Brexit—What About My IP?

By Lorna Brazell of Osborne Clarke

The political implications of the UK’s vote to leave the European Union (EU) are enormous, but in practice many aspects of doing business in the UK will change only slightly, if at all.

Progress toward complete EU harmonization of intellectual property (IP) rights has been slow, and at the point where the UK has voted to take its own route, harmonization is far from complete. In fact, patent rights have barely been touched by the European legislature and the sole attempt to harmonize copyright laws in general has been repeatedly criticized as woefully ineffectual. Enforcement of all rights has remained the responsibility of UK courts.

So although Brexit will change the European landscape of IP to some extent, the reality is that many aspects will remain substantially unchanged, regardless of whether Brexit ultimately results in the UK remaining a member of the European Economic Area or the European Free Trade Area, or a genuinely independent third party, trading with the EU under World Trade Organization rules alone.

IP in the EU: a two-tier system for trademarks and designs

When the EU was established, it brought together nations which each already had an established, complete system of IP protection. Those national systems still exist, managed in the UK’s case by the UK Intellectual Property Office in Newport, Wales, although some harmonization has taken place. Notably, the national systems of trademark and registered design protection have been harmonized so that the rights a brand owner enjoys under a UK trademark or registered design are essentially the same as those under a French, German or Greek mark or design.

It is unlikely that the newly-exited UK government will be in any hurry to change UK trademark or design laws for the sake of it, and so the scope and effect of these national rights is likely to remain harmonized after exit. Some divergence may ultimately occur because the UK rights will no longer be subject to the rulings of the Court of Justice of the EU; but decades could well pass before any issue arose on which the UK Supreme Court felt differently from the Court of Justice.

In addition to those national rights, EU-wide unitary EU Trade Marks (EUTMs) and Registered Community Designs (RCDs) are available. These rights, obtained from the EU IPO in Alicante, Spain, apply in every member state of the EU—and so, once the UK has left, the rights will no longer apply within its borders. Unlike the national rights, this impact is one which the UK government will have to address urgently. If it does not make some arrangement to allow holders of EUTMs and RCDs to continue to enjoy the same rights after exit, the effect could constitute unlawful deprivation of property and unleash numerous claims for compensation.

The UK has more than two years in which to negotiate its exit. During that period, legislation will therefore be drawn up to enable re-registration within the UK of new rights to replace the UK aspect of existing EUTMs and RCDs. But the exact form of the new replacement transitional rights may not be known for some time. The drafting is likely to be a complex exercise, since a number of technical issues will have to be addressed. For instance, what if an EUTM is valid because it has been used extensively in continental Europe but it has not in fact been used at all in the UK. Can the replacement UK-only right be attacked for lack of genuine use? Similarly, the question of priority arises—will the replacement right be entitled to the same seniority as the EUTM it replaces? Will opposition be possible?

The issue of deprivation of property also arises in respect of the unique European system of Unregistered Community Designs (UCDs). These rights were introduced for the benefit of fast-moving industries like fashion where long-term protection is not relevant. They last for only three years, so that many UCDs in effect today will have elapsed before the Brexit takes place, but of course others will have come in during the transitional period. The right comes into existence once a qualifying design is put on the market in the EU but only if it has been available to the public for less than a year. Thus, for a U.S. company which first launches a new design in the US, including for online sales, and does not launch it in the EU for over a year, UCD may never arise since the relevant EU public may already have become aware of the design through U.S. online advertising. But for businesses which launch in the EU simultaneously or shortly after U.S. launch, then the UK will need to legislate to ensure any UCD still in force at Brexit is replaced by an equivalent UK-only right. However, since these rights do not require registration, owners will not need to take any steps to ensure continued protection.

Finally, with respect to the patent system, the EU has a system of Supplementary Protection Certificates (SPCs) which grant a limited extension of patent rights to pharmaceutical, biotech and plant protection products which have a marketing authorization for the country concerned. The object is the same as that for U.S. patent term extensions, but the mechanism is completely different. This system has no basis in pre-EU UK law. For products for which marketing is authorized centrally for the entire EU by the European Medicines Agency, UK SPCs are based upon those central authorizations. Since such authorizations will no longer have effect in the UK after Brexit, some provision will have to be made to substitute UK-only authorizations and to ensure that existing SPCs cannot be challenged on the basis of that change. Future SPCs will only be available where there is a UK marketing authorization, for all product categories.

The original EU legislation on SPCs was far from clear and decisions to grant or refuse the rights have been subject to numerous legal challenges, including in the UK. There is therefore a likelihood of divergence after Brexit between the legal effects of UK-only SPCs and SPCs in the rest of the EU which remain subject to the developing jurisprudence of the Court of Justice.

The less-harmonised rights: patents and copyright

Patent law in Europe derives not from the EU but from a separate treaty establishing the European Patent Office (EPO). Accordingly, the UK’s departure from the EU will have no effect at all on existing patents or the options for obtaining a patent: applications can be filed at the EPO designating the UK exactly as at present, and the law governing the resulting patent will remain the UK Patent Act 1977.

Enforcement of UK patents will also remain unchanged, since despite all the preparatory work already put in, the vote to leave means the UK is unlikely to remain part of the Unitary Patent system and its Unified Patent Court (UPC). These were expected to come into effect in the first half of 2017, and may still go ahead for the remaining 25 Member States which had signed up for them. But the start is likely to be substantially delayed since the founding Agreement requires UK ratification before the court can start to function. It is not obvious that the UK, on the brink of departure, will still ratify. However, amending this particular Agreement is unlikely to be the top of any of the Member States’ list of priorities, so if the UPC proceeds at all it may not be for several years hence.

Copyright in the UK has been influenced to a very limited extent by EU law, most notably the Copyright in the Information Society Directive of 2001 which introduced two new exclusive rights, in respect of online transmissions of works. A new exception was also introduced, to exclude from copyright the transient and incidental electronic copies of works which underpin the functioning of the internet. The UK Parliament amended the Copyright Act 1988 to include these and it is unlikely that it will seek to repeal them. Rightholders will not need to take any additional action to preserve their existing rights post-Brexit, but will have to continue to recognize the differences between the various national copyright laws of Europe. Recent EU initiatives affecting collecting societies and access to orphan works have also already been adopted into UK law. The current Digital Single Market proposals on content portability and geoblocking may, or may not, be adopted and implemented before the UK exit takes place; this depends to some extent on the degree to which Brexit triggers other political shifts between the EU and its Member States.

Effects on IP licensing

One potentially significant impact of Brexit will be the construction of existing and future IP licenses. Where a license territory has been defined as “the EU”, the parties will need to consider whether amendment is needed in order to ensure the rights remain in effect in the relevant areas. This could of course involve consequential changes, such as revisions to the agreed license fees if the remaining licensed territory is smaller than originally contemplated. Alternatively, a revised definition of territory to ensure the UK remains within scope will be needed. These changes, in turn, could affect choice of law: if the revised territory does not include the UK, does it make sense to have English law govern?

In addition, in view of the expected revisions to EUTMs, RCDs and potentially UCDs, licenses may need to be renegotiated to capture and protect transitional or successor rights—or, if the rightsholder elects not to re-register for the UK portion, to reduce total payment calculations.

Such adjustments may also affect the value ascribed to businesses’ existing IP portfolios, either for balance sheet purposes or in the context of lending arrangements or investment rounds. The nature of the new UK-EU trading arrangements, whatever those eventually turn out to be, may also have an impact on the value of licenses of purely UK rights, where the export market represented a significant proportion of expected sales.

Finally, once the UK ceases to be part of the EU then it should become possible to use UK IP rights to prevent the import from the EU of goods sold by the IP proprietor or with its consent under the equivalent rights within the EU. Such parallel imports have been an important factor in limiting producers’ pricing variations for goods of all kinds within the EU, since enterprising traders could buy originals in low-priced (generally Mediterranean) countries and freely trade them in higher-priced markets. EU laws prevented the assertion of trademark or other rights in the country of import, ruling that the rights were “exhausted” by the first sale anywhere within the EU. Once that principle ceases to apply, producers will have greater freedom to set prices for the UK, specific to the UK market, without taking competition from parallel trade into account.

These changes may not affect companies’ balance sheets—the valuation of IP is an uncertain exercise even without Brexit uncertainties—but it could affect the views of lenders or investors looking at IP-rich businesses on both sides of the English Channel.

Enforcement

Finally, Brexit will inevitably affect businesses’ strategies for enforcing their IP rights in Europe. UK courts will no longer have EU-wide jurisdiction over EUTMs and RCDs so that they will be unable to grant pan-EU rulings on IP infringement, including injunctive relief. Conversely, EU rulings will have no effect in the UK; parallel actions or, where a ‘one stop shop’ is needed, alternatives such as arbitration with global scope, will need to be considered.

Conclusion

Progress toward complete EU harmonization of IP rights has been slow, and progress towards a fully dissociated UK IP regime is not likely to be rapid either. Nevertheless, U.S. businesses can still depend on the transparency of the UK processes for registration and enforcement, and in particular the acknowledged expertise of the specialist English IP judges, to maintain an effective protection regime throughout the transition process.