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BREXIT : what are the actual consequences for intellectual property ? News
30 August 2016

After the shock caused by the Brexit vote in June, we have considered the possible consequences for intellectual property, taking into account numerous opinions that were given over the last two months.
On 23 June 2016, the electors of the United Kingdom of Great Britain and Northern Ireland were 51,89% to vote to leave the European Union (EU) in the context of the referendum commonly called Brexit.
It is important to understand that the Brexit has no legal consequence for now and that the United Kingdom is still a member State of the EU. Indeed, article 50 of the treaty on European Union (TEU) provides for a withdrawal mechanism in several steps:

  • The member State wishing to withdraw has to notify its intent to the European Council
  • Starting from this notification, the State has to negotiate the terms and conditions of its withdrawal
  • When an agreement is reached or otherwise 2 years after the notification, the treaties will automatically stop applying (the State leaves the EU)

 

The 2-year period may be extended if the European council unanimously decides so.
The referendum of 23 June 2016 does not amount to a notification to the European council so the procedure of article 50 has not started yet. The United Kingdom is under no legal obligation to meet a deadline and it seems that the government will not proceed with the notification to the European council before 2017 the soonest. At this stage, the Brexit is therefore only political.
That being said, the Brexit does create many uncertainties. In this newsletter, we analyze in detail the potential consequences on the IP protection system in Europe, especially within the EU.
1/ No consequence on the “classical” European patent currently in force
The classical European patent is granted by the European Patent office following the European Patent Convention (EPC). It is not a single right having validity on the whole territory of the EU (which differs with the future unitary patent) but several national rights stemming from a single granting procedure. As the EPC is independent from EU institutions, Brexit will have no consequence on the granting procedure of European patents or on the validation of a European patent in the United Kingdom. Therefore:

  • It will still be possible to obtain a patent having effect in the United Kingdom by applying for a European patent and validating it in the UK
  • Already granted patents which are validated in the United Kingdom will continue to have effect in the UK

 

2/ Medium term consequences for protection of EU trademarks and designs
EU trademarks (formerly community trademarks) and EU designs & models are unitary intellectual property rights having effect in all the 28 member States of the EU.
In the short term, there will be no change because the withdrawal of the United Kingdom will require some time. However, in the medium term, the withdrawal of the UK from the EU could have important consequences for rights holders, however undetermined for now, and rights holders should remain cautious and anticipate steps that may be necessary to secure their portfolio.

  • On the protection of trademark and design & model applications

 

Once the United Kingdom will have left the EU, rights holders wishing to hold on a protection including the UK will have to simultaneously apply for a unitary right (covering the 27 member States) and for a British national right by the UKIPO (or for an international trademark application or for a subsequent designation by WIPO).
As for rights applied for before the withdrawal, applicable rules (regulation No. 207/2009 of 26 February 2009 on EU trademark and regulation (EC) No. 6/2002 of 12 December 2001 on community designs & models) do not provide for the withdrawal of a member and we do not know with certainty what the protection of unitary rights will be on the territory of the UK.
Several scenario  are possible:

  1. EU trademarks and designs cease to produce effect on British territory and rights holders lose priority stemming from EU rights. Unitary rights holders would have to re-apply for trademarks or designs in the United Kingdom would they wish to retain a British protection.

This would lead to high legal uncertainty because any third party having rights prior to the new British application (even if they are posterior to the original community rights) could theoretically oppose the new British applications, or request invalidation…
However implausible this scenario is in our opinion, EU trademarks and designs holders could perform an audit of their portfolio and immediately apply for their most “precious” trademarks and designs in the United Kingdom if they wish to provide for all contingencies (after checking their availability by running a prior rights search on the UKIPO database).

  1. Automatic conversion of the unitary right into a British national right without any voluntary step (the rights holder would thus automatically have two industrial property rights covering the 28 States in which his right was formerly protected)
  2. Transitory period during which the rights holder will have the possibility to request conversion of his EU right into a British national right, which would probably require paying an application fee to the UKIPO (hopefully of a reasonable amount)

 

In these two last scenario, the new British national right would benefit from the application date of the original unitary right as well as from priority and seniority dates as claimed by the unitary right (this is by analogy with the conversion procedure of EU trademark into national trademarks, see article 112 of regulation No. 207/2009).
It should however be noted that the conversion procedure of a EU trademark involves reexamination of the national trademark application by each designated national office and paying official fees to offices of the countries in which the trademark is converted. A copy-paste application of this procedure would allow the UKIPO to reject the national application even though the EUIPO had granted the right. Given the unprecedented nature of the withdrawal of a member State, we can hope that appropriate procedures will be implemented in lieu of inadequate existing procedures.

  • On the risk of invalidation for lack of use of EU trademarks

 

EU trademarks can be invalidated for lack of use if they are not genuinely used within the EU for an uninterrupted period of 5 years for designated products and services. The assessment of genuine use very much depends on facts, some of the criteria taken into account are the characteristics of the relevant market, the nature of the products and services protected by the trademark, the quantitative and territorial extent of the use, frequency and regularity of the use…
Case law admitted that the use of a EU trademark in only one of the EU member States can be enough for genuine use for the whole EU territory (ECH, C149/11, 19 Dec. 2012, Leno Merken BC v/ Hagelkruis Beheer BV).
What will be the fate of trademarks which are only used in the United Kingdom, after the withdrawal? Rights holders will not be able to benefit from this use to avoid invalidity for lack of use of their EU trademarks which may thus be invalidated if there is no other use in another member State of the EU. It is also unknown whether the use within the UK prior to the withdrawal will be admitted as genuine use. Consequently, holders of EU trademarks that are used only in the UK may want to contemplate using them in one or several other EU countries to anticipate the risk of invalidation of their rights for lack of use once the United Kingdom will withdraw from the EU.
3/ Modification of the territory of intellectual property use
The effective withdrawal of the United Kingdom will of course mean that it will not be part of the EU territory any longer.
This will impact licensing and coexistence agreements for which the territory must be specified as a condition of validity. Issues of interpretation could happen for those agreements that describe the territory of use as “EU territory”. It will be needed to amend them to specifically designate British territory.
This would also have consequence on the principle of exhaustion of rights according to which any goods placed on the market by the rights holder or with his consent within the EU territory can be freely moved. Today, goods placed on the market in the United Kingdom can freely be moved within the EU and vice versa.
Once the UK withdraws, the principle of exhaustion of rights will not apply any longer for the UK. In practice, this means that rights holders will be able to prevent movement of goods from the United Kingdom to the EU or conversely even though these goods were placed on the market with their consent.
The principle of exhaustion of rights also apply on the territory of the European Economic Area (EEA) (namely the EU territory plus Norway, Island and Liechtenstein) thanks to the EEA agreement, but this agreement only applies for member States of the EU or of the EFTA and the UK will not be a member of any of those after the withdrawal. However, it is possible that the United Kingdom asks to be part of the EEA or negotiate a special status of associated States (or former member) so that some provisions of EU law continue to apply, as the principle of exhaustion of rights.
Negotiations between the United Kingdom and the EU should be followed as to their content in order to know how the exhaustion of rights will apply, because this point could have important economic consequences especially for activities of distribution to or from the British territory.
4/ Unitary European patent and Unified Patent Court: the Brexit will likely force a renegotiation and new delays
We previously presented the unitary patent and the UPC in our newsletter of March 2016 : their objective is to unify the protection of inventions in Europe (one single patent having effect in every States, unlike the current European patent) and to unify patent disputes before a single court.
The unitary patent is provided for by community regulation (No. 1257/2012) whereas the UPC is subject to the Agreement of 19 February 2013 signed under the enhanced cooperation procedure. However, article 18 of regulation 1257/2012 subordinates the entry into force of the unitary patent to the entry into force of the UPC and consequently there will be no unitary patent before the UPC.
Before the Brexit, general opinion was that the UPC would enter into force during the first semester of 2017. This prevision now appears unlikely because of the Brexit. Indeed, article 89 of the Agreement relating to the UPC states that it will enter into force when:

  • The Agreement has been ratified by 13 States
  • Among these 13, the 3 member States (of the EU) having the highest number of European patents in 2012 must have ratified the Agreement

 

In 2012, these 3 States were in order, Germany, France and the United Kingdom. As for today, the Agreement has been ratified by 10 States including France; it still needs Germany, the UK and a third State to enter into force. The ratification of the Agreement of 19 February 2013 by the United Kingdom is therefore a prerequisite to the effective creation of the UPC, yet British voters were in favour of a withdrawal from the European Union.
There are several possible outcomes that we will review successively.

  1. Scenario 1: ratification of the Agreement relating to a unified patent court by the United Kingdom

 

In spite of the Brexit, there is no legal obstacle for the United Kingdom to ratify the Agreement. Moreover, ratification was underway before the 23 June vote (one of the two ratification instruments was published on 12 March 2016). The British government publicly recalled it is still a member of the Agreement of 19 February 2013 and declared it will continue participating to technical meetings for now.
This simple solution would allow the ratification process to go on and the UPC could be created (provided Germany and another State ratify the Agreement) which would also result in the entry into force of the unitary patent. In the short term, it would mean the Agreement would not have to be renegotiated, which may be important since it would be a burdensome process, as the Agreement already is a delicate compromise between member States.
However, setting aside political issues, ratification would lead to legal issues in the medium term. Indeed, even if the Agreement of 19 February 2013 is not a community instrument, it is clearly under the aegis of the EU:

  • Article 1 specifies that the UPC is a court common to contracting “member States” which are defined as belonging to the EU
  • Article 20 states that the UPC shall apply Union law in its entirety and shall respect its primacy
  • Decisions of the ECJ will be binding on the UPC
  • Article 23 provides that member States (having ratified the agreement) will be liable for actions of the UPC, as per the treaty on the functioning of the European Union (TFEU)

 

As for now, the United Kingdom is still a member of the EU but in the medium term, assuming the country will launch the process of Article 50 early 2017 for a withdrawal in 2019, it could stop being a member of the EU while being a member of the Agreement relating to the UPC. In this case the UK would still have to respect primacy of Union law and jurisdiction of the ECJ and it would still be liable for actions of the UPC.
While not impossible, legal uncertainty would ensue if the United Kingdom was to try to accommodate its withdrawal from the EU and the continuing primacy of Union law over European patents.
Another issue is that the UPC will have jurisdiction over all European patents (save opt-out) in countries where the agreement is applicable. If the United Kingdom ratifies the Agreement, it is possible there will be proceedings before the UPC pertaining to European patent with British validation and we do not precisely know what would happen to these validations if proceedings are underway when the country withdraws from the EU.
On a more prosaic side, ratification by the United Kingdom would also result in practical issues since article 7§2 states that the central division of the UPC will have a section in London with jurisdiction over pharmaceutical patent, among others. If the United Kingdom withdraws, the UPC would partly be located outside of the EU which would probably be another factor of legal uncertainty.
Overall, while ratification of the Agreement of 19 February 2013 by the United Kingdom is not impossible, the functioning of the unified patent court could be disturbed if it eventually withdraws from the EU. In this case patent holders should pursue a cautious strategy as to whether opting-out or not.

  1. Scenario 2: the United Kingdom does not ratify the Agreement of 19 February 2013

 

In this case, the Agreement of 19 February 2013 would not enter into force as long as the United Kingdom remains a member of the European Union due to Article 89.  Given the mechanism of article 50 TEU, the Unified Patent Court would probably not be created before at least two years.
Once the United Kingdom will have left the European Union, Italy would be the 3rd member State in which there was the highest number of European patents in 2012. The Agreement could then enter into force after the country ratifies it.
That being said, article 7§2 of the Agreement still specifies that one section of the central division will be located in London. Nothing would prevent the United Kingdom to host this section without being part of the UPC on a legal standpoint, however it is unlikely that the other contracting States would let a third Country host of the three sections of the central division.
It therefore appears that the Agreement will have to be renegotiated at least to modify article 7§2 to choose another city to host the London section (such as Milan) or to transfer it to the seat in Paris. Yet, such negotiation would encounter two obstacles:

  • The UK would still be a signatory State of the Agreement and thus any modification would require its consent. This would still be the case even after withdrawal from the EU since the Agreement is not a community instrument. The only way to avoid involvement of the United Kingdom would be to negotiate a whole new agreement
  • It is likely other States would take advantage of a new negotiation to try to obtain more modifications. Italy and Spain, which strongly opposed the UPC, may try to take part to new negotiations. Germany could also be tempted to claim the London section as it is the most important European State in respect with patents.

Whatever happens, if the United Kingdom does not ratify the Agreement, it is unlikely that the UPC and the unitary patent can enter into force in 2017.

Guillaume DUBOS, Delphine RUDLOFF and Nathalie BAPTISTE

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