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Smart Summary

• It may take up to two years for the U.K. to actually exit the E.U.
• U.S. companies could use another E.U. member as an entry point.
• U.S. companies may want to consider a separate IP protection strategy focused only on the U.K.
• New E.U. General Data Protection Regulation, which was set to enter into force in May 2018, will likely not apply in the U.K.
• The U.K. will have to negotiate its own trade deals or use WTO rules.

While Brexit made international headlines, and rightly so, its effects won’t be felt immediately, and there are a few reasons it might not be as devastating to U.S. companies as you may think.

1. Keep Calm... 

Although the U.K. voted to leave the E.U. on June 23, 2016, it will continue to be subject to E.U. law for at least two years. Once Article 50 of the Lisbon Treaty, the exit clause within the constitutional document of the E.U. , is invoked, the U.K. and the E.U. will have up to two years to negotiate the terms of the split. British Prime Minister Theresa May has indicated that she will not invoke Article 50 before the end of 2016, if she invokes it at all. Whether or not she does, and there still is a possibility that it will not happen, it would take a significant period of time to negotiate new treaties and agreements with the E.U., non-E.U. countries, and even U.K.-member Scotland, which voted to keep the U.K. in the E.U.

We predict that the E.U. will take a tough negotiating position with the U.K. in order to discourage other E.U.  member states from following U.K.'s lead and to ensure that “Brexit means Brexit”. Until the negotiations are finalized and new arrangements are in place, the U.K. will continue to abide by E.U.treaties and laws. Therefore, while the British have voted in its favor, the “Brexit” has not yet actually occurred.

2. Preserve Access to the European Single Market. 

In the meantime, the U.K. will no longer serve as a springboard into the E.U. for multinational companies. We assess that the U.K.'s economic uncertainty, especially in this transitional phase, will prompt many global companies to relocate their core European operations from the U.K. to E.U.-member states in order to ensure continued access to the European single market. Belgium, Germany, and Ireland are attractive strategic options for U.S. companies looking at, and reconsidering their strategies for, the European single market.

3. Protect IP in E.U. + U.K., respectively.

U.K. IP rights are derived to a large extent from E.U. law. We believe that the transition of all E.U.-based trade mark rights to U.K.-based protection will be simple and cost effective and predict that the priority/filing dates will be maintained. We hope and expect that the transitional provisions will be agreed to between the U.K. and E.U. without any loss of rights, whether automatically applied or made on application. However, currently, no discussions have taken place on what the transitional provisions will be with respect to transfer of IP rights from E.U. to U.K. Therefore, U.S. companies could consider to mitigate any risk by undertaking to file for additional U.K. protection now, as a precaution.

4. Have a better understanding of the Data Protection laws.

Data transfers from the E.U. to the U.K. will not be seen as internal transfers, meaning that they will be prohibited, unless the E.U. determines that the U.K. affords adequate protection. Alternatively, transfers may need to be covered through other means currently used for Trans-Atlantic transfers (such as Binding Corporate Rules, Standard Contractual Clauses, or Privacy Shield-like systems), which are under discussion now. U.S. companies with their main E.U. base in the U.K. may have to consider putting adequate data protection policies in place to be in compliance with respect to data transfer between their U.K. and E.U. entities.

5. …And Carry On. 

Quitting the E.U. means that the U.K. will not be a party to the Transatlantic Trade and Investment Partnership (“TTIP”) currently being negotiated between the U.S. and the E.U. Rather, the U.K. will have to negotiate a separate bi-lateral trade deal with the U.S. that will encompass intellectual property, consumer product standards, and tariffs, among other topics. If the U.K. fails to negotiate a trade deal with either the E.U. or the U.S. , it will trade under more restrictive World Trade Organization rules, which will likely not only impact tariffs to and from the U.K., but also complicate the reciprocity of intellectual property and foreign investment protection, along with environmental and labor regulations.

Although the U.K. will continue to abide by E.U. treaties and laws for at least the next two years, U.S.-based companies may minimize the uncertainty of Brexit by shifting operations to E.U.-member states and preserving access to the European single market. The inevitable changes to British regulatory and statutory compliance programs remain to be written. Therefore, it will be essential for U.S. companies to closely monitor the changes on the other side of the Atlantic, and be prepared to reevaluate and adapt their E.U./U.K. strategies upon new developments.

For further information about the impact of Brexit on U.S. companies’ E.U. operations, and businesses, contact Vinita Mehra ([email protected]).