Up for debate: the post-Brexit IP world

On June 23, 2016 the British population voted to leave the EU, albeit by a narrow majority, and there is a real possibility that the UK parliament will follow the result of the referendum and use article 50 of the Lisbon Treaty to notify the EU of its desire to leave. Member states did not have an express right to withdraw from the EU until article 50 was introduced in 1992.

At that time some commentators maintained that exit from the EU was impossible. This was a legal nonsense of course, because regardless of article 50, the applicationofthegeneralprinciplesofinternationallaw (the 1969 Vienna Convention on the Law of Treaties in particular) allow any party to an agreement, including members to international treaties, to exit an agreement or treaty at any time provided certain conditions are met.

Article 50 does not require a member state to give any reason for the exit; it sets out procedural requirements, not substantive conditions. In essence, an article 50 notification starts negotiations concerning these substantive conditions. These negotiations will cover the conditions for the exit, but in practice they will be of fundamental importance for the future relationship between the exiting member state and the rest of the union. The agreement will be concluded on behalfoftheunionbythe EuropeanCouncil (acting byaqualified majority),afterobtainingtheconsentoftheEuropeanparliament.

If negotiations fail, and the parties reach no agreement at all within the two years following the article 50 notification, membership of the union will end automatically unless the member state and the European Council jointly decide to extend this period. Such an extension would require another agreement, and this time unanimity would be required among the Council’s members—something that may well be hard to achieve.

The transition period

The transition period will be immensely important. For as long as these negotiations are ongoing, all EU treaties and protocols will continue to apply. In view of the number and complexity of EU laws, it could be expected that a different phasing-out for each EU law will be agreed. It is clear that a partial remain, based on subject or geography, is excluded. Of course, if EU law ultimately ceases to apply in the exiting member state, the position is clear as regards the cancellation of the direct applicability of EU regulations.

However, any national laws adopted in order to implement or transpose EU directives would remain valid until such time as the national authorities decided to amend or cancel them. Wherever the EU has retained exclusive competence, the exiting member state will need to adopt new legislation. So the transitional period for a departing member state, which will have to effectively rewrite its legislation, will be highly complex and must surely extend beyond its negotiated withdrawal.

Even before a legal transition can begin, clarity is needed concerning the most challenging part of the negotiations: what is to be the future relationship between the exiting member state and the union? This future relationship will dictate the impact of the exit on businesses and private individuals alike.

In practical terms, the withdrawal notification of the UK is not expected before October 2016 at the earliest (but this was the prediction before Monday’s news that Theresa May will be announced as the new prime minister on Wednesday, July 13). As a result, the actual exit is unlikely to happen before October 2018. Until that time, the UK will continue to be an EU member state, bound by EU treaties and laws, and it must also be respected by the union as such.

What about trademarks and design rights?

Continuation and refiling

All European Union trademarks (EUTMs) and registered Community designs (RCDs) will have effect in the UK until the effective exit date of the relevant EU laws. As EUTMs and RCDs are granted some kind of priority, the UK may well confirm that this priority will be continued after the effective exit date, whether automatically or upon an opt-in request for continuation that is expressed by the rights owner. Alternatively, the UK may require refiling of trademarks and designs.

Seniority, use and reputation

Insofar as UK seniority rights are concerned and are relevant, a renewal of UK national registrations may be advisable. Five years after the exit date (which will be October 2023 if the current timing proves correct), EUTMs that are used only in the UK will be vulnerable to revocation due to non-use outside the UK. From the exit date onwards, the reputation of a trademark in the UK will not count towards its reputation in the EU. Therefore, evidence of reputation should be collected across the EU and not focused on the UK only.

Exhaustion of rights

Another consequence of the exit is that European exhaustion rules will no longer apply to goods put on the market in the UK. In principle, these rules do not allow a trademark owner to object to the further dealing of goods he or she has placed on the market within the European Economic Area (EEA): the trademark rights in those goods are said to be exhausted.

However, in the case of an exit from the EEA these rules would no longer apply to goods placed on the market in the UK, and EUTMs could be used to prevent imports into the EU from the UK. Conversely, UK rights would not be exhausted by sales elsewhere in the EU 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.

Representation

Professional representation in proceedings before the European Union Intellectual Property Office (EUIPO) is not required if the applicant or registrant is domiciled or principally doing business in an EEA jurisdiction. However, representation within the EEA is necessary for parties based outside the EEA for all except the most straightforward trademark matters (eg, the filing or renewal of trademark applications or an application to inspect files).

Article 93 of the EU trademark regulation (Council Regulation [EC] No. 207/2009) requires representatives to be based in the EEA. A representative is a legal practitioner qualified to act as a representative in trademark matters in one of the member states of the EEA and having his or her place of business within the EEA. Clearly, this requirement may reduce the amount of business for UK practitioners if the UK decides not to join the EEA, unless some other agreement is made.

With regard to RCDs, the rules are even more strict. According to article 78 of the Community design regulation (Council Regulation [EC] No. 6/2002), representatives acting before the EUIPO in respect of design matters must be domiciled in EU member states. This means that EEA membership would still be insufficient for UK practitioners to act as representatives in design matters.

Needless to say, trademark owners will probably need UK representatives in order to enforce their rights within the UK.

Case law

Another consequence may be that the UK and the EU develop their own case law and that their respective case law precedents are no longer binding on each other.

Courts

Finally, with regard to the allocation of jurisdiction, the enforcement and the reciprocity of judgments, the UK will no longer benefit from the Brussels Regulation (as recently amended) covering these issues across EU member states. The UK would need to solve the reciprocity issue through an international convention.

Costs

Of course, these are relatively long-term consequences. Businesses interested in maintaining their trademarks and design rights in the UK and the EU will have sufficient time to prepare for continued protection in both jurisdictions. It is not yet clear exactly what steps they will need to take; it may prove necessary for rights owners to take out separate UK and EU protection. Indeed, in some cases, it may be wise to do this during the transition period. It may also be wise for businesses to provide for a higher prosecution and litigation budget to cover the increased total cost of prosecution, management and dispute resolution.

Flip Petillion is a partner at  Crowell & Moring in Brussels. He can be contacted at: fpetillion@crowell.com

Diego Noesen is an associate at Crowell & Moring in Brussels. He can be contacted at: dnoesen@crowell.com