Brexit: Trade mark licensing implications

31 March 2017

Nick Aries

This bulletin discusses the implications of Brexit on licensing EU Trade Marks (EUTMs). The bulletin briefly considers what will happen to EUTMs in the UK after Brexit, before setting out key messages about implications for EUTM licences.

On 29 March 2017, the UK government served formal notice under Article 50 of The Treaty on European Union to terminate the UK's membership of the EU (following the June 2016 UK referendum on EU membership). Based on Article 50, the EU Treaties shall cease to apply to the UK and the UK exit will take effect in March 2019 (subject to the unlikely possibility of the withdrawal agreement being concluded sooner and unless all Member States agree to extend the period). Negotiation of a new trade agreement with the EU could take several years beyond 2019 although the Prime Minister has declared the objective of achieving such an agreement within the two-year period.

Once Brexit takes effect, how will unitary EU-wide registered IP rights, such as EUTMs, be addressed with regard to the UK, and what implications are there for EUTM licences?

Will my EUTM still cover the UK?


Once the UK leaves the EU, on the face of it EUTMs will only be enforceable in the UK if:
  • a new UK trade mark (UKTM) is created out of the existing EUTM, to cover the UK territory;
  • the EUTM regime is amended to permit non-EU Member States; or
  • the UK unilaterally decides to honour EUTMs as if the UK had remained in the EU.

The first of these options is thought to be the most likely. There are a number of matters for the UK government to consider during that process, including whether it should be automatic or voluntary, and whether it should be subject to payment of a fee. Furthermore, transitional provisions will need to be enacted to address matters including whether EUTMs which have only been used outside the UK shall continue to be valid within the UK; and whether EUTMs that have only been used in the UK shall continue to be valid in the rest of the EU.

One area of concern is what will happen to ongoing enforcement actions based on EUTMs when the UK leaves the EU. As the UK Courts will cease to be EUTM Courts when the UK leaves they will stop having jurisdiction over EUTMs. There is therefore uncertainty as to the status of any pending litigation and whether the UK Court will be able to grant remedies. It is likely there will be transitional provisions to deal with this situation but whether this is the case and what effect they will have is unclear.

It may therefore be sensible for licensors to file national UKTM applications now for their most important marks, to provide more certainty should it become necessary to commence enforcement action in the UK Courts prior to the leave date. If unopposed, a UK national application can proceed to registration within 4 months.

What about EUTM licences?

Of equal concern to licensors and licensees is what will happen to existing EUTM licences after Brexit, where the licenced territory includes the UK. Will the UK continue to be covered by the licence? And assuming a new national UKTM is created in each case to fill the gap left by an EUTM which no longer covers the UK, what are the consequences on existing EUTM licences covering the UK?

The remainder of this bulletin focusses on the implications of Brexit on EUTM licences. Various issues arise because the legal rules for licences of UKTMs differ from those covering EUTM licences. In particular, this is relevant for EUTM licences whose licensed territory is, or includes, the UK, and where no existing UK national marks are currently included in the licence.

There follows a summary of some key messages, followed by more detailed commentary.

Key messages:

Gateway Question: If an EUTM licence defines its territory as the "European Union", would the UK continue to be part of the licensed territory post-Brexit? There are competing arguments, and the answer will vary on a case by case basis.

  • Parties to existing licences ought to consider amending the licence, where necessary, to clarify the position.
  • Parties currently (re-)negotiating a licence ought to provide whether the term EU means "as constituted from time to time", or "as at the date of the agreement".
  • In each case, parties ought to contemplate other States joining or leaving the EU in future.

Assuming:

a) the territory of the existing EUTM licence does continue to include the UK,
b) a new UKTM is created out of the existing EUTM, to cover the UK, and
c) the licence covers that new UKTM (whether as a matter of contractual interpretation, or by virtue of specific transitional legislation),

then certain consequences follow because the legal rules governing licences of UKTMs differ in some respects from those governing EUTMs:

For example:

1. A licensor of a non-exclusive EUTM licence whose territory includes the UK should be aware that its licensee may have new rights post-Brexit to enforce the new UKTM against third parties than it had in relation to the EUTM:

a. The right to call on the licensor to bring infringement proceedings against third parties based on the new UKTM.
b. If the licensor fails to do that, the licensee could take action in its own right based on the UKTM.
c. Licensors are rightly wary of such rights, as such proceedings expose the trade mark to revocation/invalidity counterclaims and could impact on future enforcement.

The licensee will not have such rights where the parties have already included provisions to the contrary in the licence agreement. So:

  • A licensor currently (re-)negotiating an EUTM licence whose territory includes the UK ought to address how enforcement is dealt with, and seek to exclude these "enforcement" rights of the licensee.
  • For an existing EUTM licence whose territory includes the UK but that is not currently up for renegotiation, a licensor in a strong bargaining position should consider seeking to amend it to exclude these rights.

2. A licensor of an EUTM licence (exclusive or non-exclusive) whose territory includes the UK should be aware that it is possible to include wording to avoid having to pass on to its licensee any damages awarded for losses suffered by the licensee as a result of infringement of the new UKTM.

  • Not a big enough point to warrant amending an existing licence which is not up for renegotiation, but if such a licence is currently being (re-)negotiated, the licensor should consider seeking to give effect to this exclusion.

3. A licence of a UKTM is only effective against a third party acquiring a conflicting interest (such as a party buying the UKTM, or a subsequent licensee whose rights conflict) if it has been registered at the UK IPO. The rights of a licensee to enforce the UKTM in its own name are also contingent on the licence having first been registered at the UK IPO.

  • A licensee of an EUTM licence whose territory includes the UK should seek to register the licence at the UK IPO as soon as the new UKTM deriving from the EUTM comes into existence.

Analysis

When the UK leaves the EU, there will be implications for agreements regarding EUTMs, in particular licences of EUTMs.

There are gateway questions about whether the UK would continue to be part of the licensed territory under the licence (see below "Gateway Question"), and whether any new UKTM right deriving from the EUTM would automatically be included in the licence. Assuming the answers to those gateway questions are yes, then there are three main issues. The issues arise where:

  • there is a licence of an EUTM,
  • the licensed territory is, or includes, the UK, and
  • no UKTMs are currently included in the licence.

Assume that the UK 'portion' of an EUTM will be converted into a UKTM registration (e.g. with the same filing, publication and registration dates as the EUTM). The right being licensed in the scenario contemplated above is likely then to either: (1) change from an EUTM to a UKTM (where the territory is the UK only), or (2) be expanded to include a UKTM (for the UK part of the licensed territory), alongside the existing EUTM (for the EU part of the licensed territory).

This means that the legal rules governing the UK portion of the licence will change. This is because the licensing of UKTMs is governed by sections 28 to 31 of the Trade Marks Act 1994, whereas the licensing of EUTMs is governed by Articles 22 and 23 of the EUTM Regulation.

Although many aspects of the two legislative regimes are the same or similar, there are some practical differences. These differences will generally not affect licences where the parties have already expressly addressed the issues in the licence agreement (e.g. by deciding which party has the right to enforce the marks against third parties). However, not all parties will have done so. These are the issues:

1. Who can sue?

Licensors of non-exclusive EUTM licences should be aware that a licensee (exclusive or non-exclusive) of a UKTM has a statutory right in certain circumstances to bring proceedings in its own name against third parties, unless the licence provides otherwise. In contrast, only an exclusive licensee of an EUTM enjoys that right.

So once the EUTM licence becomes a UKTM licence (for the UK) post-Brexit, then as long as the licence is registered at the UK IPO (see below), the licensee would have a right to call upon the TM owner to bring proceedings. If the owner refused or failed to do so within two months, the licensee could bring proceedings in its own name.

It is possible to contract out of that position for UKTMs. An EUTM licence might not have restricted a licensee's right in this respect (because the issue would not have been live). So licensors who do not wish their licensees to force them to sue on the UKTM (or to have the right to bring such proceedings themselves) should consider attempting to amend the existing licence as part of any renegotiation. The amendment should exclude the licensee's rights in section 30 of the Trade Marks Act 1994 in relation to any UKTM deriving from the EUTM being licensed. Whilst the licensee may resist this, the justification is to preserve the same position as was in place beforehand (i.e. arguing that the licensee's rights had only accrued as an unintended consequence). The issue should also be addressed in new EUTM licences entered into.

2. Who can recover loss?

A licensee of an EUTM has the right to intervene in proceedings brought by the trade mark owner for the purposes of obtaining compensation for damage suffered by him. In the UK, a Court must take into account loss suffered by a licensee when awarding damages, even if the licensee does not intervene (assuming the licence is registered). However, it is possible for a UKTM licensor to exclude the provision (second half of section 30(6) TMA 1994) enabling a court to direct licensors to hold such damages on behalf of licensors. In other words, a UKTM licensor can seek to obtain for its own account damage suffered by licensees. Accordingly, a licensor of an EUTM licence affected by Brexit which is in the course of renegotiating the licence has an opportunity to improve its position here as regards the UK portion of the licence.

3. Formalities – licence registration

A licensee of an affected EUTM licence will wish to register it post-Brexit at the UK IPO, in order to ensure that it is effective against a person acquiring a conflicting interest (such as a subsequent licence), and to assume the benefit of the provisions giving licensees rights to call on the TM owner to sue and recover compensation. This will be the case even if the EUTM licence has previously been registered at the EU IPO. It costs £50 to register the licence against the relevant UKTM with the UK IPO, and this can be done without the licensor's authorisation if the licensee supplies a copy of the licence. Of course, there remains a question over how the UK IPO will respond after Brexit to requests to register what is on the face of it an EUTM licence against a UKTM which is not expressly listed as one of the licensed marks.

Gateway question: territorial scope…


As mentioned above a gateway question arises where the territorial scope of an existing licence is defined as the "European Union": does the licensed territory continue to include the UK post-Brexit?

The question will be easy enough to answer where wording is used such as "the EU as constituted from time to time" (on the one hand), or "as constituted at the date of this Agreement" (on the other). Where no such wording is used, the answer is likely to depend on the factual background to the licence (assuming it is governed by English law), meaning it requires case by case analysis. Was the "EU" simply being used as convenient shorthand for a list of countries, so the UK would continue to be in scope? Or was the terminology used because it had certain factual or legislative implications on the subject matter of the contract?

Relevant factors might include whether, for example:

  • any national rights (registered or unregistered) are included in the licence alongside the EUTMs;
  • the EU territory was chosen because it is a single market, with ability to protect against unauthorised imports from outside but not to prevent parallel trade of authorised goods within;
  • there are legal or regulatory reasons why the licensee needs to be located in an EU Member State.

Assuming parties are in agreement, they would be advised to amend existing licences to ensure it is clear whether the UK will remain part of the licensed territory after Brexit, and at the same time to clarify the position with regard to future EU joiners/leavers. The same is true for licences currently under (re-)negotiation.

If the correct interpretation is that the UK remains part of the licensed territory, there is a second gateway question about whether the new UKTM right deriving from the EUTM is automatically included in the existing licence without the need to amend the licence. This is a matter which might be provided for in any transitional legislation which sets out how the Brexit "gap filling" UKTMs are created in the first place. Failing that, the answer is again likely to depend on the factual background to the licence (assuming it is governed by English law), meaning it again requires case by case analysis.

Note to readers: a version of this article, focussing on the position from a franchising perspective, appeared in the International Journal of Franchising Law (Vol. 14, Issue 6, 2016)

This article is part of our Brexit series

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Aries Nick

Nick Aries

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