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    September 2016  
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Bonresolve - The Newsletter for those addressing conflict
 
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In this issue, we're looking at Brexit, radical changes to European data protection law which will be felt globally, trade mark reform, trade secret protection, patent licensing, parallel imports and corporate governance changes.
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Brexit
On 23 June 2016, the United Kingdom voted to leave the European Union. It will take time to restructure the UK-EU relationship and little is yet known about the changes which will take place, or how and when they will be implemented. For the meantime the UK remains a member of the EU. It is also crucial to remember that many key agreements – such as the European Patent Convention – are distinct from the EU and are unaffected by Brexit. Similarly, much EU law has been incorporated into UK law, by the UK Parliament. For example, Directive 2012/19/EU entered UK law as the Waste Electric and Electronic Equipment (WEEE) Regulations 2013; Brexit will not remove these provisions, overnight –specific UK legislation will be required to change these rules and many are likely to remain in place for a long time either because they are of themselves unobjectionable or because the government will have many greater priorities before it reaches them. It is very much business as usual, at present. We will continue to monitor developments, and keep clients and contacts advised as appropriate. If you face a particular issue, please contact us, and we will be pleased to advise as far as possible.
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Data Protection Overhaul
The General Data Protection Regulations (GDPR), a radical shake-up of EU data protection law, entered into force on 25 May 2016. The effects will be felt by businesses worldwide. Whilst the GDPR will not be enforced until 25 May 2018 – two years after entering into force – it imposes onerous obligations on data processors, which should be planned for well in advance. Penalties have increased from a maximum of £100,000 (in the UK), to the greater of €20m or 4% of global turnover – clearly numbers which deserve attention!

Unlike previous rules, the GDPR apply to all EU organisations, and to non-EU organisations if they offer goods or services to, or monitor behaviour of, EU residents. This means that many organisations not currently subject to EU data protection requirements, will soon become so. Crucially, such organisations may also be required to appoint a representative within the EU.

Consent to data processing must be active, clear, informed and freely given – pre-ticked boxes on web forms, for example will no longer constitute valid consent. The nature of the processing must now be explained, or consent will not be informed and will therefore be invalid. Where there is a ‘clear imbalance’ between the controller and subject, such as between employers and employees, consent is presumed not to have been given freely. Withdrawing consent must be possible, and must be as easy as giving it.

There has been real concern about the impact on healthcare, including research. The regulations afford some flexibility to the use of data for medical research – including allowing broad consent at the time of data collection. However, this requirement is subject to a test of ‘objective public interest’. Member States will also be free to impose ‘further conditions’ for the processing of genetic, biometric and health data. For a detailed discussion, click here.

Those companies processing sensitive personal data on a large scale, or undertaking regular and systematic monitoring of individuals on a large scale, are required to appoint a specialist Data Protection Officer. Please contact us if you have any questions, or just to discuss how we can support you in preparing for the new regulatory regime. For more information, visit the European Commission website here.
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European Trade Mark Reform
The new EU Trade Mark Directive (2015/2436) entered into force on 23 March 2016. This harmonises the approach to trade marks across the EU, and introduces a number of significant changes.

Perhaps most interestingly, the Directive abolishes the need for ‘graphical representation’ of trade marks. Whilst registration of sounds, smells, tastes and other ‘non-traditional’ trade marks has been possible since at least 2008 (under Directive 2008/95/EC), the requirement for ‘graphical representation’ has made this difficult or impossible in practice. In Ralf Sieckmann v Deutsches Patent- und Markenamt (Case C273/00 [2002]), the European Court of Justice held that an odour sample and description of the chemical formula did not satisfy the ‘graphical representation’ criteria. Under the new Directive, a trade mark may be submitted in any form, so long as the protected matter is clearly identifiable by both the registering authority and the general public.

The Directive also makes possible the seizure of infringing goods which are in transit through the EU, even if the final destination is outside the EU – unless the goods would be compliant in their destination country. Previously, infringing goods which were transiting through the EU, to a non-EU destination, could not be seized. Incidentally, using a mark as a trade or company name has been confirmed as infringing – with the exception of the good faith use of a (natural) person’s own name.

Finally, the fee structure for EU trade marks is amended, introducing a fixed fee per category for both applications and renewals - €850 for the first class, €50 for the second, €150 for the third, fourth and all subsequent classes. This means that new registrations in three or more classes will cost an additional €150, but offers savings of up €500 per year, for renewals of a single class, or €300 for those in up to three classes.

For more information, visit the European Union Intellectual Property office guide here.
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Corporate Transparency: People with Significant Control
From 6 April 2016, UK companies and limited liability partners (LLPs) are required to identify and record the people who own or control the company – people with significant control (PSCs).

A person has significant control if they hold, directly or indirectly, more than 25% of shares in the company, or more than 25% of the voting rights in the company, or have the right to appoint or remove the majority of the board of directors, or who does, or has a right to, exercise significant influence or control of the company. In some instances, a firm or trust may also qualify as a PSC.

The statutory guidance on the phrase ‘people with significant influence or control’ provides that these are alternatives, and only one need be satisfied. Influence and control includes a person having particular power by virtue of the company’s constituting documents, or by rights in security held over the company or its assets. Those who operate indirectly – such as through nominee directors – are covered by the new law, and must be declared as People with Significant Control.

Companies of all sizes must identify PSCs, record them on an internal register available for public inspection, and advise Companies House of changes in their annual Confirmation Statement (formerly the Annual Return). Even the smallest companies, including those with a single shareholder, must comply, meaning their single shareholder must be entered into the PSC Register even although their level of control is already obvious.
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Parallel Imports
The recent case of Flynn Pharma Ltd v Drugsrus Ltd [2015] EWHC 2759 (Ch) has provided some clarification with respect to potential trademark infringement in the case of parallel imports of repackaged pharmaceuticals.

Flynn Pharma marketed phenytoin sodium – an anti-seizure medication developed and manufactured by Pfizer – in the UK, as ‘Phenytoin Sodium Flynn’. The Flynn product was in fact manufactured for Flynn by Pfizer. Drugsrus, a parallel importer, intended to import the drug into the UK, from other EU countries, where it is marketed by Pfizer itself under its brand name Epanutin, before rebranding and selling it as ‘Phenytoin Sodium Flynn’. Drugsrus argued ‘Flynn’ was used as a description of goods rather than as a trade mark, and that preventing parallel imports would be contrary to the principles of the European single market.

The court found that the use of ‘Flynn’ was not a description of goods, and amounted to the use of Flynn Pharma’s trade mark. This appears to run contrary to the recent case of Speciality European Pharma Ltd v Doncaster Pharmaceuticals Group Ltd & Madaus GmbH [2015] EWCA Civ 54, where the court held that use of a trade mark for parallel imported drugs was necessary to ensure market access, and that preventing use of the mark would be contrary to the principle of the free movement of goods in the EU.

A key determining factor in Flynn appears to have been responsibility for quality control. Whilst Pfizer produces both Phenytoin Sodium Flynn (sold in the UK) and Epanutin (sold in Europe), contractual agreements provided that Flynn Pharma was solely responsible for the quality of the former. This distinguishes the case from Speciality European Pharma, where the original manufacturer was responsible for all quality control.

Drugsrus has appealed to the Court of Appeal so this may not be the final say on the matter.
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Interpretation of Commercial Contracts
Where a contractual term is open to interpretation, courts in the UK have tended to favour the interpretation which is commercially sensible, even if it departs from the literal meaning of the words used, to some degree. The recent Supreme Court case of Arnold v Britton [2015] UKSC 36 shows that in the face of clear language you should not assume the courts will protect you.

Leasees of holiday homes in the 1970s and 1980s agreed to pay a management fee of £90 per year, increasing by 10% per year. By 2072, some of the management fees would exceed £1m. The court held that whilst commercial common sense was a factor, a court should be slow to reconstruct natural language simply because the terms are imprudent.

This underscores, once again, the importance of getting commercial contracts right, and being very sure of the implications before signing up. If you have a contract which is giving you some concern then you should be looking to agree an amendment before it becomes an active problem and before you are at the other party’s mercy. Please get in touch if you would like to discuss any “nasties” lying around in your cupboard.
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Trade Secrets
The EU’s Trade Secrets Directive (2016/943) entered into force on 5 July 2016. All EU Member States will have two years – until 5 July 2018 – to fully implement the Directive into national law – as it is a Directive and not a Regulation it does not have direct effect. The Directive aims to provide better protection for trade secrets – and greater access to remedies for trade secret disclosure or acquisition – across the EU. A standardised definition of ‘trade secrets’ has been introduced: that information which ‘has commercial value’ and which is not “generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question”.

Whilst protection of other forms of intellectual property – such as trade marks, patents or designs – has been relatively straightforward, protection and enforcement of trade secrets has proven problematic. Together with the functional definition above, the Directive also introduces requirements for national governments to provide satisfactory remedies in national courts. This ensures greater protection for those businesses who rely on trade secrets to deliver competitive products and services and will be particularly welcomed by our food and drink and service provider clients. Unlawful acquisition includes acquisition by dishonest commercial practices, unauthorised access to information containing trade secrets (or from which they can be deduced) and breach of confidence or contractual duty. Acquisition or disclosure of a trade secret will also be unlawful for ‘secondary infringers’, people who knew or ought to have known that the trade secret had been unlawfully obtained. Lawful acquisition or use of trade secrets – such as independent discovery or testing of products – is protected, as are genuine whistle blowers and journalists’ sources.
The full text can be read here.
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Revocation of a patent does not necessarily mean licensees can stop paying licence fees
According to a recent Opinion of the Advocate General of the Court of Justice of the EU (CJEU), patent licensees may be required to continue licence fees, even if a patent is revoked.

Hoechst granted a worldwide, non-exclusive licence to Genentech, for technology which was subject to a European, and two US, patents. The European patent was subsequently revoked. Genentech argues that no royalty payment is due, because the European patent was revoked, and no use was made of the US patents included in the licence agreement. Hoechst received an arbitral award, and now seeks to enforce an order for payment. Genentech further argued that to force payment of the royalty fees would place the company at a significant competitive disadvantage, and be contrary to EU competition law, particularly Article 101 of the Treaty on the Functioning of the European Union (TFEU). The Advocate General’s view is that Article 101 TFEU does not require annulment of an arbitral award which gives effect to a patent licence agreement, even in the event of the retroactive revocation of a patent covering the technology concerned.

Read the full opinion, here.

This is a disturbing judgement, altough it may be limited to this rather unusual case and the desire to protect arbitral awards and of it is still to be seen if the court will follow the AG ( it usually does) however it would be prudent to check that where you are the licensee your licences expressly state that royalties are not payable where the patent is revoked. If you have concerns about this please get in touch to discuss
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Safe Harbour Replacement: US-EU Privacy Shield
In October 2015, the Court of Justice of the European Union (CJEU) struck down the Safe Harbour regime in the landmarkMaximillian Schrems v Data Protection Commissioner (Case C362/14). This was not unexpected as there had been growing concerns across Europe about the safety of personal data exported to the US – including the risk of bulk interception and mass surveillance of EU residents, the tendency of data processors to share information with third parties, and the lack of obligation on data processors to discard information no longer required.

The replacement of Safe Harbour, the ‘US-EU Privacy Shield’, was approved by representatives from each of the EU Member States – on 8 July 2016. The European Commission issued a statement, confirming that the new regime “is fundamentally different from the old 'Safe Harbour': It imposes clear and strong obligations on companies handling the data and makes sure that these rules are followed and enforced in practice.” Whilst specific details are still emerging, organisations which store or process EU data in the US will wish to keep advised. The Privacy Shield arrangement includes assurances between governments – including, for the first time, that law enforcement access to data, including bulk interception, will be subject to legal controls. There are also significant requirements for businesses.

Businesses who wish to receive data relating to EU residents in the US must self-certify, on an annual basis, to the US Department of Commerce, that they satisfy the requirements of the Privacy Shield regime. The US Department of Commerce will also be responsible for ongoing monitoring and investigation of data processors, including conducting compliance reviews.

Individuals must be given clear information about whether and how their information will be shared with third parties, and must be given a clear and simple opportunity to opt-out. Any data no longer required or used for the purpose for which it was collected, must be deleted. If a third party processes personal data acquired by a Privacy Shield-certified company, they must meet or exceed scheme’s requirements.

Privacy Shield-certified businesses are required to put in place effective redress mechanisms, including consumer complaints within 45 days. Businesses must also employ an appropriate alternative dispute resolution mechanism, and must designate an independent dispute resolution body which will handle individual complaints. Individuals retain the right, however, to refer complaints directly to their national Data Protection Authorities.
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Periodic Safety Update Reports
From 13 June 2016, all periodic safety update reports (PSURs) medicines must be submitted directly to the online PSUR repository – a centralised database for PSURs and associated documents, to be used by regulating authorities and companies across the EU. Submitting PSURs to National Competent Authorities (NCAs) is no longer required.

Submission is by way of a standardised format, Electric Common Technical Document (eCTD) or non-eCTD, online using the eSubmission Gateway at esubmission.ema.europa.eu/esubmission.html. Prior to submitting a PSUR online, Marketing Authorisation Holders are required to ensure that information concerning their products, which has been included in the PSUR, is correctly included in the Article 57 database – this includes details of product qualities, the patent information leaflet, and the product’s labelling information. PSURs which are not submitted to the PSUR repository are not considered to have been submitted at all, and will not fulfil MAHs’ legal obligations to submit PSURs.
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Patricia Barclay
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In this issue
 
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  • Brexit
  • Data Protection Overhaul
  • European Trade Mark Reform
  • Corporate Transparency: People with Significant Control
  • Parallel Imports
  • Interpretation of Commercial Contracts
  • Trade Secrets
  • Revocation of a patent does not necessarily mean licensees can stop paying licence fees
  • Safe Harbour Replacement: US-EU Privacy Shield
  • Periodic Safety Update Reports
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    Bonaccord
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    If you are concerned about any of the matters raised in this issue, or indeed require support in expanding across Europe or in assisting your clients to do so please contact us on enquiries@bonaccord.eu or +44 131 202 6527.

    Bonaccord is an award-winning, boutique law firm catering to life-science and other innovative businesses. We are proud to have won multiple awards as UK Life Science law firm of the Year and welcome the opportunity to collaborate with other law firms and professional advisors around the world for the benefit of our mutual clients.
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    Will you be in Washington this September?
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    Our Founder, Patricia Barclay will be in Washington DC from 17th- 24th September to attend the IBA annual conference and would welcome the opportunity to meet with any of our friends who will be in town. Please contact her on patricia@bonaccord.eu to set up a meeting.
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    Thanks
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    Our thanks to Shaun McPhee, our research student for putting together much of this edition. Shaun’s main expertise is in the business environment of Asia where he has worked and studied in a number of countries and we look forward to building on his wide network and understanding of the region
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    Patricia Barclay is a lawyer with over 20 years experience of helping innovative companies
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      Bonaccord Ecosse Limited

    Registered office:
    31 Merchiston Park, Edinburgh,
    EH10 4PW

    Registered No. SC323251

    Tel: +44 131 202 6527

    www.bonaccord.eu
     
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