Journal

Financing and scaling UK science and technology

On 9 May 2025, the IP Commercialisation Committee submitted CIPA’s response to the House of Lords Science and Technology Committee call for evidence on ‘Financing and Scaling UK Science and Technology: Innovation, Investment, Industry’.

We welcome the opportunity to respond to this important consultation. The points we make are relevant to questions 1c, 2d, 3 and 3b, 4, 4b and 4d, 5a and 6a.[1]

Intellectual property is the lifeblood of innovative small and medium-sized enterprises (‘SMEs’). The IP needs to be managed for value appropriately across the product lifecycle. It plays a critical role in contributing to SME scaling, by, for example, providing a competitive edge, attracting/protecting investment, accessing new markets and revenue streams.

This response covers the role of IP in scale-up and problems that are created by the generic  IP contract clauses when there is public funding, whether that be through government departments, Innovate or other agencies. Later we give a list of examples of the IP clauses with source, but they are of the general form requiring some or all of a free, worldwide, perpetual, irrevocable licence, with sublicensing rights, to the intellectual property, including any necessary background technology. These are very wide licence rights that extend beyond what would normally be in a commercial contract and are a flaw in an otherwise well-operating IP system in the UK. In particular we query ‘worldwide’, the unrestricted sub-licensing rights and the lack of tie-in to the commissioned project.

It is in our practical experience that innovative tech start-ups and growth companies are hit hardest and disproportionately by these terms; larger companies have a greater IP understanding and ability to negotiate.  This is elaborated fully in a later section but stems from the early stage at which such companies become engaged and thus the unknown nature of potential commercial values, lack of IP expertise and exit strategies. For SMEs this is exacerbated by the length and complexity of procurement contracts.

Last year CIPA set up a Committee to gather evidence on this subject and though that is not complete we wish to input to this consultation and would be happy to give oral evidence and update the committee as evidence is gathered. CIPA is also prepared to provide deeper explanatory documents on aspects of IP, especially as a practical matter.

We have noted the suggestion in the recent report of the Committee that procurement can potentially support growth companies and scale up. These generic IP clauses in procurement and pre-procurement contracts, especially in the context of small and growth companies, negates making steps towards scale up. When at early stage with young and unadvised companies such clauses are often overlooked, or not understood, and then get found later and can cause blocks to investment because the competitive advantage of their product has been undermined. The global sublicensing rights are particularly troubling in the context of impairing potential export and investment.

We understand that the government wishes to avoid vendor lock-in but the overly risk-averse approach adopted has economic consequences for the development and scale-up of UK technology. Provisions intended to prevent vendor lock in after procurement are often overreaching and could be avoided in much less intrusive and damaging ways.

We consider it essential to understand the difference between patents and copyright and what is fair to both sides of the contract especially in early-stage development. Presently the approaches taken are deeply unfavourable to the companies.

Contrary to assumptions by many, under the Copyright, Designs and Patent Act 1988 an entity commissioning software does not automatically own it. It is, however, very sensible to ensure that the rights to use and service it are available. As a practical matter when software is written by provider A it is usually quite specific to an application and often very complex. It is unlikely that Party B would be willing to accept the software as written and accept liability for any failings. Nevertheless, the presence of a right for Party B to make unrestricted use of the software would certainly raise questions with investors and likely discourage investors in provider A, as would having the facility to grant general sub-licences to anyone to copy all or parts of code in a rewrite for a different purpose.

Patents are a much broader form of IP protection and the rights usually reside with the inventor’s employer. They will often cover a much broader concept than relates to or is required as a solution for one specific project. It is again sensible and fair to ensure licence for use of the invention in the commissioned project or projects for the specific purpose of the project, but not fair to be able to grant a sub-licence to anyone to do anything, anywhere under the patent. That is totally undermining the IP and will again put off investors because it destroys the competitive advantage earned by the inventive company. In this context it has to be appreciated that years of work, research and background knowledge are utilised in the making of inventions, they are rarely isolated ‘light bulb’ moments.  This approach destroys the competitive advantage built up in those years of work, research and background knowledge, or the innovative characteristics that make that SME attractive for a particular project.

We also query how does the government practically track or monitor their acquired rights and sub-licences? We are aware that generally the Government has a poor track record of making use of IP (of which it has acquired control or an interest in) other than for the very specific project for which it was commissioned.

We therefore propose:

That there should be an end to broad generic ‘IP’ licences with unrestricted sub-licensing rights in contracts and terms of reference when applying for procurement, pre-procurement contracts or funding. It is also noted that IP covers trade marks and it is unclear why they should be sub-licensable.

IP terms should be the minimum necessary to secure operation and servicing of any project or equipment and specific to the project or projects only.

Licensing rights should usually only be for the UK unless there is a clear reason for it to be wider. This may be relevant for defence projects and for those a restriction can be for ‘UK defence purposes’ (which is defined to include co-operation with allies) which leaves open non-UK defence applications.  The specific types of IP should be stated.

The terms must always be proportionate, not give huge rights for little remuneration.

There should be a non-use by government or its agencies clause terminating the licensing rights after a period relevant to the type of technology.

Licensing on fair reasonable and non-discriminatory (‘FRAND’) terms could be utilised where appropriate. This can work both ways depending on circumstances, either the purchaser paying a licence fee to the IP owner rather than licences being free or in some circumstances reverse licences where the IP owner provides government with a royalty as a form of payback for development funding.

Where there are old contracts with overly broad terms there should be a general notice concerning reduced scope.

The government should keep a register of the rights that it owns and has sub-licensed.

Examples seen from other countries, notably the US, appear to incorporate small royalty payments as a payback mechanism. Other early-stage funding examples take an equity stake.

There should be a review of the Subsidy Control Act 2022 and its effects on early-stage procurement and pre-procurement and the chilling effect of contracts requiring sharing and licensing of innovative companies’ development IP with competitors ostensibly to avoid a subsidy.

Subsidy control

There have been some confusing references to subsidy control as a reason for having the IP clauses and levelling the UK internal playing field. Where there is competitive bidding in procurement or pre-procurement, there seems to be no basis for this.  The point of an open competitive procurement is to ensure a level playing field, so there can be no subsidy.  This can be achieved with the grant of much narrower IP ownership or licence rights.  It is also an extraordinarily destructive proposition and policy choice to kill IP as the chosen mechanism at any point in the development chain.

In addition, if it is perceived that young, growing, innovative companies are unable or disadvantaged in entering the market, then there is a market imperfection which can appropriately justify subsidy (and already supports the grant route).  That justification extends, not just to the creation of the IP, but also market entry based on that IP. Stronger guidance on this, and relevant schemes for permitted subsidies would be welcome to ensure grant makers (or service contract procurers) do not seek to rely on over wide IP licensing provisions as a ‘get out of jail’ free card.

Existing contract examples

We are aware that the Minister, Lord Vallance, understands the issue and has been working to improve matters, but there is still some way to go. He has said that there are not, or no  longer, such clauses in respect of grants and it is the case they no longer appear in UKRI terms. We welcome this development. However, any issues arising from onerous legacy IP provisions would still need to be addressed. Below are links and quotes from a range of projects, including some older (legacy) ones.

1. Innovate UK:

February 2025 example of UKRI Terms and Conditions of an Innovate UK Grant Award. Clause 19 covers the IP – note that there needs to be a collaboration agreement between all the parties in the grant application process – these are usually a Lambert Agreement of some kind.

apply-for-innovation-funding.service.gov.uk/competition/138/download/1038 (old)

10. Intellectual property

Innovate UK will not own any intellectual property rights (IPRs) developed during or as a result of the project.

You agree to grant Innovate UK a UK-wide irrevocable, royalty-free, non-exclusive licence, together with the right to grant sub-licences, to the IPRs from the Project to use or publish the results of the Project.

You will ensure that you have the necessary rights to use or access third party IPR needed to carry out the project.

One of our SME members (anonymised) previously signed up to this for project funding, without recognising at the time the consequent real risk of their IP falling into the hands of a competitor (until it was too late). At the time of signing this, there was no scope to negotiate with Innovate UK.

2. UKRI contracts for innovation (pre-procurement/grant): 

See www.ukri.org/what-we-do/browse-our-areas-of-investment-and-support/innovate-uk-contracts-for-innovation

3. Catapult T&C (which would be a grant):

See cp-catapult.s3.amazonaws.com/uploads/2024/12/Grant-Terms-and-Conditions-with-subsidy-.pdf

4. Catapult / National Highways Pilot Contract (innovation grant)

9.3. The Pilot Participant hereby grants to each of CPC and the Pilot Funder:

• • 3.1. a non-exclusive, royalty-free, world-wide licence to use Pilot Participant Foreground IPR for internal non-commercial research purposes within the Field only, for a period of two (2) years from the Commencement Date; and
  • 3.2. a non-exclusive, royalty-free, UK-only licence to Pilot Participant Background IPR which are necessary or desirable to enable CPC and the Pilot Funder to enjoy the rights granted under Clause 9.3.1.

5. SBRI Example Contract (pre-procurement)

16. Intellectual Property Rights

16.1 All Background Intellectual Property used or supplied under this Agreement in connection with the Project shall remain the property of the Party introducing the same and nothing contained in this Agreement or any licence agreement pertaining or pursuant to the Project shall affect the rights of either Party in its Background Intellectual Property.

16.2 Subject to Conditions 16.3 and 17.5, the Intellectual Property rights arising out of the Project (‘Project Intellectual Property’) shall belong to the Contractor. The Contractor hereby licenses the Authority and each of the Authority Partners to use the Data, Results, Material, outcomes and any foreground technology for such purposes as the Authority and/or the any of the Authority Partners shall in its absolute discretion deem fit.

16.3 The Contractor hereby grants to the Authority and each of the Authority Partners a UK wide irrevocable, royalty-free non-exclusive licence, together with the right to grant sub-licences, to use or publish information Data, Results or conclusions arising from the Project.

Disproportionate effect on SMEs

1. These grants/contracts disproportionally impact startups, scale ups and SMEs compared with established corporates – for at least the following three reasons:

• • At the time of the grant/contract signing, the commercial value of any arising or foreground IP is unknown or considered small and the grants/contracts often give the company a way of proving a concept which they later hope to be commercialised and thus increase the value of the product or service being developed and thus, the value of the IP. However, the market size and their ability to access that market is, at that point, unknown. Only later, if they are successful, may it become clearer – in so much as only when the product has been fully developed, can the true value of the IP and licences be known. This causes uncertainty as to the future impact of the licence terms at the time the contract is signed. This may either put off such companies from signing such agreements, or lead to an ‘uncertainty of impact’ at a later point, which can be harmful for the scale up when they come to exit (see our last point).
  • Startups, scale ups and SMEs often do not have access to in-house legal or IP expertise and so they either ignore the risk, withdraw from the process, or pay for external lawyers to help them assess the risk, or simply fail to understand the risk (e.g. of opening up access to their background IP for the value of a relatively small development project]. Large corporates have internal legal and IP functions that can help them to decipher the impact, as well as manage the on-going impact of IP clauses in government contracts. With terms such as ‘foreground’, ‘background’, ‘exclusive’, ‘non-exclusive’, ‘worldwide’ ‘perpetual’, ‘sub-licensable’ all confusing to a standard lay person.
  • Many startups, scale ups and SMEs do not ‘organically’ grow to become large corporates, many such companies need to take angel or VC investments over one or more ‘rounds’ and later, need to make an ‘exit’ to return value to said angels and VCs. This exit usually means selling their company to a larger corporate, which in turn grows through the acquisition of smaller companies. On these investment rounds or exits, due diligence occurs and if contracts and grants have been taken that have such broad IP terms, this leads to an investor or acquirer unable to quantity the impact of such terms on the value of the IP being built within the company [or perceive that there is significant risk associated with any valuation because of the rights ‘given away’], and may lead to an investor or acquirer walking away from the company being sold/invested in. Alternatively, lengthy processes have to ensue to try and obtain written agreement from the government/agency as to whether they will waive the IP terms.

2. These terms are flawed and/or unworkable in practice, for at least the following five reasons:

• • How does the government practically track or monitor these terms and know to what IP they have rights; and what IP they have rights to sub-license? As a company may develop a product further after a contract or grant has ended, so without a full asset register and or report of arising IP, how can the government track all the IP they have rights to, to even be able to sub-license that IP? The question also arises as to the fairness of rights to those subsequent developments not least as it undermines the ambition to create unicorns.
  • Can the government value the IP, even if the scope of the IP that has been licensed is known?
  • If the government do not want or need to license the IP, they should return it to the company that has developed it and thus satisfy the issues raised in point 1 sub-bullet 3 above.
  • As a grant acquirer grows over time, it may add other new IP to a product and so dilute the earlier IP snagged by these contracts, so how is that taken into account?
  • Is there a mechanism to later waive these rights in an easier manner and make sure that a company can grow and develop to better serve the UK economy as a part of something bigger than it started?

3. Some solutions proposed:

• • Clear terms at contract signing regarding ways of scoping the IP value for future need and de-risking the issue in Point 1 sub bullets 2 and 3, by any or all of the following mechanisms:
  • An upfront agreement the company can buy back the IP at a future price*
  • An upfront agreement to license the IP back on FRAND terms*
  • An upfront agreement that a waiver to IP terms will be given, if applied for, for example after a suitable period, should the government have decided they are no longer interested in the IP scope.*

*It is noted that all of these mechanisms are used by commercial tech transfer departments of universities to allow spin outs to commercialise IP created within universities and therefore allowing some share of future success to the university for the original IP, whilst also recognising through future investment and grants, new future IP is created which should belong to the spin out. This may not be so appropriate for independent companies that have not had the benefit of establishment as university spin outs have.

In conclusion:

Thus, contrary to their aim, these types of IP terms constrict, rather than support, the growth of the UK economy by hampering early to mid-stage startups, scale ups and SMEs access to government grants and contracts while in a product or market development phase by defining IP terms which cause an unquantifiable future state’ and thus an unquantifiable future risk at a point of investment or exit.

Relevance to questions

Question 1c – Key barriers for the government to address  to ensure that science and technology developed in the UK has the maximum economic and strategic benefit to the UK? Do other countries have policies––for example, in intellectual property––which have allowed them to retain more public benefit domestically?

In order to bring value to the economy it is necessary for private companies to hold IP in order to scale. The key step for scaling is obtaining sales – whether to the private sector or public sector. Much of the private sector in the UK is cautious and does not want to be first mover to purchase. Whilst we do have some large private sector organisations, we don’t have a suitably large supply of them compared to the United States or China.

This is where public procurement, even if small, can be the step that opens up sales to the private sector, expansion and export. Unfortunately, public sector procurement, and pre-procurement stages, follow a track of requiring the commissioning bodies to have free, perpetual IP licences with rights to sublicence, sometimes with global reach. This means that the IP no longer has value to the IP owner as in any public competition their IP can be given to others who have not had the cost of the underlying R&D that formed the basis to create the IP. This also applies to companies downstream in the public sector supply chain, often SMEs. So, if an SME is supplying a main private sector government supplier, or Prime, it may also be within this IP constrained universe.

Historically, the UK government has obviously signed some poor contracts that have not given appropriate IP rights. Horizon, which is in the news, may be an example. The key word here is ‘appropriate’, by which it should cover the continued use and maintenance of the product, maybe with an end date.  It is also necessary to treat different types of IP differently. In particular commissioned software, which is essentially specific, is a very different situation from utilising a patented invention that may cover a much wider spectrum than the commissioned product and for which the procurement contract would not have provided fair reward.

It is notable that large US corporations put large store by their IP and they would not have got where they are without it. It is also worth contrasting the approach of UK company Deliveroo (no mention of IP per se) with the US company Door Dash (mention of lots of IP) which is now looking to acquire Deliveroo.

Deliveroo and Door Dash highlight stark differences between UK and US approaches to intellectual property for emerging and scaling technology businesses. Door Dash’s 10-K states that they have 224 issued US patents whilst Deliveroo’s annual reports do not even mention intellectual property. This appears to be a very wide blind spot in creating internationally competitive businesses.

It would be sensible to have improved IP awareness training/education in the UK, starting at school and continuing at apprenticeship/undergraduate level. Working together closely with the government and schools, higher education institutes and universities, we believe this objective can be realised.

We should remain open to reviewing and learning from the approaches of other countries in this area.

Question 2d – Strategic priorities for UK science and technology in a changing world – Does the current scientific incentive structure, around funding, peer review, and publications, reward high-impact science and technology? How can it be reformed to do so without just adding more bureaucracy to the system?

No there is too much emphasis on papers and not enough on IP, especially patents. The dash to publish can undermine subsequent opportunity for patents due to disclosure. While universities have become much more aware of this in recent years, so fewer such blunders, the better economic success measure is given by IP. In recent years, academic publications have been on the rise, patent filings have declined. Does this denote withdrawal from applying the technology?

Question 3 and 3b – Is the UK’s research and innovation landscape well-structured to support science and technology commercialisation, economic impact, and strategic advantage for the UK? How well do the current organisations intended to help early-stage commercialisation (such as Innovate UK and the Catapults) perform this task? What could be done to make these organisations more effective?

The issue with IP licences is undermining strategic advantage as it either eliminates competitive edge and the investability of the company if the public procurement/pre-procurement route is utilised, or it shuts off the public procurement route as a viable route to market because of the impairing effect of the licence terms.

Question 4, 4b and 4d – How can the government encourage more private-sector investment in R&D, and in R&D intensive companies, including technology start-ups and scale-ups, in the UK? What are the major factors behind the exodus of capital and companies to the US, and is there anything that the UK can do to prevent this? Why don’t major institutional investors in the UK invest more in UK science and technology companies as they scale up? Is there sufficient expertise and understanding of science and technology in the UK finance sector? Are financial regulatory frameworks making London an attractive place for high-growth science and technology companies to IPO [initial public offering] and list? What can the UK do to encourage high-growth companies to list here?

Given the essential role of public procurement for some types of product (e.g. in health, communications, defence or transport) the current IP terms render investment unattractive. Quite often the move to the US for growth companies is as much about first sales, including public procurement, as it is about funding or listing. Not only are there better procurement opportunities and a healthier risk appetite, but there is also better government coaching and financing for making private sector pitches, with government prepared to take equity stakes. There is far more respect in the US for the role of IP in companies.  Various steps that are under discussion by the UK, such as more acceptance of risk and failure, plays a part but that will not help if the IP and procurement hurdles are not solved.

Question 5a – What evidence do we have that these initiatives ‘crowd-in’ investment from the private sector rather than crowding it out? What can the government do to encourage co-investment with the private sector in priority areas? Does the government have a clear view of the kind of investor it wants to be?

There are some proposals around that help. Banks are looking at lending secured on IP, but this is undermined if there are devaluing licences in the public sector. Likewise, equity investment is undermined as IP is the major asset.

The government should be readier to take an equity stake and get its payback that way, or through a reverse licensing agreement, as well as via economic benefits from scaling-up companies.

The government should also be fair and positive towards patent licensing rather than seeking IP neutralisation in contracts. This does not need to be excessively expensive and may be an alternative way to push funding into R&D as those obtaining patents are also the companies doing research. Licence fees, which then increase company revenues, will also crowd-in investment. Revenue and profit is a weak spot in the UK’s innovative companies. If you consider the companies created in the last 20 years from the list in www.beauhurst.com/research/unicorn-companies and remove the fintech and energy companies, and companies already on the path of foreign ownership, all but two of the remaining 18 make no profit even when achieving millions in turnover. In total they have £963 million of revenue and make a loss of £753 million.

Question 6a – On public procurement, are the flexibilities provided by the Procurement Act 2023 being used by government to support UK innovation? Are there international procurement models the UK should emulate?

Public procurement is still biased against small companies due to the time and resource required in order to construct a bid. This requires diversion of key technical workers in small businesses which do not have the specialised resources and assistance available in large companies, universities and even to university spin-offs.

The over-broad IP licensing is also a deterrent to small companies to engage with government procurement. The time and resource issue is also prevalent when it comes to grants.

[1] You can see the call for evidence here, committees.parliament.uk/call-for-evidence/3628. The complete version of CIPA’s written evidence can be seen at committees.parliament.uk/writtenevidence/141640/pdf.