The United Arab Emirates has significantly strengthened its intellectual property (IP) legislation in recent years, creating a robust framework that protects businesses without stifling innovation.
As the Middle East’s top commercial hub continues to attract international enterprises, understanding the intricacies of UAE’s IP licensing system has become crucial for business success.
Here’s everything you need to know.
Types of IP licenses
The UAE recognises three primary categories of intellectual property licenses, each governed by specific federal laws enacted in 2021. “UAE law recognises licenses for various forms of intellectual property, including trademarks, patents, and copyrights,” explained Felicity Hammond, a legal expert specialising in IP law.
Trademark licensing, regulated under Federal Decree-Law No. 36 of 2021, offers two main options: exclusive and non-exclusive licenses. An exclusive license grants sole usage rights to the licensee, preventing even the licensor from using the trademark during the agreement period. In contrast, non-exclusive licenses permit multiple parties to utilise the trademark simultaneously.
Patent licensing, governed by Federal Law No. 11 of 2021 on Industrial Property, follows a similar structure. However, these licenses typically focus on technical innovations and are often sector-specific. Hammond noted that patent licenses require registration with the UAE Patent Office to maintain legal validity, citing the example of pharmaceutical patents licensed to manufacturers.
Copyright licensing, operating under Federal Law No. 38 of 2021, presents an interesting deviation from the other categories. Whilst registration isn’t mandatory for enforcement, Hammond advises that “practically speaking, it may be difficult to enforce without registration. Registration is also useful for evidentiary purposes.”
Essential requirements for international businesses
For international companies eyeing the UAE market, several crucial requirements demand attention.
First and foremost, all IP rights must be properly registered before entering licensing agreements.
“Without registration, enforcing IP rights becomes challenging, particularly in the case of infringement,” Hammond said.
Licensing agreements must be documented in writing, either in Arabic or bilingually (Arabic and English). These contracts should explicitly detail the scope of rights, including territorial limitations, exclusivity clauses, and duration.
Notably, agreements for trademarks and patents must be recorded with the Ministry of Economy for legal enforceability.
Common pitfalls and how to avoid them
According to Hammond, one frequent mistake businesses make is attempting to license unregistered trademarks or patents, which renders agreements legally unenforceable.
Another common issue involves incomplete licensing agreements that fail to define crucial terms such as permitted use or sublicensing rights.
Hammond warned about cultural and market misalignment risks, noting that “products or services may require localisation to align with UAE cultural norms or consumer expectations.”
She also emphasised the importance of including proper dispute resolution clauses to avoid jurisdictional uncertainties.
International protection and cross-border transactions
The UAE’s membership in major international IP conventions provides significant advantages for cross-border licensing.
As a signatory to the Paris Convention, Berne Convention, and TRIPS Agreement, the country offers robust protection for international IP rights.
Under the Paris Convention, trademarks and patents registered in the UAE can claim priority rights in other member countries, streamlining international processes.
The Berne Convention ensures automatic copyright protection for creative works without requiring registration, whilst TRIPS mandates strict enforcement standards across member states.
Financial considerations
The UAE’s approach to the financial aspects of IP licensing is relatively straightforward. The country doesn’t impose strict currency controls, allowing royalty payments in various international currencies.
Whilst a 5 per cent VAT may apply to royalty payments, businesses operating in free zones might qualify for tax exemptions.
The UAE doesn’t levy withholding tax on royalty payments, making it an attractive destination for international licensors. However, Hammond pointed out that multinational businesses must adhere to transfer pricing rules for royalty payments between related entities.
Recent legal developments
The 2021 amendments to UAE’s IP laws have modernised the licensing landscape. These changes have strengthened protection mechanisms and simplified registration processes, creating what Hammond described as “a more predictable, efficient, and secure environment for IP licensing.”
The introduction of the Commercial Agency Law (Federal Law No. 3 of 2022) has also impacted licensing practices, particularly for exclusive agency arrangements. This legislation mandates clear definition of commercial agency agreements and establishes specific rules for termination and compensation.
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