UK national security order impacts IP licensing agreement

Beijing Infinite Vision Technology Company Ltd had agreed an IP licensing agreement with the University of Manchester which would have permitted it to use the university’s vision sensing technology to develop, test and verify, manufacture, use, and sell licenced products. However, the government ‘called-in’ the deal for review under the NS&I Act and issued an order preventing the IP transfer from going ahead.

It is the first time the government has used its powers under the NS&I Act to block a transaction since the NS&I Act came into force earlier this year.

The NS&I Act came into force on 4 January 2022, establishing a new standalone regime for screening M&A deals and other transactions with connection to the UK on national security grounds. It is administered by the Department for Business, Energy and Industrial Strategy (BEIS).

The regime covers the entire UK economy, although ‘mandatory’ filing requirements, and associated civil and criminal sanctions for non-compliance, apply only to corporate transactions in 17 designated industry sectors. Transactions in other sectors, as well as a wider category of transactions such as property deals and intellectual property licence agreements, are subject to a ‘voluntary/call-in’ notification regime.

In a notice publishing its order in the vision sensing technology case, BEIS said preventing the IP transfer was “necessary and proportionate to mitigate the risk to national security”. It said it considers the technology in question to be ‘dual-use’ technology capable of being used for military purposes and that it “could be used to build defence or technological capabilities which may present national security risk to the United Kingdom”. It said those risks would arise if the IP transfer envisaged under the licensing agreement went ahead.

A University of Manchester spokesperson said: “We have thorough internal processes in place to look at proposed international agreements. These were followed in this case and, in line with the legislation, we voluntarily referred this agreement to the UK government. We will, of course, abide by the decision that has been made.”

‘Dual use technology’ is one of the 17 sectors of the economy that the UK government has indicated involve heightened national security risk. A transaction involving one or more of these 17 sectors is more likely to be called-in for closer review by BEIS even if it does not trigger ‘mandatory’ notification requirements.

Speaking in the aftermath of Pinsent Masons’ annual competition conference 2022 back in May, Giles Warrington of Pinsent Masons highlighted some early teething issues with how the NS&I Act had been operating in its formative months.

One issue flagged at the conference was the perception that the new regime may have been attracting more filings than BEIS had anticipated. Warrington said this can add complexity, delay and cost to transactions and increase BEIS’ workload. He said new guidance might help address the issue.

Last month, BEIS issued additional guidance. It gives guidance on common scenarios, flags common errors on notifications the department has seen since the Act came into effect, and seeks to help organisations better understand which transactions are subject to mandatory notification or potential ‘call-in’. Among its other aspects, the guidance aims to help higher education institutions to decide whether to notify. The new guidance builds on guidance previously issued by BEIS, which includes specific guidance about how the NS&I Act regime applies in the context of higher education and research-intensive sectors.