Tag: EU

Dutch Supervisory Authority Announces GDPR Investigation

On July 17, 2018, the Dutch Supervisory Authority announced that it will start a preliminary investigation to assess whether certain large corporations comply with the EU’s General Data Protection Regulation (“GDPR”) – see the official press release here (in Dutch).  To that end, the authority will review the “records of processing activities” from thirty randomly selected corporations which are located in the Netherlands.

Article 30 of the GDPR requires data controllers and processors to maintain a record of their processing activities.  These records must, among other things, include a description of the categories of data subjects and types of personal data processed, as well as the recipients of the data and the transfer mechanisms used.  While small organizations with less than 250 employees are generally exempted, but there are several exceptions to the exemption which may still cause this obligation to apply to them as well.

The thirty corporations will be selected from ten different economic sectors across the Netherlands, namely: metal industry, water supply, construction, trade, catering, travel, communications, financial services, business services and healthcare.

According to the authority, the correct maintenance of records of processing activities is an important first indication of an organization’s compliance with the new EU data protection rules.

 

© 2018 Covington & Burling LLP
This post was written by Kristof Van Quathem of Covington & Burling LLP.

Three Important Considerations For All Businesses in Light of GDPR

Today, the European General Data Protection Regulation (“GDPR”) takes effect. The GDPR is the most comprehensive and complex privacy regulation currently enacted. The GDPR can apply to a business or organization (including a non-profit organization) anywhere in the world and its potential financial impact is huge; fines can reach up to € 20 million Euros (over $23 million USD) or 4% of an entity’s total revenue, whichever is greater. Not surprisingly, the potential for this type of penalty has caused concern and chaos leading up to the May 25, 2018 effective date. In light of this significant international development, all organizations should consider the following:

1. Does the GDPR Apply?

If your entity “processes” the “personal data” of anyone within the European Union, then the GDPR may apply. “Personal data” under the GDPR is any information that could identify an individual, directly or indirectly, like a name, email address or even an IP address. The GDPR also broadly defines “processing” to include activities such as collecting, storing or using the personal data. For more information on how to determine if the GDPR applies to your entity, watch our 3-minute video on the subject.

2. If the GDPR Does Apply, What is the Compliance Strategy?

You need a plan. Yes, it would have been ideal to have it in place by today but if the GDPR applies to your entity, do not delay any further in creating a GDPR compliance strategy. A GDPR compliance strategy starts with a detailed examination of your entity’s data collection and use practices. Those practices must comply with the GDPR requirements and your entity may need to implement new or revised policies to address specific compliance requirements. This process is specific to the particular practices of each entity – there is no one-size-fits-all GDPR compliance program. You can find the regulatory language here.

3. Even If the GDPR Does Not Apply, How Do You Handle the Data You Collect?

Even if the GDPR does not apply to your entity, there are significant risks and liability surrounding the data collection and processing practices of any business. Data breaches happen every day. No business is immune. Each organization should closely examine its data collection and use practices and determine if it absolutely needs all of the data it collects. Then, the organization must determine whether the steps it is taking to protect the data it collects are reasonable in today’s environment. In Massachusetts, businesses must undergo this process and create a written information security plan. In Connecticut, having such a plan may help avoid a government enforcement action if you experience a data breach. In addition, the Federal Trade Commission and states’ Attorneys General are actively pursuing companies with questionable privacy practices.

© Copyright 2018 Murtha Cullina.
This post was written by Dena M. Castricone and Daniel J. Kagan of Murtha Cullina.

Getting Closer to put the UPC into Force

April 26, 2018 is a remarkable date: first it’s World IP Day celebrating IP around the world. Second, and this is unique, the British IP Minister Sam Gyimah MP announced that the UK ratified the Unified Patent Court Agreement (UPC Agreement). By doing so the UK agreed to be bound to both the UPC agreement and the UPC’s Protocol on Privileges and Immunities (PPI). The UPC will be a court common to the contracting member states within the EU having exclusive competence in respect of European Patents and European Patents with unitary effect.

In addition to Paris and Munich, London hosts a section of the Court’s central Division dealing with patents in the field of life sciences and pharmaceuticals. The way is now open for discussion about UK’s future within the UPC system after-Brexit. As of today, the UPC Agreement is ratified by 16 countries of the European Union.

To bring the Agreement into force, UK, France and Germany have to ratify the UPC Agreement and the PPI, now everyone is waiting for Germany, as France has already ratified.

Germany’s completion is currently on hold due to a constitutional complaint pending before the German Federal Constitutional Court.  According to rumours abound in the German IP community this complaint might be dismissed and the ratification will be finished during this year.

It’s time to get ready for playing with the new system!

 

Copyright 2018 K & L Gates.
This post was written by Christiane Schweizer of K & L Gates.
Read more on intellectual property on the National Law Review’s Intellectual Property Page.

GDPR May 25th Deadline Approaching – Businesses Globally Will Feel Impact

In less than four months, the General Data Protection Regulation (the “GDPR” or the “Regulation”) will take effect in the European Union/European Economic Area, giving individuals in the EU/EEA greater control over their personal data and imposing a sweeping set of privacy and data protection rules on data controllers and data processors alike. Failure to comply with the Regulation’s requirements could result in substantial fines of up to the greater of €20 million or 4% of a company’s annual worldwide gross revenues. Although many American companies that do not have a physical presence in the EU/EEA may have been ignoring GDPR compliance based on the mistaken belief that the Regulation’s burdens and obligations do not apply outside of the EU/EEA, they are doing so at their own peril.

A common misconception is that the Regulation only applies to EU/EEA-based corporations or multinational corporations with operations within the EU/EEA. However, the GDPR’s broad reach applies to any company that is offering goods or services to individuals located within the EU/EEA or monitoring the behavior of individuals in the EU/EEA, even if the company is located outside of the European territory. All companies within the GDPR’s ambit also must ensure that their data processors (i.e., vendors and other partners) process all personal data on the companies’ behalf in accordance with the Regulation, and are fully liable for any damage caused by their vendors’ non-compliant processing. Unsurprisingly, companies are using indemnity and insurance clauses in data processing agreements with their vendors to contractually shift any damages caused by non-compliant processing activities back onto the non-compliant processors, even if those vendors are not located in the EU/EEA. As a result, many American organizations that do not have direct operations in the EU/EEA nevertheless will need to comply with the GDPR because they are receiving, storing, using, or otherwise processing personal data on behalf of customers or business partners that are subject to the Regulation and its penalties. Indeed, all companies with a direct or indirect connection to the EU/EEA – including business relationships with entities that are covered by the Regulation – should be assessing the potential implications of the GDPR for their businesses.

Compliance with the Regulation is a substantial undertaking that, for most organizations, necessitates a wide range of changes, including:

  • Implementing “Privacy by Default” and “Privacy by Design”;
  • Maintaining appropriate data security;
  • Notifying European data protection agencies and consumers of data breaches on an expedited basis;
  • Taking responsibility for the security and processing of third-party vendors;
  • Conducting “Data Protection Impact Assessments” on new processing activities;
  • Instituting safeguards for cross-border transfers; and
  • Recordkeeping sufficient to demonstrate compliance on demand.

Failure to comply with the Regulation’s requirements carries significant risk. Most prominently, the GDPR empowers regulators to impose fines for non-compliance of up to the greater of €20 million or 4% of worldwide annual gross revenue. In addition to fines, regulators also may block non-compliant companies from accessing the EU/EEA marketplace through a variety of legal and technological methods. Even setting these potential penalties aside, simply being investigated for a potential GDPR violation will be costly, burdensome and disruptive, since during a pending investigation regulators have the authority to demand records demonstrating a company’s compliance, impose temporary data processing bans, and suspend cross-border data flows.

The impending May 25, 2018 deadline means that there are only a few months left for companies to get their compliance programs in place before regulators begin enforcement. In light of the substantial regulatory penalties and serious contractual implications of non-compliance, any company that could be required to meet the Regulation’s obligations should be assessing their current operations and implementing the necessary controls to ensure that they are processing personal data in a GDPR-compliant manner.

 

© 2018 Neal, Gerber & Eisenberg LLP.
More on the GDPR at the NLR European Union Jurisdiction Page.

EU Adopts New Sanctions on North Korea

On 16 October, the Foreign Affairs Council adopted new EU autonomous measures reinforcing the sanctions on North Korea imposed by the UN Security Council, effective immediately. They include a total ban on EU investment in North Korea across all sectors, whereas previously the ban related to certain sectors, such as the arms industry and chemical industries. Also, there is a total ban on the sale of refined petroleum products and crude oil. The amount of personal remittances to North Korea has been lowered from €15,000 to €5,000 in light of suspicions that they are being used in support of nuclear and ballistic missile programmes. In addition, three persons and six entities were added to the list of those subject to an asset freeze and travel restrictions.

This post was written by International Trade Practice at Squire Patton Boggs of Squire Patton Boggs (US) LLP., © Copyright 2017
For more Antitrust Law legal analysis, go to The National Law Review

Brexit: Limiting the Damage

It is one of the ironies of history that the EU as it is today, starting with the single market, was largely made in Britain, the achievement, above all, of former prime minister Margaret Thatcher and her right-hand man in Brussels, the then Commissioner (Lord) Arthur Cockfield. The single market has long been viewed by observers in countries with less of a free market tradition as a typically British liberal invention. And yet it is this market, as well as the EU itself, that another Conservative government is now seeking to leave.

Britain has also left its stamp on key EU initiatives from regional policy to development assistance and fisheries. The EU’s interest in a common foreign and security policy originally stemmed from Britain. The EU’s comparatively transparent and accountable administrative rules date from the reforms introduced by former British Labour Party leader Neil Kinnock when he was Vice-President of the European Commission from 1999 to 2004. Thus, representatives of Britain’s two major parties have helped to make the EU what it is today.

If British prime ministers had explained to public opinion earlier the extent of their country’s influence on the EU, something that other Europeans never doubted, the referendum of 23 June 2016 might never have occurred.

A “Smooth and Sensible” Brexit

Be that as it may, Europeans on both sides of the English Channel are now grappling with the consequences of that vote. If reason and economic interest prevail, a “smooth and sensible” Brexit, as evoked by the British prime minister in Florence in September, might yet emerge.

This would involve a broad agreement, in 2017, on the principal aspects of the divorce settlement. This concerns mainly Britain’s financial commitments to the EU, the residence, professional and health rights of citizens living on both sides of the Channel after Brexit, and the need to maintain the Common Travel Area between Britain and Ireland and to avoid a hard border across the island of Ireland after Brexit. While Brussels, London and Dublin have affirmed their intention of achieving these goals, there are many practical and political issues to resolve.

If sufficient confidence and trust between EU and UK negotiators is established, it should also be possible to agree to the general terms of a future political and economic agreement between London and Brussels by the end of the year and to broach the question of transitional arrangements to smooth the way for government and business. The British government wishes to ensure that business need adjust to Brexit only once, hence the need for a smooth transition to a well-defined future relationship.

If good progress is made next year, the separation agreement and transitional arrangements could be drawn up by October 2018, allowing enough time for approval by EU and British institutions ahead of Britain’s exit from the EU at midnight between 29 and 30 October 2019. Little, except Britain’s lost vote in EU institutions, would then change for the next two to three years, as the UK continued to make payments to the EU budget, respect judgements of the European Court of Justice and accept the free movement of labour.

The breathing space would be used to negotiate, sign and ratify a two-part long-term agreement. The first part would cover trade and economic issues; it could take effect provisionally relatively quickly after agreement had been reached. The second part, though, would be a wide-ranging political agreement, involving security and even aspects of defence. Both sides have an interest in cooperation on armaments production and unconventional forms of conflict, as well as police and judicial affairs. This would involve the member states’ legal responsibilities and require ratification by all twenty-eight countries concerned. It might not come into effect before the mid-late 2020s.

This relatively benign sequence of events assumes that the British government is unified behind its negotiator, David Davies, and that the political situation in Britain and the EU remains generally stable. It also assumes that the EU can move beyond its rigid two-stage sequencing of the negotiations.

However, there may well be political upsets, involving a leadership competition in the Conservative Party and, perhaps, an early general election. The opposition Labour Party may come to power bringing a change in priorities but also differences of opinion in its own ranks. The British economy will be damaged by Brexit, according to leading economists, and public opinion is likely to react when this is widely felt.[1]Until now, the main impact has been a decline in sterling and rising inflation, raising the prospect of higher interest rates.

The “Cliff Edge” Scenario

Such uncertainties, as well as the divergent political agendas of London and Brussels, may make the smooth and sensible Brexit impossible to achieve during the limited time available. This opens the way to a second scenario, widely described in Britain as the cliff edge. Under this hypothesis, the December 2017 goal for achieving a breakthrough in the separation talks is missed. This further postpones discussion of transitional arrangements and a future long-term agreement.

Negotiations continue fitfully during 2018 but the two sides are too far apart to reach agreement by October 2018, which the EU chief negotiator, Michel Barnier, has designated as the effective deadline. If October passes without an overall agreement, it will probably be too late to secure the agreement of the European Parliament before 29 March 2019, when the two-year negotiating period initiated by the British government’s notification of withdrawal expires. Nonetheless, negotiations might well go down to the wire.

Unless all twenty-eight countries “stop the clock” at midnight, an old Brussels ruse, the UK would then leave the EU without an agreement. Business leaders have warned of the chaos this will bring. There will be an unmanageable fivefold increase in work at British, Irish and mainland European ports checking consignments, the suspension of air travel between the UK and the EU, pending the conclusion of a new air transport agreement, and other major disruptions.

Health, safety, veterinary and phytosanitary inspections, as well as the assessment of customs duties, would lead to long queues of lorries at ports on both sides of the channel. Neither side can build the necessary infrastructure and linked IT systems or recruit sufficient qualified staff in time to cope with dramatically increased requirements after a hard Brexit. Supply chains would be disrupted and many foreign-owned companies, which had not already relocated to remaining EU countries, would seek to do so rapidly.

The political and economic damage of going over the cliff edge would last for years and embitter the UK’s relations with the EU and third countries. Many would question the value of Britain’s WTO commitments in the absence of appropriate trading arrangements between Britain and the EU.

This then is a sketch of the cliff edge. Those who admire Britain for its pragmatism, fairness and common sense find it hard to believe that such a scenario might become reality. Surely, they say, Britain and the EU are involved in preliminary skirmishing of the type that precedes any negotiation. They are sure to come to their senses as the decisive deadlines approach. Nothing is less than certain.

A Tale of “Downside” Risks

The outcome may well diverge from either the optimistic or the pessimistic scenarios delineated above. However, the risks are mainly “downside” as the economists put it. British negotiators have not yet grasped the fundamentally asymmetric nature of negotiations between twenty-seven countries backed by European institutions on the one side and a single country seeking to leave the club on the other. It would be better for government, business and the public, if this reality were more widely recognized, leading to realistic negotiating targets. Indeed, Brexit is not really a negotiation at all in the usual sense. It is rather an effort by the leaving country to secure some exceptions from the club’s rules at the time of its departure. This is much akin to the efforts of a candidate (joining) country to achieve some, temporary, transitional exceptions to the EU’s rules.

The Brexit talks are essentially an exercise in damage limitation, mainly through transitional arrangements. When the divorce and transitional arrangements have been agreed, Britain and the EU can concentrate on negotiating a long-term partnership which will be in their mutual interest.

This post was written by Michael Leigh of Covington & Burling LLP., © 2017
For more Global legal analysis, go to The National Law Review

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

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.

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