousands of pounds. The introduction of the Unified Patent Court (UPC) and Unitary Patent, both having been slated to come into effect by now and expected to radically reform the approach and cost of patent enforcement across Europe, has been delayed by Brexit. Although the UK’s long-term future in the Unitary Patent system is unclear, we are currently completing the ratification formalities of the UPC Agreement which is expected to be finalised by the end of 2017, and the UP system could then be launched in the first half of 2018.

So what are the likely effects of Brexit on investment in research and development in the UK? With suitable intellectual property protection of a unique, novel or inventive business concept, a business becomes a lot more attractive to potential investors. Seeking investment enables a smaller business to obtain proof of concept/prototypes, to develop improvements, scale up production and sales, market itself or its products with greater success, and to achieve these objectives within a shorter time frame. Investors are therefore often vital to the success of small and medium-sized enterprises (SMEs) looking to successfully exploit the full potential of their intellectual property.

Intellectual property-intensive industries generated over 70 percent of the UK’s GDP between 2011 and 2013 (patents totalled 13.3 percent, trademarks 38.4 percent, designs 11.5 percent and copyright 8.4 percent). The majority of IP-intensive industries are privately owned and ensuring consistent growth within these sectors is therefore vital to the continued strength of the UK economy.

SMEs – businesses employing less than 250 people – accounted for 99 percent of all businesses within the private sector at the start of 2016, consequently a significant proportion of intellectual property is produced and maintained within SMEs. These businesses are responsible for 47 percent of the UK’s private sector turnover, and of the 5.5 million SMEs within the UK, 96 percent are defined as microbusinesses, employing less than 10 people. From this, it can be seen that the vast majority of businesses in intellectual property-intensive industries are small businesses and, in many cases, new start-ups needing cash injections to thrive and succeed in their early stages.

Investment spending makes up around 17 percent of the UK national income. In 2014, 55 percent of the UK’s investment spending was in knowledge or ‘intangible’ assets, such as intellectual property, with 53 percent of these investments being made in assets protected by intellectual property rights, an income amounting to over £70bn.

Economists predicted that business investment would be one of the first elements of the economy to suffer as a result of the Brexit vote. However, investment spending rose by 0.5 percent during 2016. As the value of the UK pound plummeted after the referendum, there was a surge of investment into UK SMEs from the US, Japan and China. Some of this has arrived as direct equity investments, government awards, investment into venture capital and private equity, but in many cases these are significant corporate deals worth many millions to the companies in question and valued overall in the billions to the UK economy.

In summary, a weaker pound may in fact make the UK an attractive place to invest and this will remain the case after 2019, whatever is negotiated as we depart the EU.

 

Nicola Baker-Munton is chief executive and Oliver Leason was a summer intern at Stratagem IPM Ltd. Ms Baker-Munton can be contacted on +44 (0) 1223 550740 or by email: nicola.baker-munton@stratagemipm.co.uk.

© Financier Worldwide

BY

Nicola Baker-Munton and Oliver Leason

Stratagem IPM Ltd.

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