Structuring IP Ownership in the UAE: Assignments, Holding Companies, and SPVs

Intellectual Property (IP) is often one of a company’s most valuable assets. Whether it’s a trademark, copyright, patent, or trade secret, the right ownership structure is key to protecting your IP, reducing risk, and ensuring long-term business stability.

Businesses in the UAE may hold their IP within the operating company, a parent company, or through a dedicated Special Purpose Vehicle (SPV) in free zones such as Abu Dhabi Global Market (ADGM) or the Dubai International Financial Centre (DIFC). In some cases, founders or employees may transfer IP ownership to the company through formal assignment agreements.

This guide explains the most common IP ownership structures in the UAE, their advantages, and what to consider when choosing the right approach for your business.

Using IP Holding Companies and SPVs to Protect Your Intellectual Property

An IP Holding Company acts as a shield, separating your valuable intellectual property from the operational risks of your business. By creating this separate legal entity, often an SPV (Special Purpose Vehicle), you can ensure that if your main operating company faces a lawsuit, bankruptcy, or other liabilities, your IP assets remain protected and secure. This structure is particularly beneficial for businesses with high-value IP like patents, trademarks, or proprietary software. It also simplifies the process of due diligence for potential investors, as the IP assets are neatly housed in a single, dedicated entity.

Without engaging in the operational activities like production, sales or marketing, such holding companies solely function to protect and leverage the business’s IP, by separating IP assets from the liabilities associated with the parent company. These structures in holding IP ownership entails several advantages, including efficient maintenance and enforcement of IP, seamless transaction structures, simplified due diligence, better commercialisation of IP, and, in certain jurisdictions, they even enjoy potential tax advantages.

How does it work?

• A holding company (often set up as an SPV) is established to own and manage the IP.
• The SPV licenses the IP to the operating company.
• The IP generates income for the business while being safeguarded from lawsuits or liabilities affecting the operating company.

This separation of IP ownership from its operational company can often turn out to be most suitable for large businesses with valuable IP assets. However, establishing holding companies can entail initial setup costs, increase administrative costs, and add compliance requirements of the business.

Why Choose an SPV for IP Ownership?

An SPV, or Special Purpose Vehicle, is a separate legal entity created to hold specific assets, in this case, intellectual property (IP). Businesses in the UAE and beyond choose SPVs for IP ownership to gain several key advantages, going beyond just the benefits offered by a specific free zone like the ADGM or DIFC. The advantages of establishing an SPV to hold your IP are:

• Asset Segregation and Risk Mitigation

The primary reason to use an SPV is to separate valuable IP from the operational risks of the main business. If the operating company faces bankruptcy, litigation, or other financial liabilities, the IP assets held by the SPV remain protected and unaffected. This makes the IP a more secure and reliable asset for investors, creditors, and the business itself.

• Simplified Corporate Structures and Transactions

Housing all IP assets in a single SPV simplifies the corporate structure. It makes due diligence for mergers, acquisitions, or fundraising much easier because potential investors or buyers can assess the IP portfolio without having to sift through the operating company’s broader financial and legal records. Furthermore, it simplifies the process of licensing the IP to other entities, as all licensing agreements can be managed through one dedicated entity.

• Tax Efficiency and Global Management

An SPV can be strategically established in a jurisdiction with favorable tax policies, such as the ADGM or DIFC, to minimize tax burdens on the IP income. These jurisdictions often have a 0% corporate tax rate and can leverage international tax treaties to reduce global tax friction. A single SPV can also manage IP assets for a parent company and its various subsidiaries worldwide, creating a unified and efficient structure for global IP management.

• A flexible SPV regime wherein the jurisdiction applies the English common law in its original form.
• A single SPV can hold IP for a parent company and its subsidiaries worldwide.
• These structures can entail the benefit of 100% foreign ownership.

For UAE-based businesses with valuable IP, SPVs can be a strong choice for long-term protection and flexibility.

Transfer IP Ownership in the UAE Through Assignments

An IP Assignment Agreement is a legally binding contract that effects the complete transfer of ownership of an intellectual property asset from one party (the “assignor”) to another (the “assignee”). Unlike a license, which only grants permission to use the IP, an assignment permanently transfers all rights, title, and interest in the IP, essentially constituting a sale of the asset. This is a critical legal mechanism for businesses to consolidate ownership of their most valuable assets.

Assignments are fundamental to a business’s legal and commercial health for several reasons:

• Clarity of Ownership: They eliminate ambiguity regarding who owns the IP, which is crucial for preventing disputes, especially in the context of co-founders, employees, and contractors.
• Commercialization: An assignee gains the full right to exploit the IP, including the ability to license it to others, enforce it against infringers, or sell it as part of a larger business transaction.
• Fundraising and Valuation: Clear, documented IP ownership is a key factor for investors during due diligence. A robust IP portfolio, properly assigned to the company, increases its valuation and attractiveness to potential investors.
• Risk Management: By ensuring the company owns all the IP it relies on, assignments protect the business from claims by past creators who might later assert ownership rights.

Some IP Assignment Agreements include:

Founder IP Assignments (between a Company and a Founder) – Generally, IP is owned by the person creating it. When people come to invest in a company as co-founders, it is crucial to ensure that all pre-existing or ‘founder’ IP is properly assigned in writing, from the individual human founders and other contributors who created it, to the company, thereby creating a ‘Founder IP Assignment’. This is a cornerstone of any startup’s legal foundation. When a company is formed, the IP created by the founders, including inventions, logos, business plans, or code developed before the company’s official registration, must be formally assigned to the new entity.

These agreements usually incorporate IP created before the formation of the company. However, these agreements can also include provisions for the assignment of future IP from founders or may even enter into a separate agreement to handle future IP.

Employee IP Assignments (Between a Company and an Employee): AnAssignment agreement between an employee and a company enables the transfer of ownership of IP created by an employee during their employment or engagement with such company. Employees create IP during their employment (e.g., software code, designs, marketing content), a written assignment ensures the company retains ownership, even after the employee leaves. Without it, employees could claim ownership of work they created. Especially, when an employee is hired to a position relating to the use, developing, or managing of IP, R&D, or in areas of design, marketing, creating literature, etc., an obligation to assign ownership to your employer or the company is often included in the employment contracts.

Contractor and Third-Party Assignments: When a company hires a freelancer, consultant, or agency to create work, such as a website, branding, or custom software, a clear IP assignment agreement is essential. A “work-for-hire” clause, or a separate assignment agreement, ensures that the company, not the contractor, owns the final product. This prevents a third party from holding the IP hostage or licensing it to competitors.

IP Asset Purchases: An assignment agreement is the legal instrument used when a business acquires IP from another company or individual. This might be a standalone purchase of a patent, trademark, or copyright, or it could be part of a larger merger or acquisition where a comprehensive transfer of IP assets is required.

Managing Joint IP Ownership in UAE Joint Ventures and Collaborations

A joint venture is an arrangement wherein two or more entities combine to share profits, risks and governance, thereby benefiting from harnessing the opportunities to leverage the businesses’ collective resources. When two or more businesses work together, in a joint venture, both may contribute valuable IP. Each entity in the joint venture will have its respective intellectual property, thereby creating a need to strategize on how the business’s IP will be managed. This makes it essential to clearly define:

• Pre-existing IP: Who owns the IP each party brings to the JV.
• Jointly created IP: How ownership of any new IP created during the collaboration will be shared.
• Costs: How the costs associated with IP registration, maintenance, and enforcement will be distributed.

Joint ventures often effectuate a joint ownership of the IP by two or more entities, wherein each owner shall entail an undivided share in the IP asset, certain rights and liabilities relating to the exploitation of such IP.

In addition to the contracts on joint ownership of the IP, the entities may also execute non-disclosure agreements, agreeing to preserve the confidentiality of the information received and use such IP solely for the authorised and agreed purposes.

Key Takeaways

Choosing the right IP ownership structure is essential for protecting your business’s most valuable assets. An SPV or a Holding Company can offer strong protection, flexibility, and potential tax advantages for businesses in the UAE and beyond. IP assignment agreements are critical to avoid ownership disputes with founders, employees, or contractors. Joint ventures require clear IP clauses to prevent future conflicts.

Your intellectual property is more than just a legal asset; it’s the foundation of your competitive advantage. At ABS Partners Legal Consultants, we help businesses in UAE and across the world to structure, transfer, and protect their IP in the most secure and efficient way possible.