- It may take up to two years for the UK to actually exit the EU.
- US companies could use another EU member as an entry point.
- US companies may want to consider a separate IP protection strategy focused only on the UK.
- New EU General Data Protection Regulation, which was set to enter into force in May 2018, will likely not apply in the UK.
- The UK will have to negotiate its own trade deals or use WTO rules.
While Brexit made international headlines, and rightly so, its effects won’t be felt immediately, and there are a few reasons it might not be as devastating to US companies as you may think.
1. Keep Calm...
Although the UK voted to leave the EU on June 23, 2016, it will continue to be subject to EU law for at least two years. Once Article 50 of the Lisbon Treaty, the exit clause within the constitutional document of the EU, is invoked, the UK and the EU will have up to two years to negotiate the terms of the split. British Prime Minister Theresa May has indicated that she will not invoke Article 50 before the end of 2016, if she invokes it at all. Whether or not she does, and there still is a possibility that it will not happen, it would take a significant period of time to negotiate new treaties and agreements with the EU, non-EU countries, and even UK-member Scotland, which voted to keep the UK in the EU.
We predict that the EU will take a tough negotiating position with the UK in order to discourage other EU member states from following UK’s lead and to ensure that “Brexit means Brexit”. Until the negotiations are finalized and new arrangements are in place, the UK will continue to abide by EU treaties and laws. Therefore, while the British have voted in its favor, the “Brexit” has not yet actually occurred.
2. Preserve Access to the European Single Market.
In the meantime, the UK will no longer serve as a springboard into the EU for multinational companies. We assess that the UK’s economic uncertainty, especially in this transitional phase, will prompt many global companies to relocate their core European operations from the UK to EU-member states in order to ensure continued access to the European single market. Belgium, Germany, and Ireland are attractive strategic options for US companies looking at, and reconsidering their strategies for, the European single market.
3. Protect IP in EU + UK, respectively.
UK IP rights are derived to a large extent from EU law. We believe that the transition of all EU-based trade mark rights to UK-based protection will be simple and cost effective and predict that the priority/filing dates will be maintained. We hope and expect that the transitional provisions will be agreed to between the UK and EU without any loss of rights, whether automatically applied or made on application. However, currently, no discussions have taken place on what the transitional provisions will be with respect to transfer of IP rights from EU to UK. Therefore, US companies could consider to mitigate any risk by undertaking to file for additional UK protection now, as a precaution.
4. Have a better understanding of the Data Protection laws.
Data transfers from the EU to the UK will not be seen as internal transfers, meaning that they will be prohibited, unless the EU determines that the UK affords adequate protection. Alternatively, transfers may need to be covered through other means currently used for Trans-Atlantic transfers (such as Binding Corporate Rules, Standard Contractual Clauses, or Privacy Shield-like systems), which are under discussion now. US companies with their main EU base in the UK may have to consider putting adequate data protection policies in place to be in compliance with respect to data transfer between their UK and EU entities.
5. …And Carry On.
Quitting the EU means that the UK will not be a party to the Transatlantic Trade and Investment Partnership (“TTIP”) currently being negotiated between the US and the EU. Rather, the UK will have to negotiate a separate bi-lateral trade deal with the US that will encompass intellectual property, consumer product standards, and tariffs, among other topics. If the UK fails to negotiate a trade deal with either the EU or the US, it will trade under more restrictive World Trade Organization rules, which will likely not only impact tariffs to and from the UK, but also complicate the reciprocity of intellectual property and foreign investment protection, along with environmental and labor regulations.
Although the UK will continue to abide by EU treaties and laws for at least the next two years, US-based companies may minimize the uncertainty of Brexit by shifting operations to EU-member states and preserving access to the European single market. The inevitable changes to British regulatory and statutory compliance programs remain to be written. Therefore, it will be essential for US companies to closely monitor the changes on the other side of the Atlantic, and be prepared to reevaluate and adapt their EU/UK strategies upon new developments.
This article was prepared with the assistance of summer associate Andrew Doup.