Impact of Brexit on technology and innovation

How might the technology and innovation sector be affected when the UK exits the EU in 2019+?

The exit from the EU will not happen for at least two years and potentially longer. In the meantime, the UK remains a member of the EU and all the EU obligations and benefits remain in place. In the short term therefore, it is business as usual in the UK up to at least March 2019.

After Brexit (2019+) the impact upon the technology and innovation sector largely depends upon what model the UK adopts for its relationship with the EU. If the UK remains in the European Economic Area then the changes may be minimal. If the UK joins the European Free Trade Association and negotiates sector specific access to the single market then the landscape depends on the exact nature of that relationship. If the UK distances itself further from the EU then the changes may be more extensive.

There will be ramifications to the sector in light of Brexit, not least given the current uncertainty prevailing in UK politics, markets and as to the UK’s future with the EU. The UK has a strong track record in the technology and innovation sector with tax incentives, investment and funding, R&D and other key drivers high on its agenda. Norway (which is not in the EU) is a prime example of how the sector can develop effectively outside of the EU.

In terms of specific key areas, the precise changes remain to be seen. However, set out below are some of the possible issues.

Will UK consumers continue to reap the benefits from the ever increasing harmonisation of the European telecoms market, such as the abolition of roaming charges, following Brexit taking effect?

To the extent that such EU laws have been implemented into English law, consumers will continue to benefit from them unless or until they are repealed or changed. In respect of any new regulations implemented following Brexit taking effect, the UK — irrespective of the exit model to be adopted by it — will need to negotiate an appropriate partnership agreement with the EU, which may or may not confer on UK consumers all, or some of, the rights enjoyed by EU consumers. The UK will then need to adopt and comply with the relevant EU legislative measures. Alternatively, the UK could look to develop its own laws in a manner that is consistent with evolving EU regulation.

Under the later scenario, however, international roaming charges for UK consumers travelling in the EU might not be subject to legislative protections as the UK Parliament will not be able to legislate for wholesale roaming rates charged back by EU mobile companies. Protections against high EU roaming rates could therefore only be provided through bilateral agreements between UK mobile companies and their EU counterparts.

What are the consequences for UK businesses if the UK remains outside the EU “Digital Single Market” strategy?

Regardless of Brexit taking effect, the EU is proceeding with proposals to advance new rules governing and achieving such a harmonised market (for example, rules regulating services and technologies that use mobile networks (so-called over-the-top (OTT) services); mandating cross-border access to on-line content service; and amendment to copyright rules to reflect new technologies).

In March 2018 Theresa May confirmed in her speech that the UK will remain outside the EU’s “Digital Single Market” (SDM). This decision will be relevant to businesses’s decisions on whether or not to launch online services in the UK (for instance, if - following Brexit taking effect - the UK decides to adopt a less restrictive approach to OTT or to on-line content services, this could encourage establishment in the UK; whereas divergence in regulation between the UK and the EU in some areas could affect the investment decisions of mobile and fixed-line/broadband operators).

The disapplication of EU state aid rules could remove an obstacle to additional Government investment in infrastructure to support isolated areas (for example, remote locations and mobile “not-spots”) and to bring forward next generation network services.

A further proposal related to the SDM concerns the harmonisation of spectrum policy, where harmonisation is being considered under the SDM initiative, although Brexit taking effect should not result in divergence as the UK will still be a member of CEPT and the ITU (the international organisations that deal with these issues).

Will the UK still be regarded by the EU Commission as a ‘safe third country’ outside the EU so that personal data can continue to be transferred to the UK from the EU?

Brexit taking effect (2019+) transfers of personal data from the EU to the UK will only be allowed if the transfers provide adequate safeguards for the personal data in the UK. One way to achieve this adequacy standard is for the UK to obtain an “adequacy decision” from the European Commission i.e. finding it to be a safe third country for personal data imports. It remains to be seen whether the UK will receive a positive adequacy decision and there is a risk that it will not if the UK ceases to recognise as English law the new General Data Protection Regulation (GDPR) (once it is in force). In such a case, all businesses operating in the EU will need to revisit personal data flows (and corresponding export solutions) insofar as they wish such data to be transferred to the UK.

Brexit taking effect will the UK implement legislation reflecting the new GDPR (or adopt legislation providing for its continuity if Brexit takes effect after it has taken effect), or will the UK revert back to (or keep) the existing Data Protection Act 1998?

The Data Protection Act 1998 (DPA 1998) has for some time now been regarded as lagging behind developments in technology in its treatment of personal data. The UK Information Commissioner’s Office has stated that it would seek to explain its view to the UK Government that the reform of UK data protection law remains necessary even in the light of Brexit, and our view is therefore that it is unlikely that the UK would revert back to (or keep) this legislation.

Although the UK Government is on record as having opposed the more “anti-business” aspects of the new  GDPR (and therefore there could be a move to water these down in its provisions following Brexit taking effect), to ignore the GDPR completely in a post-Brexit context might (as noted above) run the risk that the EU Commission would regard the UK as not being a “safe third country” (to which personal data from the EU may be transferred).

In addition, global businesses are likely to prefer dealing with one set of data protection rules across Europe and doing business in the UK could become less attractive if its data protection regime is significantly different from that of the EU.

It is possible that the UK could adopt an intermediate position between the DPA 1998 and the new GDPR, although this seems unlikely for the reasons set out above. Uncertainties around this pose significant challenges for multinational businesses, because of:

• the need for them to adopt “forward compliance” measures well in advance of the coming into force of the new regulation (or any law that replaces it); and
• the desirability and cost-effectiveness of harmonising business polices and treatment of personal data across Europe.

Will it still be possible following Brexit taking effect for a business operating via subsidiaries sited across the EU and the UK to operate a single process of collecting, aggregating and processing personal data relating to its EU/UK sales activities?

If UK data protection laws diverge from the new GDPR, as noted earlier, export from the EU to the UK might require further formalities (e.g. the imposition of EU model clauses or binding corporate rules covering the UK entity) to be complied with.

However, it is quite likely that a multinational would roll out the higher GDPR standards to the UK in any event, and it is unlikely that English law would prohibit this.

A further key point to note is that the GDPR will apply to the processing of personal data by businesses that target services at EU nationals or monitor the behaviour of EU users, wherever the business is located. This will mean that, notwithstanding any alterations to English law, the GDPR will still apply to “UK only” businesses if they are processing data relating to EU nationals who they have targeted services at or if they are otherwise monitoring the behaviour of EU-located users.

In the area of consumer protection law and commercial law more generally, a number of EU laws have direct applicability.  In addition, the UK has implemented into English law a number of EU requirements. What is the range of potentially affected laws in this area?

In the area of commercial law, the following are key pieces of EU legislation:

• the Commercial Agents Directive¹, implemented into English law by the Commercial Agents (Council Directive) Regulations 1993². This legislation regulates aspects of the legal relationship between a commercial agent and the person appointing it;
• the Late Payments Directive³, implemented into English law by various legislation, including the Late Payment of Commercial Debts Regulations 2013⁴ (which introduced new provisions in sections 4 and 5A of the Late Payment of Commercial Debts (Interest) Act 1998), the Late Payment of Commercial Debts (No 2) Regulations⁵, and the Late Payment of Commercial Debts (Amendment) Regulations 2015⁶. The legislation adds an implied term in business-to-business contracts, giving at least 8% a year interest on the price of goods or services, plus a fixed sum and reasonable costs of recovering the debt;
• the Misleading and Comparative Advertising Directive⁷, implemented into English law by the Business Protection from Misleading Marketing Regulations 2008⁸. This legislation regulates business-to-business advertising and comparative advertising; and
• the Audiovisual Media Services Directive⁹, implemented into English law by a range of legislation, including the Audiovisual Media Services Regulations 2009¹⁰, the Audiovisual Media Services Regulations 2010¹¹, and the Audiovisual Media Services (Product Placement) Regulations 2010¹². This legislation regulates on-demand programmes and rules on television advertising and product placement.

In the area of consumer protection law, the following are key pieces of EU legislation:

• the Unfair Contract Terms Directive¹³, the Consumer Rights Directive¹⁴ (CRD) and the Sales and Guarantees Directive¹⁵, implemented into English law (in part) by the Consumer Rights Act 2015. This legislation regulates the sale of goods, services and digital content to consumers;
• the CRD, implemented into English law (in part) by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013¹⁶. This legislation consolidates, harmonises and reforms the rules on distance selling and doorstep selling. It makes key changes to other consumer contracts in scope, including as to information requirements and the rules on delivery of goods. It also requires businesses to obtain a consumer's consent for additional charges. The CRD is also implemented into English law (in part) by the Consumer Rights (Payment Surcharges) Regulations 2012¹⁷, which bans charging consumers excessive fees for the use of payment methods;
• the Unfair Commercial Practices Directive¹⁸, implemented into English law by the Consumer Protection from Unfair Trading Regulations 2008¹⁹. This legislation makes a trader criminally liable for misleading or aggressive sales practices. In addition the legislation contains a list of commercial practices which are always unfair;
• the Services Directive²⁰, implemented into English law by the Provision of Services Regulations 2009²¹. This legislation applies to the majority of private sector businesses providing services to consumers. A trader must: (1) provide consumers with certain information about itself; (2) deal with customer complaints promptly; and (3) not discriminate against consumers in the provision of services on the basis of place of residence;
• the Equal Treatment Directive²², implemented into English law by the Equality Act 2010. This legislation prohibits direct discrimination, indirect discrimination, harassment, and victimisation in the workplace and in the provision of goods, services and facilities; and
• the Directive on Alternative Dispute Resolution for Consumer Disputes²³, implemented into English law by the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015²⁴. This legislation requires traders to give information about alternative dispute resolution entities and about the online dispute resolution platform established by the European Commission.

In the area of e-commerce and information society services, the following are key pieces of EU legislation:

• the E-Commerce Directive²⁵, implemented into English law by the Electronic Commerce (EC Directive) Regulations 2002²⁶. This legislation provides for obligations on providers of information society services to provide certain information about themselves and the regulation of how contracts concluded through electronic means are made; and
• the Electronic Identification Regulation²⁷, which has direct applicability from 1 July 2016. The regulation repealed the E-Signature Directive²⁸. The Electronic Identification and Trust Services for Electronic Transactions Regulations 2016²⁹ came into force on 22 July 2016 and repeal the laws that implemented the E-Signature Directive, namely, the Electronic Signatures Regulations 2002³⁰ and the relevant sections of the Electronic Communications Act 2000. Among other things, the new regulation provides for evidential weight to be given to electronic signatures.

Is it likely that such legal requirements would change on Brexit taking effect, and if so, to what extent?

The extent to which such legal requirements may change when Brexit takes effect will depend on what transitional and savings arrangements the UK Parliament decides to enact. It is as yet not clear what these might be.

Businesses located in the UK will still wish to sell to consumers and other businesses in the EU. To do that, regardless of the technical position reached by the UK Parliament on transitional and savings arrangements, such businesses will still need in practice to comply with a significant amount of EU law (not least because such requirements may be imposed on them as part of supply chain requirements from their own business customers within the EU, or because EU laws typically purport to apply extra-territorially in relation to sales of goods and services directed at consumers located in the EU).

It may well be the case, therefore, that a considerable body of English consumer protection law continues to be aligned with EU law after a Brexit.

A significant cost in many outsourcings is employee costs associated with the operation of TUPE³¹ at commencement and termination of an outsourcing. TUPE implements the Acquired Rights Directive³² (ARD). Following Brexit taking effect, if the UK chooses to repeal TUPE, how will this impact upon outsourcing business models?

The impact on outsourcing models of repealing TUPE will depend on what TUPE might be replaced with. Whilst the UK Government has indicated that it will adopt all EU employment legislation in the Great Repeal Bill, TUPE itself is an extension of the ARD including reference to Service Provision Changes which do not originate from the ARD. Significant pricing assumptions are made by suppliers based on the similar operation (as implemented by member states) of the ARD across Europe. In addition, the Government has confirmed that there will be no change to employee rights in the short term. However, in the medium to longer term, if TUPE no longer applied in the same form in the UK, those assumptions would need to be revisited, with the result that pricing models might need to vary as between the UK and the rest of the EU. Outsourcing suppliers would need to consider whether freedom from the operation of TUPE provides any opportunity to ‘de-risk’ aspects of their service offering.

What will happen to (a) patent rights; (b) trade mark rights; and (c) design rights; and (d) copyright following Brexit taking effect?

a. Patent right

The current system of national patent protection obtained through the UK Intellectual Property Office (UKIPO) or the European Patent Office (this is not an EU institution) will remain unchanged.

However, an overhaul of the patent regime in the EU is due to come into force enabling proprietors of inventions to apply for a single, pan-EU Unitary Patent (UP) covering most of the EU, and with a single Unified Patent Court (UPC) to hear and determine patent disputes on a pan-EU basis. The future of the Unified Patent Court (UPC) system had been in doubt following the UK’s vote to exit the EU as it had been created within the EU framework. The UK government announced on 28 November 2016 that it will ratify the Unified Patent Court Agreement which means that the system can now be implemented, and following the triggering of Article 50, maintained that ratification will proceed in due course. Currently, the Unified Patent Court (UPC) system is timetabled to start in December 2017.

The Government has been quick to clarify that its decision has no bearing on its negotiation stance as it prepares to exit the EU: the UK’s eligibility to remain in the UPC system after Brexit takes effect remains unclear. Thus, although ratification most certainly means that the UPC system will survive (with or without the UK), it does not remove the uncertainty over the scope of granted unitary patents and any pending litigation in the UPC following the UK’s withdrawal from the EU.

Businesses are urged to review their patent protection and future enforcement strategies, bearing in mind that the UPC is now becoming a reality, albeit with a question mark over what it will look like after Brexit takes effect. Theoretically UK's continued involvement is possible but current thinking is that this would involve UK submitting to the jurisdiction of the CJEU, which will be a challenge in the current political climate.

b. Trade mark right

The national trade mark system whereby UK trade marks are obtained via the UKIPO is unchanged.

After Brexit takes effect, EU trade marks are likely no longer to cover the UK. Proprietors of existing EU trade marks will be likely to be able to rely on transitional provisions (terms or procedures for which are yet to be determined) which should enable proprietors to obtain separate UK coverage based on the EU trade mark right.

Going forward, if the UK is an important marketplace, applicants should consider seeking separate UK trade mark protection in addition to filing the EU or designating the EU within a Madrid Protocol application. This would bring certainty and the assurance that rights are readily enforceable in the UK should the need arise.

c. Design rights

The national system of UK Registered Designs obtained through the UKIPO and the UK unregistered design right is unchanged.

After Brexit takes effect, Community registered design rights will likely no longer cover the UK. Again, similarly to the trade mark position, proprietors of existing Community registered designs will likely to be able to rely on transitional provisions (terms or procedures for which are yet to be determined) which should enable proprietors to obtain separate UK coverage based on existing Community registered design right. Again, going forward, if the UK is an important market, applicants should consider seeking separate UK registered design protection in addition to filing a Community registered design right.

d. Copyright

There is no change to copyright protection in the UK as it is not harmonised across the EU.

Although copyright law per se is not harmonised, the rules governing the way in which copyright protected works can be exploited in certain contexts are governed by EU law (such as the Software Directive and the InfoSoc Directive), and these EU laws have already been implemented into UK legislation. However, there have been calls to harmonise copyright laws, which has led to initiatives such as the “Digital Single Market” (see below).

Will UK consumers continue to reap the benefits from the ever increasing harmonisation of the European telecoms market, such as the abolition of roaming charges, following a Brexit taking effect?

To the extent that such EU laws have been implemented into English law, consumers will continue to benefit from them unless or until they are repealed or changed. In respect of any new regulations implemented following Brexit taking effect, the UK will need to decide whether or not it wants to remain part of a harmonised EU telecoms market. If so, the UK — irrespective of the exit model to be adopted by it — will need to negotiate an appropriate partnership agreement with the EU, which may or may not confer on UK consumers all, or some of, the rights enjoyed by EU consumers. The UK will then need to adopt and comply with the relevant EU legislative measures. Alternatively, the UK could look to develop its own laws in a manner that is consistent with evolving EU regulation.

Under the later scenario, however, international roaming charges for UK consumers travelling in the EU might not be subject to legislative protections as the UK Parliament will not be able to legislate for wholesale roaming rates charged back by EU mobile companies. Protections against high EU roaming rates could therefore only be provided through bilateral agreements between UK mobile companies and their EU counterparts.

What are the consequences for UK businesses if the UK remains outside the EU ‘Digital Single Market’ strategy?

Regardless of Brexit taking effect, the EU can be expected to proceed with proposals to advance new rules governing and achieving such a harmonised market (for example, rules regulating services and technologies that use mobile networks (so-called over-the-top (OTT) services); mandating cross-border access to on-line content service; and amendment to copyright rules to reflect new technologies).

Assuming the UK opts to remain outside the EU’s “Digital Single Market” (SDM) (for example, through an arrangement any less than a Norway-like EEA membership arrangement), and depending on whether these rules are implemented prior to Brexit taking effect (2019+), the UK will be able to decide for itself whether to follow the SDM approach and ensure harmonised arrangements in the UK or to allow domestic law to diverge. The path chosen could affect a business’s decision whether or not to launch online services in the UK (for instance, if - following Brexit taking effect - the UK decides to adopt a less restrictive approach to OTT or to on-line content services, this could encourage establishment in the UK; whereas the lack of regulation in some areas could affect the investment decisions of mobile and fixed-line/broadband operators).

From another perspective, the removal of EU state aid rules could remove an obstacle to additional Government investment in infrastructure to support isolated areas (for example, remote locations and mobile “not-spots”) and to bring forward next generation network services.

A further proposal related to the SDM concerns the harmonisation of spectrum policy, where harmonisation is being considered under the SDM initiative, although Brexit taking effect should not result in divergence as the UK will still be a member of CEPT and the ITU (the international organisations that deal with these issues).