Peter Lukasiewicz: My name is Peter Lukasiewicz. I am the CEO of Gowling WLG (Canada) and on behalf of my partners and everyone at the firm, I want to welcome you to the fourth of our Brexit seminars.
Let me introduce my colleagues: to my immediate right is Mark Ledwell. Mark leads our Financial Institutions and Services practice. Mark, previous to that, was our Managing Partner in London and if you don’t know Mark and you meet him for the first time, he will also very quickly tell you that he’s from the Maritimes.
Next to Mark is Kevin Sartorio. Kevin leads our Intellectual Property practice here in Toronto. Kevin specializes in intellectual property contentious work – translated that means litigation.
Because the world changed again today, if you were to go onto our website and go to our homepage, that’s what you would see and we put that there because that symbolises our thinking when we decided five months ago as a hundred plus year old Canadian law firm, to join with a hundred plus year old UK law firm to form the first co-lag Canadian/Anglo global law firm Gowling WLG. We did it because we both felt that we needed to have a global presence in order to address the changes that are affecting our clients and what occurred on Friday, June 24th, is an example of that kind of change, the rapidity of change and the significance of the change. And, so that’s what we’re going to talk about today.
What happened on Friday, June 24th? Here’s what we’re going to cover. I will do a little bit of background and context. I’m going to talk about how does the UK leave the EU? The interesting process and constructive process in terms of what we are going to experience over the next period of time. I am also going to talk about what we at Gowling WLG believe to be the potential options for a post-Brexit UK/EU relationship. Mark is going to speak about what we believe Canadian businesses should focus on at this time and he is also going to talk about CETA. Something that we as a country and as a business community have not talked about a lot. Something that we all need to learn about quickly and begin to think about as it is going to be an increasingly important agreement in the months ahead. Kevin is going to talk about Brexit’s impact on intellectual property rights and then I will close it up and invite Kevin to say a few words.
37% - It’s not a figure you see very often in the discourse that has followed the Referendum result. What does it represent? It represents the number, a percentage of registered voters in the UK who decided this question. Slightly over one-third of UK registered voters decided the fate of the nation and I put that up there because to me it is hugely significant and explains much of the angst that we are reading about and hearing about in the days following the Referendum. That number is derived from the fact that the UK voted 52% to leave the EU but only 72% of the registered voters actually voted. So, if you do the math and I had my son check it to make sure it was correct, 37% of UK registered voters actually decided this question. In England, support for leaving was 53%. In Wales, it was 52% but it was markedly different in Scotland. In Scotland, 62% of those voting, nearly two-thirds of voters voting, voted to remain and so not surprisingly on Friday after the Referendum result of announced and on the weekend, the first Minister in Scotland was very quick to put on the table the prospect of a second referendum. And, indeed she travelled to Brussels that weekend to meet with the President of the European Council to put the Scottish case for consideration that Scotland, if it were to separate from the UK, might remain in the EU. And, not surprisingly, since that initial foray you have not heard much because of the uncertainty of the political situation in England.
But, nonetheless, this, in our estimation, is a real prospect. It’s something that we will hear about frequently over the next couple of years. We still think that the ultimate issue of Scotland’s separation from the United Kingdom will be very much driven by its ties to the English economy but, if the English economy continues to struggle as it has in the days post-Brexit, this could become a very significant issue in the next couple of years. Northern Ireland, a similar result. 56% of those voting, voted to remain. What is unique about Northern Ireland is that it shares the only land border between the EU and the United Kingdom. In other words, between Northern Ireland and Ireland. The balance of the UK is separated by water from the EU. So, you have this truly remarkable result that Northern Ireland might leave the EU and yet Ireland remain and so not surprisingly, as in Scotland, very quickly Sinn Féin was out of the gate to say, ‘we have to have discussions about unification.
Not surprisingly, that has been downplayed by the unionists and by the government of Northern Ireland. It will continue to be an issue. There will be a real practical issue. Are they going to erect a border between Northern Ireland and Ireland? Two countries that have not had a border for decades where people are able to travel freely. Will there actually be a border erected? So, that gives you a bit of a political context of how the vote was distributed and the percentage of voters voting for leave. So, now what is the current state of the political leadership in the UK? I can tell you that this is the section of our summer that has been changing virtually hourly trying to keep up by saying to one of our guests that, the first thing I do now is when I come in, is check the Guardian and the Telegraph and BBC to see okay what’s happened over night and the other side benefit is, I’m starting to learn how to do PowerPoint.
So the senior political leadership. As we all know, we will have a new Prime Minister as of this evening, Theresa May and if you are a student of politics, but again I think this has broader social implications, what will be unique about Prime Minister May is that she will have become Prime Minister based on an election by the Conservative Caucus in the House of Commons. She has not been elected by the Conservative Party as leader. She has not been elected by the people. She has been elected by the caucus in a contest where the caucus thought it was voting for two candidates who would ultimately go to the Conservative Party membership to be elected leader. Pretty unique situation for a Prime Minister at this stage to have that limited base of authority.
Labour not to be outdone is imploding. Jeremy Corbyn who is the leader of the Labour Party handsomely lost a vote of confidence, 172 – 40 from his own caucus. He had so little support in caucus that he can no longer form a shadow cabinet. Angela Eagle has announced that she is going to challenge his leadership. She has announced that she has 51…more than 51 MPs in support of a requirement, according to the Labour Party constitution is that you need support in order to be a candidate of 20% of the caucus combined caucus in the House of Commons and in the European Parliament. She has it. Mr. Corbyn has been helped out by the Labour Party National Executive Committee which yesterday announced that the leader does not need that level of support from a caucus in order to appear on the ballot. Quite, I will submit an extraordinary result. Undoubtedly driven by the fact that he does not have that support.
So, we faced a prospect that labour is now going to have a leadership contest. It will be decided at the Labour Party conference in September. Labour operates on a preferential ballot system. So, if more candidates join the race, there will be a preferential ballot that will be distributed in advance of the conference and party members will vote by preference. The party membership has expanded extraordinarily over the last seven days. One hundred thousand people have joined the party. Its ranks are now half a million, 500,000 party members. It is believed that most of those new joiners are supporters of Corbyn and so you face a real prospect that Corbyn will be re-elected. He will not have the support of his caucus and there will be no effective opposition after September in the House of Commons, something that the Prime Minister may well know.
The result of all of that is that we may see pressure in the fall on the Prime Minister to call an early election. The UK, like Canada, operates on a fixed election system. The next election is scheduled for 2020. However, there is provision in the legislation that with, not surprisingly, either a vote of non-confidence or interestingly enough a vote of two-thirds of the members of the House of Commons, an early election can be called. So, that is a possibility. Not to be outdone, Nigel Farage resigned as well and try as I might, I cannot figure out what the succession process is for the UKIP. I have tried. I have given up. I don’t think the UKIP will be a significant force in the discussions that are going to ensue.
Let me jump to now how does the UK leave the EU? What’s truly fascinating and what drives the uncertainty that we are all living in now is the UK cannot be forced out of the EU. It’s quite remarkable if you step back and think about it. A country has said, ‘we’re leaving’ and there’s no ability in the balance of the organisation to say, ‘okay, here’s the exit door’. In fact, ironically, until about five or ten years ago, there was no mechanism in the EU for a country to leave. It was simply never contemplated, there was nothing in the treaty. It was Britain who said, ‘we need some exit mechanism for members of the EU’. It was Britain that drove the creation of Article 50. And, so Article 50 in the Treaty of Lisbon is the article that triggers the departure of a member but it operates only when the member gives notice itself that it intends to depart and, the giving of that notice, triggers a two-year notice period and, at the end of that two years, absent any other agreement, the member state leaves. So, you in fact now have two periods of time. The period before the Article 50 notice is given and the period after.
What happens? Once the notice is given, the theory is that that two-year period is used in order to negotiate the terms of withdrawal. That’s the theory behind the two-year notice provision. If an agreement is reached, it must be approved not surprisingly by the parliament in the UK, it must be approved by the European Council. The European Council is the executive body of the EU. Its membership is comprised of the 27 heads of state of the EU. It must be approved by the EU parliament and, most interestingly, it must be approved by 20 EU countries representing 65% of the population of the EU. That, I would suggest, is no small feat to achieve in terms of the standard of approval that is required for a ratification of a withdrawal agreement. So, that’s the process that has to be gone through to approve the terms of any withdrawal agreement.
The other debate that is going on now is, how is the Article 50 notice to be triggered? And, the debate in a nutshell is this, there are some who argue that the Article 50 notice can be given by the Prime Minister. It is a Prime Ministerial prerogative. There are others that argue that, because an Article 50 notice essentially triggers the cessation of a treaty, i.e. the treaty that defined the UK’s entry into the EU, that only parliament can give that notice. Our view, as a firm having analysed the situation, is that ladder is a correct interpretation. The government, some in government has suggested otherwise. This remains to be played out.
Litigation has started from those who take the view that this is a parliamentary prerogative in order to stop the Prime Minster from giving notice under Article 50. Why do I raise this? The House of Commons as currently constituted is overwhelmingly remain. So you face the prospect of a Prime Minister having to go to the House for approval to give Article 50 notice in circumstances where MPs have declared their positions and they are overwhelmingly remain. Will that change in the coming months? The Prime Minister who was a remain campaigner has made clear repeatedly and as quoted again yesterday as saying “Brexit means Brexit”. Will that view be taken by all of her MPs. It remains to be seen.
What are the options? The options after the giving of notice are: that there’s a negotiated withdrawal agreement, that there’s an extension of the notice period. In other words, the parties can’t agree on a withdrawal agreement within the two-year period and however they can agree to extend the time. That’s a possibility. The third is, there simply is no withdrawal agreement and there is no extension of time and simply the relationship falls away, the UK is out of the EU and there is nothing in place to replace the membership of the UK in the EU.
So, we talked about the timing. Let me talk now about what a post-Brexit relationship might look like. We think there are essentially four options. The first, and this is the most distant relationship, is a WTO or free trade model. In other words, the UK has a free trade relationship with the EU or individual countries and the essence of a free trade agreement as you will hear from Mark with respect to CETA, is that there is no payment of tariffs on goods that move between the parties to the treaty but there is still regulatory compliance. In other words, if goods move from the UK into the EU, they may move in tariff free but those goods have to comply with all EU regulations. It is the most distant relationship if you like. Another possibility is a customs union and we put this forward because currently Turkey has this relationship with the EU. It again provides for tariff-free access. It goes further in that Turkey and the EU have agreed to treat themselves as one entity for the purposes of dealing with goods from outside the EU and Turkey. So, in other words, they take the same step in terms of lobbying tariffs on goods outside of the EU and Turkey but there are two big problems with this relationship: Firstly, it doesn’t apply to services and services are a key component of the UK economy particularly insofar as the relationship between the UK and the EU.
Secondly, this relationship was offered to Turkey because Turkey is on its way into the EU. It is, in our view, very doubtful that the EU would offer this relationship to a country that is on its way out of the EU. The next option is the European Free Trade Association. This is an association of four countries. Iceland, Liechtenstein, Norway and Switzerland. They have their own arrangement amongst themselves. Within EFTA, there are two relationships with the EU. The Swiss, and I hope I don’t offend anybody, my grandmother was Swiss so I will put that on the table but the Swiss being the Swiss, have gone it alone and negotiated a series of bilateral agreements with the EU. Now, tiny little Switzerland with its economy has 120 individual agreements with the EU. Imagine trying to apply that model to the UK. I suggest you could probably multiply that by 10 or 20 in terms of the number of agreements that you would have to negotiate in order to address the issues in those two large economies and our view is simply impractical to contemplate that being done in a decade much less two years.
The other option is that Iceland, Liechtenstein and Norway together are members of something called the European Economic Area Agreement and the EA has an agreement with the EU and in the popular press you will often hear this referred to as the Norway option. Not sure how Norway got top billing. It seems Iceland’s better at football than Norway but nonetheless it’s Norway. So, the Norway option is that you have this agreement with the EU that essentially allows for freedom of movement of goods. What’s the problem? The problem is that, as part of this arrangement, the EA accepts the four freedoms. Movement of people, movement of capital, movement of goods, movement of services. The key issue in the Referendum was the first of the four freedoms. Mark will talk about them. The movement of people. It is hard to see how this could be a potential option given the requirement of the agreement that the parties to the agreement accept the free movement of people. It’s a possibility. We think it is dubious.
So, those are the four options and now I’m going to turn it over to Mark to talk about what business should focus on in the coming months.
Mark Ledwell: Thank you Peter and morning everyone. I think the last three weeks have been a great time for the media involved in drama and uncertainty but, as you know, this is…and markets thrive in certainty today and do best in certainty and we have had anything but certainty over the past three weeks since the surprise decision on June 23rd and that gives rise to the question, I think, what should business focus on during this period of uncertainty. As somebody said, “This is the new normal”. We have outlined four considerations that business should look at in light of the decisions that have been taken.
The decision, I think most will agree, caught us and caught caucus by surprise. In hindsight there was little planning done for the lead decision and there seems to have been a contingency plan developed thankfully behind the scenes of the Bank of England but other than that, there seems to have been no serious planning done for the decision. Most business leaders that we consulted with admit that they did not see the leave coming and accordingly they didn’t do a whole lot of planning for them. So, these are four things that we have been discussing, four considerations that we’ve been discussing with business leaders since the decision was taken. There is a strong view among the people that we speak with that increasingly the Brexit decision is not going to go away. That it’s here to stay.
The new Prime Minster, as Peter mentioned, and others will say has declared that “Brexit is Brexit”. Last week the former foreign secretary, Gord Hank, was speaking here in Toronto and I think he counselled his audience that the idea of a do-over was probably not on and that we should get ready for Britain charting new course in its economy and in its politics. That said, as Peter has mentioned, there still are some parliamentary issues that will get worked out over the next one, two, three, four years we do not know.
So, let us start with the first of these four decision making. The biggest decision we hear about from our business clients is, do we hold and take a wait and see approach in our decisions or do we carry on with a plan and, in the face of the uncertainty that we have now experienced over the past three weeks, many businesses that we are dealing with are in holding pattern. Our colleagues in UK have told us that a lot of business transactions that were on the planning to close in June, July, August have been pushed off into the fall and have been pushed off into the fall waiting to see how things will evolve over the summer and things clearly are at hold.
They have also said that the biggest pause/push is coming from business in other parts of Europe. Whereas American clients and Asian clients, clients from the Middle East, view the shake up around Brexit as probably more of a business opportunity whereas the effects, issues and the exchange issues around currency, the Sterling Euro are complicating business planning and thinking and transactions as between European countries but political events over the past few weeks suggest that we have to really expect the unexpected and it is very difficult to plan in this type of environment but we are not here to judge the actions that have been taken by the various political leaders over the past three weeks, but clearly what has taken place on the political side of things has had a deep impact in business decision making and in the markets.
Fortunately, the governor of the Bank of England, a Canadian will be here. We were told later this week speaking here in Toronto. He has been a stabilising voice in the post-Brexit calamity and we think his comments should be carefully considered. As most of you or some of you will know, the bank’s monetary policy committee is set to meet tomorrow and the press conference that will follow will be carefully watched I think by business observes around the world.
A second consideration for business in the post-Brexit period are the immediate economic impacts and we have outlined what some of them are here. We have already seen a weakened pound. The question really is how long will that last? The pound dropped to its lowest level against the U.S. dollar over a 31-year period two weeks ago. Since then, it has climbed back and it seems that every time there is a decision taken, the pound will either improve or fall.
So, yesterday with over the last few days with the announcement of a new Prime Minister it started to climb. What will happen tomorrow? We are expecting that Carney will comment or introduce a rate drop and that could cause the pound to fall. The last time he spoke the pound dropped. Within thirty minutes of him speaking the pound dropped and the marks improved. So there’s a lot in play.
A second factor is this slow-down in the UK economy and some are predicting a recession later this year and early next year. Quite frankly, Carney warned of that. He was accused of fear mongering. He said it was his job to put the facts on the table and so far what he said is playing out and is accurate. Thirdly, the Governor has indicated or hinted that an interest rate….his press conference a few weeks ago following the Boris Johnson departure was I think truly remarkable. Most observers didn’t see a bank governor that active and engaged. It was almost like, I hate to say this, but like a Donald Trump press conference but he was answering questions and I think clearly trying to stabilise what had become an unstable situation within the UK at that time.
And, finally, there is uncertainty in the near and mid-term and clearly there has been a general weakening of markets. You have all read about and experienced trillions of dollars being wiped out of markets following the June 23rd decision and since then, it’s been creeping back up but commodities are affected, interest rates are affected, the people’s savings have been affected, people’s pensions have been affected, the equity markets are sluggish, the real estate situation in the UK is depressed, real estate funds are closed. So, there have been all kinds of activity following the June 23rd decision.
On the other hand, we are picking up signals this week and last that governments are more engaged in thinking about stimulus activity. The idea of austerity is not at the top of the list these days and we are hearing that from the UK. We are hearing that a new chancellor who we expect will be named tomorrow in the UK will not be an austerity style chancellor hearing that the Germans are thinking that way as well. So, it could be that the approach that Justin Trudeau has taken to stimulus and infrastructure is being looked at carefully and many European countries because clearly it is crowd favour and success in this part of the world.
Some of the specific considerations of business organisation should think about and consider in this period of uncertainty are discussed in this slide. There are six various considerations here but I would like to focus on perhaps two of them.
The third one is worth considering and that is, are there pending transactions that should be or need to be reassessed and like changed circumstances. In our business sometimes we refer to this as a MAC, Materially Adverse Change in circumstances and many contracts that MAC causes. Some people have questioned whether there has been force majeure as a result of this decision but when you are in a contract that is governed by English law or the law of England, Wales that has an overlay of European law, this uncertainty gives arise to an opportunity to either renegotiate a contract, get out of a contract, delay a contract and in our practice in the UK we have seen all kinds of situations, even in my own practice, where clients have come and said, ‘I’m not comfortable throwing a hip right now, find a way to stop this’ and these are the types of clauses that we look to when we are about to do that.
The other ones I would consider is the sixth and that is, is your business positioned to capitalise on new opportunities that may present themselves and for Canadians and Canadian business, an additional factor here is the status of the free trade agreement with the EU that we will talk about in more detail later. A third consideration for business is the anticipated change in the legal relationship between Canada and the EU but also between Canada and the UK and Canada and any country that may leave the UK and join the EU. For example, Scotland or Northern Ireland. Today, we really don’t know the extent of what these changes will be but it is probable that there will be change. What is striking is that the political leaders that Bigger Business spoke about, they probably don’t know what those changes will be either. So, they don’t know much more than we do and we all are getting ready for a process period of change of law.
So, there’s apprehension across England, across Europe and with business that does engage with the UK or across the EU and it’s in…but it’s important to remember that, as of today, there has been no change in law. There has been no amendments to laws. There has been changed circumstances but the exiting legal arrangements have not changed. The UK joined the common market, as you know, in 1973 almost 43 years ago and the common markets is built on four fundamental freedoms. They involve movement of goods, the movement of services, I should say the free movement of services, the free movement of capital and the free movement of people.
These freedoms are reflected in the various UK laws, regulations, directives – you probably heard of about UK directives. Certainly living there I have and policies all of which are designed to harmonise the legal framework between the various member countries of the EU including the UK. A special importance in the UK is the free movement of services. Why? Because so many service people and providers come to the UK to live, to work, to do business. There are approximately 3 million EU citizens who carry EU passports living in UK today and they are concerned about their own futures but their employers are concerned about their futures as well.
Particularly, financial institutions who will tell you that they have to have this EU passport in order to continue to thrive and in order to maintain London’s…the city of London’s status as the financial hub for both Europe and the world. It’s a very important issue and it’s a big part of the UK’s GDP. So, as a consequence of Brexit, the law and policy that provides for these freedom of movements in these areas will change. It’s expected to change. If we follow the Denmark model as Peter has just described it that could result in no change. If we revert to the so-called W2O model, the old model, there will be all kinds of changes and people are thinking about those things now and trying to contend with what the fall out may be.
A key question for business in all of this really is how will my business be affected by less than full access to a common market? And we went through that in Canada with Naptha. We have experienced both sides. What it was like before and after the Naptha. Here is considerable discussion as I said about the EU passport and it’s in fact on key employees and how important it is for banks and financial institutions but it also has impacts on other areas. For example, in supply chains, a lot of business have built a supply chain around a common market and I’m thinking particularly with the automotive sector, the pharma sector, the aerospace sector, the defence sector, anything that involves manufacturing because of parts going back and forth.
It’s just like the manufacturer of automotive equipment between Canada, the U.S. and Mexico and this just is not a concern for UK business. The German chancellor has been reminded that there are 800,000 cars sold annually, manufactured in Germany and the UK and I’m told that she has had all kinds of representations from German manufacturing leaders about what she is going to do to keep the borders open between Germany and her manufacturers and the 64 million consumers who live in the UK. So, it cuts both ways.
The final point I think for business is how will Brexit impact harmonisation of EU laws and create dual regulatory environment. This between the UK and EU member countries and we have outlined eight sectors or areas where we will be watching to see what these changes would be.
First of all, in life sciences, Kevin will speak in a moment about intellectual property but the harmonisation of IP and patent laws is extremely important to life sciences companies across Europe. Data protection. UK, if you live in the UK, work there, you are subjected to the overlay of EU data protection laws. What will happen to those? Anti-trust and competition. There’s a lot of angst about state aid. We are told several energy projects in the UK that involved allegations of state aid and state aid has been the purview of Brussels much to the chagrin of many people including political leaders in the UK. Sector regulations. You have all heard about the fishery and the unique rules that came out of Brussels about the fishery and of course you probably heard about the bananas and the EU directives that govern and speak to the shape of the banana and what their shape allowances are if the banana is going to be allowed to be sold in a store anywhere.
In any event, that was always jumped on by the campaigners. Employment. Having been an employer in the UK, I can say to you that the employment laws were not like anything I had ever seen before and a lot of them had to do with the convergence of the UK law and the EU directives. Consumer Protection and Product Safety. Commercial payment protection and late payment protection. All of these things have been the subject of a harmonisation process and the people were really scratching their heads about where would you start if you were trying to untangle. What could all of this look like? So, it’s a bit mind boggling.
What does Brexit mean for the CETA and if uncertainty around Brexit is not enough, I’m afraid to say that there is an added complication for Canadians around the future of the CETA. Of course, everyone wants it to happen. Everyone wants it to be ratified. It couldn’t be ratified soon enough. We wished it would ratify before June 23rd. It wasn’t.
So, the question I think going through many minds is how will the CETA be affected? Will it be affected by Brexit? These negotiations commenced in 2009 and the point has been made that it has taken seven years to get us where we are today. These are not easy agreements to work with. So this agreement has been described by the European Trade Commissioner, by our Trade Minister, Chrystia Freeland and by other as the most modern trade agreement in the world. It’s something to be proud of. Can we hang onto it?
So, there is a three-step ratification process befalling European Council, the European Parliament – I know what you are thinking perhaps that’s a lot of bureaucracy and EU member state parliaments and there is uncertainty about how all this would work. Will it be business as usual and right now, there is a bit of dispute brewing between German Chancellor, Merkel and the EU Commission President, Mr. Juncker. He says that the EU Commission Executive has the authority to ratify this agreement and they will do so this fall. She says they don’t. Her view is that each European country, each member state parliament needs to approve it and needs to be involved in the ratification process. The process of unwinding the UK from the EU may take years.
The question is what will happen to this CETA over that time period and we have outlined here three different scenarios or potential options to consider. The first one is that the UK is cut out of this agreement because today the UK is really part of the EU and it’s on the verge of being part of the EU with this agreement. So, if it’s cut out, Canada and the UK can conceivably negotiate our own agreement and there are people thinking about that as we speak. A second option is that the UK joins the European Association, the so-called Denmark model and adopts the EU single market that would include the CETA.
So, you become an association number rather than an EU country number and because the EU has the CETA and by virtue of that you adopt it. And, the third, is a bilateral UK/EU agreement, a so-called peace folk agreement between the UK and the EU that is signed directly between those two parties and that could include rights under the CETA. People I have spoken to have said, ‘how long will this take because it took seven years to get Canada to where it is today with the European Union’ and within that there were all kinds of political forces among the 28 EU member countries that held things up around things like cheese and sublime management aerospace parts and defence spending and that sort of thing. So, how do you pull all of this together and it’s a real challenge that is going to require a lot of leadership.
Why is the CETA important to Canada in Canadian business? And, quite frankly, I didn’t really get this until I started to review this material for this session but really the EU economy as it is presently constituted if you look at 2013 data, is roughly 8.5 times the size of Canada’s economy. It’s a $18 trillion economy and Canada today is a $1.9 trillion economy. So, it’s the world’s largest economic unit. Larger than China, larger than the United States. It’s our second largest trading area and we import a lot of their goods, they import a lot of our goods. So, it’s important business, what happens with the trade agreements between the EU and Canada therefore are important. They have to be carefully considered.
Let’s look at impacts. The impact of a ratified CETA today is not ratified today so we’re still in a bit of limbo. These impacts are sweeping and we have considered them in three areas. In goods, the area of services and the area of investment. So, frankly, with respect to goods, if CETA were ratified today, almost all of our goods would pass duty-free to the EU expect for some of our agricultural products and I’m speaking with a Canadian manufacturer on Monday in Nova Scotia who is in the agriculture business. He was telling me that in some countries he pays tariffs in the range between 30-50% to get his products into the EU…some certain EU countries and he is waiting, he’s hoping, he’s pushing, he’s lobbying for this agreement to be completed.
Another area of impact are services. Approximately 70% of our GDP is comprised of services and the trade agreement with the EU with the CETA is important because it provides, it reduces barriers around the transfer and delivery of services. So it would reduce residents or requirements and it would make…I know when I went to work there, it took me six or seven months to get myself official and get a permit to work there and a lot of those barriers would come down.
And the third area of impact is investment and this is an area where we see a lot of discussion taking place today in boardrooms around Canada, Canadian banks, Canadian pension funds, Canadian private equity funds are all concerned about the free movement of capital from Canada inbound into the EU and conversely the flow of capital from the EU countries to Canada but, as you know, a lot of Canadian pension funds are heavily invested in the UK and increasingly across the EU. The status of this trade agreement is important to them. Canadian manufacturing concerns are important, Canadian agricultural community is concerned about this as well.
So, I am of the view, I think we are of the view that with respect to the status of CETA, we know that Minister Freeland and Prime Minister are out there pushing to get it done. We sense that the German chancellor is going to slow things down. European Trade Commissioner, European President, the EU Commission President Junker have all been saying, ‘we’re pushing on, we’ll get this done’ but it’s just too soon to say in our view and unfortunately we come back to that word uncertainty. There is uncertainty about when the CETA will be ratified. So, thank you for listening to this. It’s a complicated subject and Kevin I would like you next to come and speak about IP.
Kevin Sartorio: Thanks Mark. I have been asked to comment on what Brexit means for Intellectual Property and I am mindful of the time so I will keep my presentation at a high level and moving along but I am happy to speak at a granular level with you on a one-by-one-basis for sure. I will be covering two topics.
First, I will be talking about obtaining and enforcing IP rights, patents, trademarks and copyrights being the three main intellectual property rights and then I will touch on contracts that deal with IP rights and what you should be thinking about but let’s start by distinguishing a patent from a trademark from a copyrights view so you know what I’m talking about.
A patent is the exclusive right to make, use or sell an invention. An invention is something useful, has utility, it works, it accomplishes something and it can be a device like a better mouse trap or it could be drug. Patents are granted for things that are new and not obvious but it doesn’t have be entirely new. You can get a patent for an invention that improves upon an existing technology. Patents are for something that accomplishes an end objective and that’s different than a trademark.
A trademark is something that identifies the source of a good or service to consume. So, Peter if you will hold up your coffee there, that’s going to be recognisable as a Starbuck’s coffee and that mark and symbol distinguishes that from a Tim Horton’s coffee that some of you may have had this morning as well. So, trademarks are again in association with particular goods or services or in some countries classes of services and what you get from a trademark is the right to prevent others from using a confusingly similar mark that might confuse consumers as to who stands behind the good or service.
And, a copyright is neither a patent nor a trademark. A copyright is something that pertains to the protection of original music or literary, artistic, dramatic works. All of which are probably on some of those phones that you’re holding up right now and it pertains to other things like source code, sound recordings, performers, performances but generally speaking what a copyright owner gets is the right to control who reproduces forms or publishes all or a substantial part of their work.
So, these are the three main types of IP rights and what I want to talk about now is the different routes you can go about taking to get national rights in a country and there’s really three of them. One way is to just go country by country and apply in each country’s intellectual property office and seek the right. That would be enforced in that country. You get a registration from the office, you go to the courts of that country, you have to enforce it. The problem is what if you want to have the right to register in another country? Well if you are going directly each time, you have got to repeat the process over and over again and that can get pretty expensive if you are interested in seeking protection in more than one country.
Naturally, that’s what everyone wants, they want to register their rights as broadly as possible. So, there are international treaties and inventions that have been ratified that work in different ways but generally what they do is they allow you start with a single application for the IP right and use it to more efficiently obtain registrations in other countries of interest who participate in the treaty or convention.
Ultimately, at the end of the day, you still get a series of registrations in countries and you have to go to the courts of each country to enforce them but it’s more efficient than just by doing it one by one. The most efficient way is something that is called a unitary system and in a unitary system, you apply a single time and you get a registration for an IP right that is enforceable sometimes to a unitary court across all member states and this sort of system exists in the EU for trademarks. It was proposed for or it is proposed for patents and so I’m going to focus on number three but I’m just going to go over these quickly again in detail and help you understand why the first two are not effective.
So, again, country-by-country, if you have or know somebody who has obtained an IP right in the UK, directly in the UK office, it’s not going to be affected by Brexit. The UK is still going to enforce that IP right within the UK. The same thing if you have obtained protection in the UK through an international treaty. These are independent of the EU and these streamlining treaties exist all over the place.
For patents there’s something called the Patent Cooperation Treaty and the European Patent Convention. For trademarks there’s the Madrid Protocol. These are not affected by Brexit directly. The rights that have been recognised in the UK patent or trademark office for example under these protocols and conventions are still going to be recognised in the UK and all of them allow…all of the treaties work in a different way at a technical level but all of them allow you to designate multiple countries based on a single application.
For copyright, it’s even easier or less affected. Treaties like Bird for example. They basically provide and make them long negotiated but copyright arises automatically throughout essentially all countries of the world with very limited exceptions without even the need to seek a registration. So, copyright is not really affected at all. It’s the third system, unfortunately, the most efficient system that is affected by Brexit.
These are the ones where you apply one time and you get a registration that is enforceable through all member states. It does not exist for copyrights. It does exist for trademarks. It’s called the European Trademark and it’s proposed as a unitary patent system in the EU. So, looking at trademarks, direct filings not affected, Madrid Protocol is not affected but the European Union Trademark is affected and until Brexit is sorted out, if you have a European Union Trademark, it’s still going to be valid and enforceable throughout the EU, including the UK.
The problem is once Brexit is completed however it completes and the UK ceases to be a member of the EU, we don’t know what’s going to happen in the UK with respect to the EU trademark. What happens next is possible but there will be a mechanism adopted, negotiated or put in place that will simply in effect say, if you have a European Union trademark, it’s going to be recognised in the UK as a UK registration. That would be great. Unfortunately, it’s also possible that won’t happen and, if you want protection of the UK, you may have to use one of those treaties or file in the UK directly and you can consult with your trademark adviser whether you should be filing now or whether you can wait and see what happens.
Similarly, for patents, direct filing is not affected really. Neither are filings that are recognised in the UK according to international treaties such as the Patent Cooperation Treaty or the European Patent Convention. If the Unified Patent System including a Unified Patent court that is affected unfortunately and unfortunately if you don’t really know what’s going to happen…it’s supposed to be in place by about 2017. Brexit is going to delay it perhaps for two years and until negotiations are completed as Peter and Mark have been talking about, we don’t really know the extent to which the UK is going to participate in that system or the court if at all.
And as I mentioned, copyright is not going to be affected directly. It’s possible that EU may issue directives for their own application of local copyright laws that the UK will choose to endorse or not endorse but that’s fairly modest. So, those are my comments about obtaining and enforcing IP rights but of course we do more than apply and enforce. You want to make money off of IP rights and you do that through agreements like licenses and joint ventures but IP applies to many types of agreements as well. Some agreements co-exist, and of course as Mark was talking about for exiting contracts, if they cover the EU as a defined territory, you should be reviewing and considering for how they will be affected. What are the parties expectations? Do terms need to be reopened? How should you position yourself for a contractual dispute as to the interpretation of what Brexit does or does not do?
And, for future contacts, you should definitely draft and accommodate the extraction of the UK and unfortunately maybe other countries in the future without having the need to reopen the terms. Of course this may be problematic for existing agreements. So, those are my comments on IP. I thank you for your attention and I turn you back over to Peter.
Peter Lukasiewicz: Thanks Kevin, thanks Mark. So let me wrap this up very quickly by leaving you with two thoughts. One is to speak to you as a fellow business person. We all as Canadians have a stake in what’s happening with our friends in United Kingdom and in the EU. We hope that we’ve shown you through this presentation how we as Canadians, citizens and business people have an interest in what is happening and I think we have a role to play in the discussions that are going to unfold in the coming months and I can tell you certainly as the CEO of Gowling WLG, we intend to be at the forefront of those discussions.
Second takeaway from this is, if you are doing business in the UK or in the EU or if you are contemplating doing business, take the opportunity now to step back and think about your business and think about the issues that may impact your business given the events in the UK and in the EU. How can we help? You can contact our folks. You can also go to our webpage. We have a webpage Brexit Untangled. It’s being updated daily. You will find there articles of interest based on sector, based on practice. So, go there periodically and get updated on what’s happening.