This article first appeared in The Journal on 27 May 2016. A shortened version also appeared on The Scotsman's Business Channel on 31 May 2016.
Gill Grassie discusses the implications of Brexit on the UK/Scottish IP regime.
The implications of a Brexit “yes” vote on 23 June are being hotly contested and as far as the economic context is concerned, various issues are still being teased out slowly. One area that has not been the subject of much general public debate thus far is that of Intellectual Property rights (‘IPRs’). Whilst the implications for IPRs and their owners are unlikely to influence the outcome of the vote, Brexit would impact quite seriously on the UK and Scottish IP regime.
When the UK joined the EU on 1 January 1973, the world was a different place. Corporate value was more directly related to tangible assets, and industries and businesses tended to be more manufacturing based. The internet as we know it now did not exist. The value and importance of brands had not yet been fully realised and IPR protection was not the priority that it is today. Now, of course, we have a knowledge-based economy where brands, patents and IP assets can be worth as much, if not more, than the tangible items on a company’s balance sheet. This means that the health of the economy is directly affected by IPRs. Safeguarding creativity arguably enables businesses to be better financially rewarded, generates employment opportunities and attracts more investment.
The development of the existing UK system of protection for IPRs underpins this. Over the many years that the UK has been an EU member state, its IP law has been shaped extensively by EU directives and regulations aimed at harmonising the legal position EU-wide.
One of the results is some very effective and popular systems of pan-European protection for registered IPRs in the area, for example of trademarks and design rights. We are also on the brink of a new pan-European patent right – the Unitary Patent, which is set to go live in 2017. This system has taken over 40 years to get to this final stage. In addition, within the EU, there is the concept of the free movement of goods and services. This means that IPRs cannot be used to block the importation and resale of genuine branded goods within the EU and wider European Economic Area (EEA), provided that the goods are in the EU/EEA with the consent of the IPR owner. This is known as the exhaustion principle. In addition, a new EU Trade Secrets Directive was agreed by the EU Parliament just last month and is expected to be in place in the individual member states within two years.
Regime changes - and its effects
What then are the implications for these pan-EU regimes in the event of Brexit? In the short-term nothing would change overnight and much negotiation over the UK’s status within Europe in general would be needed. There would likely be a two-year period to allow this before the UK actually left the EU. Ultimately the system that emerges post-Brexit may well be a very different one.
To take a few examples, the UK, through its membership of the EU, currently benefits from the EU Trade Mark (‘EUTM’) and EU design (‘EUD’) systems. These are very popular as businesses are able to obtain EUTM/EUD pan-EU coverage using one central application process. This helps to streamline the administration and reduces the costs that would be involved in filing national trademarks in individually in all EU member states. EUTMs and EUDs are thus efficient and offer the potential for litigation in a national EUTM /EUD designated court, which can provide relief on a pan-EU basis, thus avoiding the need to enforce in each individual national court concerned. National trademarks and design rights have of course continued to exist but have a perceived disadvantage in that their geographical coverage is limited to the member state concerned.
Whilst it is by no means certain, these benefits of the EUTM and EUD systems could be lost in the event of Brexit. Unless a successful negotiation were to be conducted to allow the UK to continue to participate in these pan-EU systems, there is a risk that UK and ex-UK businesses would no longer be able to obtain protection for their trademarks/designs in the this country using EUTMs and EUDs. To achieve this they would instead have to apply for a national (or Madrid Protocol) UK trademark/UK design right at an extra cost. While they could still obtain EUTM/EUD registrations in addition, the coverage would not include the UK. There would also be added costs in terms of additional administration, as well as for registration, prosecution and renewals and potential enforcements in two sets of courts; national and EU designated.
In terms of existing EUTMs/EUDs which have been in place covering the UK as well as the other member states, transitional arrangements would need to be devised to convert the UK parts of these back into national rights.
As far as free movement of goods is concerned, UK companies could, post-Brexit, be sued for trademark infringement for dealing in genuine branded goods in the EU/EEA, even where the original brand owner or manufacturer had placed these on the market in the EU/EEA and previously consented to their sale. Exhaustion would no longer apply. Similarly, parallel importation in the EU/EEA would be a ‘no-go’ in the case of EU companies exporting to the UK, as companies owning UK national trademarks could sue them for infringement here too.
Patents: on the cusp of unity
In relation to patents, we presently have two systems – the national patent system, and the European Patent Convention system (‘EPC’) for EU patents (‘EPs’). EU membership is not a prerequisite to being a participant in the EPC as it is based on a multilateral treaty. As such it provides a standalone legal system for its signatories (of which the UK is one) under which EPs are granted. Thus on Brexit the UK would continue to benefit from it during the relevant transitional period of seven years. However the grant of an EP is effectively only the grant of a bundle of national patent rights and not a true pan-EU intellectual property right. But coming down the track fast is the new Unitary Patent Court system (‘the UPC’). The UK is one of the signatories to the UPC Agreement, in respect of which there are another 25 in the EU. The UK IP community has been very much at the forefront of and heavily involved in shaping the new system, its institutions, procedures and rules. Furthermore, the UK has been allocated a Central Division of the UPC and a Local Division, both to be located in London. The UPC, which is meant to be up and running in 2017, will introduce a true pan-EU patent system for the first time, with its own courts and patent judges.
Following Brexit the UK would risk not being part of any of this unless it could achieve its participation through negotiation. This could be challenging for a non-EU member state but given the potential upside it seems likely that there would be a real political will to secure a good result. If the UK were no longer to participate in the UPC following Brexit then companies would be forced to protect their patents in the UK separately via the EPC or UK national patent system. Again, this would involve extra costs in terms of administration, registration, prosecution, renewal and enforcement. Without UK influence, there is a risk that the system would become inquisitorial, more along German/Dutch lines, rather than following adopting the more adversarial model supported by the UK.
Overall, it is likely that a post-Brexit UK IP system would develop separately and diverge from that applying to other EU member states. The UK courts could ignore the decisions of the Court of Justice of the European Union on trademarks, for example, and the UK courts, including those in Scotland, could carve out their own version of trademark/design patent laws, similarly with regard to copyright. Of course there would also be a need to review all existing IP-heavy contracts such as Licences and Collaborative/R&D agreements to take account of any changes post-Brexit.
While the detail of a post-Brexit IPR regime remains a matter of conjecture, change would be inevitable and with it the potential for businesses to incur greater costs as a consequence of a less streamlined approach overall to registration of UK-applicable IPRs and the protections available to EU member states.