European Union: An Ever Closer Union? No More. The Impact Of ‘Brexit' On IP Holders

On 23 June 2016, UK voters voted for an exit of the UK from the European Union. While the UK will not leave the EU overnight, holders of intellectual property rights in the EU need to ask themselves what this vote means for portfolios of EU IP rights, how quickly this will have an impact and how they may need to adjust their filing and enforcement strategies for Europe.

Furthermore, this decision by the UK electorate will have an impact on the proposed European patent litigation system and the set-up of the Unified Patent Court (UPC).

The exit mechanism and timeline

Under Art. 50 of the Treaty on European Union (the 'Lisbon Treaty') the UK may decide to withdraw, and shall notify the European Council of its intention. The European Union shall then negotiate an agreement with the UK setting out the arrangements for withdrawal. The EU treaties shall cease to apply to the UK from the date of entry into force of the negotiated agreement, or two years after the notification made to the European Council (unless such period is extended unanimously by the council and the UK). In other words: The effect of 'Brexit' on IP rights may not be felt until negotiations have been concluded, or at least for two years following notification (and there has been an indication that notification will be intentionally delayed to keep the two-year period from running too soon).

What is the effect of 'Brexit' on existing EU IP rights (trademarks and designs)?

Both the EUTMR for EU trademarks as well as the CDR for community designs provide that the respective EU rights have a unitary character throughout the European Union. They are valid in the territory of the member states, but only there. Once the UK exit becomes effective, these EU rights will no longer enjoy protection in the UK, unless special arrangements to remedy this effect are put in place.

It appears unlikely, however, that the EU would allow for such rights to continue enjoying protection in the UK as part of the arrangements for withdrawal, as it would not only violate the fundamentals of Art. 1 EUTMR and Art. 1 CDR, but also unilaterally grant the UK a benefit no other non-member of the EU has. It would appear particularly problematic for trademarks as they may be renewed and protected forever.

Both EU trademarks and community designs will therefore most likely no longer be protected in the UK once the 'Brexit' becomes effective. This also applies to international registrations under the Madrid System, which cover the EU as a territory of protection, as well as to international designs under the Hague Agreement, which are protected in the EU. The EU extension for these international rights will no longer lead to protection in the UK, either.

If Scotland were to secede from the UK and rejoin the EU, all the EU trademarks and community designs (as well as international rights extending to the EU) would automatically enjoy extended protection there, again at no cost to owners (as was the case with prior territorial extensions of the EU). There are uncertainties over timing here, as a further Scottish referendum would be required first.

What modifications should be made to the filing strategy in the EU now?

It would be for UK national law to provide a mechanism enabling owners of EU trademarks and community designs to continue to enjoy protection of their rights in the UK, whether by allowing a form of 'conversion' of the rights into an additional domestic right in the UK with the same priority date, or allowing a new filing of rights with the UKIPO. What will be put in place domestically in this regard is difficult to predict at this time.

In terms of immediate adjustments to a filing strategy in the EU, this can be said:

  1. With respect to EU trademarks, they will continue to be the most efficient international trademark right, even if protection extends to just 27 countries (with the prospect of growing to 28 again with Scotland). But to ensure protection in the UK, a separate domestic filing with the UKIPO (in addition to the EU trademark application) for new applications should be considered.
  2. As far as international registrations of trademarks under the Madrid System are concerned, it appears advisable to select not only the EU as a territory of protection but also, separately, the UK, to ensure continued protection there.
  3. The community design will continue to be appealing as well for design protection in Europe. Registration is both very inexpensive and can be quickly obtained. Given that the UK is still not a member of the international design protection system under the Hague Agreement (accession is being discussed), extensions of international designs to the UK are still not possible to date. Domestic filings will therefore be the only option on the design side for the time being to ensure registered design protection in the UK.

UPC: I will survive!

With regards to patents, the implications are less obvious. 'Brexit' will not have an immediate effect for patent holders for the simple reason that there is no 'community patent' whose scope and enforcement could be impacted by the UK's decision to leave the EU. English parts of European patents as well, as national English patents, will remain unaffected. Likewise, companies from the UK will continue to apply for protection in EU member states, either via the EPO route or before the national patent and trademark offices on the continent.

Having said all this, the decision to leave Europe does have implications for the UPC project. Some years ago, several member states, including the UK, teamed up to set up a pan-European patent litigation system and to create the UPC, which would have jurisdiction regarding the infringement and validity of European patents with or without unitary effect. The new system is not without faults, but one must not fail to note that it offers significant opportunities. To name but two, the possibility to apply for an injunction that may be enforced in several member states certainly appears attractive. In addition, U.S. companies appreciate the fact that within the new system it will be possible to litigate 'in the language of the patent', which often is their native English.

The new European patent litigation system was intended to 'go live' in January 2017. 'Brexit' will now put a temporary stop to the UPC project. That is because under the current version of the UPC agreement, the new rules will only come into force when the three big member states (the UK, Germany and France) ratify the agreement. The UK did not ratify the UPC agreement before the referendum, and it seems doubtful whether it will do so before it exits the EU. In the current political climate, there may be no interest in continuing with the project. Further, in view of CJEU opinion 1/09, there is reason to believe that the UK may no longer be in a position to participate as a non-EU member state.

Given the risk of 'Brexit', the other member states of course made contingency plans. It seems to be general consensus that Italy will replace the UK, so that the UPC agreement can come into force once Germany, France and Italy have ratified it. That, however, implies that the UPC agreement needs to be amended. In the context of the upcoming negotiations, member states will also have to agree what will happen to the central division of the UPC. According to the current arrangement, Munich, Paris and London were going to house that division together, and the London part was going to have jurisdiction for pharma and healthcare cases. Given 'Brexit', this will no longer happen and there are already discussions whether London should be replaced by Milan or The Hague.

The good news for potential users of the European patent litigation system is that the member states where the vast majority of patent infringement cases are heard today, namely Germany, France and the Netherlands, are on board. Further, there are several member states that have already indicated they are prepared to have infringement proceedings conducted in English. Given that London will no longer serve as a venue, we can expect more member states to take a flexible approach regarding the language question. While the UK's decision to leave the EU (and also the UPC) is unfortunate, the impact on the UPC project may thus be limited.

The way forward

As detailed above, there are still many open questions. However, we advise clients to prepare for the consequences of 'Brexit'. Please make sure that you adapt your filing and enforcement strategies accordingly.

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.

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