European Union: Potential Legal Implications Arising From "Brexit"

Last Updated: August 2 2016
Article by Catherine Muyl, Christina G. Hioureas and Mélida N. Hodgson

On June 23, 2016, the United Kingdom (UK) voted by way of an advisory referendum to leave the European Union. While the result will not take immediate legal effect, incoming Prime Minister Theresa May has indicated that "Brexit is Brexit" and that the process will go forward. This has led to substantial uncertainty regarding the potential implications in a wide range of sectors including IP, trade agreements, investment treaties and commercial arbitration

According to Article 50 of the Lisbon Treaty, once notice of intention to withdraw is given, the UK and the EU have two years to negotiate the conditions of the UK's withdrawal including the framework of their relationship going forward. Any agreement will require the support of 20 out of the 27 remaining EU member states, as well as the European Parliament (Article 238(3)(b) Lisbon Treaty). Given this tiered legal process, the status quo will apply until the entry into force of the withdrawal agreement or, failing that, two years after the notification date, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period (Article 50.2 Lisbon Treaty).

An additional complication is the potential consequences for Scotland. In the event that the UK Government invokes Article 50, it is unclear whether Scotland must have assent to it first for it to take effect. Scotland's First Minister Nicola Sturgeon has said that Brexit does not apply to Scotland, and announced that the Scottish Parliament could block the UK's exit from the EU under UK law. Given this uncertainty and assuming that Article 50 is invoked, there are five main models that could apply for the UK's future relationship with the EU:

EEA MEMBERSHIP

The UK might opt to join the European Economic Area, as Norway, Iceland and Liechtenstein have done. This would allow the UK to enjoy many of the benefits of the EU's internal market without certain of the obligations of full EU membership. Adopting such a model would require the agreement of the remaining 27 members states as well as Norway, Iceland and Liechtenstein. This may be the most straightforward approach.

THE SWISS MODEL

The Swiss model is a series of bilateral agreements between Switzerland and the EU to obtain partial access to free movement of goods and people. The agreements do not extend to services and limit the financial contribution required from Switzerland. With respect to the UK, this is an unlikely model given its complexity and the fact that the EU is considering adjusting this model to an approach similar to the EEA agreement.

CUSTOMS UNION

A customs union is currently in place between Turkey and the EU. It allows for tariff-free access to the EU internal market for goods, but not services. It also allows for the adoption of an external tariff that is aligned with that of the EU. Under this model the UK would not have to contribute financially to the EU, but the passport regime (allowing free movement of people) would not be available. The result would be that UK businesses would be required to obtain separate licensing in each EU member state to provide services to that particular jurisdiction. The UK would also be required to maintain and/or harmonize any new laws with those of the EU in areas such as competition, consumer protection and intellectual property.

FREE TRADE AGREEMENTS

A standalone free trade agreement with the EU could remove tariffs and certain other barriers in the trade of goods and services. However, to trade with the EU, the UK would still have to comply with certain regulations such as EU safety standards. This is further complicated by the UK's status in the pending CETA (EU-Canada) and the still to be finalized Transatlantic Trade and Investment Partnership ("TTIP" between the EU and the United States), particularly as those agreements depend on certain commitments made in the WTO as an EU member. Moreover, outside the EU context, the UK may not be as attractive a market for a stand-alone FTA.

WTO MEMBERSHIP

The UK is both an independent member, and a member of the EU delegation to the WTO, which governs agreements on a wide range of trade issues, including tariffs on goods, trade in services, intellectual property rights, trade remedies, and phytosanitary rules. This would be the purest form of exit from the EU and would mean that the UK would have control of its trade policy under existing WTO rules. This will, however, involve separating the UK out of market access commitments that were made on an EU level, and negotiating new commitments on an individual level. Certain recent WTO members, having gone through arduous negotiations to accede, may not be willing to simply change the UK's status.

More generally, any agreements between the UK and third countries which are governed through EU-based accession, such as the plurilateral WTO agreements (particularly the Agreement on Government Procurement, which grants access to government procurement) will also be affected and will have to be re-negotiated individually. Since most of these types of concessions were already made on a UK-level, these negotiations could conclude by simply adopting the status quo concessions.

Considerations for Specific Sectors Resulting from Brexit

The effects on legislation are expected to be quite disruptive. There will have to be a wholesale review of the UK law, particularly in areas subject to EU regulation.

CONTRACTS AND DISPUTE RESOLUTION CLAUSES

The implications on contractual relationships will probably be more evident on cross-border contracts rather than on domestic matters, as English contract law has continued developing outside the EU. The UK is part of an EU framework that decides jurisdiction in disputes, recognizes judgment of other member states and decides the law that governs contracts. Leaving the EU would mean that the UK would no longer be part of this framework which may lead to changes in the willingness of parties to select the UK as the agreed forum for the resolution of disputes or UK law as governing law in contracts. Also, if an international contract with ties to the UK does not contain a choice of law or a choice of forum provision, there may be added complexity in identifying the applicable law and forum.

INVESTMENT TREATIES

As indicated above, finalized comprehensive agreements such as those with Canada (CETA) and Singapore (EU-SING), which contain investment protection provisions, may be re-opened and re-negotiated to accommodate the UK's exit, further delaying ratification. The same could occur with respect to the TTIP negotiations, although certain U.S. legislators are urging President Barack Obama to begin separate negotiations with a newly independent UK. The UK has a number of stand-alone investment treaties that should remain unaffected. But there are some who worry that Brexit will cause a fall in foreign direct investment in the UK. Accordingly, it may have to negotiate additional investment treaties.

INTELLECTUAL PROPERTY

The potential consequences of Brexit are different depending on the type of IP right.

Copyright

As regards to copyright, the impact should be extremely limited since harmonization was in many respects incomplete.

Patents

European patents should not be affected by Brexit because the Munich Convention is not a European Union instrument. It currently has 38 Contracting States and some of them (for example Switzerland, Norway and Turkey) are not members of the European Union. There is little doubt that the UK will remain a Party to the Munich Convention.

On the other hand, the "Unitary Patent" is a creation of the EU and Brexit means that its entry into force, if we ever see it, will be considerably delayed. Article 80 (1) of the UPC Agreement provides that the three Member States in which the most number of European patents had effect in the year preceding the year the agreement was signed, need to ratify the agreement before it can come into effect. These three countries are Germany, France and the UK, but it now seems unlikely that the UK will ratify it.

Important aspects of the UPC system will have to be renegotiated. For example, it had been agreed that the Central Division would be seated in Paris with sections in London and Munich dealing with cases concerning specific patent classifications. London was to deal with human necessities, chemistry and metallurgy. Another location will have to be found for these.

One of the main benefits expected from the UPC was that patent owners would be able to get judgments (injunctions, damages) that would be effective in all Member States. With Brexit, these judgments will not be effective in the UK.

Trademarks

European Union Trademarks were created by Council Regulation (EC) No 40/94 of 20 December 1993, and the regulation in its current form does not indicate what happens when a Member State leaves the Union.

The main feature of EU trademarks is that they are not a bundle of various national rights, but trademarks with their own regime (with a "unitary character"), that is, the owner obtains a single right valid in the 28 Member States. As a consequence, absent some sort of agreement to the contrary, Brexit means that EU trademarks will no longer be recognized in the United Kingdom. In theory, EU trademark owners could simply lose their rights in the United Kingdom, but the UK will have to find a solution to facilitate the conversion of EU trademarks into UK national trademarks so that trademark owners do not lose the benefit of priority. This will mean additional costs for trademark owners.

The rights of an EU trademark owner can be revoked if, within a continuous period of 5 years, the trademark has not been put to genuine use in the EU. The requirement of a "genuine use" in the EU may be satisfied even though the trademark has been used within a single Member State. What ‎will happen to trademarks which were used mainly in the UK? They could be challenged as no longer in "genuine use" in what is left of the European Union. The withdrawal agreement could provide for a transitional period during which UK businesses or international businesses focused on the UK will be given the opportunity to consolidate their rights in the European Union.

Another issue that arises is in relation to the exhaustion of rights principle. ‎A trademark owner cannot prohibit the use of its trademark in relation to goods which entered the EEA with its consent. It can use its EU trademark to stop products from entering the EU, but once it has let genuine products into the EEA, it cannot prevent them from circulating from one country to another within the EU. If the UK decides to join the EEA, owners of EU trademarks will not have the possibility to stop genuine goods which have been put on the UK market from being exported to the EU. If the UK does not join the EEA, trademark owners will have the possibility to stop these goods at the EU border.

There will also be consequences for trademark licenses. When the geographical scope is the "European Union," will this be interpreted as meaning all the member countries at the time the agreement was signed, or all the member countries at the time the contract is being interpreted?

Designs

The above observations about EU trademarks also apply to Community designs except that there is no requirement of genuine use.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
25 Oct 2017, Webinar, Boston, United States

Foley Hoag will present a 60-minute webinar on Wednesday, October 25 at 12:30 pm EDT, offering guidance for in-house counsel regarding the basics of trademark and design protection in the European Union. Attendees will learn about the opportunities and pitfalls to be on the lookout for when looking to secure, protect, and enforce an IP portfolio overseas.

1 Nov 2017, Webinar, Boston, United States

Please join Foley Hoag on Wednesday, November 1, 2017 for a webinar that covers the details of drafting an appropriate arbitration clause for your company’s commercial contracts.

9 Nov 2017, Conference, Waltham, United States

Please join us on Thursday, November 9 at the Westin Waltham Hotel for our quarterly New England M&A Forum, which brings the latest in market trends and recent legal developments to the New England M&A professionals' community.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.