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What Brexit means for non-EU IP owners




John Pegram of Fish & Richardson considers the impact of Brexit on non-European IP owners, arguing that foreign companies will be less likely to use the UK as their point of entry into the EU

1 minute read
Brexit will have only a limited, immediate impact on overseas owners of European IP rights. Patent applications in the EPO will continue as in the past. Owners will need to duplicate EU trademark and design registrations in the UK, and take care to avoid loss of rights in pending EU trade mark and design applications. They will need to replace UK professional representatives in EU trademark and design matters. The long-term impact on IP probably will depend on the response of businesses to Brexit. Non-European companies will be less likely to use the UK as their point of entry into the EU and base for their European activity, especially if there is no customs union and free movement of employees between the EU and the UK. Brexit also has delayed implementation of the Unified Patent Court and unitary patent package, which makes it doubtful whether the UK can participate.

Many IP professionals I encounter in the US and Japan have given little thought to the IP-related consequences of Brexit. In general, they express disappointment, dismay and reduced respect for the UK, which they had viewed as stable, reliable and predictable. I have not heard anyone say that Brexit will be good for their company, their clients or IP protection.

Americans and Japanese need not worry about the direct impact of Brexit on obtaining European patents. The UK's participation in the EPO will not change, because the EPO is not an EU institution. Among the better informed, and at least some of those with a strong interest in patent enforcement in Europe, there is disappointment that the unitary patent and Unified Patent Court (UPC) package proposal is, for now, not moving ahead.

The current UK government and the Chartered Institute of Trade Mark Attorneys appear to have developed reasonable proposals and guidance for post-Brexit UK protection of EU-registered trademarks and designs, and coordination with the EU. Because trademarks and designs are protected by registrations with an EU agency, the EUIPO, owners will need to duplicate EU registrations in the UK, and replace UK nationals with EU nationals as professional representatives in the EUIPO and EU courts. Special care will need to be taken in connection with pending applications. There appears to be some risk of loss of rights in the event the UK leaves the EU without an agreement.

In the long run, the UK will no longer be the most desirable European base and point of entry into the EU either for doing business, or for obtaining and enforcing IP rights.

Business and Brexit

Company policies and plans for international IP protection generally follow their business policies and plans.

The long term trend in international business has been toward harmonisation of laws, adoption of common standards, and greater freedom of movement of goods and people. Creation of the EU and UK membership were major steps in that direction. Brexit is contrary to that trend.

In the 1960s (while Germany was still divided), the relative size of the UK market, the similarities of the UK legal system to that of the US, and use of the English language made the UK particularly attractive for non-European companies. The facts that the UK was a world political leader in such organisations as NATO and the United Nations, and that London was a leading financial centre, also contributed to the attractiveness of the UK.

The position of the UK was greatly enhanced when it joined the EU's predecessor, the European Economic Community, on January 1 1973. It obtained better access to the world's second-largest market, with free movement of goods and personnel. Subsequent developments, such as UK political leadership in the EU (which it has shared with France and Germany), placement of the European Medicines Authority in the UK, and the growth of the London financial markets have contributed to the attractiveness of the UK to business, both as a trading partner and a locale for investment.

Today, the EU is one of the world's most attractive markets for trade and investment. Its total GDP is second only to that of the US, with the UK contributing 15% to that total. More than half of the 80 jurisdictions having the highest per capita GDP in the world are EU states and their dependencies. Although per capita GDP in the EU is significantly less than that in the US, it is only 4.4% less than that of Japan. (See Tables 1 and 2). However, there are now many non-European states with a significant GDP and significant potential for growth in which companies now feel a need for IP protection.

The UK's role in the EU has helped overcome the disadvantages for European trade of the UK's location at the geographic edge of Europe and its separation by water from the continent, which will be exacerbated if the UK does not remain in a customs union with the EU. Even the threat of Brexit has already diminished Britain's image and leadership role in Europe.

Table 1: GDP of major markets
Rank Market 2018 ($ billions)
1 US 20,513
2 EU
EU ex-UK
18769
15960
3 China 13,457
4 Japan 5,070
5 Germany 4,029
6 UK 2,809
7 France 2,794
8 India 2,689
9 Italy 2,086
10 Brazil 1,909
11 Canada 1,733
12 South Korea 1,655
13 Russia 1,576
14 Spain 1,437
15 Australia 1,427
16 Mexico 1,199
17 Indonesia 1,005
18 Netherlands 909
19 Saudi Arabia 769
20 Turkey 713
21 Switzerland 709
22 Taiwan 602
23 Sweden 554
24 Poland 549
25 Belgium 536
Source: IMF staff estimates

Table 2: Per capita GDP in EU and top 12 total GDP states
Rank Market GDP/capita ($ billions)
1 United States 59,500
2 Germany 50,400
3 United Kingdom 44,100
4 France 43,800
5 Japan 42,800
6 EU 40,900
7 Italy 38,100
8 Russia 27,800
9 Mexico 19,900
10 China 16,700
11 Brazil 15,600
12 Indonesia 12,400
Source: IMF staff estimates

Trends in international IP protection

The long term trend in international IP protection has been toward harmonisation of laws and simplification of procedures for multinational protection of IP rights. (See Table 3). Brexit is contrary to that trend, at least with respect to trademarks, designs and plant variety rights, and quite possibly with respect to participation in the UPC and unitary patent package.

Over 50 years ago, in 1966, when I began practising IP law, the patent and trademark laws of major countries varied fairly widely. US practitioners typically relied on books abstracting the various national laws and on intermediary patent firms, which had a multilingual staff. When filing applications in Europe, the primary focus was on the three largest markets (France, Germany and the UK), and states where competitors were located. Principal states for filing outside of Europe were Canada and Japan. Pharmaceutical companies were–and are–an exception, seeking IP protection in many countries.

In the next decade, 1966-1975, there were huge changes in international protection of patent rights, especially the establishment of the EPO by the European Patent Convention of 1973. At first, Americans were cautious. My principal international patent client filed both national and EPO applications on the same inventions for a few years, but soon became very satisfied with the EPO.

Simplification of multinational trademark protection came later. In 1989, the Madrid Protocol was adopted, improving the Madrid system and broadening it to include the US, UK, Japan and many other states, which had not adhered to the earlier Madrid Agreement of 1891. Then, in 1993, the European Community created OHIM (now the EUIPO) and the Community trademark (now EU trademark).

The advent of multistate European patents, and EU trademarks and designs, has enabled many overseas companies to simplify their international IP protection, obtain broader protection in Europe, and–at least for some companies–free part of their IP budget for use in other jurisdictions.

Overseas companies will not be pleased by the costs and complications of duplicating IP activity in the UK and the EU after Brexit. Because of the size of the UK market, it is likely that overseas companies will maintain a fairly high level of IP protection in the UK; however, the EU probably will be the principal focus of their European IP activity, because it will remain the world's second largest market.

Table 3: Landmarks in multistate protection of IP rights
Year Event
1789 US Constitution authorised multistate protection of authors’ and inventors’ rights
1883 Paris Convention established priority rights and right of national treatment of foreign applicants for patents and trade marks
1891 Madrid Agreement created an international system for central administration of a bundle of national trade mark rights
1973 European Patent Convention (EPC) created the EPO, granting a European patent bundle
1989 Madrid Protocol improved the system for the international registration of trademarks by a single application and broadened participation
1993 EU Community trademark regulation (now EU trademark) came into force
2013 Unified Patent Court Agreement and EU regulations agreed to create a unitary patent for participating states (not yet fully ratified)

Impact on the unitary patent and the UPC

The threat of Brexit has delayed implementation of the unitary patent and the UPC, which has had a negative impact on overseas companies that had hoped to use one or both of them. Negotiations with the EU appear necessary for the UK to participate after Brexit.

In the European patent system today, a single application and its examination by the EPO results in multiple national patents, subject to national maintenance fees and enforceable only in national courts, with no trans-European effects of court decisions. That is a costly system, which does not make much sense to many overseas IP owners, except possibly for owners who can afford litigating the same patent in multiple jurisdictions.

In 2013, 24 EU member states signed an agreement to create the UPC for participating states, the EU having previously adopted regulations that would permit the EPO to grant a single, European patent with unitary effect (unitary patent) for participating states and limit translation costs. The unitary patent and UPC are to be a package, to take effect upon ratification of the UPC Agreement by 13 member states, which must include France, Germany and the UK.

The UK has ratified the UPC Agreement and the current UK government has declared its desire to participate, even after Brexit. Doubts have been expressed regarding whether the UK can participate in the UPC after Brexit, and whether the UPC should be launched with the UK as a member if it must then leave the UPC after Brexit. Although legal opinions suggest that it would be possible for the UK to remain a UPC member, other participating states may want more certainty before proceeding.

London is designated in the UPC agreement as the site of a central division part, whose jurisdiction would include pharmaceutical patents. If the UPC proceeds without UK participation, the UK will lose not only that part of the new court, but also the ability of UK nationals to be professional representatives in all parts of the UPC. Patent owners will lose the ability to enforce a European patent in a single litigation for the UK along with other participating states.

Because the unitary patent would be created by EU regulation, patent owners probably will be unable to obtain unitary patents covering the UK. Negotiation between the UK and the EU would be necessary for the UK to participate in the unitary patent arrangement.

Table 4: EPO professional representatives
Rank State Number % % EU GDP
1 Germany 4,504 36.6% 21.5%
2 UK 2,337 19.00% 15.00%
3 France 1,174 9.50% 14.90%
4 Switzerland (non-EU) 573 4.7% -
5 Italy 522 4.2% 11.1%
5 Netherlands 522 4.2% 4.8%

Others 2,670 21.7% 32.7%

Total 12,302

Source: EPO

Table 5: EUIPO professional representatives
Rank State Number % % EU GDP
1 Germany 19,129 27.70% 21.50%
2 UK 8,816 12.80% 15.00%
3 France 7,569 11.00% 14.90%
4 Spain 5,035 7.30% 7.70%

Others 28,367 41.20% 40.90%

Total 68,916

Source:EUIPO

Impact on IP staff and the choice of professional representatives

Brexit appears likely to trigger a shift of a significant amount of European IP activity away from the UK. In the short term, overseas companies will need non-UK professional representatives in the EUIPO, and for trademark and design litigation in EU courts. Over time, as companies shift their European focus away from the UK, their non-UK IP staff will grow and they will be more likely to choose non-UK firms as professional representatives in Europe.

At least in the distant past, many US companies and practitioner firms chose UK firms as their principal representatives for European patent matters. The ability to file and to prosecute applications in English, ease of communications with the representatives in English, similarities of the UK and US legal systems, and high skill level of UK chartered patent agents were major considerations. Many Japanese companies made a similar choice, in part because only a single translation into English would be required for filing in the US and Europe.

UK firms also were well positioned to represent overseas clients in obtaining European registrations of trademarks and designs at the EUIPO. UK trademark agents had a relatively unique combination of their grasp of English, and trademark principles under both registration and common law systems, which made them a particularly attractive choice for US and other non-European companies.

Since the establishment of the EPO and the EUIPO, with some exceptions, many overseas companies have focused primarily on pan-European IP protection, rather than protection under national laws. As a result, their IP work has been concentrated in one or two firms in Europe. Inertia, the use of the UK as an EU base and the high quality work of UK professional representatives has kept much of that work in the UK.

Although UK patent attorneys will still be competent to file and prosecute patent applications in the EPO after Brexit, over time their proximity to clients may be reduced. Their situation may become similar to that of Canadian patent attorneys who are registered to practice before the USPTO, but are not typically considered for US filings by most companies in other countries. If the unitary patent comes into effect without the UK, that also may create a preference for non-UK representatives in the EPO, who may be considered more familiar with applicable EU law.

After Brexit, finding suitable, non-UK IP professional representatives should not be a problem. Some UK representatives will relocate; however, Brexit may make that difficult. Many non-UK, European IP professional representatives have excellent English language skills and appropriate experience. Many are located in Germany, which is the largest market in the EU and the locale of the EPO headquarters. Surprisingly to me, Germany has more than twice as many representatives registered to handle trademark and design applications in the EUIPO as does the UK. (See Tables 4 and 5).

Brexit probably will have a significant, negative impact on the European businesses of overseas companies relying on the UK. The European IP policies of overseas companies are likely to follow their related business decisions.

John Pegram

John Pegram is a principal at Fish & Richardson in New York City. The opinions expressed are those of the author and do not necessarily reflect the views of Fish & Richardson, any other of its lawyers, its clients, or any of its or their respective affiliates. This article is for general information purposes only and is not intended to be and should not be taken as legal advice.


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