The Scottish government’s blueprint for independence, which was published in November 2013, mentions IP on pages 102 and 418. It reads that “continuity of the legal framework for protecting intellectual property rights” will be ensured and proposes an independent Scotland would look to adopt a “utility protection scheme”. This, according to the White Paper, would allow Scotland to offer a simpler, cheaper and more business-friendly model than the current UK system, “which is bureaucratic and expensive, especially for small firms”.
One topic not explicitly covered in the White Paper is whether or not an independent Scotland would seek to create its own Scottish Intellectual Property office (Scottish IPO) or whether it would seek to make use of the UK Intellectual Property Office (UKIPO), which processed almost 1,000 patent applications and over 1,500 trade mark applications from Scotland in 2011.
A Scottish IPO would involve large start-up costs, and its formation would possibly have to be subsidised by the taxpayer. Should the intention be for an independent Scotland to use the UKIPO, then a period of negotiation would be required before any possible agreement. With these thoughts in mind, we wrote to the UKIPO for its comments.
View from the UKIPO
John Alty, Chief Executive and Comptroller General of the UK IPO (left), noted that his organisation employs more than 300 patent examiners and processes in excess of 20,000 patent applications annually in fields varying from quantum computing to footwear. Alty suggests a Scottish IPO would need to be able to examine patent applications across a similar breadth of technology areas to keep the same quality of service provided by the UKIPO. Additionally, it is unclear what would happen to existing patents granted by the UKIPO, for example whether they would continue to be valid in an independent Scotland.
However, as Alty points out, a number of independent countries already allow UK IP rights to be extended upon completion of certain local formalities and there is no need for the UK government to approve such arrangements, but the UK does not offer reciprocal re-registration of rights granted overseas. Thus, it may be the case that any future independent Scotland could allow UK patents to extend to Scotland, but, for now at least, if Scotland were to form its own patent office to grant Scottish patents, it would not be possible to extend these to the remaining parts of the UK. This will most likely lead to increased costs for the user wishing to seek protection in both the UK and Scotland.
While there is the negotiable option of using the UKIPO, which could be more cost effective, it is notable that the blueprint criticises the UK system in terms of bureaucracy and expense, which may point to the desire of the Scottish government to form its own Scottish IPO in the event of independence. In response to such criticism, Alty points out that the UK IP system was ranked first overall in the 2013 Taylor Wessing Global IP index, which assesses how 36 IP regimes worldwide compare with each other. In particular, Alty notes that the report states “The UKIPO wins praise from respondents for its speed, consistency, online services and helpfulness of staff for small and medium enterprises.”
In answer to the proposal for a utility model to be adopted, Alty advises that this was considered as part of the Hargreaves Review of IP and Growth. In view of the findings in the report, the UK government believes that the introduction of a utility model system would not bring benefit to UK business as a whole and thus does not intend to introduce such a system, but rather is looking at pursuing other routes to support innovation and help applicants obtain patents quickly. Thus, it would seem that in relation to a utility model at least, an independent Scotland would have to create its own law and Scottish IPO to manage protection, or possibly allow the holder of a utility model in another European country to extend protection to Scotland, in an analogous manner to the way in which UK patents are extended outside the UK.
The European context
The White Paper also says that “as an EU member state, Scotland will meet European regulations and directives on IP rights protection, as well as international patent and trademark protections”. However, while the Scottish government intends to apply for EU membership as an independent nation, it is unclear how long this would take.
The White Paper does not mention the European Patent Convention (EPC) or the EU Unitary Patent, although it must be assumed that an independent Scotland would want to be associated with both. We therefore wrote to the European Patent Office (EPO) for comment.
Benoît Battistelli, President of the EPO (right), told us that Scotland would have to accede to the EPC should it become an independent state. As it was the current form of the UK which ratified the EPC, following independence, the remaining constituent parts after a vote for independence would continue to be a contracting state. Battistelli considers that this approach takes account of the principle that in an international organisation, such as the EPO, new contracting states cannot emerge from a unilateral act, here the separation of part of a territory from a contracting state. One reason is that the increase in the number of contracting states has an impact on the functioning of that organisation.
As a new state, Scotland would have to be invited by current EPC contracting states to comply with it. The process of becoming a member of the EPC is not a short one and Scotland is unlikely to be fast-tracked. According to Battistelli, the time schedule for accession would have to be negotiated at a political level – it would be up to the EPC contracting states whether they would negotiate only once Scotland becomes fully independent or if talks could begin before the final secession from the UK. Battistelli also states that Scotland would have to set up features for a national patent system for the functioning of the EPC.
Impact on existing applications
In terms of existing European patent applications that designate the UK and which are pending, should Scotland become independent from the UK, Battistelli believes that upon grant any European (UK) patent can no longer be effective in Scotland having left the UK. However, Battistelli considers that such applications may be considered as acquired rights, also with respect to Scotland and under general principles acquired rights should also be protected by Scotland should it become an independent state. Thus, it may be possible for a Scottish legislator to find a suitable manner in which such acquired rights may be enforced in Scotland.
An independent Scotland may attempt to follow the precedent recently set by Moldova. Towards the end of last year, the Moldovan state IP agency agreed a validation agreement with the EPO which will allow European patents to take legal effect in Moldova – even though the nation is not a contracting state to the EPC. This may be an attractive option for an independent Scotland, until such time as it becomes an EPC contracting state.
Finally in relation to the Unitary Patent, Battistelli argues that, for the Unitary Patent to become effective in an independent Scotland, Scotland must be a member of the EU and a contracting state of the EPC and the Agreement on a Unified Patent Court, as a consequence of the legal structure of the unitary patent.
Battistelli points out that the “EU patent” grows out of a (normal) EPC patent application designating at least the current 25 EU member states participating in enhanced co-operation and which is processed by the EPO like any other EPC patent application. Up to one month after grant the proprietor may request unitary effect for the European patent under the EU-Regulation 1257/2012, but this effect is governed by national law, here Chapter V of the Agreement on a Unified Patent Court. It is only through this interplay, Battistelli argues, between all these legal elements that the European patent with unitary effect can be implemented.
Other practical issues
As well as all these very legal issues, there are a number of other points surrounding IP yet to be publicly debated. One of these is the UK Patent Box, which enables companies in the UK to apply a lower rate of corporation tax to profits earned from patented inventions.
At a recent conference in Edinburgh, Dave Tudor of pharmaceutical company GlaxoSmithKline (GSK) – which has manufacturing bases in Irvine, North Ayrshire and Montrose, Angus – highlighted the benefits of UK Patent Box. He explained it has made manufacturing in the UK cost-effective and is a crucial factor to GSK keeping its manufacturing operation in the country. GSK recently announced a £25m investment in Montrose, increasing its Scottish workforce to 500 in the process.
It is evident that UK Patent Box is extremely important to companies and yet there does not appear to be any indication in the white paper as to whether the Scottish government intends adopting this in an independent Scotland, or any alternative tax incentive. It is appreciated that the current UK Patent Box and other similar systems which operate in other European states have come under scrutiny by the EU Commission and so it may be the case that any future government of an independent Scotland would want to wait for the outcome of the EU Commission’s review, but this may in the meantime be to the disadvantage of businesses in Scotland, such as GSK.
In conclusion, it can be seen that, while the White Paper touches on the subject of IP, it has arguably left many in the sector with more questions than answers. From the Patent Box to a Scottish IPO these are important issues which require debate. Scotland prides itself as a hub of innovation, and strong IP laws will help to ensure this continues should a “Yes” vote be delivered on September 18.
Paul Chapman is a partner and Donald McNab is an associate with Marks & Clerk, both based in the firm's Edinburgh office