In October 2016, British Prime Minister Theresa May announced a plan for the UK to leave the EU by spring 2019. The timetable is somewhat uncertain due to the Supreme Court's decision on January 24, 2017, that the UK government cannot trigger the mechanism to leave the EU (Article 50) without Parliamentary approval.
Once Brexit takes effect, trademark owners need to know how unitary EU-wide registered IP rights, such as EU trademarks (EUTMs), will be addressed with regard to the UK, and what implications there are for EUTM licenses.
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 trademark (UKTM) is created out of the existing EUTM, to cover the UK territory;
- The EUTM regime is amended to permit access to non-EU member states; or
- The UK unilaterally decides to honor EUTMs as if the UK had remained in the EU.
The first of these options is 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. Transitional provisions will need to be enacted to address whether EUTMs that have only been used outside the UK will continue to be valid within the UK, and whether EUTMs that have only been used in the UK will 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 the EU, the UK courts will stop having jurisdiction over EUTMs. This creates uncertainty as to the status of any pending litigation and whether UK courts 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 this will have, is unclear.
Licensors should consider filing national UKTM applications now for their most important marks, to provide more certainty should it become necessary to begin enforcement action in the UK courts before the leave date. If unopposed, a UK national application could proceed to registration within four months.
The Status of EUTM Licenses
Of equal concern to licensors and licensees is what will happen to existing EUTM licenses after Brexit, where the licensed territory includes the UK. Will the UK continue to be covered by the license? 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 licenses covering the UK?
Various issues arise because the legal rules for licenses of UKTMs differ from those covering EUTM licenses. In particular, this is relevant for EUTM licenses whose licensed territory is, or includes, the UK, and where no existing UK national marks are currently included in the license.
If an EUTM license defines its territory as the “European Union,” would the UK continue to be part of the licensed territory 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 license (assuming it is governed by English law), meaning it requires case-by-case analysis. Was the term “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 license alongside the EUTMs;
- The EU territory was chosen because it is a single market, with the ability to protect against unauthorized imports from outside but not to prevent parallel trade of authorized goods within; or
- 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 licenses 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 licenses currently under negotiation or renegotiation. In each case, parties ought to contemplate other states joining or leaving the EU in the future.
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 license without the need to amend the license. This is a matter which might be provided for in any transitional legislation which sets out how the Brexit so-called “gap filling” UKTMs are created in the first place. Failing that, the answer is again likely to depend on the factual background to the license (assuming it is governed by English law), meaning it again requires case-by-case analysis.
Assuming the answers to those gateway questions above—whether the UK would continue to be part of the licensed territory under the license, and whether any new UKTM right deriving from the EUTM would automatically be included in the license—are yes, then there are three main issues that may affect the license of EUTMs. These arise where (1) there is a license of an EUTM; (2) the licensed territory is, or includes, the UK; and (3) no UKTMs are currently included in the license.
Assuming 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 this scenario is likely then to either: change from an EUTM to a UKTM (where the territory is the UK only), or 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 license 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 licenses where the parties have already expressly addressed the issues in the license 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. There are three key points to consider:
1. Who Can Sue?
Licensors of non-exclusive EUTM licenses 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 license provides otherwise. In contrast, only an exclusive licensee of an EUTM enjoys that right. If the licensor fails to do that, the licensee could take action in its own right based on the UKTM. Licensors are rightly wary of such rights, as such proceedings expose the trademark to revocation or invalidity counterclaims and could affect future enforcement.
So once the EUTM license becomes a UKTM license (for the UK) after Brexit, then as long as the license is registered with the UK IPO (see below), the licensee would have a right to call upon the trademark 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 license might not have restricted a licensee’s right in this respect (because the issue would not have been live).
Key Message 1:
Licensors that do not wish their licensees to force them to sue based on the UKTM (or to have the right to bring such proceedings themselves), should consider attempting to amend the existing license 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. While the licensee may resist this, the justification is to preserve the same position that 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 any new EUTM licenses entered into.
2. Who Can Recover Loss?
A licensee of an EUTM has the right to intervene in proceedings brought by the trademark owner for the purpose of obtaining compensation for damage the licensee suffers. 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 license is registered). However, it is possible for a UKTM licensor to exclude the provision (second part of Section 30(6) of the Trade Marks Act of 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 license affected by Brexit, which is in the course of renegotiating the license, has an opportunity to improve its position here as regards the UK portion of the license.
Key Message 2:
A licensor of an EUTM license (exclusive or non-exclusive) whose territory includes the UK should be aware that it is possible to include wording to seek 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. This is not a big enough point to warrant amending an existing license which is not up for renegotiation, but if such a license is currently being negotiated, the licensor should consider seeking to give effect to this exclusion.
3. Is My License Registered?
A licensee of an affected EUTM license will need to register it after Brexit with the UK IPO, in order to ensure that it is effective against a person acquiring a conflicting interest (such as a subsequent license), and to assume the benefit of the provisions giving licensees rights to call on the trademark owner to sue and recover compensation. This will be the case even if the EUTM license has previously been registered with the EUIPO. It costs £50 to register the license against the relevant UKTM with the UK IPO, and this can be done without the licensor’s authorization if the licensee supplies a copy of the license. 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 license against a UKTM which is not expressly listed as one of the licensed marks.
Key Message 3:
A license 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 with the UK IPO. The rights of a licensee to enforce the UKTM in its own name are also contingent on the license having first been registered with the UK IPO. This means that a licensee of an EUTM license whose territory includes the UK should seek to register the license with the UK IPO as soon as the new UKTM deriving from the EUTM comes into existence.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.
© 2017 International Trademark Association