Legal Briefing

Intellectual property and Scotland’s constitutional future

The In-House Lawyer Logo

Scotland | 01 April 2013

Intellectual property (IP) is of huge and ever-increasing value to all businesses. It is often the most valuable asset that a company owns. By way of example, in 2010, patents held by US companies were estimated to be worth $2 trillion. Recently, Alan Greenspan, the former Chairman of the Federal Reserve of the United States, said that 75% of the value of companies is in their intangible assets, an increase of some 40% on the 1980s. 


Whether companies recognise it fully or not, their IP will form a substantial portion of their overall value, which is only likely to increase in future. Therefore, it is important for those doing business in Scotland to be assured of their continued ability to effectively protect and exploit their IP, whether Scotland remains part of the UK or not, following the referendum on Scottish independence in 2014.

The issues that independence might present for the Scottish IP regime therefore deserve serious discussion as part of the debate as we approach next year’s referendum. Such consideration is even more important given that Scotland is 
home to many IP-rich sectors such as 
food and drink; oil, gas and renewables; 
IT and life sciences, all of which are of vital importance to the Scottish economy.

CURRENT IP REGIME

At present, Scotland, of course, has a devolved parliament but it cannot (with 
one specialist exception relating to a Scottish Tribunal under the Plant and Varieties Act 1997) legislate on substantive IP law as it is a reserved matter for Westminster. As such, while enforcement can be carried out at local level, primarily in the Court of Session, Scotland and its business community currently use the UK Intellectual Property Office (IPO) to register UK patents, trade marks and design rights and assignations/licences relating to them. As part of the UK, Scotland is also an EU member state and as such is subject to the EU’s IP harmonising legislation and to the provisions of various international treaties which relate to IP.

If Scotland were to become independent, it cannot simply be assumed that it could rely upon the status quo continuing so far as these key practical aspects of its IP system are concerned. Continued membership of the EU and/or a whole host of other relevant and international treaties might not happen automatically and there may 
be a need for specific accession.

It is clear that Scottish independence would present opportunities and challenges in terms of IP protection.

POTENTIAL IMPACT OF INDEPENDENCE

The opportunities

There may be some real opportunities offered as a result of the ability of a new Scottish constitution to legislate on substantive IP issues. These could be explored and where appropriate harnessed for the benefit of Scotland’s wealth of IP-rich sectors and businesses and its economy as a whole.

Although a Westminster-generated piece 
of legislation, the Scottish Whisky Regulations 2009 are a good example of an effective IP initiative protecting a key Scottish industry. These regulate matters such as the sales description and the use of distillery names as brands, and create a strict regime for labelling, packaging and advertising whisky. In doing so, they 
protect the IP rights of the Scottish whisky industry. With independence there would be scope to improve the existing UK-wide IP regime by introducing new forms of IP unique to Scotland or based on models tried and tested elsewhere but currently unavailable in the UK.

One possibility might be a new law of 
unfair competition akin to the continental civil law regimes, which coexist along with their EU harmonised laws on trade marks. The UK, and therefore Scotland too, has instead the law of passing off. This is, while flexible and largely judge made, still perceived by many businesses and brand owners as not going far enough in its ability to protect them from, for example, copycat packaging employed by supermarkets on their own-branded product ranges. Consideration could also be given to the introduction of registered IP protection for technical ideas, which have a different and lower test for grant than traditional patents. These might be closer akin to continental utility models and US-style design patents. If initiatives of this kind could be considered and, where beneficial, embraced, especially together with a concerted effort to ensure effective methods of local IP dispute resolution, Scotland’s reputation as an IP-friendly nation would be enhanced, which could hugely benefit its economy as a whole.

The challenges

Under independence, a number of practical questions would arise, not least in relation to the status of existing national and community-wide IP rights but also the forthcoming new unitary patent system and Unitary Patent Court for enforcing such new unitary patents/existing European patents on a Europe-wide basis.

THE STATUS OF EXISTING UK INTELLECTUAL PROPERTY RIGHTS

As far as the author is aware, no detailed consideration has yet been given to the impact of Scottish independence on the scope and validity of existing national registrations, such as UK trade marks or patents. Irrespective of its continued EU membership, Scotland would still be separate from the rest of the UK. While there is a strong argument for the preservation of the status quo with such rights remaining valid and enforceable UK-wide, it is clear that some arrangement would need to be arrived at with the IPO and with Westminster to facilitate this. It seems likely that existing UK-registered rights would remain in play but future applications for UK-registered rights, and possibly even those that are pending, could be extinguished, at least insofar as Scottish geographic coverage is concerned. There are views that the unitary patent system (discussed further below) has some potential downsides and, until at least it has bedded in, could result, paradoxically, in national patent systems becoming more popular in the short term or even the longer term. It is important therefore that registered IP coverage for Scotland is easily achievable and affordable.

EXISTING COMMUNITY IP RIGHTS

If Scotland were to become independent, then it is possible that it would need to reapply to become a member of the EU. The European Commission’s President Manuel Barroso has expressed the view that an independent Scotland will be required to reapply by making a request for accession. This would need to be approved unanimously by all member states.

Again, if Scotland were no longer to be a member of the European Union, consideration would need to be given to the scope and validity of existing Europe-wide rights such as Community Registered Designs and Community Trade Marks. Would/should such existing rights continue to have effect in Scotland or would such rights convert to a Scottish or UK national registration only?

THE NEW UNITARY PATENT REGIME

After 40 years of wrangling, the new unitary patent and Unified Patent Court system looks likely to come into existence in 2014 or shortly thereafter. If Scotland is no longer a member state within the European Union at that point, it will not (absent specific accession) be possible to obtain a unitary patent that has effect in Scotland. As recently as 19 February 2013, the deal on this was finalised and signed by Vince Cable for the UK along with 23 other member states. He was quoted as saying:

‘The agreement will help our inventors who can in future spend more time on research and development, producing new ideas and less time filling in forms and defending their patents in court. 
We estimate benefits to the UK of around £200m a year.’

The new system is intended to be a major improvement on the existing European patent system. Under the current regime, although applications initially are made to and processed by the European Patent Office on a centralised basis, they are, once granted, divided up into a portfolio of national EU patents registered at local patent offices. These must be enforced by the individual national courts of the member states, rather than on a Europe-wide basis. Similarly, once granted, their validity can 
only be attacked by applying for revocation on a country-by-country basis to the 
national patent offices or courts. This means that the costs of enforcement can be expensive and different countries often reach conflicting decisions on the same patented invention.

Under the new regime, companies looking to defend or enforce their patents across Europe will, in principle, only need to go to one central or unitary court, instead of litigating on a piecemeal and costly basis 
in each European country concerned.

Whether the new system turns out to be as useful or as cost effective as is intended is another issue, however the potential improvements it offers could be very beneficial to Scottish business.

As things stand, London has been selected as the host country for one of the three divisions of the Central Unitary Patent Court (for pharmaceuticals and life sciences) with the other two going to Paris and Munich. The location of the various additional local and regional divisions of the court in individual signatory states is still unsettled and to be negotiated. These courts will allow businesses to enforce their unitary patents and will also be able to deal with validity issues locally.

However unlikely it may be, if Scotland was no longer a member state of the EU it would, strictly speaking, not be eligible to participate in the new unitary system. While its businesses could still apply for unitary patents these would not provide protection within Scotland itself but only in EU member states. Nor would Scotland be able to host a local division of the court or join into a London initiative to form a regional division for more than one country.

These ramifications may make it necessary for local Scottish businesses to litigate their unitary patents outside Scotland. Likewise, if sued for infringement of such third-party patents, they are likely to be forced to defend themselves in foreign courts. The long-term intention is that the current European patent system would be phased out and, in any event, it may be that an independent Scotland would have to leave this international EU patent system. To participate in it Scotland would need to be a member of the European Patent Convention as a separate recognised state. This would involve accession and an invitation approved by two thirds of the members.

Given the importance to the Scottish economy of IP generally and its reliance on IP-rich industries, both the opportunities and challenges highlighted above need to be considered carefully as part of the debate over Scotland’s constitutional future.