BREXIT – what impact would it have on Australian franchise systems?


Posted By on 16/06/16 at 10:15 AM

On the 23rd June 2016 the voters of the United Kingdom will provide a definitive view on the place of the United Kingdom within the European Union.

This commentary will not delve into the pro’s and con’s of the argument but does note the strong possibility of the United Kingdom voting in favour of an exit.

If so the sky will not fall in immediately (except perhaps for a time in the share market) as the exit provisions built into the EU provide for a 2 year time frame to negotiate the separation. That could take a number of forms from the Norway option involving close adherence to EU mechanisms, to the World Trade Organisation Model resulting in complete autonomy with adherence to negotiated international rules on trade.

Against this background do franchise systems with actual or intended commercialisation objectives concerning the UK take a wait and see approach or is some other response required?

Firstly, at the simplest level, the response suggested is to at least review the form of licence agreement (franchise) in place, or proposed, for the EU. There are, as I will indicate, a number of relationship issues between the broader EU and the UK which will be important and require a strategy moving forward.

Some of these issues include:

INTELLECTUAL PROPERTY

Trade Mark registrations and copyright protection remain at the heart of all franchise systems.

In general terms Trade Mark registrations and the protection they offer are obtained through the EU Trade Marks Regime which offers a one stop registration for EU member states. While sole country registrations remain available and with some minor exceptions are required, the convenience of this one stop facility may be lost or at least (if arrangements to recognise are not agreed) not be available for new marks, new class applications or renewals of current marks. In this case registration in the UK will be required with the attendant cost and risks of challenge.

Pertinent observations could also be made on patents and the new European Patent System.

TERRITORY DEFINITION

Grants of territorial rights encompassing the UK and one or more EU remaining countries may have to be reviewed and separated out to reflect likely differences in the applicable laws.

An example may relate to a franchise system’s desire to apply more restrictive controls on franchisee use of websites and social media which is not possible under current EU regulations but may be so under a domestic-only UK regime.

Further the choice of laws or forums applicable to resolve disputes may provide scope for careful thought as UK courts would no longer be bound by applicable EU precedent and may take a different view on critical matters given the likely reversion to the full application of common Law principles.

LITIGATION

Running with choice of laws and forum issues as mentioned may come increased litigation risk as a period of overlapping regulations and court adopted interpretations may follow.

What will be the position with respect to obtaining injunctions or enforcing judgements and damages awards? What mutual recognition of these critical outcomes will apply?

I suspect that in the event of dispute much will be made of contractually imposed mediation clauses and greater drafting preference will be given to compulsory arbitration provisions which will sidestep some of these overlapping issues by preventing reliance on judicial references.

COMPETITION LAW

A regulated anti-competitive framework exists in the UK. This is reflected in operative franchise agreements and touches particularly on product supply and availability which are key supply chain issues for all franchise systems.

Most of these concepts, that is those intended to ensure freedom of trade, are presently enshrined in the UK’s Competition Act 1998 and it therefore seems unlikely that much of this framework would change. Only time will tell.

What is clear however is that UK common law applicable to restraints of trade where enforcement is dependent on the reasonableness of the restraint, will again be enforced without any watering down of the old principles through EU directives or court intervention.

CONCLUSION

The 23rd of June and its aftermath will be closely watched. Its impact could be real and as usual the best advice is to be prepared.

Peter Buberis

Principal

Peter heads our franchise team.

Peter has extensive experience acting for both national and international franchise systems with a strong skill set around the expansion of franchise systems. ... Read More