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Farrer & Co | Brexit-proofing – a practical guide for clients

More than three years after the referendum, the inevitable has finally happened. Britain left the EU at 11pm on Friday 31 January 2020 (exit day). 

Although this hasn’t resulted in any substantive change in the law affecting the work our clients do, the firm's IP & Commercial team has been looking ahead to the end of the transition period to consider what possible impacts Brexit may have and wants to share its thoughts with you. 

The below is by no means an exhaustive list of the potential changes, but a practical and user-friendly guide to some of the points to bear in mind as we face the future. 

  • We are now in the transition period. This period runs from exit day until 31 December 2020.

    The transition period could be extended for up to one or two years by a decision of the joint UK-EU committee. Any decision to extend needs to be made before the end of June 2020, though the government is currently being very vocal that such extensions will not be necessary. All government websites are very much “on-message”, repeatedly asserting that the changes will take effect from 1 January 2021.

    During the transition period:

    • The UK will continue to be treated as if it were an EU member state. Most EU law (including as amended or supplemented during the transition period) continues to apply to the UK and most references to EU member states in EU law shall be construed as including the UK.

    • All the usual EU supervisory, judiciary and enforcement mechanisms continue to apply, including CJEU jurisdiction.

    • But, as the UK is not an EU member state, it does not have the right to participate in the EU institutions, bodies, offices and agencies. For example, the UK cannot nominate CJEU judges.

    So, in most instances, it will be business as usual from exit day onwards until the end of the transition period.

  • The considerations below will only be relevant for contracts which will or may be in force after the transition period ends.

    Drafting / interpretation

    There is not much change as most of our contracts are subject to English law. However, when you refer to EU legislation in draft agreements, you may want to consider how this legislation should apply to your agreement post-Brexit. 

    In an ideal world you would carefully consider each piece of legislation referenced and the extent to which it will, or might be, in your client’s interest to stick with the EU approach, or follow the UK-only approach, should the two depart from each other. But, taking a deliberately broad-brush approach to future-proofing such contracts, on the basis that one cannot yet know what changes will be good or bad for business, you may want to include the following in your interpretation clauses:

    “A reference to a statute or statutory provision is a reference to it as amended, extended or re-enacted from time to time. A reference to a statute or statutory provision shall include all subordinate legislation made from time to time under that statute or statutory provision. Unless the context otherwise requires, any reference to European Union law that is directly applicable or directly effective in the UK at any time is a reference to it as it applies in England and Wales from time to time including as retained, amended, extended or re-enacted on or after exit day (as the term is understood in the European Union (Withdrawal) Act 2018).”

    Brexit clauses?

    Where you are acting for a client whose business could be severely impacted by Brexit (eg a manufacturer with a significant overseas customer base), then you may want to consider adding a “Brexit clause”, akin to a force majeure clause, which could allow for a remedy if Brexit has a materially detrimental effect on business. For example: a right for a supplier to increase prices to reflect any increase in costs it may suffer as a result of Brexit, or a right to terminate following the end of the transition period. It is unlikely that a standard force majeure clause will provide sufficient protection in such a situation, though it would of course be possible to expand on the list of “unforeseen events outside of either party’s control” to include Brexit. 

    Anecdotally, we are not yet seeing many clients ask for such clauses, but that might change once we get a better sense of the resulting trade deal between the UK and the EU.

    Agency agreements

    Think carefully when drafting agreements that are subject to the Commercial Agents Regulations 1993 (as a reminder: these Regs apply to any agency agreement relating to the sale of goods, but not services).

    These Regulations will remain in force after the transition period ends, but there may well be pressure to withdraw the Regulations from English law, as they are often seen as unnecessary (European) red tape. 

    When this team drafts agency agreements, we typically do so in anticipation of the Regulations applying, most significantly in relation to the compensation or indemnity owed to the agent upon termination of the agreement. We often draft the “consequences of termination” provisions on the basis that an indemnity is paid, as it is usually seen as preferable to the (default) compensation payment. Where you are acting for the principal in an agency agreement, we would recommend making it clear that any such payment is only owed to the extent that the relationship is governed by the Regulations, to avoid any risk that the payment is construed as a contractual obligation, rather than one imposed by statute. As an example, you may want to include the following wording in the relevant clause:

    “If the Commercial Agents (Council Directive) Regulations 1993 apply to this Agreement (but not otherwise), the Agent shall be entitled to an indemnity where the Principal terminates this Agreement…”

    Our sense is this wording is probably not necessary for agency agreements of a relatively short duration as it will undoubtably be a while before anyone bothers to update the Regulations post-Brexit, but it is something to bear in mind, especially for long-term agency contracts.

    Competition law / state aid

    The Competition Act 1998 is based on EU law, so no major changes are expected, certainly not in the near future.

    State aid is one area where major changes are expected, though it’s too early to tell what these new rules might be. 

    Consumer law

    Unlikely to be much change. Lots of consumer law derives from EU law. However, the Consumer Rights Act 2015 is a consolidated version of domestic and EU provisions. Given the law is relatively new, there probably will not be any significant changes anytime soon. Where changes are made, they are likely to be on things such as import and export arrangements, where goods from the EEA are sold into the UK and vice versa.

  • The flow of personal data from and to the UK will not be any different during the transition period. Current EU data protection rules, including the GDPR, will continue to apply to the UK. As the ICO makes clear in its recent statement on the issue, it is business as usual for data protection. 

    In the meantime, the European Commission has expressed its ambition to begin work on an “adequacy decision” for the UK, which would, if adopted, put the UK in the same category as certain other non-EU countries including Canada, Israel, Japan, New Zealand and Switzerland – meaning that, although these countries are not in the EU and do not apply the GDPR, they are nevertheless a “safe place for personal data” because they have comprehensive privacy laws, robust enforcement of those laws, suitable remedies if those laws are not adhered to.

    As the Political Declaration that accompanies the Withdrawal Agreement puts it: “the European Commission will start the assessments with respect to the United Kingdom as soon as possible after the United Kingdom's withdrawal, endeavouring to adopt decisions by the end of 2020, if the applicable conditions are met.”

    We have every expectation that the UK will obtain an “adequacy decision” from the European Commission and see no reason, on the face of it, why this should not happen by 31 December 2020: especially if the so-called “Snooper’s Charter” (a proposed extension / amendment to RIPA legislation that was proposed by Theresa May as Home Secretary but never made it to the statute books) is done away with once and for all. However, it is always possible that this seemingly uncontroversial aspect of the UK’s leaving the EU could become more difficult if politics come into play; ie if the EU somehow wants to “punish” the UK for leaving, it could delay or withhold its “adequacy decision” for the UK in order to put pressure on the UK on perhaps other negotiating points. Nevertheless, our prediction is that the UK will get its adequacy decision, probably by the end of 2020.

    Looking to the future, and in respect of data transfers from the EEA to the UK post-transition period, our clients may want to consider including standard contractual clauses (SCCs) into their agreements on a conditional basis, meaning that they will only come into effect if the adequacy decision is not made before the end of the transition period. 

  • It is business as usual for the time being. While procurement law is derived from EU procurement directives they have been implemented into UK law through various regulations (eg the Public Contracts Regulations 2015). Government guidance suggests that any departure from the directives is likely to be limited, at least in the near future.

  • Most copyright law will remain unaffected for the time being. Copyright is largely harmonised across the EU, and the UK is a party to the major international copyright treaties, whose signatories include many non-EEA countries.

    That said, there are some points to bear in mind:

    • A Government minister was recently quoted as saying the UK will not implement the recent Digital Single Market Copyright Directive after we leave the EU. Whether that proves to be the case (and, if so, how the UK chooses to deal with the issues addressed in the Directive) is something we will be keeping a watch on.

    • Some key changes post the transition period include:

      - the UK’s inability to benefit from the EU’s rules around orphan works,

      - changes to cross-border portability for on-demand streaming services,

      - changes to database rights. Database rights that exist in the EEA or the UK before the end of the transition period will continue to exist in the EEA and the UK for the rest of their duration. But UK database owners may find that any new database rights created after the end of the transition period will be unenforceable in the EEA, and

      - UK judges could start to depart from EU caselaw (for example, the Infopaq decision).
  • Existing EUTMs will continue to be protected in the UK by the automatic creation of a comparable UK registration at the end of the transition period. Key points to be aware of include:

    • No fees will be payable for these comparable registrations.

    • The filing, priority, seniority and renewal dates for these comparable registrations will be the same as for the corresponding EUTM.

    • Recognition of genuine use in any other EEA state before the end of the transition period will support the validity of comparable UK registration. The same principle applies in respect of reputation acquired in the EEA before the end of transition.

    • If cancellation proceedings start in respect of the EUTM before the end of the transition period that result in the EUTM being cancelled, the UK comparable registration will also be cancelled.

    • Once the comparable right has been created in the UK, the IPO will issue standard renewal reminders, as it does with all other UK trade marks. However, where the comparable right is due to expire within 6 months of the end of the transition period the IPO has already confirmed that it will not have time to issue a reminder. Rights holders will need to diarise expiry dates to ensure any required renewal is filed in time.

    • In respect of EUTM applications that are still ongoing at the end of the transition period the applicant will have to file a corresponding UK application to ensure it gets comparable rights in the UK. Unlike pre-existing EUTMs, where comparable rights are granted automatically, this requires applicants to take a positive act to ensure protection. All such applications must be made within nine months of the end of the transition period. Any application made will benefit from the earlier filing date of the pending EUTM. Fees will be payable for these applications.

    It is not clear whether the IPO will automatically notify EUTM holders of the comparable rights. 

    The above-mentioned process will obviously put a huge pressure on the IPO’s resources so some delays in processing applications is probably inevitable. 

    If you do not wish to have a comparable UK-only right, you can request an opt-out, but such a request can only be made after the transition period ends. 

    Given the low costs associated with UK filings, our current advice to clients wanting trade mark protection in the EU and the UK is to file two separate applications now just to be on the safe side. 

    Where you are licensing an EUTM, any licence recorded against an EUTM will continue to have legal effect in the UK. It is important to notify any licensees of the existence of the new right, and check that the creation of this new right does not breach any exclusivity provisions set out in the licence. 

  • The position on design rights is broadly similar to that described above for EUTMs.

  • The present system of EEA-wide exhaustion will be retained to the extent possible. IP rights that are exhausted both in the EU and the UK at the end of the transition period will remain exhausted. 

    Following the end of the transition period, rights in goods put on the market in the EEA will be exhausted in the UK but, absent any agreement with the EU, there will be no such reciprocity for goods put on the market in the UK; putting the goods on the market in the UK will not exhaust the IP rights in the EEA.

    Therefore, although owners of UK IP rights will not be able to prevent parallel imports from the EEA, as the UK will no longer be a Member State, owners of rights in the EEA will be able to prevent parallel imports from the UK.

If you require further information about anything covered in this briefing, please contact Jane Randell or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2020

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