A consultation response from the Chartered Institute of Patent Attorneys (CIPA) on the challenges faced by UK businesses in accessing growth finance
Who we are
The Chartered Institute of Patent Attorneys (CIPA) is the professional body and approved regulator for patent attorneys in the UK. Founded in 1882 and incorporated by Royal Charter in 1891, CIPA is one of the oldest intellectual property organisations in the world. With almost 5,000 members, including 2,900 hundred Fellows (Chartered Patent Attorneys), 1,000 student members and 700 paralegal members, CIPA is the largest UK membership body in the field of intellectual property. CIPA is governed by its elected Council, in whose name this consultation response is made.
It is our members that support British SMEs, universities and large companies in protecting their innovative technology worldwide, either as private practice attorneys or as in-house attorneys with medium to large science and technology businesses. The reputation of the UK for IP advice draws work from around the world; only 11% of European patent applications by British representatives are for UK applicants. Consequently, the profession generates around £1 billion for the economy in gross value added and approaching £750 million in exports.
Why we are submitting a response
CIPA members represent a wide range of innovative businesses who require and seek growth capital. Therefore, our response is relevant to the section ‘The seekers of capital’ and its five questions:
For early-stage companies developing new technology, the patent portfolios created by our members can be the most valuable asset of the business. As such companies grow and develop, their patent portfolios provide a deterrent to potential competitors and increase the confidence of investors that the business has a unique technology proposition with value that is independent of the current management team.
The role of advisors such as our members in supporting ‘commercialisation and scale-up by advising on intellectual property strategy’ is recognised in the Executive Summary of the Government’s latest Industrial Strategy (Professional and Business Services Sector Plan), which we appreciate.
Our response is based on consultation with our members, who work both in private practice, as well as an in-house within science and technology UK businesses, and advise on IP protection and IP commercialisation strategies. We have focused on issues for which our expertise in the field of intellectual property provides us with particular insight.
A key issue that falls within our experience is the challenge innovative technical businesses face as a result of Government contract clauses that retain wide, free, perpetual licensing and sublicensing rights for Government over any intellectual property that is developed during a funded project. We provided evidence on this point to the House of Lords Science and Technology Committee call for evidence on ‘Financing and Scaling UK Science and Technology: Innovation, Investment, Industry’ (https://www.cipa.org.uk/news/response-to-call-for-evidence-financing-and-scaling-uk-science-and-technology/). Additional evidence has been provided by Baroness Bowles of Berkhamsted, a former patent attorney (https://committees.parliament.uk/writtenevidence/141595/pdf/).
These clauses appear in grant, funding and procurement contracts and/or in the terms of reference at the application or competition stage. Sometimes they are overlooked or not understood by early-stage companies unable to afford advisers.
By reserving to itself rights that duplicate those owned by the innovative companies, the Government undermines company valuations (bearing in mind their sole asset may be IP) and thus future funding opportunities. It also undermines the companies in future procurement competitions because any competitive advantage of their technology, for which the usual hope is to get procured and thus ‘launched’ for winning private business and growth, is undermined by Government being able to give their technology away to others. This model plays heavily into the ‘lead contractor’ model of procurement.
Aggravating circumstances are that this IP acquisition often occurs at an early stage of ideas development, for low-value sums compared with the value of the IP. It is particularly damaging with regard to patents as they will often cover a much broader concept than relates to or is required as a solution for one specific project. However, the contract IP terms are often not restricted to use in the project.
The use of these clauses means that for innovative businesses, doing business with Government can be counterproductive instead of an opportunity to set the company on its way to growth. The presence of such clauses has many perverse effects including driving scale-ups to the US.
Small businesses and growth companies do not necessarily have the advisers and clout to resist or challenge these clauses and get them amended especially when they appear in early-stage contracts. In some instances, they are part of the terms and conditions for bidding and not always as clearly laid out. Some grants containing these clauses have even been advertised as ‘you keep your own IP’ without explaining that you will no longer have the exclusivity that is the fundamental tenet of IP.
These Government-retained licences can be used to shut out the innovative companies from later bids and their potential ‘big break’ by their technological competitive edge being available to Government and sub-licensed to competing companies. This is especially likely when the IP owner is a small company and a ‘contractor led’ procurement pattern follows.
The existence of the Government’s parallel licensing power can make it impossible to raise further investment. It significantly affects valuations as it has wiped out the expected competitive advantage arising from the IP that might help it to gain procurement by Government as the stepping stone to scale-up.
In some instances, companies have only run into the problem of it blocking further funding during due diligence for further investment, not realising what they had signed at an early stage. Other small companies, especially high-tech ones, no longer risk applying for Government contracts and it is another driver tempting relocation to the US where grant funding is more enlightened – e.g. taking an equity investment as the payback mechanism.
One of our members comments ‘The reality is that we've just become accustomed to the typical IP stance of Innovate UK under CR&D grants, so rather than pull out of any of them, we tend to shape the bid for the projects we go for so that we know we won't use funding for anything that would create highly valuable foreground IP. The unseen/implied impact of us taking this approach is that we do not tend to use CR&D funding for the most ambitious projects, because we don't want to risk tainting our most highly valuable R&D IP with onerous license restrictions. This means UKRI funds, while still generally being spent on meaningful R&D, are not spent on the truly ground-breaking projects they would otherwise be.’
This does not mean that the Government should be taken for a ride. It is perfectly reasonable that the Government should have all the rights it needs to operate what it has paid for and (try) not be tied into specific vendors. However, if that is extended to unfair (bearing in mind contract size) and overly broad acquisition of rights, even if only in theory rather than actually used, it has a detrimental economic effect.
Other factors identified by our members are high borrowing costs (if borrowing from banks), risk averse equity investors, investor terms which crowd out founders and, in the case of university spin-outs, overly greedy terms which deter investment and erode profit margin.
It is worth noting that companies and public corporations represent about 74% of total UK businesses, and this includes both private and public companies, with the overwhelming majority being private. Out of those, less than 0.1% of UK business are publicly listed, mostly on the LSE (London Stock Exchange).
Some of our members have expressed the view that public markets are vulnerable to tech bubbles bursting (e.g. dotcom in 1990s, NFTs in last year or so, current concerns this might happen to AI), which can cause substantial damage to high-growth tech companies. Furthermore, venture capital funded companies tend to prefer a trade sale rather than public listing. And many start-ups beyond breakeven with high-growth prospects seek US buyers – this is not good for the UK’s future growth prospects.
For those businesses that do list, the only real choices are LSE’s AIM or Nasdaq, with US markets offering deeper liquidity, higher tech valuations and stronger analyst coverage. However, if a market cap of £100m has been reached, the FTSE 250 or FTSE 100 might present the best choices. Nonetheless, LSE’s AIM is not liked by investors because of a lack of institutional support, which in turn results in disappointing share prices. UK investors tend to be risk averse and have short-term time horizons, which is why companies with the greatest potential prefer the US.
The UK ‘attitude to risk’ influences founders decisions on where to seek a trade sale or list - if a founder starts a company in the UK and fails, they are regarded as a loser; but if the founder were to start the same company in the US, they will be regarded as a trier and, should they fail at a first attempt, they will be supported again if the technology is good.
The UK debt market is not well-matched to businesses with predominantly intangible assets, such as IP, as banks still prefer property-backed lending and IP is rarely usable as collateral. However, IP-backed lending frameworks are emerging but immature. We provided evidence to the Department for Business and Trade and HM Treasury’s open call for evidence on ‘Small Business access to (debt) finance’ (https://www.cipa.org.uk/news/how-ip-backed-lending-expands-debt-finance-access-for-smes/) to support the development of this system.
Our members indicated that the main impact of the lack of adequate debt or equity funding is that a lot of brilliant innovation is never developed or commercialised, particularly the innovation funded at universities by UK government research grants.
The debt funding gaps are triggered by the fact that working capital and growth lending to tangible asset-light businesses remain constrained since the banks’ ‘tangible property bias’ leaves modern service/tech firms underserved. These gaps are estimated to be of the order of tens of billions – and the immediate impact being slower hiring, deferred capex, lower productivity, small R&D investments.
Spearheaded by British Business Bank data (which indicates that IP-rich businesses are less likely to default on loan repayments), some UK banks (most notably NatWest and HSBC) have created debt products which could effectively fill in part of the funding gaps.
Such ‘IP-backed loans’ still have a limited availability in the UK, but they allow businesses to borrow against their IP estate consisting of patents, know-how, data and brands.
Our members’ view is that UK financial markets are much more conservative, whereas
US investors have more money and are less risk averse, meaning that that US markets are more attractive to high-growth businesses looking for a trade sale or a public listing.
As mentioned above, the UK ‘attitude to risk’ influences founders decisions on where to seek a trade sale or list - if a founder starts a company in the UK and fails, they are regarded as a loser; but if the founder were to start the same company in the USA, they will be regarded as a trier and, should they fail at a first attempt, they will be supported again if the technology is good.
However, there is an acknowledgement that the UK markets are (starting to) ‘move in the right direction’ through initiatives in:
- The venture ecosystem – UK has narrowed some gaps via British Patient Capital, but late-stage round sizes still lag; larger late-stage and crossover funds in the US provide smoother paths from growth rounds to IPO.
- IP-backed lending – more established in parts of Asia and the US; the UK is piloting frameworks (via NatWest and HSBC) but not yet at scale.
- Pensions as growth capital – through the ‘Mansion House’ reform, the UK is moving to channel pension savings (direct contributions, local government pension schemes) into productive assets, but these allocations remain early-stage versus established US endowment flows into VC/growth equity.
The international patent system is ‘front loaded’. Patent applications must be filed before the protected technology becomes public. The filing of the initial patent applications begins a time period, usually 2½ years, in which the countries in which patent protection is required must be chosen. The geographical scope of a patent portfolio is therefore determined at a very early stage of the 20-year life of the patents, and potentially the life of the business seeking protection.
This system is well-established through international treaties and there are good reasons of legal certainty for it to continue. However, it is important that British businesses are educated, not only by professionals such as our members, but also by public bodies, such as the Intellectual Property Office, in how to use the international patent system most effectively.
Fundamentally, early-stage businesses are making decisions on the geographical scope of patent protection for the business that they are going to become over the next 20 years. This future business is the one in which investors are interested and it is therefore important that the patent portfolio matches their expectations.
In our report, ‘Innovation and Patents in the United Kingdom’ (https://www.cipa.org.uk/wp-content/uploads/2024/08/CIPA-Innovation-and-Patents-in-the-UK-2024.pdf) we highlighted the fact that, according to data from Intellectual Property Office, one third (34%) of all patent families with UK applicants include protection for only the UK. This is not good enough for investors seeking to grow a global business. Such investors want to see protection in the US, China and the countries covered by the European Patent Office. These three jurisdictions alone account for more than 50% of global GDP, compared to 2% for the UK alone. However, we have further identified in our report that the rates of British patent filings in China and the European Patent Office are 20% to 40% behind that of our neighbours France and Germany, even when normalised for the relative size of the manufacturing economy. British companies are filing patents to protect their technology, but not enough companies are extending this protection internationally in a way that is attractive to investors.
It is our view that the Intellectual Property Office needs to do more to support international patenting by British businesses. This does not require funding, but rather education and maximising the benefit of existing relationships. In practical terms, businesses seeking international protection will be using the services of our members. We want to work with the IPO to provide that support.
A further key relationship is with the European Patent Office, which grants over 90% of patents in force in the UK. Unfortunately, the IPO seems to view the EPO as a competitor, when in reality the UK’s membership of the European Patent Convention is a huge benefit for the country. We would like to see greater co-operation between the IPO and EPO to the benefit of UK business, particularly to enable greater international patenting.
12 September 2025
Submitted by Iain Ross, Head of Publications and Content, on behalf of The Chartered Institute of Patent Attorneys. E.mail: iain@cipa.org.uk
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CIPA, 12 September 2025