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.

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