"Brexit" – Implications for IP owners and practitioners

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

In the lead-up to the EU referendum on 23 June 2016, many questions have been raised about the potential impact of a "Brexit" on intellectual property law and practice in the UK. As the debate gains momentum, we explore the most likely outcomes for IP owners and practitioners if the UK were to leave the European Union.

National rights

In principle, a Brexit would have no effect on national rights including UK trade marks and designs, UK patents, the common law of passing off, and domestic copyright and design right legislation. However a significant part of, for example, trade mark and copyright law in the UK has been harmonised by EU legislation. In addition, other rights (such as the sui generis database right) were introduced in the UK by EU legislation.

As such, Brexit is likely to have a material impact on the application and interpretation of domestic legislation implementing or deriving from EU law. Further, the UK courts will no longer be required to comply with other EU legislation, for example the IP Enforcement Directive, and remedies such as customs seizure actions across the EU will cease to be available to IP owners.

If the UK is no longer part of the EU, English courts would not be required to interpret domestic legislation consistently with EU law and CJEU decisions. UK judges will have greater freedom to depart from pre-Brexit domestic and EU case law, particularly where English judges have previously disagreed with the analysis of the European Courts, but sought to develop domestic law in line with EU authorities. A period of uncertainty (and increased litigation risk) may follow as domestic precedent develops and/or legislation is amended post-Brexit.

EU Trade Marks and Registered Community Designs

Following a Brexit, the UK would no longer be part of the EU Trade Mark regime, which is only available to EU Member States. Existing EUTM registrations would cease to apply in the UK, although it is likely that transitional provisions would be put in place to allow brand owners to convert part of their EUTMs to national UK registrations (possibly retaining their original priority dates). Brand owners may wish to consider supplementing their portfolios now with UK national applications for their core brands in any event.

Existing EUTM registrations would continue to apply in other Member States. Marks which had previously been used only in the UK would become vulnerable to non-use revocation unless they were put into use in other Member States, as "use" in the UK would no longer sustain a EUTM registration. It is also likely that proprietors who do not use their current EUTMs in the UK will not go to the trouble of supplementing those EUTM registrations with national UK registrations. This could have the effect of reducing the number of redundant marks (which are only used elsewhere in Europe) on the UK register.

The position in relation to Registered Community Designs would be very similar to EUTMs. Existing RCDs would cease to apply in the UK (subject to transitional arrangements) and new RCD filings would no longer cover the UK.

These changes will have portfolio management cost implications for EUTM or RCD owners. Post-Brexit, new EUTM/RCD filings would not cover the UK, so applicants would need to file and maintain separate registrations in the UK and the EU to achieve the same geographical coverage (in the same way as Norway, Liechtenstein and Switzerland are not covered by the EUTM or RCD regime).

A key factor in the enforcement of IP rights in the EU is the effect on trade between EU Member States, as one of the fundamental principles underpinning the EU single market is the free movement of goods. If the UK leaves the EU, these considerations preventing the partitioning of the internal market would no longer apply. Currently, a trade mark owner cannot object to the further dealing of goods it has placed on the market within the European Economic Area (EEA) (unless it has legitimate reasons to do so), as the trade mark rights in those goods will have been "exhausted". If Britain exited the EEA, Community-wide trade mark and design rights could be used to prevent imports into the EU from the UK, as "exhaustion" rules would no longer apply to goods placed on the market in the UK. Likewise, UK rights would not be exhausted by sales elsewhere in Europe and could be used to prevent parallel imports into the UK from the EU. Parallel trade into and out of the UK could decline as a result.

The European Patent System

A Brexit would not affect the European Patent system provided the UK remains a signatory to the European Patent Convention. European Patents are administered, examined and granted by the European Patent Office, which is not an EU institution. Once granted, European Patents take effect as national rights in the designated countries, so any EP (UK) patents granted would be unaffected. Applicants would continue to obtain UK patent protection through the EPO process or through UK national filings.

The availability of supplementary protection certificates for medicinal products (which compensate a patent owner for the time taken to place a medicinal product on the market) is likely to be affected as it derives from an EU Regulation which applies to EU Member States only. In contrast, marketing authorisations for medicinal products are typically valid in all EU and EEA-EFTA states and would be unaffected if the UK leaves the EU, but remains an EEA-EFTA member state.

The Unified Patent System

Unlike the European Patent regime, the new Unified Patent system is only open to EU Member States. As a non-EU member, the UK would no longer be eligible to participate in the Unified Patent Court (UPC) and proceedings relating to the UK part of European Patents granted under the EPC would need to be brought in the UK courts. Moreover, any Unitary Patents granted post-Brexit would not cover the UK, and those already granted would cease to apply in the UK (most likely subject to transitional arrangements to allow patentees to preserve their rights in the UK by way of supplemental national filings).

Quite apart from the practical impact for UK patent holders, concerns have been expressed that a Brexit could significantly delay – or even entirely derail – the implementation of the UPC. The UPC Agreement is required to be ratified by 13 Member States (including Germany, France and the UK) before it comes into force. If the UK left the EU, this compulsory ratification would likely fall to Italy as the Member State with the next highest number of European Patents in force in 2012. However, the UKIPO has indicated that the UK is pushing ahead with the project as planned, despite the referendum. The UK seat of the Central Division of the UPC has new premises and the English Statutory Instrument required to amend the Patents Act to give effect to the UPC Agreement has already been passed. It is likely that the UPC will ultimately proceed in any event (even if delayed), with or without the UK's involvement. It will require considerable restructuring though and an amended UPC Agreement because, at present, ratification by the UK is a pre-condition and the UK is hosting the life sciences division of the Central Division of the UPC.

Licensing impact

Rights holders would need to prepare for an impending Brexit by reviewing any licensing arrangements, co-existence agreements, franchise agreements or other IP contracts which cover the EU as a defined territory, or which concern Community-wide IP rights, to ascertain whether they apply in the UK post-Brexit.

Further, a divergence between UK and EU law and case law (as described above) may make it more difficult for rights holders to manage cross-border transactions and plan enforcement strategies within the "old" European Union.

Impact on litigation

A significant downside of a Brexit would be the loss of the UK courts' ability to grant pan-EU injunctive relief for infringement of Community rights, which would no longer apply in the UK. Enforcement proceedings against infringements in Europe would also need to be brought separately in the European Union and the UK, increasing the cost of IP enforcement.

The effect of Brexit on any pan-EU injunctions already granted is also unknown. It is possible that such injunctions would cease to apply in the UK unless they were supplemented by a UK-specific injunction granted by a national court (which they may, or may not, be compelled to grant).

From a practical perspective, there are European regimes that simplify the service of proceedings and the enforcement of judgments from other European member states. The availability of these measures may also be curtailed post-Brexit.

Comment

Ultimately, the full impact of Brexit would not be known until the terms of the UK's relationship with the EU had been clarified. There are a number of potential options in the event of a Brexit. At one end of the spectrum, the UK may remain an EEA and EFTA Member State (like Norway and Iceland) and at the other, the cleanest form of exit scenario may involve no new negotiated agreement with the EU – instead the UK may prefer to comply with the World Trade Organisation's rules. Scotland may also insist on another referendum, with a view to it “Bremaining” in the EU and creating a distinction between the protection and enforcement of Scottish and English IP.

Moreover, the practical impact on IP practitioners and rights holders is unlikely to be felt immediately. Existing Community rights would not cease to apply overnight or without warning. Due to the complexity of a withdrawal process, there would be a transitional period of at least 2 years which would allow rights holders to optimise their brand protection and enforcement strategies well in advance. Loss of harmonisation and consistency in UK and EU laws may lead to increased legal costs, but this is likely to be a slowly evolving process, giving IP practitioners and rights holders sufficient time to adapt to change before it happens.