Tag: Brexit

European Union Adopts Brexit Negotiation Guidelines

Brexit Bull HornOn April 29, a Special European Council, meeting as 27 member states (as opposed to the full 28 member states, as would usually be present), adopted the Article 50 guidelines (Guidelines) to formally define the EU’s position in Brexit negotiations with the United Kingdom. This follows the resolution of the European Parliament on key principles and conditions for the negotiations, adopted on April 5 (for further information, see the April 7 issue of Corporate & Financial Weekly Digest).

The Guidelines are set out under six headings covering:

  • core principles;
  • a phased approach to the negotiations;
  • agreement on arrangements for an orderly withdrawal;
  • preliminary and preparatory discussions on a framework for the EU-UK future relationship;
  • the principle of sincere cooperation; and
  • the procedural arrangements for negotiations under Article 50.

On May 22, the EU General Affairs Council is expected to authorize the opening of the negotiations, nominate the European Commission as the EU negotiator and adopt negotiating directives.

The Guidelines are available here.

Exiting from the EU: Bre(xit)aking News

EU brexit UK Supreme CourtThe Supreme Court of the United Kingdom by a majority of 8 to 3 has today confirmed that triggering the exit procedure from the European Union requires an Act of Parliament.

As such the Supreme Court disagreed with the current UK Government which had argued that Government ministers could rely on their prerogative powers to trigger Article 50 of the Treaty on the European Union without prior authorisation by Parliament. Scottish Parliament, Welsh and Northern Ireland assemblies had argued that they too should be consulted. The judges did not agree with that view.

This is a big blow for the current Government. The judges held that triggering Article 50 will bring fundamental change to the UK’s constitutional arrangements by cutting off the source of EU law and by removing existing domestic rights of UK residents. As to the Brexit referendum, the Supreme Court confirms its political significance, however, notes that the statute authorising the Referendum was mute as to the specific legal consequences resulting from it. Defining the legal consequences will remain in the power of Parliament which will have to enact legislation fleshing out the changes in the law required to implement the referendum. Whether this will upset Theresa May’s timetable of invoking Article 50 by the end of March will have to be seen, the Government certainly does not think so and is expected to introduce a bill into Parliament shortly.

In the end the Supreme Court’s judgment is unlikely to change all that much given in particular that the Scottish Parliament, and the Welsh and Northern Ireland assemblies are unable to exercise any veto. In addition, over the last days members of Parliament from other parties have indicated their support for the triggering of Article 50. For those hoping that Article 50 will not be triggered the question is whether the pro-EU members of Parliament are able to form a credible opposition in the time available and will vote as a matter of their conscience.

The uncertainty for companies will remain. The reaction amongst clients and companies exposed to the UK has been varied so far with some already moving jobs and operations while others are waiting or are committing to the UK despite Theresa May’s indication on future steps all supporting a hard Brexit. We are following legal and political developments in the UK closely and would be delighted to discuss concerns with you.

Full text of the judgment, transcripts from the hearings and parties’ submissions: here.

ARTICLE BY Oliver Heinisch of Sheppard, Mullin, Richter & Hampton LLP

Copyright © 2017, Sheppard Mullin Richter & Hampton LLP.

The 2016 U.S. Presidential Election; Brexit West?

brexit westIt is hard to overstate the political and policy parallels between the recent UK “Brexit” vote to leave the European Union (“EU”) and the pending U.S. presidential election.  Both cases reflect the significant tensions between globalism and national sovereignty, as well as the competing ideologies of capitalism and what might be described as European corporatism.  The narrowly-decided Brexit vote can be viewed as a reassertion of national sovereignty, reflecting deep political divisions and concerns about economic dislocation, immigration, and national security.  Similar political forces in the U.S. have given rise to the unlikely presidential candidacy of Donald Trump.

Regardless of the outcome of the November 8 election, these underlying political forces will continue to shape public policy on both sides of the Atlantic.  With respect to Brexit, the UK Prime Minister Theresa May recently revealed that she will trigger Article 50 of the Lisbon Treaty no later than the end of March 2017.  Recent statements suggest that the United Kingdom may force a “hard Brexit,” i.e., leaving the EU within two years and without the framework for the future relation with the EU being agreed upon.  In other words, the pace of fundamental policy changes could be much faster than many observers currently anticipate.

Importantly, domestic policy outcomes will depend, to unprecedented extent, on discussions that will occur at an international level.  Understanding these dynamics will be the key to successful strategies for favorably influencing policy outcomes in Brussels, London, and Washington, DC.  This analysis briefly touches on some of the key policymakers who will shape the complex interplay between the U.S., the UK, and the EU, demonstrating that a government relations function will be an important facet on every successful strategic business plan.

United Kingdom

Theresa May, United Kingdom Prime Minister

As leader of a Conservative UK government, Theresa May will play an integral role in setting the tone on the UK side of the Brexit negotiations.

Rt. Hon. David Davis, MP and Secretary of State for Exiting the EU

David Davis will manage policy decisions in the Brexit negotiations and work to establish the future relationship between the EU and UK.

Oliver Robbins, Permanent Secretary for the Department of Exiting the EU

Oliver Robbins will be responsible for supporting the newly-formed Department of Exiting the EU in the Brexit negotiations.

Rt. Hon. Liam Fox, MP and Secretary of State for International Trade

Liam Fox will develop and negotiate free trade agreements with non-EU countries.

Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board

Mark Carney will set policy for the Bank of England and will attempt to mitigate shocks to the UK economy throughout the negotiations (his term was recently extended until mid-2019).

European Union

Jean-Claude Juncker, President of the European Commission

Jean-Claude Juncker will head the European Commission and will set policy for the EU in the Brexit negotiations

Michel Barnier, Chief EU Negotiator

Michael Barnier, former-European Commissioner for Internal Market and Services, will lead the Brexit negotiations for the EU.

Didier Seeuws, Official Negotiator for European Council

Didier Seeuws will lead a “Brexit taskforce” of EU negotiators that will focus on technical issues of the treaty negotiations.

Guy Verhofstadt, Member of the European Parliament and European Parliament Brexit Negotiator

Guy Verhofstadt will represent the European Parliament in the Brexit negotiations.

Mario Draghi, President of the European Central Bank

Mario Draghi and the European Central Bank will likely act in an advisory capacity for the EU during the Brexit negotiations.

United States

Considering Hillary Clinton’s and Donald Trump’s opposing views on the government’s role in the financial system, the outcome of the U.S. election will likely impact the ongoing global regulatory tension between market-based capitalism and state-based corporatism.  Moreover, the U.S. plays a key role on such international bodies as the G20, the Financial Stability Board (“FSB”), International Organization of Securities Commissions, and Basel Committee on Banking Supervision, which will serve as echo chambers as the new bilateral and multilateral agreements are negotiated.

Hon. Hillary Clinton, Democratic Presidential Nominee

Hillary Clinton will draw on her experience as Secretary of State as the U.S. reacts to Brexit negotiations.  A Clinton Administration will be much more inclined to embrace the trend that emerged after the 2008 financial crisis of greater international cooperation on financial regulation.  A likely hallmark of Hillary Clinton’s approach is an emphasis on collaborating with international economic powers to reduce risks to the stability of the global financial markets.  In this regard, a Clinton Administration will probably be receptive to engaging international regulatory bodies on heightened global capital requirements for financial institutions and on more stringent margin and collateral rules for securities and derivatives transactions.  Additionally, Hillary Clinton has advocated in favor of international regulations for resolving globally active financial institutions that could pose a risk to the financial system and called for an expansion of the authority of regulators to police financial market activity, including providing them additional authority to address risky activity in the “shadow banking” sector.

Donald Trump, Republican Presidential Nominee

If Donald Trump wins the election, his nationalistic policy agenda will probably place far less emphasis on international financial regulation.  More specifically, a Trump Administration will likely shun the macro-prudential framework set forth by the FSB and the G-20.  A Trump Administration may also revisit financial markets regulation with an eye toward U.S. competitiveness.  While the Republican Party platform included a provision calling for the resurrection of the Glass-Steagall Act, Republicans are unlikely to pursue this as a policy objective.  More likely, the House Republican financial reform proposals, principally House Financial Services Committee Chairman Rep. Jeb Hensarling’s (R-TX) Financial CHOICE Act, will be the foundation for any financial reforms in a Trump Administration.

What Can Be Done?

These turbulent times will produce winners and losers on both sides of the Atlantic.  Accordingly, government relations efforts to favorably influence policy outcomes will be an integral component of every successful strategic business plan.  That requires a deep understanding of the nuts and bolts of the relevant issues and relationships with key policymakers in the U.S., UK, EU so they can receive the best input on the merits of competing regulatory alternatives.

ARTICLE BY Daniel F. C. Crowley,  Bart Gordon, Bruce J. Heiman, Karishma Shah Page, Giovanni Campi & Ignasi Guardans of K & L Gates

Copyright 2016 K & L Gates

Brexit: Government Statement on EU Nationals in UK

UK EU nationals BrexitA small piece of employment-related Brexit news for you. The Cabinet Office, Home Office and Foreign & Commonwealth Office have published a webpage with a statement on the status of EU nationals in the UK. In it they state: “When we do leave the EU, we fully expect that the legal status of EU nationals living in the UK, and that of UK nationals in EU member states, will be properly protected. The government recognises and values the important contribution made by EU and other non-UK citizens who work, study and live in the UK”.

The webpage also contains questions and answers for those who may be affected, but the position is very much that there has been no change to the rights and status of EU nationals in the UK as a result of the referendum.

What Should Employers Do Next?

If any of your workforce are worried about their future in the UK, point them in the direction of the statement for reassurance.

ARTICLE BY Sarah Bull & Christopher Hitchins of Katten Muchin Rosenman LLP
©2016 Katten Muchin Rosenman LLP

Brexit – Standardization and Innovation: What’s Ahead?

We have previously reviewed developments leading to the Brexit vote, the negotiating process that is now unfolding, possible alternative/outcomes and the likely implications as the UK resets its relationship with the EU.

Brexit, Standardization and innovationThis post focuses on Brexit risks and uncertainty related to standardization and innovation. As with the issues relating to competition policy/procedure, questions on standardization and innovation remain to be answered as the terms and timing of the UK Brexit are played out and as businesses, governments and individuals take their own actions – whether large or small, intentional or inadvertent.

Suffice to say, there will likely, over time, be divergences and penalties that will not only change the “rules of the game” but as well undercut important drivers for product development, innovation, consumer welfare and economic progress.  Even in the best of cases (whatever that may be), inevitable divergent paths presages difficult times ahead for the UK, the EU and its trading partners – less transparency, less consensus, greater costs and increased uncertainty.  However dead the US/EU TTIP free trade agreement may be in this political season, Brexit is one of the nails in the TTIP coffin.

It is useful to reiterate, as said before, that the EU was created to merge “essential” interests of previously rivaling nations and to build a foundation for an economic community of “destinies henceforth shared.” Critical to the achievement of such goals was considered the harmonization of trading terms and conditions and promotion of economic progress through innovation.  Brexit undercuts such lofty goals and underscores continuing differences, prejudices and suspicions.  While such terms may have an emotional element, they pose serious real practical costs.

For issues of standardization (“harmonization”) and innovation, the outcome of the Brexit process will have important implications. As explained in more detail below, harmonized standards across as wide a trading area as possible produces substantial economies of scale and efficiencies.  In a similar fashion, innovation is best stimulated in an environment of expanding demand opportunities and through easily-accessed funding opportunities.  Brexit threatens the UK and even the EU with risks on both counts.  To the extent that divergence between standards applicable in the UK and the EU emerge, companies will face reduced market opportunities, reduced scale economies, increased costs and inefficiencies.  In the same vein, innovation thrives in the freest and largest markets possible.   As important, potential innovators need ready access to funding for their projects.  Brexit threatens both a diminution of opportunities and resources available to fund such activities.

While it is premature to predict the outcome of the Brexit endgame, there a number of templates that have varying impacts on product standards and innovation.  Among the choices facing the UK and its former EU counterparts are potential worlds in which the UK is 1) a member of the European Free Trade Association (“EFTA”) (e.g., Switzerland), 2) a member of the European Economic Area (“EEA”) (e.g., Norway, Iceland and Lichtenstein; 3) a member of a newly negotiated or already existing free trade customs union with the EU (e.g. Morocco, Tunisia, Israel and Turkey, etc.); 4) a member (albeit, a continuing one, of the World Trade Organization (“WTO”) and the European Patent Convention (“EPC”); or 5) a variant of some or all of the above.  Obviously, the UK cannot dictate the outcome alone.  Brexit is a negotiation likely to be affected by political, economic and cultural tensions.

The implications of these choices will have important outcomes on questions of product standardization and innovation.  These outcomes will, of course, vary.  First, on the one hand, whatever the Brexit outcome may be, the UK will still have a substantial body of EU-generated (uniformed, harmonized) laws and regulations on its books which will continue in full force and effect in the UK, unless repealed.  There would not seem to be any substantial rush, logic or incentive to change them. At least in the short term, there would appear to be continued convergence, not immediate divergence.

On the other hand, if Brexit takes the form of an EFTA or EEA, there will be, going forward, no automatic direct effect of new EU legislation within the UK.  Importantly, the UK will no longer have any direct say in such new laws and policies.  Assuming no EFTA- or EEA-like EU relationship, the UK can always fall back on its WTO rights through WTO enforced agreements (to which the UK and the EU are signatories).  The WTO Agreements on Technical Barriers to Trade and Sanitary and Phytosanitary Measures are two examples with obvious relevance to standardization.  Nevertheless, any of these alternatives carry potentially risks, financial implications and process inefficiencies, when compared to the EU regulatory process (however cumbersome it may appear).

In addition, however desirable free/harmonized and tariff-free movement of goods and services may be, such benefits may be impacted if not linked with free movement of people and capital that seems likely to be lost through Brexit.  As noted below, this will be particularly the case with innovation, which depends on available capital as well as bright inquiring minds.

A comprehensive analysis of potential risks for product standardization is beyond the scope of this post.  However, fundamental to the standard setting process are agreements on mutual recognition of standards through conformity assessment procedures.  Within the EU, these principles have been central to the creation of the European common market from the outset – “elimination as between member states of … quantitative restrictions on the import and export of goods and all measures having equivalent effect.”  Outside the EU, there are many examples.  Such mutual recognition/conformity assessment procedures lie at the heart, for example, of the WTO Technical Barriers to Trade Agreement, referenced above.  These principles have served well the mutual interests of the United States and the European Union (among others).  However, such a system, as noted above, would, relatively speaking, never be as cohesive as the EU’s system in which the UK participated since joining in 1973.

With Brexit, the UK will no longer be able to influence directly the standards setting process that results in EU legislation – e.g., regulations – that are binding and have direct effect in EU member states.  Brexit poses risks in other sectors where EU regulation provided uniform, EU-wide market direction and procedures.   Brexit will make standard setting more cumbersome, more costly and more likely to create differences and tensions.

That said, it should be recognized that standard setting as well is often undertaken on a sectoral basis.  There are many examples of industries in which standards are set not on an EU or a national basis but on a multinational or even global basis.  This is true, for example, in the motor vehicle sector in which efforts at harmonization of vehicle regulations have long been undertaken through organizations like the United Nations Economic Commission for Europe.  Outside this sector, there are as well myriad European focused organizations like the European Committee for standardization (“CEN”) and the European Telecommunications Standards Institute (“ETSI”) that promote harmonized standards.  Thus, for standards, Brexit may prove to have an uneven effect depending on the particular issue and the particular sector.  For the UK and for companies doing business in the UK, Brexit will, on balance nevertheless, produce uncertainties, less transparency, less leverage, greater complexity, delay and increeased costs.

Brexit poses similar issues and concerns for innovation.  Innovation depends on idea creation.  Idea creation does not exist in a vacuum.  It depends on a structure facilitating creativity that is dependent on funding (whether one likes it or not), free exchange of ideas and structures/vehicles for product development.  The UK has long had a tradition of educational excellence and research.  Brexit does not so much threaten extinction of such values as it threatens the UK with a diminution of available funds, reduced opportunities for collaboration and free exchange of ideas among creators of innovation and loss of a critical seat at the table where policies and priorities are determined.  As a member of the EU, the UK participated fully as an EU member not only in the funding available from programs like Horizon 2020 (which has nearly €80 billion in funding available) and the EU framework programs (funding so-called “networks of excellence” in critical areas like breast cancer research).  Brexit will substantial diminish UK involvement in the creation and guiding of the programs in the first instance.

There is debate about what the exact amount of the loss of funding with Brexit will be (in monetary and percentage terms).  Some say that the EU has accounted for less than 5% of UK R&D.  Opponents of Brexit counter that the EU provides funding for more than 15% of UK science grants (up over 70% since 2007). Whatever is the correct way to evaluate the impact of Brexit, no one can dispute that UK research and innovation institutions/centers/universities will be net losers as a result of Brexit.  While non-EU members can participate in programs like Horizon 2020 (and any follow-on programs after 2020), such participation by the UK would be as an associate member.  As an associate member, its participation would appear to be limited to only certain “pillars” (e.g., “Excellent Science” but not “Industrial Leadership” and “Societal Concern”). The UK would not receive any EU funding if as an associate member the UK’s GDP is above a certain level (almost surely the case for the UK) and if, as was the case with Switzerland recently, the associate member would be deemed to hinder free circulation of people.

Alternatives for the UK outside the EU to have the same level of participation in and influence in the development of European innovative ideas will clearly be diminished.  Some argue that UK should turn its attention on innovation opportunities in countries like the United States, Australia and Canada.  While clearly those destinations have and will continue have cutting-edge research and development opportunities, they enforce visa restrictions that the UK did not face with the EU before Brexit.  Equally important is the potential loss, while hard to measure and quantify, of diminished intellectual exchange and dialogue that will come as a result not only from the restrictions on EU students and scientists studying/working/innovating in the UK but as well the barriers UK students and scientists will face when seeking to study/work/innovate in EU institutions/laboratories and universities.

ARTICLE BY Howard W. Fogt, David T. Ralston Jr., Rouget F. Henschel & Sophie Lignier of Foley & Lardner LLP
© 2016 Foley & Lardner LLP

The Effect of “Brexit” on Tax-Qualified Plans

The decision by British voters in a June 23, 2016 referendum to leave the European Union has significantly affected both the equity and debt segments of international financial markets. As with other market dislocations, the decision has also affected US tax-qualified plans, since they invest in those markets as a source of funding and use corporate bond rates for a variety of derivative purposes. The effects differ, however, between defined benefit (DB) and defined contribution (DC) plans.tax-qualified plan, Brexit

Potential Effects of Brexit on DB Plans

In the case of DB plans, Brexit potentially has implications for funding levels, lump sum payments, Pension Benefit Guaranty Corporation (PBGC) premiums, and financial accounting results—all of which are the responsibility of the plan sponsor (rather than participants).

Specifically, the vote has triggered a decline in interest rates—including corporate bond rates—that may have at least a short-term adverse effect on the funded status of many DB plans, since (i) corporate bond rates are the proxy used to determine the present value of liabilities for minimum funding purposes, and (ii) a decrease in rates triggers an increase in liabilities (present value inversely goes up as interest rates go down).

This effect will be mitigated somewhat, however, since DB plans generally can use a 25-year average of interest rates (with a 90% floor) for funding purposes, which tends to “smooth out” periodic spikes like Brexit. Still, if interest rates (which are already at historically low levels) decline further or continue to be depressed by the aftershocks of Brexit, more headwinds for DB plans seeking to improve their funded status will be created.

By contrast, DB plans must use a market rate of interest—that is, without “smoothing”—for lump sum, PBGC variable premium, and financial accounting purposes. As a result, any downward trajectory of interest rates triggered by Brexit will more directly affect DB plans for these three purposes. Thus, for example, the dollar amount of lump sums paid to employees will increase as rates fall (that is, lump sum present values grow inversely to interest rates).

This effect on the calculation of lump sum payments may be delayed somewhat, since most plans use a “look back” date for the related interest rates (such as the rate in effect two months before the start of the plan year in which the lump sum was paid). Nevertheless, if interest rates stay low or decline, these lower rates ultimately will roll into effect for lump sum calculation purposes. Plan sponsors that are otherwise so inclined may view this as an impetus to offer lump sum windows or annuity buyouts—sooner rather than later (and before any lower interest rates roll into effect). This is especially true of annuity buyouts, since insurance companies tend to use rates for premium calculations that are even more conservative (i.e., lower) than the corporate bond rates used under ERISA.

Similarly, the PBGC variable rate premium is essentially determined using the same rate as is used for lump sums, but without a lag. This will increase the liabilities that form the basis for determining the amount of the variable premium.

Finally, the use of spot fixed income rates for financial accounting purposes will have an adverse effect on a company’s balance sheet to the extent they trigger an increase in reportable plan liabilities. The impact will be much more pronounced than is the case with minimum funding considerations, since the use of spot rates does not allow the impact of currently falling rates to be offset by the prior year increases used in a “smoothing” approach.

Potential Effects of Brexit on DC Plans

In the case of DC plans, participants generally bear the primary risk (and reward) of their investment choices, as allowed by ERISA Section 404(c). Thus, they will bear the risk of both declining bond prices and more volatile financial markets generally. Plan fiduciaries may want to consider alerting participants to the issues raised by Brexit, the possible impact on plan investments, the advisability of staying the course in turbulent markets, diversification considerations, and any other Brexit-related issues relevant to participation in the DC plan, but should be careful to avoid providing specific investment recommendations or advice that may be subject to ERISA’s fiduciary obligations.

Conclusion

In the case of both DB and DC plans, the fiduciary responsible for selecting investments (such as an investment committee) should continue to monitor developments in the financial markets and react as appropriate, in light of the plan’s investment policy statement and the general fiduciary requirements of ERISA. Federal courts and the US Department of Labor have consistently stated that ERISA fiduciaries are not held to a standard of omniscience, but they are required to exercise “procedural prudence” in selecting and monitoring plan investments. This sort of prudence would include adhering to the processes and other mandates established in the fiduciary’s charter or other governing document.

Sweeping Changes in EU Trademark Law and the Brexit Unknown

EU brexit referendum Brexit Street SignsBy now you have undoubtedly heard that in the Brexit Referendum held on June 23, 2016, the majority vote was in favor of United Kingdom leaving the European Union. Notwithstanding the outcome of the vote, it is presently unclear when, or even if, the UK government will give notification to the EU of its intention to leave the EU in accordance with Article 50 of the Lisbon Treaty. If notice is given, there will be a two-year period (which may be extended) to complete negotiations of the terms of UK’s exit from the EU.

Rights in existing EU Trade Marks (EUTM) and Registered Community Designs (RCD) remain unaffected until the UK exits the EU. Once the UK’s departure from the EU has been finalized, it is likely that existing EUTMs and RCDs will no longer automatically provide coverage in the UK. Although impact of the Brexit in that regard is unclear at present, it is anticipated that UK legislation will be implemented to ensure that such rights continue to have effect in the UK, for example, by converting existing EUTM rights to UK national rights enjoying the same priority/filing dates.

In terms of filing new applications during this transitional period, an EUTM remains a cost efficient option for brand owners wishing to obtain protection across the EU. Until we have further information as to how EUTMs and RCDs will be addressed after the UK exits the EU, brand owners seeking protection in the UK may wish to consider filing both an EUTM and a UK application.

EU TRADEMARK REFORM

Recently, there have been several other noteworthy changes in the EU pertinent to trademarks that also deserve consideration by trademark holders. On March 23, 2016, European Union Trademark Regulation No. 2015/2424 came into force bringing substantial changes to Community Trade Mark registrations and procedures. Some of the most relevant changes are as follows:

  • The names have changed. The Office for Harmonization in the Internal Market (OHIM) has changed its name to the European Union Intellectual Property Office (EUIPO), and the Community Trade Mark (CTM) was changed to the European Union Trade Mark (EUTM).

  • There is a change in the fee structure for trademark applications and renewals. The “three classes for the price of one” arrangement has been replaced by a “one-fee-per-class” system. Under the new system, the official fees for three classes are higher, while registration renewal fees have been slightly reduced.

  • Under the old system, all CTM applications filed prior to June 20, 2012 that used the complete Class heading as the specification of the goods and/or services were held to include all of the goods and services in the particular class. Under the new system, all registrations that use Class headings will be interpreted according to their literal meaning, irrespective of their filing date. Therefore, registrations filed prior to June 20, 2012 may not adequately cover the trademark holder’s goods and services.

  • The new regulation allows for a transitional period of six months, from March 23, 2016 to September 23, 2016, for owners of EU registrations which cover the entire Class heading, to amend the specification of goods and services. Therefore, owners of EU registrations that cover the Class heading should check if the Class heading covers everything they want to protect. If not, they should seek to amend their registration before September 23, 2016.

GENUINE USE OF A MARK IN THE EU

Under European Union Trademark Law, an EUTM registration may be revoked if “within a period of five years, following registration, the proprietor has not put the mark to genuine use in the Community in connection with the goods or services in respect of which it is registered, or if such use has been suspended during an uninterrupted period of five years.”

An EUTM mark has been found to be in “genuine use” within the meaning of current authority if it is used for the purpose of maintaining or creating market share within the European Community for the goods or services covered by the registration. This usage standard would be assessed by considering the characteristics of the market concerned, the nature of the goods or services, the territorial extent and the scale of use, as well as the frequency and regularity of use.

It has long been generally understood that use of a EUTM mark in any one EU member country would satisfy this use requirement. However, this has been called into question by a recent UK decision, The Sofa Workshop Ltd v. Sofaworks Ltd [2015] EWHC 1773 (IPEC), that found use of a mark in only the UK only was not sufficient to maintain the CTM registration. Instead, that court and other recent decisions have called into question whether use of a trademark in only one country of the EU is sufficient and have instead looked at other indicia of “use” such as percentage of market share over the entire EU.

These recent assessments of genuine use from courts located in the currently-constituted EU should be noted by brand owners and may provide additional rationale for brand owners seeking protection in the EU to consider filing for national rights (as opposed to EUTMs) where use of the mark may be limited.

ARTICLE BY Lee J. Eulgen & Cynthia B. Stevens of Neal, Gerber & Eisenberg LLP

© 2016 Neal, Gerber & Eisenberg LLP.

Will Brexit Undermine U.K. Participation in the General Data Protection Regulation and the U.S./E.U. Privacy Shield?

The June 23, 2016 Brexit referendum outcome in the U.K. does create uncertainty about whether the U.K. will continue to follow EU data protection laws, including implementation of the E.U.’s new General Data Protection Regulation (“GDPR”), scheduled to become effective on May 25, 2018. Furthermore, the recently negotiated new U.S./E.U. Privacy Shield, intended to replace the E.U.-invalidated Safe Harbor, faces an uncertain future in the U.K. as well if it is not an available framework for multinational businesses to do business in the U.K. For example, Microsoft stated in an open letter in May, 2016 to its 5000 U.K. employees before the Brexit vote that the U.K.’s EU membership was one of the factors that attracted Microsoft to make investments in the U.K., including in a new data center. One important future signal will be whether the U.K. opts to join the European Economic Area, or otherwise maintains significant trade with the EU, in which case the U.K. would necessarily need to comply with EU privacy regulations. If not, the U.K. would still need to develop its own data pgeneral data protectionrotection network. However, because at least two years must elapse before the U.K. can formally exit the EU under Article 50 of the Treaty of Lisbon, and even that two year period does not commence until formal notice is given, both the GDPR (in May 2018) and the Privacy Shield are likely to be in place in the U.K. before any actual exit from the EU occurs. And many observers believe that any law that Britain adopts will likely be similar to the GDPR, since a non-member country’s data protection regime must be deemed “adequate” by the EU for businesses in that non-member country to exchange data and to do business within the EU. In short, nothing is going to change immediately, and because Brexit won’t likely be completed for years, the Privacy Shield could well be implemented in the U.K. for personal data transfers from the U.K. to the U.S. well before actual withdrawal is completed. It also may take years to negotiate and complete agreements, and enactment of alternative U.K. data privacy laws.

See our previous post regarding the text of the U.S./EU Privacy Shield…

Article by Douglas Bonner of Womble Carlyle Sandridge & Rice

Copyright © 2016 Womble Carlyle Sandridge & Rice, PLLC. All Rights Reserved.

How Will the Exit of the United Kingdom from the European Union (“Brexit”) Affect U.S. Corporations Doing Business in the UK?

withdrawal from the EU brexitOn June 23, 2016, the UK voted in a referendum to leave the EU. The UK government will now initiate the procedure under Article 50 of the Lisbon Treaty leading to the UK’s withdrawal from the EU. The UK will be immediately excluded from the European Council and the Council of Ministers, and a negotiation period of two years will commence during which the terms of its withdrawal and of its future relationship with the EU will be determined. No member state has initiated this procedure before, and so it is impossible to predict what this future relationship will be. Furthermore, the UK’s relationships with non-EU states will have to be independently reestablished, as it will no longer be entitled to rely on the bilateral treaties with those states it enjoyed whilst an EU member state.

This Client Alert will focus on the likely impact of Brexit on the laws of the UK influencing key business areas for U.S. corporations doing business in the UK.

M&A

The UK Companies Act 2006, which embodies UK law as it relates to both public and private companies, has been significantly influenced by EU directives, however, it is highly unlikely that Brexit will result in any changes to UK company law, so the basic mechanics of acquisitions and disposals of UK companies will remain the same. The vast majority of M&A transactions in Europe take place between private companies, either by means of an acquisition of shares or of assets, and Brexit will not affect the laws governing such transactions.

The EU Takeover Directive harmonises public company takeovers in the EU and is modelled on the UK Takeover Code, which regulates takeovers of public limited companies in the UK. Brexit is therefore unlikely to have any significant impact on takeovers.

The EU Cross-Border Mergers Directive enables a private or public company in one EU member state to merge with a company in another member state. Brexit means that UK companies will cease to benefit from this regime.

Brexit may possibly affect competition law in the longer term. Currently anti-competitive agreements and abuses of dominant positions in the UK are policed by the Competition and Markets Authority under laws and procedures which mirror EU regulations. In the case of mergers, however, larger transactions are dealt with by the European Commission on a “one-stop-shop” basis to save the parties having to file in several states. Brexit could lead to a decoupling of UK competition law from that of the EU and the end of the “one-stop-shop,” at least for UK mergers.

Commercial Contracts

Existing contracts which continue beyond Brexit could be affected in a number of ways, for example:

  • Depending on how the contract is drafted, Brexit might constitute a “material adverse change,” entitling the parties to terminate;
  • Provisions which have EU territorial scope, such as restrictive covenants or exclusive sales rights, will no longer include the UK;
  • If import duties are imposed as a result of Brexit, contractual pricing mechanisms may operate to shift the burden of such additional costs onto one of the parties making performance more costly.

New contracts should take such matters into account, and now that Brexit is a reality, parties should negotiate how its consequences will be dealt with and who bears the risk.

Debt and Equity Financing

Similar considerations apply to financing transactions on Brexit as apply to M&A deals and commercial contracts. Generally the effect on such transactions will be insignificant.

In the case of loan facility documents, EU territorial clauses may be affected by the UK’s departure from the EU, and Brexit may trigger an event of default in the case of particularly harsh “material adverse change” provisions. The imposition of tariffs and duties and the consequences of market disruption as a result of Brexit might lead to lenders passing on increased costs to borrowers. Brexit might also cause a UK borrower to make an inadvertent misrepresentation (for example, that it is in compliance with EU laws and regulations). It is difficult to see how Brexit would prejudice English law security taken under a security document (with the one exception of intellectual property rights – see below).

Equity financing documents, such as placing and underwriting agreements and prospectuses, will be similarly affected. In addition, the possible loss of the “passporting” regime for the sale and distribution of securities throughout the European Economic Area (EEA) would adversely affect fundraising outside the UK. On an IPO or bond issue, issuers should consider a Brexit-related risk factor disclosure in their prospectuses, especially if their business is likely to be adversely affected by Brexit.

Funds and Asset Management

Brexit could have potentially significant adverse consequences for funds and asset managers in the UK.

Initially, UK fund managers will be treated as non-EEA alternative investment fund managers and lose their managing and marketing passports into the EU. Currently, thanks to the “passport” regime, under the Alternative Investment Funds Management Directive (AIFMD), both UK and non-UK funds can be managed by UK-regulated fund managers operating out of the UK, and such fund managers can market and distribute the fund throughout the EU. Such fund managers will cease to qualify for a passport on Brexit. Under current rules, they could only market such funds as alternative investment funds to EEA investors under local private placement arrangements, if applicable.

Also, as undertakings for collective investment in transferable securities (UCITS) must be EU domiciled and managed by an EU management company, Brexit could be potentially disastrous for a UK-domiciled UCITS fund.

UCITS funds are subject to strict investment rules, including a maximum investment of 30 percent of their assets in non-UCITS collective investment schemes. Brexit will result in many such funds having to alter their investment mandates to take account of the UK no longer being a member of the EU. Similarly, even non-UCITS funds, whose investment policies are to invest in EU securities, will have to readjust their portfolio investments in UK companies or amend their policies.

Employment

The vast majority of UK employment law is “home grown,” such as protection against unfair dismissal, the right to a payment on redundancy, protection against sex, race, nationality, ethnic origin and disability discrimination, and the right to a minimum wage. EU directives have contributed to UK employment law in areas such as the protection of employment rights on the transfer of undertakings, the obligation to consult with employees in the case of mass redundancies, working time limits and minimum holiday pay.

These EU-derived employment laws have become so integral to UK employment law that it is unlikely that Brexit will affect them.

In fact, previous UK governments have tended to “gold plate” EU directives and regulations (for example, the Working Time Directive allows full-time employees 20 days of paid annual leave, but the UK application of that law allows 28 days). It is possible that, outside the EU, a future UK government will review certain aspects of the legislation which have not sat well with UK businesses since their inception, including in particular, the weekly limit on working hours, regulations relating to agency workers and work councils and even those in respect of collective consultation with employees in general.

As in the case of commercial contracts, employment agreements with EU territorial scope may be affected (for example, in the case of covenants not to compete or solicit customers or employees in the EU after termination of employment).

Brexit may deny the UK access to the “single market” of the EU, including the right of free movement of workers between the UK and the remaining EU member states. This will adversely affect the ability of UK companies to manage a cross-border skilled and experienced workforce.

Trade

Many UK trade laws derive from EU law such as the following:

  • Product safety
  • Consumer protection
  • Laws on unfair contracts
  • The rights of commercial agents
  • On-line shopping
  • Payment services
  • Laws on hazardous chemicals
  • Certification of electrical and medical devices

Most of these laws have become enshrined in UK law for many years and are unlikely to be affected by Brexit. However some, which derive from secondary legislation, would lapse unless a post-Brexit government were to preserve them (for example, the regulations governing consumer protection from unfair trading, general product safety, and consumer contracts in respect of “distance” sales of goods and services to consumers).

The withdrawal of the UK from the EU “single market” could entail import duties on the export of products and services from the UK to the EU. Also institutions, such as banks, trading companies and professional firms, such as lawyers and accountants, would cease to enjoy the single market in the provision of services, which could lead to the restructuring or even relocation of their EU-based offices.

Intellectual Property

As one of the largest creators of intellectual property in the EU, the UK and its entrepreneurial innovators could be significantly affected by Brexit.

The Community Trade Mark would cease to apply in the UK. This would require trade marks to be registered both in the UK and as CTMs, incurring additional costs and potentially adversely affecting existing trade mark licenses and security over trade marks.

Currently UK patents are protected and registered under UK legislation, and so Brexit will not affect them (or European patents designating the UK). From 2017, a new EU patent system, the Unitary Patent, is scheduled to be launched, with its new court, the Unified Patents Court, expected to take its seat in London. Brexit would exclude UK patents from this unified system, and London will lose its new court.

Data Protection

The UK law on data protection is based on EU law but dates back to 1998, and so it is unlikely to be significantly affected by Brexit. There are current EU proposals to strengthen the law under the General Data Protection Regulation, and it is likely that the UK will now adopt this.

Post-Brexit cross-border transfers of personal data to the UK are unlikely to be automatically permissible from EU member states. The UK would have to apply to the European Commission for a decision that its data protection standards are adequate to protect the privacy of EU residents (which means the EU standards would have to be met in any event). In the recent case of Schrems, the European Court of Justice held that the United States had not complied with European data protection standards (as Facebook had allegedly transferred consumers’ data to the NSA) and abolished the “safe harbour” rules which had hitherto permitted such transfers from the EU to the United States.  If the EC were to deny or restrict the terms of its adequacy decision, the UK could find itself in a similar position to that of the United States after Brexit, which could seriously adversely affect technology providers with UK-based data centres offering services to EU clients.

Conclusion

The legal consequences of Brexit are difficult to quantify.  Much will depend on the exit terms negotiated between the UK and the remaining EU member states and the status of the continuing relationship between the UK and the EU after Brexit.  Such matters will not be known for at least two years.  In the interim the status quo will survive.

ARTICLE BY Jonathan Maude, Richard L. Thomas & Sam Tyfield of Vedder Price

© 2016 Vedder Price

Brexit: Keep Calm and Carry On

As the country recovers from the shock outcome of last Thursday’s Referendum, the question which Restructuring professionals must now consider is “what does Brexit mean for me?”. The truth is that nobody really knows. The Referendum decision is not legally binding on the UK Government and the process of the UK leaving the EU will only start once the UK has served formal notice on the EU pursuant to Article 50 of the Treaty on the European Union. This will start a two year negotiation period to effect Brexit. In the meantime, the UK remains a member of the EU and EU law continues to apply.

Brexit, EU Referendum

So, in some respects it is very much business as usual for now, but on the basis that David Cameron’s successor will give notice to leave the EU, we recommend that clients start considering the consequences of Brexit now. Preparation for those consequences may include looking at the following:

Contract Reviews – Many contracts refer to an array of EU laws, regulators and territories which should be reviewed to determine how Brexit may/will impact. Can the contract be varied to mitigate the impact of Brexit? What is the potential impact on the contract price being linked to Sterling, the Euro or the Dollar? Does the governing law clause need amending? Will Brexit result in a breach of contract? Whilst unlikely, can force majeure or material adverse effect clauses be relied upon? How can the contract be future-proofed?

Financing and security reviews – Brexit caused turmoil in the markets initially and led to a reduction in the UK’s credit score rating and a significant devaluing of sterling. Before the Referendum, warnings of a post Brexit recession were rife. Is your business/customer at risk of breaching its financial covenants as a consequence of Brexit? Do those facilities and security need to be reviewed and changes made to protect the position?

Vulnerability to Brexit – Brexit is going to impact some more than others. How much do you or your clients/customers trade with other EU countries? How will your supply chain be affected? Do you currently benefit from EU funding? Is the tax efficiency of your business based on EU law? Does your business benefit from EU emission allowances? Will you need a licence or other authorisation to trade in the EU?

Public Policy – The UK will have to review where domestic legislation may need to be amended to take account of Brexit. It will be important to businesses to understand what changes are likely to be coming down the line. Many of the legal changes will be driven by policy decisions made in London and/or Brussels in particular. Keeping on top of these Policy decisions may allow businesses to position themselves to benefit from or at least mitigate the effects of legislative change. Do you need to engage with public policy professionals to assist in lobbying for changes which will have a positive impact on your business?

International Trade Arrangements – To what extent does your business involve the supply of goods between the UK and other EU member states? How will your business be impacted by the potential imposition of tariffs and other trade barriers restricting the free movement of goods post-Brexit?

Immigration and employment– What nationality are your employees? How will your ability to recruit/second employees be affected and will any parts of your business have to be downsized?

Communication – To what extent do you need to make any public statements or disclosures in relation to the impact of Brexit on your business. What is your strategy for communicating the impact of Brexit with your staff?

Other issues will arise as the full impact of Brexit unravels over the coming weeks and months.

ARTICLE BY John Alderton & Caroline Castle of Squire Patton Boggs (US) LLP

© Copyright 2016 Squire Patton Boggs (US) LLP