Partner Piece – Seddons

March 23, 2018

One of the many commercial issues impacted by Brexit is trademarks. Trademarks sit at the core of many commercial businesses and underpin their entire value proposition. In any due diligence exercise conducted by a buyer it is essential that the status of the Target’s trademarks (whether EU or UK trademarks) is understood so the buyer is best prepared for what may lie ahead.

 

Understanding the concept

Very simply put, trademarks are the distinctive properties that a business owner uses to distinguish its goods or services from its competitors. There are two types of trademark, registered and unregistered. There is quite a big difference between the two, with the rights attaching to unregistered trademarks being based in common law and not written into statute. As a result, EU law has not impacted the rights that the owners of unregistered trademarks.

 

The biggest impact of EU law in the realm of registered trademarks has been to extend these properties. EU law has extended what can be registered to include, any distinctive elements of the trademark – colours, numbers (e.g. Levi’s 501), or even smells (e.g. perfumes). EU law also gives UK businesses that trade in any EU country the opportunity to register for a European Union Trademark (EUTM) at the EUIPO, which is the EU equivalent of the UK’s Intellectual Property Office (UKIPO). Thus, securing an EUTM extends the monopoly protection of a registered trademark to the entire EU with a single registration.

 

Prior to the referendum outcome, lawyers would nearly always advise businesses trading in the EU as well as the UK to consider applying for an EUTM. The statutory tests that the EUIPO use are identical to those used by UKIPO. Trademark law is currently harmonized across the EU.

 

The unanswered questions

The Brexit vote has stoked seemingly endless media and public speculation as to when exactly the UK will leave the EU. Equally important will be on what basis the future trading relationship between the EU and UK will continue to exist?

 

For planning and risk management purposes, it is probably best to assume that the UK will not join the European Economic Area. It is also probably safe to assume that the UK will not agree any permanent arrangement in which the UK automatically and universally respects EUTMs and vice versa (i.e. the EU automatically respects UK trademarks). The due diligence process can position a buyer to quickly deal with the post Brexit changes. The buyer will not renew EUTMNS and will know which EUTMNS need to be re-registered as UKTMs. The buyer will have to budget for the extra cost of registering trademarks as UK trade marks in the transitional period before the UK leaves the EU.

 

The Due Diligence Opportunity

Despite all the uncertainty, there are some steps that can – and arguably should – be taken to prepare for any potential outcomes. The due diligence exercise will involve compiling an inventory of any and all trademarks, including dormant registrations, existing UK registrations, existing EUTMs, existing unregistered trademarks, and potential future trademarks. This process should be repeated for any trademark licenses granted by third parties. For instance, if the goods sold by a distributor carry the manufacturer’s branding, the distributor will have to consider the post Brexit value of that branding as if it, and not the manufacturer, owned the branding.

 

For dormant registration, nothing needs to be done – they will not be renewed and will lapse. For existing EUTMs, a key question is where exactly the business owner trades. It may be the case that one business will use different trademarks in different countries. If a UK business uses a trademark in other EU countries, then there is no reason why the EUTM should not remain valid for the remainder of its ten-year registration and then be capable of re-registration. This extends to EUTMs which relate to goods and services in respect of which the owner has a genuine intention to trade in EU member states.

 

This next point is more general and does not relate to Brexit but any registration (UK or EU) is subject to challenge if the business is not trading and using the trademark. So due diligence should highlight trademarks which are not being used and thus could be lost by the owner. The same analysis will consider whether there are any unregistered trademarks which can be registered.

 

If the only EU country where the EUTM is used is the UK, the EUTM will become invalid when the UK leaves the EU. In such a case, the owner should apply for a UK trademark. Whilst the registration of an EUTM lasts for ten years and there is speculation that the owner of any European IP right will be able to apply for an automatic conversion into UK IP rights, any would-be infringer with just a bit of knowledge of the system is likely to know that the EUTM was unenforceable once the UK had left the EU and the trademark was not used in any of the remaining EU countries.

 

So, if the target’s existing registered trademarks are EUTMs but it continues to trade in the EU then nothing changes. Your position is akin to Apple or Nissan – two non-European companies that trade in the EU and can use the pan-European intellectual property regime to assist their European operations. If the target has EUTMS but only trades in the UK then it will need to ‘repatriate’ these trademarks and it is likely that this will be a simple procedure. If the target’s trademark portfolio comprises UK trademarks – registered or unregistered – then these trademarks will not be affected by Brexit.

 

The due diligence process may allow the buyer to plan future registrations. If the target is trading in and across the EU, the best approach is likely to be reliance on the Madrid Protocol, a trademark treaty managed by the World Intellectual Property Office which grants participant jurisdictions reciprocal recognition. This system offers a first base registration (after Brexit the UK would be the first base) that is recognized by the trademark offices of other countries. Applying for such recognition is easier than registering the trademark in different countries from scratch and grants the same protection. So the UK target would apply for a UK trademark and then use the Madrid Protocol to register the UK trademark with the EUIPO. This gives the target the benefit that a EUTM would have previously conferred. The chunkier alternative is to apply for a EUTM as well as a UK trademark.

 

Alexander Egerton, Partner at Seddons

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