19 June 2006
Anyone familiar with the offshore legal market will recognise that there are two levels of competition involved: there is not only the inter-firm rivalry we are all used to among individual providers, but also an intensifying competition at government level. This is between the many international centres that are continually vying with each other to create legislative and economic climates that will attract more inward investment.
Attention has historically focused on developing banking and financial services businesses, but planners in some of the longer-established offshore centres are predicting harder times ahead. Not unreasonably it seems, they argue that the boom in offshore financial services cannot be indefinite, citing intensifying competition between different centres and the impact of slower economic growth and ever-tightening tax regimes in key world economies.
Focusing on IP
So where should efforts be directed, if not solely at financial services? Few governments have been afforded plaudits for planning and far-sightedness, but the States of Guernsey seems to have been bucking the trend.
As far back as 1994 it recognised that the current growth in its financial services sector could not be indefinite, and looked to IP as an area for development.
Reasons for this are not hard to find. Estimates have suggested that up to 75 per cent of the asset value of FTSE-listed companies is contained in their IP and many of those companies already looked to domicile their IP assets in offshore vehicles because of the lower tax regimes available. Guernsey is free from capital gains tax and inheritance tax, and has low rates of income and corporation tax, the latter being set to reduce to zero in 2008.
However, more is needed to be done to keep pace with international developments. Until 1 June, anyone wishing to register trademarks in Guernsey had first to register them in the UK. Many existing IP owners with assets domiciled on the island believed, wrongly, that their property was protected if covered under a UK trademark registration. In fact, IP rights were not formally classified as property under Guernsey law and could not be made the subject of security in a transaction or left in a will or trust.
Legislation needed updating, and did not meet international standards, namely trade-related aspects of IP rights (TRIPS), the World Trade Organisation's agreement on trade-related aspects of IP.
A number of legislative changes have now been made to address these issues, and more are planned. These are far-reaching and aimed at making it easier to register IP rights in Guernsey, as well as providing more robust protection for owners wishing to take advantage of a low-tax jurisdiction.
A registrar of IP has been appointed on the island, making it possible for IP owners to register their rights direct without first having to do so in the UK.
New legislation has also been passed governing the following rights:
#unregistered design rights (for example, fashion designs);
#design topographies rights (such as the silicon chip);
#registered design rights; and
#trademarks (this largely mirrors the UK's continued #+ continued1994 Act, but with a few small exceptions).
Future legislation that is now being finalised will cover:
#patents and innovation warranties;
#geographical indicators; and
#bio-technical and plant variety rights.
Further out, consideration is being given to image rights, which although not covered by TRIPS, are seen to be in demand, especially among the many sporting and media celebrities keen to capitalise on and protect their iconic (or nearly iconic) status.
For now though, organisations likely to benefit most will include:
#franchise and similar commercial operations basing their IP portfolios in Guernsey, which will be able to create flexible structures allowing royalties and licence fees in a low tax environment. To gain maximum tax benefits the IP rights should be registered in Guernsey from the outset of their exploitation;
#e-business companies, such as application service providers, online music providers and media streaming businesses, as well as those making extensive use of databases (eg online retailers). Guernsey has no VAT and goods shipped from Guernsey into the EU are free from any duties if sold for under £18. Companies in this sector should also get additional protection from the new legislation as well as fewer administration costs as a result of not having to dual register in the UK;
#creative and design businesses, such as publishers, designers, architects and writers, are afforded clearer and stronger laws protecting both their IP rights and the licensing of those rights; and
#organisations in industries such as financial services that have strong brand names associated with their products.
Existing trademarks and designs already registered in Guernsey are being matched with the UK Patent Office database and migrated to the newly established trademark registry in Guernsey. They will gain the full 10-year protection as they fall due for renewal. Existing designs will get similar treatment, being migrated to a new design registry, although their period of validity depends on that in the primary registry.
A further important development will be that trademark owners will be able to use a Guernsey registration as a base mark for global applications as soon as the States of Guernsey signs the various international treaties, scheduled for 2007.
Taken together, there is little doubt that Guernsey is serious about attracting additional IP onto the island and may well be placed to steal a march on longer-established offshore centres such as Singapore. Before this can happen, it seems the biggest challenge to be overcome now is one of perception, not practicality, as most international advisers still associate Guernsey exclusively with the offshore financial services industry. n
Geoff Allez is a partner and Ian Swan is a barrister at Babbe le Pelley Tostevin