Have you considered the effect of Brexit on the territorial scope of a trademark license?

This Kat promised himself that he would not offer any public thoughts about trademarks and Brexit. On the other hand, he had devoted several years to penning a treatise on trademark licensing. So, what happens when Brexit (“mum is the word”) meets trademark licensing (“the more the merrier”)? Maybe quite a lot, when it comes to determining whether the United Kingdom is included or excluded within the scope of the territory covered by the license.

The definition of “Territory” is a fundamental provision of a trademark license (or a co-existence agreement). When multiple countries are intended, the usual practice is to list all the countries by name, where the most crucial decision may be whether to refer to the “United States”, or the “United States of America”; to “Denmark”, or the ”Kingdom of Denmark”. But sometimes a short-cut might provide a concise way to designate multiple countries. Defining “Territory” as -- “the countries within European Union” -- would seem to be one such instance.

So where is there a problem? As underscored in a recent webcast presentation by Kat friend, Anke Nordemann-Schiffel, in light of the Brexit process, when will such a definition be deemed to exclude the United Kingdom from the ambit of Territory? The answer may depend upon when the agreement was executed.

Nordemann-Schiffel points to four potentially relevant dates:

June 23, 2016 (the date on which the Brexit referendum took place);

March 29, 2017 (the date on which the United Kingdom notified the European Union of its intention to withdraw under Article 50;

February 1, 2020 (the date on which United Kingdom is no longer a Member State);

January 1, 2021 (the end of the transition period).

We follow on from her presentation. Let us start with the easy part. As of January 1, 2021, any reference to the “European Union” in a license agreement executed on or after that date cannot be deemed to include the United Kingdom. As such, any claim that, by mistake, one or both parties understood the United Kingdom to be included cannot be supported.

Similarly, for any license agreement executed before June 23, 2016, any claim made that, by mistake, one or both parties understood the United Kingdom to be excluded (unless, of course, the agreement explicitly provides for the contrary) is without foundation. Still, consider the following two scenarios.

In the first, lengthy (really lengthy!) settlement negotiations commenced well before the date of the referendum, leading to an exchange of drafts, also well before the referendum. The negotiations then go dormant until the summer of 2020, when, mirabile dictu, the parties reach quick agreement and execute the draft, unchanged from pre-referendum days. The United Kingdom was clearly a Member State when the draft was prepared, but the parties simply forgot to consider the intervening events. Perhaps these circumstances support a claim in favor of giving force to the earlier understanding?

In the second, a license agreement was executed prior to the date of the referendum (or, even more interestingly, between June 24, 2016 and March 29, 2017, see below), providing for the territorial scope as the countries in the “European Union”. The agreement is on its terms automatically renewed yearly, most recently on September 1, 2020. Here, as well, is there a good argument that the parties intended for inclusion of the United Kingdom, both with respect to the initial period of the license and for each renewal period?

What about license agreements executed after June 23, 2016, but before March 29, 2017, being the period between the referendum until notice of withdrawal was provided to the European Union? During this period, the United Kingdom was still a Member State, albeit one whose continued membership was prospectively contingent. However, was exit a certainty? The better answer is “No”, with the result that a proper construction of the definition of “European Union” included the United Kingdom.

However, following the notice provided on March 29, 2017, procedures were brought and actions set into motion under Article 50 of the Treaty on European Union (the so-called Withdrawal Clause), which provides in pertinent part as follows:

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

As the entire world watched, the internal politics and legislation of the United Kingdom, in grinding fashion, ultimately resulted in the United Kingdom leaving the European Union, as of February 1, 2020, subject to transition period (what the United Kingdom government calls an “implementation period”), which will last until December 31, 2020. During this period, the United Kingdom is no longer a member of the European Union, but it remains a member of the single market and customs union and is subject to European Union rules. Given this, the better construction is that defining Territory as meaning the countries in the European Union excludes the United Kingdom.

So, what is the upshot of whether the United Kingdom is included within the territorial scope of the “European Union” for a trademark license, whose effective date is between June 24, 2016, and December 31, 2020? In addressing this question, the party (or parties) can rely on a legal opinion, without more. Or, they can be proactive, executing a new license agreement, or amending the existing agreement, in either case explicitly providing whether the United Kingdom is included or excluded.

Such a contractual act would have prospective legal effect. But what about retroactive effect for the period between the effective date of the original license agreement and that of the new agreement (or amendment)? Can retroactive effect be claimed, namely, that the later agreement constitutes a nunc pro tunc ratification of a previous understanding as to the inclusion or exclusion of the United Kingdom?

In any event, at the operational level, law firms and companies will be challenged to identify all such relevant agreements (both licenses and consent/co-existence agreements). As well, contacting the relevant counterparty, or its representatives, may not be straight-forward.

Trademark practitioners have been busily attending to their European Union trademark portfolios and the status of these marks and their registrations in the United Kingdom after December 31st. While doing so, practitioners will be well-advised to also turn their gaze to the provisions of their trademark license agreements and especially, the scope of the territorial clause.



Picture on the upper right is by Remedios44 and has been released into the public domain by its author.

Picture on lower left is by Jérôme Dessommes and is used under a Creative Commons CC0 1.0 Universal Public Domain Dedication.