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Impacts of Brexit - Observations from China

Date: 16 May 2017

On 29 March 2017, UK Prime Minister Theresa May formally triggered the process for the UK to leave the European Union (EU). This began a two-year process of negotiations which will lead to Britain leaving the EU.

 

On a general economic level, Europe has been the most important trading partner for China in the past decade. Despite the large volume of trading between Europe and China, many Chinese enterprises, especially SMEs, have had difficulties doing business in Europe or with European business partners, partly because of language and cultural differences and the rather complex legal systems in Europe. Having generally pro-free trade policies and English as the official language, the UK was naturally chosen by many Chinese enterprises as a bridge to reach the European market and to partly avoid the language and cultural barriers. This has worked well, and confidence among Chinese enterprises in this type of business model has built up over the years.

 

However, for some, this confidence was shaken by results of the European Union (EU) membership referendum last year and subsequent triggering of Article 50 of the TFEU. There is fear that the China-UK-Europe type of business models will not continue to work when the UK leaves the EU and if free movement cannot be maintained as result of the withdrawal negotiation (by way of the UK joining the EEA or otherwise). Chinese IP owners and users are keen to find out how their positions in Europe are going to be affected by Brexit.

 

Patent Protection

 

Many Chinese high-tech companies have started to realize the importance of patent protection to the growth of their businesses in the European market. This has been reflected by the increasing number of patent filings by Chinese applicants at the European Patent Office in the last 10 years (average year-on- year increase by more than 22%). In the last few years, the exciting developments of the Unitary Patent (UP) system attracted a lot attention from Chinese IP owners and users. There was high expectation for the UP system to become operational in 2014. Although the target launch date was pushed back several times, the attitude remained generally optimistic until serious doubt was cast on the future of the system by the referendum vote. Personal discussions indicate that, for those following the issues, confidence picked up again when confirmation was given by Baroness Lucy Neville-Rolfe (the UK's IP minister at that time) on 28 November 2016 that the UK was set to ratify the Unified Patent Court (UPC) Agreement.

 

It is now generally understood among Chinese IP owners and users, after great efforts have been made by officials from the UKIPO, professional bodies like CIPA, and individual attorneys from various UK firms to spread the "business as usual" message that the European Patent Convention (EPC 1973) is not a piece of EU legislation and will be unaffected when the UK leaves the EU. IP owners can continue to obtain UK patent protection by validating their European patents in the UK after the UK leaves the EU.

 

Until Theresa May's snap election call, it looked promising that the UP system would be operational from December 2017. The project may suffer further delay, but hopes are still high for a 2017 or early 2018 start date. Chinese IP owners and users need advice and/or up-to-date information on developments regarding the UK's position in the system so as to design or adapt their patenting strategies for the change, and in particular for European patents to be granted within the period between the launch date and 28 March 2019 (the end of the 2-year withdrawal negotiation).

 

Assuming the UK will take part in the Unitary Patent system from the launch date but will not remain in the system after leaving the EU,1 it will not be a straightforward decision for some IP owners as to what validation plan should be taken for their European patents granted within this period of time. If an applicant wants to cover the UK by a European patent granted within this period of time, the Applicant could either validate the European patent in the UK or elect unitary effect to cover the UK. As matters stand, Applicants cannot validate in the UK in addition to electing for unitary effect.2 If the Applicant goes for the former option (UK validation), his/her right in the UK will not be affected when the 2-year period runs out (when the UK leaves the EU and the UP system). With this option, of course, the patent will not enjoy the unitary effect. If the latter (unitary) option is taken, when the UK leaves the EU, the unitary effect may no longer apply to the UK, but, it that is the case, it is fully expected that transitional arrangements will be put in place to continue the Applicant's right in the UK (by automatic conversion of the UK coverage of the unitary patents to UK national rights). It is expected that nothing further will be required when that time comes, but that IP owners will have to be aware of the need to separately renew the UK rights.

 

For patent applications recently filed or yet to be filed at the EPO, this is less likely to be a problem because they will probably not proceed to grant until after 28 March 2019. For inventions where UK protection is important and pan-EU protection is not crucial, Brexit is yet another reason for Applicants to consider national routes rather than the EPO route.

 

Representation

 

UK based European patent attorneys will still be able to prosecute patent applications at the EPO after the UK leaves the EU. This message seems to be understood around the world.

 

As matters stand, UK-based European patent attorneys will be able to represent clients in post-grant proceedings relating to unitary patents, e.g., central revocation and infringement proceedings. Moreover, once registered on the List of representatives before the UPC, a UK based EPA will remain on that List so long as the attorney continues to be registered at the EPO.

 

Of course, every coin has two sides. For businesses where UK patent protection is crucial, many Chinese applicants already choose to go along the UK national route alone or in addition to the EPO route. Such Chinese clients continue to prefer to engage UK patent attorneys at the time of filing

 

Trade Marks and Designs

 

Much has been said regarding the importance of reviewing all licences/settlements/delimitation/co-existence agreements relating to portfolios of existing EU trade mark and design registrations and taking necessary actions now to mitigate undesirable effects caused by change in geographical coverage of those registrations when the UK leaves the EU. These are issues that are sensitive to European and US holders of IP rights in Europe, but are not high in the consciousness of many Chinese IP owners.

 

 

  1. Whether or not the UK remains in the Unified Patent Court jurisdiction. Continuing in the unitary patent system would require a separate agreement between the UK and the EU.
  2. Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016 Section 2, amending Patents Act Section 77(1): "Subsection (1) does not apply and is to be treated as never having applied in respect of a European patent (UK) whose unitary effect is registered by the European Patent Office in the Register for unitary patent protection".
  3. Patents (European Patent with Unitary Effect and Unified Patent Court) Orde  2016 Section 2, amending Patents Act Section 77(1): "Subsection (1) does not apply and is to be treated as never having applied in respect of a European patent (UK) whose unitary effect is registered by the European Patent Office in the Register for unitary patent protection".
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