BREXIT – THE NEXT STEPS
Authors: Paula Levitan and Robert Bell
Despite the UK’s vote to leave the European Union, companies doing business in the UK can still continue to trade with the European Union in exactly the same way as they have done in the past – at least for now. The UK is still a member of the EU and until it negotiates an exit deal or the two year period for the re-negotiation for such a deal expires, the UK remains a full member of the European Union subject to its rights and obligations under the EU treaties.
The Exit Process
The UK has to give notice to leave the EU under Article 50 of the Lisbon Treaty. Once the Article 50 notice is given, there is a two year period in which to negotiate an Exit Treaty. Once that period ends, the UK leaves the EU whether an exit Treaty has been negotiated or not. The two year period can be extended only by mutual agreement of the UK and the EU.
At the moment, it is unclear when the Article 50 notice will be given. There is some debate in Parliament over whether that requires a vote of Parliament or can simply be triggered by the Prime Minister. Big business is proposing legal action to prevent an Article 50 notice being given with a formal vote of the UK Parliament and the UK’s new Prime Minister, Theresa May, will have her own views – so this controversy is not going to be resolved soon. In addition, several leading Brexiteers have argued that they want to negotiate the terms of the UK’s “divorce” before the two year clock starts to run but the EU says it won’t negotiate any leaving terms until Article 50 is exercised. It seems the only clear message is that nothing is going to happen soon.
Nonetheless, until an exit Treaty is signed or the two year period expires (or any extensions mutually agreed between the UK and the EU) the UK is fully bound by its EU Treaty rights and obligations. That means that, unless the UK wants to breach its international treaty obligations, it cannot dis-apply EU law nor the reach of the Court of Justice of the European Union.
So from a legal perspective, nothing is going to change for a while. In fact, the UK is still going to be legally obliged to implement new EU Directives as long as the UK is a member of the EU. Depending upon the terms of the UK’s exit deal, the UK may still find itself having to implement those European laws to gain access to the EU single market and to obey the free movement rules.
So the vote for Brexit is only the start of a long process and the challenges of Brexit, both legally and politically, are only just beginning.
Where do we go from here?
The UK has to negotiate a deal to leave the EU. No member state has ever seceded from the EU. Only Greenland (as part of Denmark) left and that was over 25 years ago.
So the UK is in unchartered waters. However, it appears clear that the EU is unlikely to do the UK any favours in these negotiations. It will not compromise its fundamental principles of free movement of goods, services, capital and people. So the UK may have to rely on international trading rules to access the EU markets which may mean tariffs and other restrictions or – much more likely – agree a free trade deal based on membership of the EEA like Norway.
However many political commentators believe that if the UK does not negotiate to have free access to the EU single market, the UK Parliament is unlikely to ratify the Treaty. The Leave vote did not cover what the leaving terms should be so, it is far from clear how the Brexit drama will play out.
This is unlikely to be a “leave the EU at all costs” vote. It is more likely to be just re-arranging the chairs in this EU game of musical chairs.
European Patents
The UK will continue to be a member of the European Patent Organisation (EPO) which is a separate body from the EU. Thus, patent protection in the UK will continue to be available via the European Patent Office. The European Patent Convention will continue to be part of UK law and European Patent attorneys will continue to act in the usual way in all matters before the EPO.
EU Trademarks (formerly CTMs) and registered designs
The legislation governing these is silent as to what happens when a country leaves the EU. Best case scenarios are (i) the UK will enact national legislation deeming the European registrations to extend to the UK or (ii) the EU will agree that European registrations can be converted to UK trademark and design registrations.
Given that the UK will remain a member of the EU for some time, we do not recommend, at this stage, that you take further action (e.g. re-file your marks in the UK), but we shall be monitoring developments and will update you as the position becomes clearer.
EU-US PRIVACY SHIELD LAUNCHES
Authors: Paula Levitan and Wanny Leung
On 12 July 2016, the European Commission formally approved a trans-Atlantic data transfer legal framework, the Privacy Shield. The Privacy Shield replaces the old Safe Harbour regime which was overturned by the European Court of Justice (ECJ) on 6 October 2015 amid concerns over mass surveillance by the US. The Privacy Shield addresses and protects data transfer from Europe to the US for both individuals and businesses by ensuring that EU consumer data is afforded the same level of protection when it reaches US company servers, and by providing clarity for trans-Atlantic businesses. The regime is based on the following key principles: i) imposition of strong obligations on companies and robust enforcement; ii) creation of clear safeguards and transparency obligations; iii) introduction of several redress possibilities for individuals; and iv) introduction of reviewing mechanisms to monitor the functioning of the regime.
The approval of the new regime will be especially welcomed by tech companies in the US because it provides much needed clarity, following the demise of Safe Harbour, as to which safeguards they should implement to ensure that consumer data is handled legally. Once companies have implemented the stricter principles to become Privacy Shield-compliant, they will be able to sign up to the regime and be certified from 1 August 2016. Certified US companies can then rely on the Privacy Shield to effectuate transfers of personal data from the EU, and EU companies will be able to transfer data to certified US companies. However, there are critics who believe that in the absence of regulatory backing (irrespective of any adequacy decision by the European Commission), the fate of the Privacy Shield will be much the same as its predecessor and, as such, unlikely to provide businesses and consumers with real comfort that the regime is robust enough to withstand legal challenges before the ECJ. Watch this space.
For more details on the key principles of the Privacy Shield regime, please see the European Commission Press Release on http://europa.eu/rapid/press-release_IP-16-2461_en.htm.
THE POTENTIAL UK RETAIL DECLINE FOLLOWING BREXIT
Author: Paula Levitan
This article was originally written for Essential Retail.
In the days post the Brexit vote, many people are wondering what will happen to our way of life and that includes our shopping patterns. Clearly the uncertainty and negative response of the financial markets has made everyone jittery and we may see a return to the 2008 financial crisis cash saving mentality for retail consumers. But, even before the vote on the 23rd of June, our retail clients were reporting soft sales in their brick and mortar stores in the UK. Some commentators were even suggesting that the high street is a thing of the past – and that ecommerce is the only way for retailers to thrive.
Indeed Brexit, with both its immediate effects and its uncertain long-term impact, could not have come at a worse time for brick and mortar retailers who were already surviving on razor thin margins. The situation is further complicated for those UK-based fashion retailers who buy a significant amount of goods overseas and pay in U.S. Dollars, meaning that their buying power will be reduced by the falling value of Sterling against the U.S. Dollar. Questions exist as well about the availability of workers for retail stores, distribution centres and customer service centres based in the UK if we see any immediate restrictions imposed on the free movement of people.
Whether the loss of sales retailers make in their stores can be recovered by increased online sales remains to be seen. Certainly, our clients have reported that online was weathering the pre-vote storm better than in-store sales, but it is probably too early to gauge the reaction to shopping online or via mobile apps in our post-Brexit world at this point.
As some commentators attempting to find some humour in the situation have pointed out, we don’t really even know if we will be facing a true Br-exit, or more of a Br-atus-quo or Br-omiostasis. But, 2016 had already promised to be a tough year for retail and the current uncertainty about the coming political and social changes from Brexit combined with weakness in our currency cannot help. According to a recent report by Colliers International (pre-Brexit vote), 10 million square feet of new-build shopping centres and expansions to existing shopping malls which had been scheduled to be built in the next three years will now not be completed. We anticipate further announcements along the same lines as developers take a more wary position on UK projects and retailers re-evaluate their store portfolios before committing to any new shop openings.
COLLUSION ON THE CATWALK: HAVE THE UK'S TOP MODELLING AGENCIES BREACHED COMPETITION LAW?
Authors: Roman Madej and Nicola Conway
On 25 May 2016, the UK's Competition and Markets Authority ("CMA") issued a statement of objections to five of Britain's most prestigious modelling agencies alleging an infringement of Chapter I of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union ("TFEU").
The CMA's investigation, which was launched back in March 2014, has revealed that the five prominent agencies may have exchanged sensitive and confidential competitive information and colluded to fix prices between April 2013 and March 2015. Specifically, concerns have been raised that the agencies agreed on a common approach to setting their fees in an effort to reduce customers' abilities to play agencies off one another. Such a strategy benefits models (whose wages increase) and their agencies (which are generally entitled to a percentage of models' earnings) – but it unavoidably dampens competition.
The Senior Director of the CMA's Cartels and Criminal Group, Mr. Stephen Blake, has stated that "the allegations concern prices charged to a range of customers, including high street chains, online fashion retailers and consumer goods brands. The CMA alleges that these five model agencies sought to achieve higher prices in negotiations with their customers by colluding instead of competing."
This is the first competition enforcement case taken forward by the CMA in the creative industries, and as such it represents a test case for the CMA in many ways. In contrast, the CMA is well-versed in imposing fines for cartel activity in relation to commodities – take, for example, canned mushrooms, alternators and starters, and optical disc drives.
The peculiarity of the case raises an interesting predicament. The punishment of price coordination in these circumstances would benefit retailers and consumers alike since inflated fees charged by the agencies to retailers, which are inescapably borne by customers as the costs trickle down the retail chain to consumer level, would be reduced. However, increased price competition in this sector of the economy would disadvantage working models whose wages (and potentially working conditions) would be subject to more aggressive negotiation, and inevitably lowered.
No conclusion of illegal conduct has been reached at this stage; the CMA must first consider the responses from the recipients of its statement of objections before it reaches any decision. In the event that the alleged market manipulation is proven, the agencies may find themselves exposed to significant fines of up to 10% of their worldwide revenue, whilst directors may face disqualification from UK company directorship for 15 years and even, in extreme cases, imprisonment for up to 5 years.
The CMA's decision is highly anticipated.
BRITISH FASHION RETAILERS TIPTOE TOWARDS ISLAMIC INCLUSIVENESS IN COLLECTIONS
Authors: Carol Osborne and Nicola Conway
In recent months, British retailers have been taking baby-steps towards ensuring greater inclusiveness of Islamic preferences in their fashion collections. Most recently, Marks & Spencer has made burkinis available for online purchase and has announced that the pieces will be available to buy in-store in the UK in due course. The swimwear is designed to "cover[s] the whole body with the exception of the face, hands and feet, without compromising on style".
This largely celebrated collection follows hot on the heels of like fashion lines débuted by various luxury and high-street retailers (including Uniqlo, Dolce & Gabbana, Net-a-Porter, Zara, Oscar de la Renta, DKNY, Mango, Tommy Hilfiger, etc.) which have the potential to appeal to a broad range of global consumers – featuring abaya, kebaya, hijabs, long dresses and loose blouses.
Retailers have been inspired by the fact that the Muslim population, which is estimated by global population studies to make up over 22% of the world population, reportedly spent around $266 billion on apparel in 2013 – a figure which is estimated to rise to $484 billion by 2019 (2014-2015 report on the State of the Global Islamic economy, Thomson Reuters).
Nevertheless, the move towards integrating Islamic trends into popular fashion culture has been astonishingly slow. The lines are also vulnerable to criticism on the grounds that they are arguably designed less to celebrate Islamic preference and more to exploit this largely untouched yet profitable demographic. This can be evidenced by an oftentimes lacking understanding of Muslim women's needs and preferences in much of the clothing - many of the pieces may be deemed unsuitable for women who choose to embrace modesty as a lifestyle; including mid-length skirts and lacy or semi-transparent fabrics.
Whether British retailers can succeed in enforcing diversity in fashion in a way which can successfully assimilate both modesty and style in a way which resonates with Muslim women remains to be seen.
NEW E-COMMERCE RULES ARE SET TO FACILITATE ONLINE BUYING AND SELLING IN THE SINGLE MARKET
Authors: Roman Madej and Jayesh Patel
On 25 May 2016, and following an in-depth Sector Inquiry and Consultation period, the European Commission ("EC") published proposals for a set of new e-Commerce rules.
In an attempt to further the advancement of the Single Market and the Digital Single Market objectives, the new rules tackle three main areas of concern:
1. Geoblocking (click here for the full EC proposal)
The Sector Inquiry and Consultation revealed that geoblocking is prevalent across the EU, with up to 90% of consumer respondents experiencing geoblocking whilst shopping online. The new rules aim to ensure that consumers buying foreign goods or services (whether online or in person) are not unfairly discriminated against in relation to prices, sales and/or payment methods, unless there is an objectively justified reason for doing so.
2. Efficiency and pricing of cross-border parcel delivery (click here for the full EC proposal)
According to the Sector Inquiry and Consultation, the price of cross-border parcel delivery is perceived as much too high by retailers and consumers alike; in some cases being up to five times more expensive than domestic delivery options. Interestingly, the EC does not currently intend to impose a cap on cross-border delivery prices. However, the proposals call for increased regulatory oversight by national postal regulators of parcel delivery providers. This would involve a requirement to publish both domestic and cross-border prices, and would allow national postal regulators to oversee price differentials in order to promote price transparency and competition.
3. Strengthening protection and enforcement for consumers (click here for the full EC proposal)
Through a proposed revision of the existing Consumer Protection Cooperation Regulation, the EC intends to increase national authorities' powers to enforce consumer rights by enabling them to check whether websites are geoblocking consumers or are offering after-sales conditions that are not compliant with EU rules; to order immediate deactivation of websites used to scam consumers; and to request information from domain registrars and banks in order to identify responsible rogue traders. Additionally, the EC would facilitate common actions with national authorities where EU-wide breaches of consumer rights exist in order to ensure a swifter and more effective means of protection for consumers.
The EC believes that this three-pronged strategy will benefit consumers and businesses alike by providing facilitated online buying and selling, by increasing consumer protection through enforcement measures, and by providing legal certainty for businesses. Additionally, the new rules are anticipated to enhance the functioning of Digital Single Market which, according to the EC, has the potential to contribute up to €415 billion to Europe's annual GDP (when fully functioning).
The proposals, being in the initial stages of the legislative process, will next pass through the European Parliament and national governments for consideration and adoption throughout 2017 and 2018.
FACIAL OILS CONTRIBUTE TO CONTINUED GROWTH IN THE WOMEN'S FACIAL CARE INDUSTRY
Authors: Carol Osborne and Nicola Conway
For those who think that the women's facial care market is already saturated by a deluge of creams, lotions, tonics, waters, sorbets, scrubs, exfoliators, toners, brighteners, serums, masks, primers and foams; think again.
The NPD Group, a global industry authority for market size and trends, has recently reported that the UK facial oil market increased in size by 30.8% between 2014 and 2015, amassing an estimated value of £4.9 million in 2015.
According to the NPD Group, some of the best-selling facial oil products of 2015, which boast a range of benefits including hydrating properties and anti-acne or anti-aging formulae, are produced by well-known brands including Clarins, Bobbi Brown, Clinique and Sisley Rose.
Concededly, the facial oil market is still relatively small when compared with other facial skincare markets; making up only 1% of the total prestige women's skincare market. Nevertheless, Teresa Fisher, Senior Account Manager of NPD UK Beauty, has opined that consumers demonstrating a thirst for new products is evidence "…that innovation is key to the development and growth of new categories within skincare, it also reveals that there is real opportunity for further growth".
Undoubtedly; this is the opportune moment for manufacturers and retailers to capitalise on the increasing consumer interest in facial oils.
The supply and manufacture of cosmetic products within the EU (including skin, hair and oral care items, perfumes, sun protection, and make-up products) is governed by the EU Cosmetics Regulation ((EC) No. 1223/2009). The European Commission has additionally issued various guidance documents which are available on its website. Within the UK, the Cosmetic Products Enforcement Regulations 2013 will also apply.
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