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A closer look at the draft Withdrawal Agreement

Overview

This week, we take look at some of the technical detail of the draft Withdrawal Agreement, focussing on some of the provisions most relevant to businesses. Many of these are also areas where the EU and UK have yet to reach full agreement; as noted last week, this shows that there is still a long way to go in the negotiations. 

Cross-border disputes

Businesses with cross-border contracts can take some comfort from the draft Withdrawal Agreement because the UK has agreed that the existing rules on applicable law (contained in the Rome I Regulation) will continue to apply where the contract was concluded before the end of the transition period. In relation to contracts, this would mean that courts in other EU states would continue to recognise the parties' choice of law, subject to any exceptions which currently apply (e.g. in relation to consumer or employment contracts, where national law may override the parties' choice of law).

However, no agreement has been reached on whether the current rules on jurisdiction and recognition and enforcement of judgments should apply only to legal proceedings initiated before the end of the transition period (as proposed by the EU), or also to proceedings initiated after the end of the transition period, where a jurisdiction agreement has been entered into before its conclusion (as proposed by the UK). A failure to agree on what should happen in this area would make it more difficult for parties to ongoing litigation in the UK to enforce judgments against parties based in other EU member states. It may also lead to increased instances of parallel proceedings arising in the UK and other EU states.

EU-wide intellectual property rights

Most businesses own some form of intellectual property – and many own EU-wide IP rights such as EU Trade Marks.  The draft Withdrawal Agreement provides some additional clarity about what will happen to these rights after Brexit – but since "nothing is agreed until everything is agreed", you can only take a limited degree of comfort from what it says. 

In principle, the UK has agreed that holders of registered EU-wide trade marks, design rights and plant variety rights will automatically be granted an equivalent UK national IP right on Brexit. However, the detail of this has not been agreed – in particular, the EU proposes that this should be carried out free of charge and without the relevant business having to make an application, but this is not agreed by the UK. Issuing new UK IP rights to holders of EU-wide rights will cost money – so the lack of agreement here may not be straightforward to resolve.

The key risk for businesses is that a "no deal" Brexit would leave their IP unprotected from 30 March 2019. It is quite possible that such an outcome would only become evident quite late in the day, at which point there would not be enough time for businesses to obtain an equivalent  UK national IP right. As a result, our view remains that if you have valuable IP that is only protected by EU-wide rights, you should consider taking steps now to obtain/secure equivalent UK national IP rights.

Cross-border data flows

Most businesses process personal data – and many will hold data relating to individuals in other EU member states. The EU proposes that where the latter is the case, existing EU data protection law should continue to apply after the end of the transition where either:

  • the relevant personal data was processed in accordance with EU law before the end of the transition; or
  • the data will be processed in the UK after the end of the transition on the basis of the Withdrawal Agreement. 

However, this has not been agreed by the UK. Given the importance of cross-border data flows to EU-UK trade, it is crucial that rapid progress is made on this issue – but this may not be straightforward, since the EU's position would appear to require the UK to align itself fully with EU data protection law for a potentially indefinite period after the end of the transition.

"Notified Bodies" – to transfer or not to transfer?

To move freely within the EU market, all products must meet various EU regulatory requirements. Certain products (including, for example, medical devices, and specific higher risk machinery and construction products) require third party assurance that these requirements have been met. This is provided by 'Notified Bodies' – organisations designated by Member States as having the technical expertise to carry out tasks related to conformity assessment. The EU has already made it clear that after Brexit, UK Notified Bodies will no longer be recognised in the EU – which means that as things stand, any business which relies on certification from a UK Notified Body will need to transfer it to an equivalent body in the EU in order to continue to place goods on the EU market. That transfer will not be a simple or inexpensive process.

If the relevant UK Notified Body is relocating to the EU anyway (as some are), then this may avoid the need for a transfer. However, where this is not the case, there is a risk that the manufacturer will need to find another EU body willing to take on the file. That search is best begun sooner rather than later.

The draft Withdrawal Agreement contains a provision which is apparently designed to make life easier in cases where a transfer is required by requiring UK Notified Bodies to cooperate in making information available to an EU Notified Body (and vice versa), if requested to do so. However, this has not been agreed by the UK and in any event, it does not provide for full transfer of the file; this means the EU Notified Body could require additional testing to be carried out before it is prepared to issue an approval.

Bear in mind that a transfer could also have unexpected (and costly) knock-on effects – for example, where the identification number of the Notified Body involved must also be included with the CE marking of the relevant goods, all future products placed on the EU market post-Brexit would need to be re-labelled. As is often the case with Brexit, apparently minor changes made with a view to compliance with legal requirements can set off an extensive ripple effect, leading to significant operational challenges.

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