Preparing your business for a no deal Brexit: Issues to consider
With EU leaders last week rejecting the Chequers plan, the DBA’s legal partner Humphries Kirk looks at possible effects on the design industry in the event of a no deal Brexit.
With much design work created by British agencies intended to be enjoyed and to exist beyond the UK, what are the possible implications of a no deal Brexit on your business, client relations and work?
Nobody really knows what will happen if there is a no deal Brexit. Foreseeably the pound will fall in value against the euro and other overseas currencies, there will be quite a lot of bad feeling between European countries and the UK and we may all have to get used to standing in the long non-EU passport lines when we travel overseas!
It is likely that there will be issues, which may directly affect the design industry itself. We explore some of these below.
1. Your clients and their contracts
a. In principle international contract law should be unaffected by Brexit. However, there may be some design contracts (for example with public authorities in certain circumstances) which require the parties to be EU residents. It is unlikely that that requirement would be retrospective but you must check. It is possible that you may need to create an EU entity to take on those sort of contracts (see below).
b. Most UK designers try, where possible, to stipulate English law and jurisdiction (or Scottish or Northern Irish law and jurisdiction). This is sensible because English law, for all its faults, tends to get things done a great deal more quickly than many EU jurisdictions.
c. An English Court judgment will no longer be recognised under the EU judgements regime and we will be back to the old international recognition. This might mean that in the event of a need to enforce an English judgment in the EU you would have to go to the national Court of your client and ask the national Court to agree to enforce it. The national Court might agree to enforce it or might require a retrial.
d. We suggest that very careful cash flow management of EU contracts be undertaken post Brexit. Credit limits must be rigorously observed and policed.
e. In some cases it may even be worth seeing whether your client will amend the contract into an EU jurisdiction (we would recommend Ireland).
f. Foreseeably there will be travel disruption over the Brexit period which is likely to settle down afterwards. It may be sensible not to schedule overseas meetings over that immediate period.
g. Many larger companies already have offices or branches overseas and will rely or continue to rely upon those to head up European Union work and projects. You may want to ensure that your IT systems at these offices are sufficiently robust with adequate capacity in case there is a substantial increase in their use.
2. Brands and brand protection
a. A European registered trademark can be owned by a non EU national and will give protection throughout the EU, but no longer in the UK. The UK Intellectual Property Office has suggested various mechanisms whereby UK and European trademarks will continue to be recognised at least for a transitional period. However if we crash out without a deal at all, then it is possible that a European trademark will no longer be recognised in the UK and vice versa. This would seem to be unlikely in the UK (as by Act of Parliament we are continuing the status quo) but it may be the case in European countries.
b. International trademarks (registered through WIPO in Geneva and then registered in specific countries, including the UK and the EU as a whole) will still continue to be recognised and you should consider therefore the status of yours and your clients’ important brands and their protection.
3. Copyright and design right
a. All of the EU countries, including the UK, are signatories to the Berne Convention under which we all agree to respect each other’s copyright laws. However, if we have a no deal Brexit then the quite complicated rules whereby the copyright in creative work created by non EU citizens in EU countries may come into play. New creative work created in the UK by UK designers will have UK copyright (which should be recognised under the Berne Convention) but will not have, for example, French copyright. The practical effect of this is probably not very great but if you have creative work being created by a UK designer in an EU country then it would be worth checking what the copyright position is. Similarly if you have work that was created by a collaboration, collaborated on outside of the UK by UK and EU designers, this may lead to complications. Frankly this is unlikely but we don’t really know.
b. We do know that work created in the UK by EEA designers will have UK copyright under the current law. Work first published in the UK will have UK copyright even if created outside the EEA.
4. Design Right and Registered Designs
a. The law in the UK is continuing as at present and so new and novel designs of objects intended for industrial production should enjoy UK Design Right (basically for ten years) if created in the UK or first published in the UK and whether designed by a UK designer or an EU designer.
b. UK designs probably will no longer qualify for EU design right protection other than under the Berne Convention, unless created in or first published in an EU country.
c. Designers should consider taking advice about the rules – there might be a benefit to a design that has been created in the UK being first published in the EU in order to get EU design right (three years) as well as UK Design Right.
d. If there is no Brexit agreement, European Registered Designs probably cease to have protection in the UK from next March. However that may not be retrospective with regard to breaches which occurred before March (when, of course they were recognised as having full registered design protection!).
Broadly the position with regard to patents is unchanged. A patent is applied for to the patent office of which the inventor chooses to register his/her patent and they can get priority under the European patent system in the EU if they wish, just as they can under the international patent system.
6. Domain names and domain name rights
Nobody knows for sure but it is likely that the “.co.uk” and “.uk” domain names can continue to belong to anybody from anywhere in the world and therefore if held by an EU entity, it will not matter. There have been suggestions that the “.eu” domain name may only be held by EU entities. A risk is that a UK business that has the “.eu” domain name for its website and/or for its email addresses may well be holding itself out as being within the European Union. That means that British businesses that hold a “.eu” denomination could be guilty of misrepresentation and could be guilty of various offences under the UK business advertising and trades description legislation.
7. Holding EU property outside the UK
a. Once the UK is a “third nation” there may be some types of property (for example “.eu” websites or ongoing contracts with governments of EU countries) which may need to be held by EU entities. Furthermore designers who routinely bid for certain types of design work may well find that the bidding is only open to EU entities.
b. It is not particularly difficult to set up an EU subsidiary company. In our experience to do so in France, Germany or Luxembourg is perfectly possible but quite time consuming, expensive and bureaucratic. These countries simply do not have the concept of buying an “off the shelf” company or LLP. Traditionally many businesses have set up their European subsidiaries in Luxembourg for tax reasons but those tax reasons are now going to be less useful.
c. The alternative is to set up in Ireland or Malta. Both countries have English as an office tongue (along with Irish and Maltese) and both countries base their company law on English company law with the result that their companies and their company methods of working are exactly the same as a UK company. Malta in particular managed to negotiate particularly advantageous taxation terms when it first joined the EU which terms are enshrined in treaty and therefore make it very attractive place in which to set up an EU subsidiary company.
d. Local Regulatory requirements (such as the CDM Regulations in the UK ) must be complied with but designers who work in other countries do so anyway. The best advice to British based designers is to comply with CDM and the local regulations unless you are certain that CDM compliance exempts you.
Look carefully at your business and consider whether any aspects of it cross international boundaries into the EU. If they do, don’t take it for granted that things will go on in exactly the same way as at present, even if something is finally agreed with the EU, and certainly not in the case of a ‘no deal’ Brexit. What impact could it have on your design business, for example, if you came to the end of a long project only to be told that you cannot be paid your fees (or retention monies) because you are no longer EU residents? Keeping abreast of the issues, to ensure you understand the implications for your business and can react accordingly, is advised.
Legal advice helpline for DBA members:
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If you have a query about any of the issues raised in this article, or would like to discuss another legal matter, please contact Darrell Stuart-Smith at Humphries Kirk on 01305 251 007.