Brexit: a detailed look at the IP issues

Written on 25 May 2016

As the June referendum on the United Kingdom’s membership of the European Union approaches, we consider what a vote to leave (Brexit) might ultimately mean for intellectual property rights holders. Of course, the question can only be addressed at a speculative level for the time being – given that we do not know whether the UK would remain a member of the European Economic Area, for example, which would lead to greater continuity of laws regarding IP.

The repeal of the European Communities Act 1972 (ECA) would have a significant constitutional effect on UK law. EU Regulations would cease to have direct effect. Secondary legislation used to implement IP EU Directives would no longer have primary basis in UK law without express primary measures to preserve those instruments being introduced.

Would the UK remain part of the EEA?

The exact shape that this constitutional uncoupling will take will depend on the nature of the UK’s future relationship with Europe. The UK is likely to remain part of the EEA, in which case it will be necessary for laws to remain harmonised in key areas, including the free movement of goods and services. This would require UK IP law to remain harmonised to the extent it has bearing on the free movement of goods and services. The UK may also elect to leave the EEA and so have no obligation to abide by EU law in those key areas. However, it is likely that UK law would remain harmonised to the extent required to still facilitate trade with the EEA, which will necessitate IP law remaining harmonised to a broad extent too.

In this article, we have assumed that the UK ceases to be part of either the EU or the EEA, in which case only the international legal obligations to which its IP laws would remain subject would be those imposed through its continued membership of the World Trade Organisation, and the Agreement on Trade-Related Aspects of Intellectual Property (“TRIPS”).

Trade marks

National marks

Trade marks granted by the UK Intellectual Property Office (IPO) would remain essentially unaffected by Brexit. The IPO would continue to administer registration of UK marks under the same framework and rights owners would continue to enjoy the same level of protection in the UK market.

However, national trade mark law is harmonised across the EU. As such, whilst the UK system for the registration of national trade marks would initially be unaffected, it is likely that the UK system would begin to diverge from that of the EU. The UK would no longer be obliged to implement EU legislative amendments, nor would it be obliged to follow case law from, nor make referrals or allow appeals to, the Court of Justice of the European Union. UK legislative and common law may therefore begin to diverge from EU law in future.

Of course, even if the UK were no longer part of the single market, the EU would probably remain the UK’s single biggest collective trading partner. As such, the reality is that it would remain in the UK’s interest to have its national trade mark law remain closely aligned to that of the EU, so as not to unnecessarily further hamper business interests in the event of Brexit.

Community trade marks

Following Brexit, Community trade marks (CTMs) and their successor European Union Trade Marks (EUTMs) would cease to have effect in the UK.

It is highly likely that transitional or parallel provisions would be negotiated as part of any exit package in order to allow CTMs to remain effective within the jurisdiction under grandfather rights. The validity of those marks in the UK may stand or fall with the parent CTM right. Such marks may be more vulnerable to revocation actions for non-use at EU level where the CTM was primarily only used in the UK.

Other possible scenarios are an arrangement allowing existing CTMs to transfer into national registrations based on prior rights. This would be a particularly valuable option for CTM holders who rely exclusively on their mark to grant protection in the UK and who would suddenly find themselves without registered rights within the jurisdiction. This will also avoid assertions of unlawful deprivation of property from rights holders following the loss of their CTM asset.

Rights holders would likely bear the burden of administrative fees for transferring their rights and will have to pay to maintain those rights going forward, in addition to CTM fees for the rest of the EU. UK lawyers and trade mark attorneys will also lose the right to act as professional representatives at the EU Registry (currently ‘OHIM’, soon to be ‘EUIPO’), and will instead have to appoint agents domiciled in an EU Member State. This will in turn give rise to additional foreign lawyer fees for UK-based rights holders.

Design rights

As with trademarks, national registered design laws are harmonised across EU Member States. If the UK leaves the EU, national registered designs will continue to be administered by the IPO and will remain unaffected by Brexit to the extent UK law remains the same. UK law may in the future begin to diverge from the EU to the extent considered desirable in response to purely UK policy or economic issues.

UK unregistered designs are a system unique to the UK and will remain unaffected if the UK leaves the EU.

Community design rights, as with Community trademarks, will cease to have effect in the UK in the event of Brexit unless transitional, parallel or grandfather provisions to the contrary are implemented. It is highly likely that such provisions would be negotiated to allow for rights to transfer and to avoid any potential assertions of deprivation of property by rights holders.

UK companies will still benefit from protection under unregistered Community design provisions. The right will automatically come into existence for a period of three years from the date the design is first made available to the public in the EU. However, unlike the current position, prior publication of the design in the UK may negate that right (as prior publication in any non-EU state does at present). Nevertheless, UK businesses may continue to rely on
such protection even in the event of Brexit.

Patents

The present system would be essentially unaffected by Brexit. Substantive patent law is governed by the national laws of a given state, and although the UK’s laws implement the European Patent Convention, that Convention is a free-standing international treaty not based on EU law. The principal international patent framework governed by the Patent Cooperation Treaty (PCT) deals largely with procedure and has no relationship to the legal entity which is the EU. Applicants can therefore continue to submit either a PCT level application to WIPO, or a European Patent application to the European Patent Office, and designate the UK.  The UK IPO would remain the arbiter of purely UK national patent applications.

Unified Patent Court

The UK would, however, miss out on the future European unitary patent. Once in force, the UPC Agreement will provide for a single court for patent litigation in most of the EU. Subject to transitional provisions, the court will have jurisdiction over unitary patents, and over European patents granted in a Contracting Member States (with the exception of Spain, Poland and, for the time being, Croatia, although it is expected to join in future).

The UPC is likely to come into effect in 2017 once 13 Contracting Member States (including France, Germany and the UK) have ratified the Agreement. But if the UK leaves the EU, unitary patents would no longer include the UK. Similarly, any decision of the UPC in respect of a European Patent with unitary effect (which had been designated in the UK) would have no bearing on the patent’s validity in the UK. As such, enforcement of patent rights in the UK would remain fragmented from the rest of the EU, and would have to be litigated over in national courts.

A potential irony

London has already been designated as a host city for one component of the Central Division of the UPC Court of First Instance. In the event of Brexit, an ironic situation could in theory arise where European Patents with unitary effect (and designated in the UK) could be litigated over in a London court, but the decision of the court would have no effect on the UK-designation of the patent. Instead, the claimant would have to launch parallel proceedings in the UK in respect of the same patent. This would therefore represent a significant missed opportunity for patent holders seeking to enforce their rights across the EU.

In practice, if the UK ratifies the UPC Agreement before the June referendum, and subsequently leaves the EU, the UK would have to negotiate its exit from the UPC Agreement with the other Contracting Member States. This may open the floodgates to a total renegotiation of the UPC Agreement. It is likely that the proposed London court would be relocated elsewhere, possibly Milan. The UPC Agreement will only come into effect when the three Contracting Member States with the largest number of European Patents ratify the agreement (namely Germany, France and the UK). If the UK leaves the EU, it is likely that mandatory obligation to ratify will fall to the next states with the largest number of European patents in force to fulfil, and will therefore no longer be contingent on UK ratification.

Supplementary Protection Certificates

With regard to Supplementary Protection Certificates for pharmaceuticals (SPCs) (which allow for additional protection of a marketed product for up to 5 years after expiry of the patent, where marketing is delayed as a result of the need to apply for marketing authority to place a medicinal product on the market in the EEA), Brexit would have no immediate effect.

SPCs are granted at a national level in respect of a patent granted in that country and for which there is a marketing authorisation in place within that country. Difficulty may arise in future in respect of products for which marketing authority is granted by the European Medicines Agency, which is a body of the EU. There has already been significant litigation regarding which body’s marketing authority is legally effective for the purpose of applying for an SPC. This could well present a significant issue for pharmaceutical companies operating in Europe and will no doubt be the subject of lobbying in the event of Brexit.

Copyright

Copyright would be essentially unaffected by Brexit as it has yet to be fully harmonised by the EU.

UK works are protected at an international level by virtue of the UK being a signatory to various treaties, including the Berne Convention and the Rome Convention, among others. At EU level, a set of 10 directives govern the copyright regime, including the InfoSoc Directive, the Software Directive and the Collective Rights Management Directive. These directives set standards for essential rights but there remain discrepancies between the national laws of member states.

As such, copyright remains fundamentally territorial in its nature. Many of the directives reflect the existing obligations of Member States under the various international treaties to which they are also signatories and so the obligations would endure.  To that extent, Brexit would require little change in the present law, albeit the UK could stop on-going harmonisation efforts, such as the problematic repeal of section 52 Copyright, Designs and Patents Act (which provides a reduced period of protection for copyright in industrial-scale produced artistic works, and whose repeal will have a significant effect on the furniture industry, among others).

The Digital Single Market

Change to the EU copyright regime is on the horizon in the form of the Digital Single Market initiative.

In May 2015 the European Commission released a communication on its Digital Single Market Strategy for Europe. The strategy sets out an ambitious vision of ‘[bringing] down digital barriers to unlock online opportunities’ in order to ‘put the single market online’. With respect to intellectual property, this would mean new measures to further harmonise copyright.

Proposals include cross-border portability of online premium services and legally acquired content, clarification on the role of intermediaries, and improved cross-border enforcement. If the UK leaves the EU, the UK will be under no obligation to implement these amendments, and the regulatory framework for the UK’s online digital market will accordingly fragment from the rest of the EU. For companies operating in this sphere, this may frustrate efforts to offer a pan-European offering. For UK nationals, this may negatively affect the range of goods and services available to the them online and restrict their access to legally-acquired content via their home state when overseas within Europe.

Confidential information and trade secrets

Brexit would have minimal impact on the current legal framework governing confidential information, and its subset of trade secrets. The law in this area has principally developed through English case law and as such remains largely uninfluenced by EU legislation. The UK provides a relatively high standard of protection for confidential information (provided the courts are persuaded that the information is indeed confidential in nature, in the event of a breach).

In December 2015, the draft text for the new Trade Secrets Directive was agreed between the Council Presidency and the European Parliament. The draft seeks to implement new rules to increase protection of trade secrets and undisclosed business information in the EU. The measures will empower national courts with greater enforcement measures following unlawful disclosure of trade secrets. Such measures will include the power to remove goods from the market that have been made using illegally obtained trade secrets. Measures will also address compensation for proprietors. In the event of Brexit, the UK will not be obliged to implement the Directive but UK businesses will benefit from improved and better harmonised enforcement measures across the remaining Member States nevertheless.

Competition: licensing / M&A

Even if the UK leaves the EU, the Technology Transfer Block Exemption (which provides for an exemption to the EU’s main competition provision) will still apply to IP licensing and transfer arrangements made between the UK and other EU Member States, to the extent such an agreement has an appreciable distortive effect on trade in a given market within the EEA (and provided the relevant transfer otherwise meets the criteria). UK businesses will therefore not be released from EU competition rules when dealing in IP transfers or licences with EEA states, which would otherwise be deemed anti-competitive.

Written by: Sara McDiamond, for more articles by Sara see our marketinglaw website here.

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