Disharmony and disharmonising

"Should the United Kingdom remain a member of the European Union or leave the European Union?" This is the controversial question UK citizens will shortly be asked to answer.

On 8 May 2015, the Conservative party wrapped up a surprisingly convincing victory in the UK general election. A key consequence of that victory is the imminent incarnation of one of the party's headline manifesto policies – a referendum on the UK's membership of the EU.

Splitting up a joint existence into its constituent parts is a tough ask, especially when those parts appear to be inextricably linked. Britain has been a member state of the European Union since 1973 and is governed by a wealth of European legislation, which has, over the years, become integral to its legal system. Yet this union appears to be under threat and the ultimate consequences of its breakup remain uncertain.

Many sectors have been mooted as potentially benefiting or suffering from the effects of a "Brexit" – business, financial services, immigration, to give some examples – but what about the effects on intellectual property rights?

IP has become increasingly harmonised in recent years. Less than a year ago, UK registered design rights were brought into line with their EU counterparts, and the introduction of the EU unitary patent sits on the horizon. So the prospect of suddenly stepping back from all of this is a significant one.

This article looks at the current IP rights available in the UK and considers the potential consequences of a departure from the EU.

Current IP rights

In addition to national IP rights, there are currently several European-focused rights, born out of the EU's harmonising legislation, which are available to applicants domiciled in any of the EU member states. The pan-European rights afforded by the Community trade mark ("CTM") and registered Community design ("RCD"), and the centralised administration element of the European patent regime, hold particular value for UK applicants whose businesses have both a UK and a European focus. These regimes present obvious advantages for applicants – they streamline the application process, eliminating the need to file multiple applications across a range of territories and languages, as well as reducing costs.

From a patent perspective, this is set to improve further, with the EU unitary patent (which will create a patent right with effect across all EU member states) and the Unified Patent Court system moving closer to fruition. There is even a possibility that this will occur prior to the referendum, following the Court of Justice of the European Union's recent rulings that both sets of regulations on the unitary patent system were valid, dismissing a Spanish challenge to the contrary and simultaneously removing one of its biggest legal obstacles.

Potential issues associated with a Brexit

It is therefore clear that a divorce from the EU would have resounding consequences for intellectual property rights holders in the UK.

In recent years, there has been a surge in recognition of IP as a valuable business tool within the UK. To take trade marks as an example, filing statistics for 2014 published by the UK Intellectual Property Office ("UK IPO") revealed that the number of CTM applications being filed by UK applicants increased from 8,757 in 2010 to 11,775 in 2014. Similarly, the number of UK patent applications also rose (albeit to a slightly lesser degree), from 22,936 in 2013 to 23,040 in 2014. These figures demonstrate the increasingly active approach being taken by UK applicants in protecting their intangible assets, both at home and within the EU, and provide some insight into the number of rights holders that would be affected by a divorce from the EU.

It is unclear at this stage what approach would be taken to resolve the issues arising out of a potential Brexit. The biggest challenge lies with the CTM, being not only the most widespread EU intellectual property right exploited by applicants, but also one of the most difficult to dissolve.

UK-based proprietors would almost certainly be entitled to retain their CTMs, which would cover the remaining member states, without the inclusion of the UK. However, this throws up the issue of whether the proprietor could successfully maintain the CTM without the availability of the UK market to assist it in satisfying the “genuine use in the Community” requirement, or whether it would become vulnerable to a challenge for non-use after a period of five years had elapsed. This would be a particular risk for smaller businesses which do trade out of some European territories but would struggle to show sufficient use after one of their major trading centres has been removed from the picture. Moreover, the proprietor would be left without protection in the UK, the territory in which it is domiciled, which seems a very unsatisfactory outcome.

One option to resolve this would be for a separate UK national mark to be granted alongside the CTM, which would bridge the gap and afford the proprietor the same protection it had enjoyed prior to the UK's departure. However, there would be difficulties associated with this, as the UK IPO would be granting a right which was neither applied for, nor paid for, in the first place.

An alternative might be to allow the proprietor to continue with its CTM but apply separately for a national equivalent. This would again provide the full coverage that the proprietor had previously enjoyed, and applicants could be offered a reduced fee to combat the fact they would be incurring additional costs in the process.

A third option could be for the proprietor to simply convert its Community right into a national registration. This could be effected in a similar manner to the current practice for CTMs being challenged for non-use, whereby an application can be made for such a conversion to take place. An approach along these lines could equally be applied to RCDs, if the owner felt they would benefit more from a UK right. However, this strategy would not be without its own difficulties, including the fact that proprietors may feel they have lost out financially in having initially applied for a Community right, when the ultimate result is that they end up with a national registration instead (which has a lower filing cost than a CTM), through no fault of their own.

Patents currently remain less problematic, as the European patent regime does not provide a pan-European right, but rather a bundle of national applications which are separately prosecuted. However, in the event the unitary patent system is implemented in advance of the referendum, developers considering making an application should consider whether a unitary patent without UK membership would have the same appeal. This should be done in advance of making any application and developers may wish to defer making a decision until after the result has been published.

Considerations prior to the referendum

Whilst the referendum is still a while off, IP owners should be beginning to look at their portfolios now, to try to determine whether they will be sufficiently protected in the event of a vote to leave the EU. In particular, current proprietors of CTM or RCD rights should be considering whether they wish to apply for separate UK registrations to protect themselves from the possibility that they could lose protection in the UK. Incidentally, this could be a prudent approach for CTM holders regardless of the referendum result, given the recent result in the case of The Sofa Workshop Ltd v Sofaworks Ltd [2015] EWHC 1773 (IPEC), which saw the claimant losing its CTM entirely after failing to make an application to convert its CTM into a national mark during a non-use challenge.

In addition, there are various issues to consider from an exploitation perspective. It is common for rights holders to license their intellectual property rights, and any such licences will often specifically refer to the particular trade mark, patent or design by number. In the event of a Brexit, these agreements may no longer accurately reflect the intentions the parties had at the outset, particularly if a new national right is granted or an existing European Community right is extinguished and the agreement therefore no longer reflects the rights held by the licensor. Parties drawing up agreements between now and the referendum may wish to include provision for any derivative rights that may subsequently be granted, and parties to any existing agreements should consider whether they may need to draw up variations to provide for this. Similarly, companies looking to make acquisitions in the near future should also be mindful of the issue when evaluating the target company's licensing arrangements.

Start thinking

The fact that we will have a referendum is inevitable. However, the outcome remains far from certain. Although IP rights form only one of many considerations in the decision of whether to stay or go, the current harmonised system is regularly exploited by UK applicants and it will therefore be essential that the issue is confronted early to ensure effective transition arrangements are put in place in the event of a vote to leave.

In the meantime, it is important that IP owners begin to consider their portfolios now and consider the measures that can be put in place over the coming months to ensure they are in the best possible position to tackle the consequences of a Brexit. In the long run, it may well prove to be a worthwhile investment.