IP recent developments in Luxembourg

Over recent years, the Grand Duchy of Luxembourg has focused considerable attention on developing an attractive environment for development and managing intellectual property (“IP”) rights on its territory.
 
Etienne Schneider, Minister of the Economy and Foreign Trade, constantly recalls (and recently during the 5^th edition of the IP Day on 26 April 2012) that IP and innovation have progressively become major elements of the economic development and competitiveness of the country: “It is a priority to encourage companies to integrate IP in their research-, development-, and innovation strategies and to create a legal framework to protect and promote such activities”.
 
During the Gaming Event Summit held in Luxembourg on 14 November 2012, François Biltgen, Minister for Communications and Media, has highlighted that IP/IT legislation is key to the future economic success of the ICT sector in general, including software intellectual property, licensing, tax, data protection and data sharing issues, crossing legal, fiscal and technical aspects. 
 
Facing the new challenges resulting from the constantly changing cutting-edge pro-technology environment, Luxembourg authorities decided to adopt a pro-active policy to push forward the economy via both connectivity as well as trust and therefore, created a safe IP environment by implementing EU directives, international agreements, treaties as well as the following recent and upcoming initiatives:
 

• creation of a legal framework to support research and innovation through the Law of 5 June 2009 relating to the promotion of research, development and innovation that provides for financial assistance to companies that engage in such activities (published in the Luxembourg official gazette, Mémorial A, n°150, dated 29 June 2009, p.2256);
• introduction of an exemption regime (80%) for income derived from IP and/or from the sale of IP rights through the Law dated 21 December 2007 (published in the Luxembourg official gazette, Mémorial A, n°234, dated 27 December 2007, p.3949) (and detailed by the circular of the Direct Tax Authorities LIR n°50bis/1 dated 5 March 2009) (See below the “IP Box”);
• discussion on a preliminary draft bill in relation to e-archiving which should reinforce trust on e-documents and which should create accredited companies for evidencing purposes;
• enactment process of a revised version of article 567 of the Commercial Code giving protection to the owner of data in case of bankruptcy of its service provider (preventing trustees from selling data along with hardware).

 
New trends in Luxembourg: IP box and M&A transactions
 
Located in the heart of Europe, Luxembourg is hosting more and more technology-intensive companies with an important IP portfolio.  Indeed, some of the biggest ICT companies and leading fast growing online cloud and social gaming companies have elected the country as their European distribution platform.
 
One of the tax incentives implemented in the country is the regime known as the ‘IP Box’ providing for very attractive tax measures for developing and maintaining IP rights in Luxembourg.  The IP Box regime provides among other for an exemption of 80 % on net income (royalties) (taxed at a rate of 5.76%) and capital gains derived from certain qualifying IP rights: copyrights on software, patents, trademarks, domain names, designs and models acquired or constituted after 31 December 2007.  Furthermore, if no commercial results are forthcoming, the R&D expenditures are fully deductible.
 
Recent trends show that the development and expansion of these companies taking advantage of Luxembourg very business friendly tax environment make them potential targets for acquisition, joint venture or investment arrangements.  The entities willing to acquire or invest in such technology-intensive companies are advised to seriously consider the conduct of a due diligence of the assets and liabilities of the target company, including its IP assets and liabilities.   
 
While conducting such due diligence for the purpose of a M&A, the acquirers shall (i) identify all IP assets, (ii) verify ownership, (iii) ensure that such assets are free of encumbrances for the intended business and (iv) require further legal analysis on some IP issues raised (for instance, warrants might be expected from the seller stating that the registration and/or use of its trademark as well as any other registered and/or unregistered IP rights, which shall be subject to the acquisition, do not infringe any third party rights).  Data privacy issues and other IP/IT matters should also need to be considered as part of a due diligence as an essential part of an M&A transaction.
 
Acquirers should be aware that the consequences of mismanaging or ignoring IP due diligence can be severe.
 
Protection of IP rights and litigation
 
To our knowledge, there have been no high-profile decisions in relation to IP taken by any Luxembourg court except common commercial litigations.  Infringement lawsuits with respect to patents usually occur in larger jurisdictions where such rights on patents are also threatened.    
 
It is further advisable to be pro-active in protecting IP rights.  As to trademark protection, for example, companies may subscribe to a ‘subsequent trademark notification’ service granted by the Benelux Office for Intellectual Property aiming to be kept abreast of new trademark applications that are potentially in conflict with the company own mark.
 
The recurring themes in IP-related disputes concern (i) cancellation of trademark registration notably for filing in bad faith (Court of Appeal, 24 October 2007, n°31570 and 31609, BIJ, 2008, p.187 to 189) and for creating a likelihood of confusion on the part of the public with another mark (Court of Appeal, 20 March 2002, Pas., p 239 to 247 and Supreme Court (cassation civile), 2 May 1996, Pas., p 65 to 70) and (ii) other patent or trademark infringements and copyright disputes.
 
Conclusion
 
International companies should first be conscious of the extent of their IP portfolio and should further, with the assistance of their lawyers, carefully assess and valuate their existing IP rights, including the know-how.  Indeed, the recent initiatives, the favourable legal framework as well as the other Luxembourg advantages/incentives (i.e., ideal location in Europe, top tier data center hosting cloud infrastructure, outsourced data protection, bandwidth reliability, pan-European connectivity, cutting-edge pro-technology financial and IP structures and attractive corporate and venture capital vehicles) make the country a first choice jurisdiction for protecting and managing IP and for optimising the financial benefits thereof, enabling companies to position IP as a cornerstone of their innovative economic models.
 

Anne Morel was admitted to the Luxembourg bar in 1994.  She specialises in advising and assisting clients in court in respect of all aspects of IP law (patent, copyright, trademarks, designs and models, etc.) and works closely with the tax department in respect of the specific tax regime, so called ‘IP Box’, set out by Luxembourg law.
 
Anne Morel can be contacted by calling +352 260 251 or alternatively via email at amorel@bsp.lu
 
Michaël Kitai is a senior associate at Bonn Steichen & Partners.  He primarily specialises in M&A and private equity transactions.  He also has expertise in advising international corporate clients on gaming and ICT projects with a particular focus on IP/IT aspects.  Michaël is admitted to the Brussels and Luxembourg bars.
 
Michaël Kitai can be contacted by calling +352 260 251 or alternatively via email at mkitai@bsp.lu