IP after Brexit

Martin Howe QC, of 8 New Square, asks how much will change for intellectual property now that Britain has left the European Union, and what challenges lie ahead.

Brexit will throw up some interesting challenges and opportunities for the world of intellectual property. But surprising as it may seem, Brexit will not change the broad IP landscape very much, at least at first.

There will be a large measure of continuity. Many people mistakenly think that patents are governed by EU law but in fact they are not. The European patent system is governed by the European Patent Convention, which contains non-EU Member states as well as all EU members. The UK’s membership of the Convention will continue without interruption when we leave the EU. The European Patent Office in Munich is not an EU institution so we will continue to belong to it and continue to recognise European patents granted by the EPO just as before.

Trade marks and registered designs are slightly different. This is because the EU has not only harmonised the attributes of national trade marks and registered designs, but has also created parallel systems of EU-wide registrations for trade marks and designs which are administered by the EU IPO in Alicante. When the UK ceases to be part of the territory of the EU, these EU registered rights will cease to be effective here.

However, owners of these registered EU rights will be automatically granted a substitute UK national trade mark or design. This will happen under Article 54 of the Withdrawal Agreement; and even if for any reason we leave without ratifying it, these substitute UK national rights will anyway be conferred by “no deal” regulations under the 2018 Withdrawal Act.

By and large, the rights attaching to the different types of IP rights will not alter upon Brexit, but the UK will of course be free to make changes in the future within the scope of the broader international framework for IP protection. That international framework is extensive and its most important building blocks are probably the WTO TRIPs Agreement, the Berne Convention in the field of copyright, and the Paris Convention in the field of registered rights. All these conventions involve treating nationals of other countries in the same way as own country nationals. It is this international framework, rather than EU membership, which forms the basis for securing reciprocal protection around the world for IP rights generated by UK nationals and companies.

Freedom to diverge over time from detailed EU harmonisation of IP rights can yield significant benefits, although how you benefit from freedom depends upon how you choose to make use of that freedom.

But there is one economically very important area where an immediate decision will need to be taken on the what should be the UK’s post-Brexit regime. That is parallel imports. Historically, by and large but with some exceptions, the UK’s IP laws did not enable owners to use IP rights in order to exclude from the UK market their own goods which they had put on the market elsewhere in the world. This goes back to the Victorian patent case of Betts v Wilmott (1871) LR Ch App 239.

However, the introduction of EU harmonised rights has led to the Continental doctrine of exhaustion of rights holding sway via rulings of the ECJ. Member States are required to prohibit the importation into the EU of goods put on the market by rights owners outside the EU, unless they consent to that importation. This is wonderful for rights owners since they can charge a premium on goods sold into the EU market without being undercut by their own goods which they sell cheaper in other markets. But it is not so good for consumers within the EU.

Whatever the rights and wrongs of the application of this doctrine to the UK as an EU member, it is clearly untenable to continue it once the UK has left the EU’s internal market. It would clearly be perverse – and may well be unlawfully discriminatory under WTO rules – for the UK to continue to allow in goods placed on the market by rights owners from some countries but not others, just because as a matter of history we used to belong to a single market with those particular countries.

Therefore the UK will need to make a post-Brexit choice between so-called ‘national exhaustion’ and ‘global exhaustion’ of rights.  Both Singapore and Hong Kong decided to reform their trade mark laws and based them largely on the UK Trade Marks Act 1994, which itself is based on the harmonising Trade Marks Directive. Obviously they could not adopt the UK-style exhaustion rules, under which goods placed on the market with the consent of the trade mark owner inside the EU can be freely imported and dealt in by third parties, but the same genuine goods must be kept out if put on the market outside the EU.

Not surprisingly, as leading proponents of international trade, both Singapore and Hong Kong decided to adopt ‘global exhaustion’ and allow in parallel imports from anywhere in the world. This really seems the only logical choice for post-Brexit United Kingdom which believes in global trade.

Another area of IP law which will be affected by Brexit is the so-called Unified Patents Court system. European Patents have been granted centrally by the EPO for 40 years, but they are still enforced by proceedings in national courts. This means that the enforcement of a European patent against a competitor who sells a product in a number of countries can sometimes require multiple parallel proceedings in different national courts enforcing the same patent claims against an identical product. And because harmonisation of the law and practice of patent infringement in different countries has been achieved in theory rather than practice, there is a serious risk of divergent results in different national courts.

This has led to attempts to centralise patent litigation as well as the granting of patents. An initial attempt – the European Patent Litigation Agreement or EPLA  – included a number of EU and non-EU European states (e.g. Switzerland which is an important country for patents). EPLA however was ruled to be incompatible with the EU treaties by the ECJ, essentially because the ECJ feared that the involvement of non-EU member states in the multinational court system would threaten the purity of EU law and the supremacy ECJ itself over that court system.

Therefore a replacement agreement was devised – the Unified Patent Court (UPC) Agreement. This is an agreement between a subset of EU member states and is an enhanced cooperation measure under the TEU.

For the UK to participate in this system after it leaves the EU would create serious and probably insoluble problems for both the UK and the EU. The ECJ made clear in its EPLA judgment that it would not tolerate a multinational court system administering and applying EU law which was not under its own thumb. Courts trying patent infringement actions inevitably have to apply other areas of law apart from patent law itself, notably competition law as well as contract law where licences are involved.

So long as all UPC states are EU members, the law applied by the court would conform to EU law, and further the court itself would be able to make preliminary references because it would count as a joint court established by a number of Member States. However once the UK leaves the EU, competition and other laws will no longer be harmonised across the territory of the UPC. Further, there are serious difficulties about the UPC system making references to Luxembourg since that would cut across the sovereignty of the non-EU state within the court system.

And in addition to that, the UPC Agreement contains an article on parallel imports which would lock the UK post-Brexit into the “fortress Europe” exhaustion rules; i.e. importation of goods put on the market by a patent owner from outside the territory of the EU plus UK would be banned.

In 2016 at the time of the Brexit referendum, substantial preparations had been made for the UK to participate in this system but we were not committed to it. Rather surprisingly, the May administration ploughed on with those preparations, formally ratifying the UPCA, and spending millions on a splendid court building at Aldgate which is empty apart from a few desultory hearings by IPO hearing officers and appointed person appeals from the IPO. Did the fact that Sam Gyimah was the responsible minister for much of the time have something to do with the continued pursuit by the UK’s Business Department of this impossible dream of continued EU quasi-membership in this specialist field?

At present the whole UPC project is stalled because the German Federal Constitutional Court is hearing a challenge against the compatibility of the UPC with the German constitution. The judgment is not expected until some time in 2020. If and when this judgment is handed down and if the UPC is compatible with German law, the UK Business Department’s impossible dream of post-Brexit participation by the UK in the UPC will collide with harsh reality. I look forward to the public inquiry into how and why so many millions of taxpayer funds have been spent on this.

Martin Howe QC is a tenant at 8 New Square and Chairman of Lawyers for Britain

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