This article has been written by Akshad Vohra and edited by Shashwat Kaushik, pursuing a Diploma in Corporate Finance and Investment Banking from SkillArbitrage. This article aims to provide an analysis of the legal consequences of Brexit and explore their impact on UK-based companies across various sectors.
It has been published by Rachit Garg.
Table of Contents
The decision of the United Kingdom (UK) to leave the European Union (EU), commonly referred to as Brexit, has had far-reaching legal consequences. The process of untangling the UK’s regulatory framework from the EU has been complex and significant for UK-based companies. Brexit has triggered a seismic shift in the legal landscape, impacting trade regulations, employment, intellectual property, and financial services. Trade and customs regulations have been overhauled, requiring UK-based companies to navigate updated paperwork, customs checks, and compliance requirements when trading with EU member states. This has introduced additional administrative burdens and costs, particularly for small and medium-sized enterprises (SMEs).
Brexit also has another critical consequence. With the UK no longer bound by EU laws and regulations, it can establish its own regulatory framework. This has resulted in potential differences in product standards, data protection laws, financial regulations, and more. UK-based companies operating in sectors that heavily rely on harmonisation. EU regulations now face the challenge of adapting to these legal changes, which may affect market access and competitiveness.
The termination of freedom of movement between the UK and the EU has implications for employment and immigration. UK-based companies, particularly in agriculture, hospitality, and healthcare, have encountered difficulties recruiting and retaining skilled EU workers. The introduction of the points-based immigration system adds further administrative burdens and costs for companies seeking EU workers.
Brexit has also impacted intellectual property rights. Previously, EU-wide IP protection covered the UK. However, post-Brexit, separate applications and registrations are required for IP protection in the UK and the EU. This has increased costs and administrative procedures for UK-based companies, potentially affecting their ability to safeguard IP rights across the EU.
In the financial services sector, the loss of passporting rights, which allowed UK-based financial institutions to operate seamlessly across the EU, has prompted many companies to establish subsidiaries or relocate operations to maintain access to the EU market. The future regulatory relationship between the UK and the EU in financial services remains uncertain, posing ongoing challenges for UK-based investment firms.
Legal consequences of Brexit and their impact on UK based companies
The legal consequences of Brexit and their impact on UK-based companies are:
Trademarks, designs, plant varieties, etc.
Trade marks, designs, plant varieties, and other intellectual property rights have been significantly affected by Brexit. With the UK’s departure from the European Union, EU Trade Marks, Registered and Unregistered Community Designs, and Community Plant Variety Rights no longer hold validity in the UK. The regulations that govern these rights under the EU framework no longer apply in the UK. To address this, the UK government is implementing legislation to establish equivalent rights, ensuring minimal or no loss of rights for intellectual property rights holders. Draft Statutory Instruments have been presented to Parliament, including the Trade Marks (Amendment etc.) (EU Exit) Regulations 2019, to introduce these new rights. Similar regulations for plant variety rights and geographical indications are expected to be introduced in the future. The UK government has confirmed that holders of existing EU Trade Marks and registered Community Design rights will be protected through the creation of new, equivalent UK rights at no cost and with minimal administrative burden. Right holders can opt out if they do not wish to receive these new rights.
For individuals or corporations with pending EU Trade Mark and registered +Community Design applications at the time of Brexit, there is a 9-month window to apply for equivalent UK protections. The initial EU application date and any seniority rights can be retained as the priority dates for these applications. These new UK trade mark and registered design rights can be renewed separately from their EU counterparts, form the basis for proceedings in UK courts and the UK Intellectual Property Office (UKIPO), and can be assigned and licenced independently. The UKIPO is now responsible for administering these registrations, which substitute for the former EU-wide rights in the UK. Existing Unregistered Community Design Rights (UCDRs) will remain enforceable in the UK until the end of their protection period under the Design and IR Exit Regulations. These designs will be known as ‘continuing unregistered Community Designs’. Additionally, the UK government will introduce a new ‘supplementary unregistered design right’, which mirrors the scope of the UCDR and arises automatically. This protects designs disclosed to the public in the UK after Brexit.
It’s important to note that existing EU Trade Marks, Community Plant Variety Rights, registered community designs, and UCDRs arising from disclosure in the UK before Brexit will remain valid in the remaining EU member states. However, UK registrants of ‘.eu’ domain names will no longer have the right to own such domains post-Brexit. They must transfer their rights to an EU-based registrant or consider alternative top-level domains. Regarding ongoing litigation before UK courts based on an EU Trade Mark or Community design, the UK government has stated that provisions will be made, but further guidance is expected once the future relationship becomes clearer. Brexit has also impacted the rights of UK lawyers, patent attorneys, and trade mark attorneys. They have lost their rights of audience before EU courts and bodies, including the Court of Justice of the European Union (CJEU) and the EU Intellectual Property Office (EUIPO). Unless they hold an alternative EU/EEA qualification, they are no longer able to represent clients directly before these institutions. This may require restructuring IP departments within UK companies, such as by relocating, replacing staff, or instructing external agents for representation.
Patents and supplementary protection certificates
The European Patent Convention (EPC) is an international treaty establishing a unified patent system for 37 European countries. The EPC is not an EU instrument, and as such, it will not be affected by Brexit. This means that European Patents (EPs) with a UK designation will continue to be granted by the European Patent Office (EPO) and to take effect in the UK. Amendments to the Patents Act of 1977, of the UK introduced by secondary legislation under the European Communities Act of 1972, to implement EU Directives (notably the Biotech Directive) will also be preserved when the ECA is repealed. This means that the UK will continue to implement the Biotech Directive in its national patent law. Existing UK Supplementary Protection Certificates (SPCs) will also continue. SPCs are granted and administered nationally, and the UK government has confirmed that it intends to maintain the current SPC legal framework as the UK leaves the EU. This means the UK will continue to have a strong patent system after Brexit. Patent holders will still be able to obtain patent protection for their inventions in the UK, and they will still be able to enforce their patents in the UK courts.
The UK’s relationship with the EU can also affect how much businesses choose to spend on factories, training, equipment, and technology. The Chancellor of the Exchequer has acknowledged that investment can help boost economic growth. However, business investment has stalled since the Brexit referendum. This is because businesses are wary of the outlook for the economy. The investment was not great even before 2016, but if it had continued its pre-referendum trend, it could be about 25% higher than it is now. Economists argue about why there is this gap. Some, including the International Monetary Fund, believe that uncertainty surrounding Brexit, including the unsettled issue of the Northern Ireland Protocol, has deterred some businesses from investing. Sir Richard Branson is among the business leaders who have said that the cost of Brexit red tape would put them off investing in the UK. The pro-Brexit group, Briefings for Business, claims that the numbers are misleading and that there is no evidence of a Brexit-related hit to investment. Ultimately, a lack of investment means the UK economy is less efficient and earns less than it could.
When the UK left the European Union, it also left the EU’s free movement of labour rules. This meant that businesses could no longer hire EU citizens without first obtaining a visa. This change in the rules has had a significant impact on the UK labour market. A study by the think tanks Centre for European Reform and UK in a Changing Europe suggests that there are 330,000 fewer workers in the UK due to Brexit. This may only be 1% of the total workforce, but sectors such as transport, hospitality, and retail have been particularly hard hit. The lack of workers has led to shortages in these sectors, which have in turn pushed up prices for customers. Some commentators argue that these constraints will persuade businesses to invest more in training and skill development. In the financial services sector, the impact of Brexit has been less severe. A House of Commons report suggests that 7,000 jobs may have been lost, but this is far fewer than the 70,000 that were previously feared. The full impact of Brexit on the UK labour market is still being felt. However,the changes to the rules on the free movement of labour have had a significant impact on some sectors of the economy.
Customs detention and parallel imports
Customs detention of goods allegedly infringing is an important tool for rights holders, not only against counterfeiters but also in standards-based industries such as electronics and telecommunications. After the UK leaves the EU, there will be a border between the UK and the EU where goods can be detained. Whether or not a rights holder can object to the importation of goods depends on the principle of exhaustion of intellectual property rights. Currently, once a product is placed on the market anywhere in the European Economic Area (EEA) with the consent of the rights holder, the IP rights protecting that product are said to be exhausted and the rights holder cannot rely on their intellectual property rights to prevent the importation of the product. Since January 1, 2021, the UK has recognised the EEA regional exhaustion regime. This means that post-Brexit IP rights in relation to goods (lawfully) sold in the EEA have been considered exhausted in the UK and parallel imports have continued from the EEA. However, IP rights in goods lawfully sold in the UK may not be considered exhausted in the EEA. This means that exports of goods first placed on the market in the UK to the EEA may need the permission of rights holders as of January 1, 2021. The UK government recently launched a detailed consultation to consider what IP exhaustion regime it will apply in the longer term.
The UK government is broadly considering four options:
- Maintaining the current UK regime.
- Moving to a national exhaustion regime.
- Moving to an international exhaustion regime.
- Creating a mixed regime where specific goods, sectors or IP rights are subject to different regimes.
The impact of Brexit on IP licencing is likely to be small for major businesses. This is because licences typically cover the whole or substantial parts of Europe and need to comply with EU law, even if the law of a non-EU member state governs them. The only way that Brexit could have a significant impact on IP licencing is if licencing businesses treat the UK as an entity separate from the EU. In this case, IP rights would need to be licenced separately to the UK. To protect themselves from this eventuality, businesses should include provisions in their licencing agreements that allow for licenced rights, such as European Union trademarks or registered or unregistered community designs, to be converted into national rights.
Brexit has had significant legal consequences for the United Kingdom (UK) and its companies. The process of separating from the European Union (EU) has led to changes in trade regulations, employment rules, intellectual property rights, and financial services. UK-based companies now face new administrative burdens, compliance requirements, and potential differences in product standards and regulations.
Regarding intellectual property, Brexit has affected trademarks, designs, plant varieties, and other rights. Previously, EU-wide protections no longer apply in the UK. However, the UK government has introduced legislation to establish equivalent rights, ensuring minimal or no loss of rights for intellectual property holders. Existing rights holders will be protected, and there is a window for pending applications to apply for equivalent UK protections.
In the patent system, the European Patent Convention (EPC) remains unaffected by Brexit. European Patents (EPs) with a UK designation will continue to be granted by the European Patent Office (EPO) and will be enforceable in UK courts. The UK government also intends to maintain the current UK patent law, ensuring a strong patent system after Brexit.
Brexit has also impacted investment and job markets. Businesses have been cautious about investing due to economic uncertainties surrounding Brexit, leading to lower investment levels than pre-referendum trends. Additionally, changes in free movement of labour rules have reduced the workforce, particularly in sectors such as transport, hospitality, and retail. Overall, Brexit has brought significant legal changes and challenges for UK-based companies across various sectors. Navigating these changes and adapting to new regulations will be crucial for ensuring continued success in the post-Brexit era.
- The Uncertain Consequences of Brexit for UK-Based Financial Services (openedition.org)
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