What does a hard Brexit mean for fashion companies?

For more than two years, Brexit has been a daily hot topic in the news. Ever since the UK’s ‘leave’ vote on 23 June 2016, no other topic has dominated European politics quite like Brexit. Nevertheless, there has been no real progress ever since. Theresa May once promised that “Brexit means Brexit and we are going to make a success of it”. However, when following the news in the last few days, it’s difficult to recognise Brexit as a real success story.

Currently, it is far from clear which route the UK will take, making it even more difficult to determine the real issues of a Brexit related to IP rights. The UK’s Intellectual Property Office (UKIPO) has published certain guidelines on its homepage, however nothing seems certain. Therefore, the following article should be considered merely as acknowledgment of certain potential issues:

Many fashion houses have voiced their concerns about the potential consequences of a Brexit for their estimated 50 billion pound industry. In any case, all fashion houses that have clung to the hope of a regulated Brexit or of an “exit from Brexit” should now take precautionary measures.

What could a “no-deal” Brexit scenario mean for the European and British fashion industry?

Free movement of goods: Can I still supply my fashion goods across the new border between the UK and the EU after a “no deal” Brexit scenario?

When Brexit actually happens, all European regulations automatically loose effect in the UK. The Parliament has taken precautions and enacted a law that declares all EU-regulations to remain applicable, unless a new regulation has been found for that particular law. This sounds like a simple solution, but it does not mean that the status quo will remain.

The UK can’t simply decide to keep the border to the EU open. The immediate effect of Brexit could therefore result in custom checks and tolls at all EU borders. Since these checks had been abandoned years ago, it is currently unclear if the British authorities will have the capacity to handle this issue on time. Famous retailers such as London’s Harrods have begun to stockpile massive amounts of goods to ensure that they won’t encounter any shortages in the upcoming summer. Some experts are warning that even delays of 10 to 30 minutes at the border could put companies out of business.

So what do fashion houses have to do? All companies that either import from the UK into the EU or vice versa should prepare all the formalities for customs clearances at the border. Therefore, it must be safeguarded that fashion houses have the necessary resources (e.g. the right amount of staff, IT-infrastructure and extended warehouse capacities) to tackle this issue. At the same time, fashion houses should check their supplier contracts to determine which party may have to bear additional costs and who will be responsible for potential damages. Also, it should be considered to renegotiate these agreements.

Product related duties: What will change in a no-deal scenario?

Fashion goods from the UK which are delivered across the „new border“ into the EU could be “made available” on the EU’s internal market for the first time.

It is possible that the relevant fashion house would then be regarded as „manufacturer” or “distributor” of these goods. This may lead to additional responsibilities and duties. For example, said fashion house could at least be co-responsible to comply with the relevant laws governing textile labelling.

This may shift the responsibility for a products’ character to these fashion houses concerning goods that cross the new border on their order.

Protection of brands and designs

Particularly trademarks protect fashion’s most valuable asset, the creative effort and the prestigious brand (what’s worth a Louis Vuitton bag without the famous monogram, a Burberry coat without the famous check pattern?)

In a no-deal scenario it is possible that trademarks and designs may at least partially lose their validity. In order to be absolutely sure that this will not happen, fashion houses should apply for UK national rights, too.

What will happen to my EU trademarks and licenses?

Owners of one of the 11 million European registered trademarks can be relieved. Regardless of a deal or no-deal scenario, the UK’s Intellectual Property Office (UKIPO) has announced that it will create a “British twin” for all registered European trademarks. The UKIPO will copy all EU trademarks that are registered on the Brexit date and will create separate UK trademarks, supposedly free of charge for the owner. Presumably, all owners will be contacted and receive information on these new national UK trademarks.

This means that all owners of EU registered trademarks may not have to take any immediate steps to keep their trade mark protection in the United Kingdom. However, companies should consider that from the Brexit date onwards, they own two completely independent trademarks. This means that all UK-twins will have to be managed and extended separately. Also, companies that use law firms to manage their trademark portfolio should check if the relevant firm will still be capable of representing them in the UK. Should this not be the case, the owner should consider to instruct new representatives.

However, EU trademarks that are not registered on the Brexit-date will not get a British twin. Fashion houses that wish to have their pending EU trademark application cover the UK as well should therefore file a separate UK national trademark application. Especially when it comes to key trademarks, fashion houses should take precautions to ensure that their trademarks are not taken away by competitors or trademark trolls.

All manufacturers of licensed products will also have to be proactive to protect their products. This does not only affect manufacturers of Star Wars-shirts and Snoopy socks, but also manufacturers of other products such as perfumes, cosmetics and sun glasses which are often manufactured by specialised licensees.

Every fashion house that either licenses trademarks to third parties or that is a licensee of a European trademark should check the relevant license agreements. It should be carefully assessed whether the current license agreement still allows to manufacture and sell the relevant goods after Brexit across the new border. Some of the agreements may have to be renegotiated while it should be considered to register the license in the relevant national register.

What happens to my EU-Designs?

For the fashion industry, design rights are also a key asset. Most fashion houses are protecting certain styles, cuts and the aesthetic character of their fashion items by registering European designs, so-called Registered Community Designs. As a recent example of the value of these rights, the Only the Brave group achieved a major victory for its brands Diesel and Marni. A court in Milan, Italy, ruled that the fast fashion giant Zara had infringed upon its competitors design right for a skinny jeans model called “Skinzee-SP2”.

Similar to the treatment of EU trade marks, the UKIPO has announced that Registered Community Designs will also receive a British twin. Designers will therefore not have to re-register their creations.

With respect to Registered Community Design applications that are still pending on the Brexit date, fashion houses should be able to refile these designs with the UKIPO under the same terms for a UK equivalent right.

A similar solution could be enacted for the so-called Unregistered Community Design. Designers may also be able to claim design rights without any fees and without a registration process. If a design fulfils certain requirements, designers can use the Unregistered Community Design to protect their designs against copycats in Europe. However, the benefits of an Unregistered Community Design Right do come at a price. In comparison to the Registered Community Design, the duration of protection is much shorter and in practice, the enforcement of the Unregistered Community Design proves to be more difficult. The case against ZARA was based on both, registered and unregistered designs. Next to the registered design of the skinny jeans, Only the Brave also managed to prove that ZARA had infringed upon their innovative unregistered design for sandals and ordered the Spanish firm to cease all sales of the affected products.

The UKIPO has announced that all existing Unregistered Community Designs will continue to be recognized in the UK. This right is intended to cover all unregistered designs that were first made available in the European Union. For the time after Brexit, the UK has announced to create legislation that grants unregistered designs to UK designers, but it is still unclear what the protection will look like. Companies that have not registered their designs should closely monitor developments in the UK to determine where they have to publish their designs to get the protection they want. An appearance at the London Fashion Week can decide which rights a company acquires. Considering these uncertainties and the fact that design registration is quite cheap, designers are well advised to rather rely upon registered design rights.

In contrast to questions of customs clearances, the UK has taken rather clear measures on how to proceed with European trademarks and designs. Fashion companies can protect their intellectual property with the right strategy. Now is the time to audit the IP portfolio and to take the relevant steps.

Consent of rights owner may be necessary when bringing goods across a new “EU-UK” border.

When importing or exporting fashion goods across the “new border between the EU and the UK”, the principle of “exhaustion” for trademarks and designs may no longer apply to this scenario. In this context, IP rights such as trademarks and designs maybe “exhausted” for a given product in case the given product has been marketed in the EU with the right owners consent. As a result, the right owner may no longer prohibit free trade of this given product in the EU’s internal market.

Should there be a no-deal scenario, the exhaustion principle may no longer apply in the EU-UK relationship, at least not in the same manner. Hence, a re-import or parallel import of fashion items from the UK into the EU and vice versa could still infringe trademark and design rights should there be no consent of the right holder.

Consequently, it is vital to ensure that there is a corresponding consent of the right holder prior to the movement of goods "across the new EU-UK” border".

It remains to be seen how a hard Brexit is going to affect Europe’s economy. Certainly, Brexit will significantly change Europe’s fashion industry.

This article is for information purposes only and does not constitute legal advice.

Photo credit: freestocks.org, Pexels