Following publication of the 'agreed' text of the draft Withdrawal Agreement (the "Draft Text") between the United Kingdom ("UK") and the remainder of the European Union ("EU") on 19 March 2018, our intellectual property ("IP") team has produced a suite of briefings on key aspects of the likely implications of Brexit for IP rights and systems across the EU, to inform our clients what changes they will need to consider making to their existing IP strategies and protocols to continue dealing in post-Brexit UK and Europe. The topic of this note is how Brexit will impact transactions involving IP.
This note highlights common terms in arrangements relating to IP that will likely need specific consideration in view of Brexit. It is anticipated that these considerations will be relevant to:
- existing and ongoing arrangements – licences, settlements and co-existence agreements
- future arrangements – agreements still in negotiation, including potential acquisitions.
Practical tip: It is strongly recommended that parties to any such arrangements conduct a review of relevant documents in advance of 29 March 2019, to allow parties to renegotiate and/or vary as necessary any existing arrangements, or to address any outstanding issues arising in future arrangements not yet concluded.
How 'Territory' is defined
Given IP rights are territorial (i.e. protection is granted for a specific country or area), organising licensing structures (e.g. licences to distributors, agents or franchisees) according to geographical territories is common. Additionally, the globe is often divided as a result of dispute resolution (e.g. in settlements or co-existence agreements) so parties may seek protection, or exploit or enforce their rights, in designated countries or areas.
Territory will be commonly defined by country (or a specific list of countries) or area names; in this instance, it may refer to "Europe", "the European Union" / "the EU" or "the European Economic Area" / "the EEA". Such definitions may have been clarified in existing contracts by stating that this is "at the date of the agreement" or allowing variation "from time to time". Prescient negotiators may have included clarifications such as "including all Member States as at the date of this agreement and any additional countries which may join [the EU / the EEA] after the date of this agreement" to cover the expansion (but not depletion) of the area. Nevertheless, contracts entered into before Brexit was even anticipated are unlikely to include such express wording or clarification.
Practical tip – all agreements: Amendment may be necessary if no clarifications assist in the interpretation of such definitions, or if any clarification would result in a change which does not accord with the parties' agreement.
Practical tip – licences: Licensors of EU trade marks and Community designs should ensure that appropriate contractual remedies are included if licensees trade outside of their authorised territory in breach of contract, as potential changes to rules relating to exhaustion of rights may mean licensors are unable to rely on the existing regime (and remedies) relating to parallel imports / grey market goods in the UK after Brexit .
Practical tip – settlement/co-existence: If a party is restricted from pursuing or enforcing rights in the UK, but the UK is not core to the unrestricted party's business, the parties may wish to renegotiate such territorial restrictions.
Granted licences of existing rights
The Draft Text highlights that there will be changes to the treatment of certain IP rights based in EU law , such as EU trade marks, Community (registered and unregistered) designs and database rights. Whilst the Draft Text suggests that holders of such rights will be granted a 'comparable' UK right after the transition period, it is unlikely that arrangements relating to the licensing of such rights will automatically include extensions of, or changes to, such rights, so licensees may lack rights they need to fulfil obligations, or enjoy full benefit, under the agreement.
Practical tip – all agreements: Parties to any agreement licensing IP (potentially including settlement/co-existence arrangements) should ensure that licences granted cover the countries or areas where it is proposed that the IP will be exploited, and amend the grant of licence appropriately.
Practical tip – licensors: Licensors should check any contractual obligations to maintain adequate protection and/or specific registrations, and vary accordingly if they will be unable to meet these commitments.
Practical tip – unregistered rights: Although it seems relatively clear from the Draft Text that holders of EU trade marks and registered Community designs pre-Brexit will receive an equivalent registered right with the same period of protection post-Brexit, owners and licensees of unregistered rights (such as unregistered Community designs and database rights) have less certainty as to what will happen to the treatment of such rights and how they may be recognised in the UK post-Brexit. We will provide updates on this area as negotiations continue.
Arrangements involving domain names
In the absence of any agreement which may be reached, the .eu Top Level Domain will no longer apply to the UK from 30 March 2019, meaning individuals residing, and companies established or having their registered office, in the UK will not be eligible to register .eu domain names, and will not be able to renew any such registrations. The registry will also be entitled to revoke registrations where such individuals or companies are listed as registrant.
Further, parties will be unable to invoke rights only recognised or established in the UK to found revocation actions relating to speculative or abusive registrations for identical or confusingly similar domain names. This stands to affect over 300,000 .eu domain names registered to UK-based companies and individuals.
Practical tip – existing registrations: Registrants should review existing portfolios and transfer domain names to a suitable entity if the current registrant will not be eligible after Brexit, should they wish to maintain the registration.
Practical tip – acquisitions: If an .eu domain name forms part of a proposed transaction, consider whether the purchasing entity will an eligible registrant, and whether the rights which support the domain name's registration are recognised in Europe and need to form part of the transaction to maintain the registration.
Governing law and jurisdiction
As was the situation prior to Brexit, English law will still be greatly favoured as governing law for agreements, in part due to the statutory framework relating to contractual arrangements, but also as a result of the considerable body of common law developed by the English courts in the interpretation of contracts. The UK and Ireland are the only common law systems among the EU's current Member States . Immediately post Brexit, the UK will also remain a signatory to conventions regarding applicable laws and jurisdiction relating to contractual obligations (e.g. Hague, Rome, etc.). However, where no express provision is made regarding law and jurisdiction in the contract or it is 'non-exclusive', parties may wish to consider whether this will still be appropriate.
Practical tip – all agreements: Check agreements for governing law and jurisdiction clauses. Where agreements specify English, Welsh, Scottish or Northern Irish law, or are otherwise silent and therefore reliant upon the default position under any conventions to which the parties would be subject, parties should consider whether the provision is still appropriate post-Brexit.
Renegotiate following Brexit
Where the impact of Brexit is unknown, parties may wish to include a broad provision that, for example after a certain time period has elapsed, or if certain events occur in the wake of Brexit, the parties will or can renegotiate all or part(s) of the agreement, or else the agreement may terminate should such events occur or time lapse, leaving the parties to negotiate afresh.
However, such provision will likely increase uncertainty, and there are risks – e.g. in the intervening period, the effects of Brexit may significantly impact the workings of the arrangement to the benefit (or detriment) of one or other of the parties. Further, the balance of power between the parties may shift, meaning renegotiating the contract later has additional complexities. If these circumstances are also triggers for termination, it may be that the parties cannot reach another agreement, which could have considerable ramifications for one or both parties.
Given the potentially serious consequences of such a provision, this is not to be considered lightly, and parties must give careful consideration to such drafting if a clause dealing with Brexit it to be included.