Brexit: Deal, or no deal?

March 12, 2019

The Prime Minister proceeds, or not, and a nation waits. Companies are suffering from cramps because they’ve been sitting on their hands for so long, waiting for a clear indication as to the direction in which the countries of the UK are being taken.

The EU is moving in ways to protect itself, whatever the outcome of these negotiations. Dropping for example trade barriers to the import of cars built in Japan. The UK, conversely, has a much heralded agreement with Switzerland to maintain the status quo and agree a new trade deal at some later date when the picture is clear.

What steps can companies take now to ensure they hit the ground running once the UK governmental machine returns with a clear direction, whether that be WTO rules, some new, clear, view of our relationship with Europe, or news that Brexit has been postponed until later this year?

At this point, preparation is all-important. Without preparation your business will be back in the peloton when action is required and, action is likely to be required quickly:

1. Commercial contracts with foreign entities

Those of us who need to do business with companies across the world not only once Brexit has happened, but now, should be doing what we can to protect the effectiveness of the contracts we need. Here’s how:

a) Agree the  key commercial terms in a time-limited letter of intent or a heads of terms under the present international trade environment, to be finalised by contract once the status of UK and NI is known, even if certain positions – beneficial and detrimental – need to be agreed as part thereof, in the event of a deal / no deal.

b) Include a ‘Brexit’ clause in any agreement which may be signed, which creates positions based on an assumption of the relative positions of the parties covering both deal and no deal scenarios. A Brexit clause will try to anticipate likely outcomes of the Brexit negotiations:

i. Will a Brexit outcome affect the rights, obligations, costs and/or fees of performance of the contract by one party or both?

ii. Does the clause therefore need to be drafted to the benefit of one party or both parties?

iii. Does a clause need to identify specific outcomes in relation to specific obligations/costs etc?

iv. Would the changes best be dealt with by a pre-existing Force Majeure clause dealing with matters which are beyond the ability of a party or the parties to control and which as such may frustrate the contract or is this an over-reaction to the disruption or difficulty the parties might face?

What is important to bear in mind is that parties are contractually obliged to perform a contract, even if that contract is no longer financially or otherwise viable, unless these issues are considered and addressed. Therefore the scope for future contract variations to be required is extensive and the sooner you realise that a contract requires variation the sooner you will repair or avoid potential injury or loss to your business.

2. Data protection

Data protection presents two very distinct challenges:

a) The European Data Protection Board (EDPB) has issued guidance to businesses to the effect that, in the event of a no deal outcome, the UK will be considered a third country from 00.00 hrs 30 March 2019. If this occurs, then there is currently no adequacy decision in place (which is the necessary indication that the EU considers the data protection environment of a third country as meeting the standards required of a member country). If this remains the case, any transfer of data  to the UK from an EU member state will need to be made on the basis of the current and developing procedures for transfer to a non-member state (with the exception of the USA):

i) standard contractual clauses (SCCs)

ii) binding corporate rules (BCRs)

iii) codes of conduct and certification which the EDPB is in the process of developing, or

iv) potentially one-off derogations from the standard procedures.

The EDPB has advised that businesses prepare to:

  • Identify what processes in business require data transfer from the EU to UK
  • Put in place the appropriate process to manage the safe transfer of data (SCCs; BCRs etc.) before 30 March 2019 at the very latest, where the impact would be most detrimental
  • Heighten awareness amongst staff involved where transfers to the UK occur
  • Update privacy policies to reflect the change in procedure and in UK status

b) Data transfers to the USA which have to date been protected under the Privacy Shield arrangement which the EU has in place with the USA (and which are still being challenged in EU courts by Austrian Max Schrems) will no longer automatically apply to UK data transferred to the USA.

The US Dept. of Commerce issued advice at the end of last year indicating that unless the US corporations involved indicate in their published materials (including privacy policies) that the Privacy Shield Framework will still apply to data transfers from the UK, the data transferred will no longer be protected. The cut off (“Applicable”) date will be 30 March 2019 in the event of no deal and 31 December 2020 if a deal has been agreed. Either way it is incumbent upon US corporations to make the necessary changes and UK business, charities and individuals should pay heed to the actions of US corporations who host their data on servers beyond the EU and UK.

 

3. Intellectual Property

The world of EU IPR (Intellectual Property Rights) is a complex and specialist area. Some of the changes we can expect and therefore make allowances for are as follows:

 

Options for treatment of rights Advantages Disadvantages Action(s) required
EU rights would cover UK IP Guarantee pan-EU protection without cost Unlikely Lobby government for a trade treaty to agree this.
EU rights are enforceable in UK if owner desires / or pays a fee. Easy to append to EU rights and would cover EU rights holders for UK application Resolving the status of more than a million pre-existing marks will be a long process and risky (have TMs been used in the UK? / only in the UK?). Making the registration subject to a fee might reduce the sheer numbers Apply separately for a UK right.
EU rights re-examined and subject to a fee before registration in the UK Guarantee pan-EU / UK protection Refusals would create complications Identify those rights which are used in the UK and apply for a separate UK right.
Pan-European rights no longer protected in UK Opportunity created to licence rights separately. EU judgments will not apply in the UK Greater complexity when registering EU rights
Any existing sub-licences would require amendment / renegotiation
Review existing licences and agree an approach.
EU unregistered design rights will no longer apply in the UK Removes a risk of exercising a right in the UK Risk of damage to the fashion industry which use innovative EU designs Register key designs after 9 months or rely on UK unregistered design right.
Parallel goods can no longer be imported from EEA Brands can control pricing more effectively and prevent cheap imports from the EEA Issues with longstanding distribution agreements reliant on such imports.
Prices may increase too far and may face legal or legislative challenge
Review pricing strategy and imported goods distributed.

 

Summary

However these seemingly interminable negotiations may be resolved and whether or not an end to phase 1 is in sight when ‘B’ day arrives on the 29 March 2019, UK businesses owe it to themselves to prepare for the consequences, good or bad. At the very least, companies would be well advised to use the time available to assess what they might need to do immediately after and potentially before 29 March, if the situation becomes clearer at any point before.

While it is a challenge understanding what preparation can be of benefit in any event, auditing your current commercial contracts, data transfers and EU IPR is a good start and will undoubtedly place you ahead of the competition.

For support with any of your business enquiries in relation to Brexit, LawBite’s Lawbriefs will be happy to discuss your needs and do what they can to help kick start your business’ Brexit immunisation programme. Don’t let the greatest change in the UK’s trading relationship in the last forty-five years engulf your business and hamper your future success.

This article was written by LawBriefs lawyer  Adrien Herbert.

If you would like to speak to her, or any of our lawyers about Brexit-proofing your business by planning your review of contracts, reviewing your data protection policies or looking at your Intellectual Property post Brexit, please enter an enquiry or call us today on 020 7148 1066 to speak to a member of our friendly Client Care Team.

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Journey further…

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Brexit Deal – Impact on SMEs

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