Posted on 5/10/2022

The National Security and Investment Act 2021 and IP licensing

Watch out for UK security-sensitive technology transactions.

In June 2022, the Department for Business, Energy and Industrial Strategy ordered a “final notice” for the first time under the UK’s National Security and Investment Act (NSIA) 2021, which blocked the licensing of intellectual property to a foreign entity.

The University of Manchester developed vision sensing technology known as SCAMP-5 and SCAMP-7. SCAMP is a fully programmable machine vision device, inspired by biology, which comprises a high-speed, low-power consumption camera system and a novel processor circuit design. The device can extract pre-processed information from images and transmit the information downstream for further processing. It is fully software programmable, compact and efficient. The proposed uses for the device include robotics, toys, VR and surveillance.

The University of Manchester was in the process of entering into a licence agreement with Beijing Infinite Vision Technology Company Ltd which would allow the Chinese company to develop, test and verify, manufacture, use and sell licenced products using the SCAMP technology.

On 20 July 2022, the Secretary of State for Business, Energy and Industrial Strategy made a final order preventing licensing of the SCAMP intellectual property rights for the following reasons:

  1. The technology has “dual-use” applications
  2. The technology could potentially be used to build defence or technology capability which may present national security risks to the UK following the transfer of the IP rights to a foreign entity

“Dual-use” means the technology could have military and civil applications; therefore, the notice deems that the technology falls within the 17 areas of the economy which are sensitive areas and the transfer of such technology may in turn harm the UK’s national security. Therefore, the government can scrutinise and intervene in the transfer of such technologies. In this case, the government believed the technology transfer could harm the UK and stopped the acquisition from proceeding.

Interestingly, the standalone licensing of IP rights does not fall within the NSIA’s mandatory notification provisions; instead, the SCAMP agreement was voluntarily referred to the UK government by The University of Manchester. Even if they are not voluntarily referred, agreements are susceptible for review within 5 years following completion.

The government has previously prevented the transfer of whole businesses with the NSIA, but this is the first time that the NSIA has been used to prevent the transfer of intellectual property rights alone.

Now that the government has confirmed that IP rights alone can come under scrutiny, it is likely this will be an ongoing focus for the government. Companies should therefore be mindful when negotiating technology transfer to foreign entities if technology rights from the 17 sensitive sectors are involved or if technologies could be potentially used within one of these sectors; and ensure that the NSIA is reviewed, and if necessary, a voluntary (or mandatory) referral made.

If you have any questions about licensing or IP rights, please get in touch to speak to one of our attorneys.

Wilson Gunn