"Brexit" challenge for licensors and licensees?

BRANDORA Editorial Staff - March 2019

The BREXIT countdown is running - Prime Minister Theresa May presented the changes she has agreed with the EU. But is that enough for the Parliament of the United Kingdom? And what are the challenges for the toy and license industry?
BRANDORA TO B in conversation with Kelvyn Gardner, Managing Director of LIMA UK, and John Baulch, publisher of ToyWorldMag, the UK's leading toy magazine.

Many people talk about the Brexit in Germany at the moment. What are the consequences for license industry?
As for many business sectors, the outcome is still uncertain, and therefore so are the consequences. If a ‘no-deal’ is avoided at the end of March by Theresa May’s deal being accepted by Parliament, then not much will change while the transition period goes on. If Parliament rejects ‘no-deal’ then some kind of extension to Article 50 may allow for a ‘softer Brexit’ to be negotiated, maybe involving a permanent customs union. However, as customs union on its own would provide big challenges for licensing without membership of the single market. Licensing legal documents will have to change as the UK and Northern Ireland will be ‘ringfenced’ as a separate country. A few of LIMA’s independent licensing agents and some UK licensees actually support this, as they believe it will mean that their rights are better protected, and the UK retailers will once more be obliged to buy their licensed merchandise only from the British licensees. The Treaty of Rome currently allows UK retail to buy from any licensee with rights for any EU country. However, I simply don’t believe that this will happen. Big retailers have huge power, and may refuse to end what they see as best practice, driving for the cheapest price by buying where they wish. For this and other reasons, the majority view of UK licensing companies is that we would be better off staying in the EU.

What are the „Brexit challenges“ for licensors and licensees?
I’ve listed some of them above. The lawyers will be busy re-writing licensing contracts to re-define the territorial terms. Pan-European deals will still be possible, but with earmarked Guarantees and royalty payments for the UK & NI. One thing many people have missed is the risk to copyright protection if the UK leaves. Research groups such as Votewatch.eu have reported the fact that it has been British MEPS who have tipped the balance in the European Parliament in favour of enhanced copyright protection. Check https://blogs.lse.ac.uk/europpblog/2015/12/02/the-top-five-likely-effects-of-a-brexit-on-the-eus-policies/ to see what might happen with no UK MEPs.

Are there any „Brexit opportunities“ for your LIMA members?
The limited potential effect of ending Single Market access ( and therefore free movement of goods and services) may benefit a few UK companies in the short term, but I believe that the wider economic damage to the country will far outweigh this for the worse. And, of course, exchange rates are another massive concern: what happens to the pound will be determined by the type of Brexit we choose. Significant fluctuation is likely in any scenario, but with No Deal, there is a very real danger that sterling could fall by as much as 10-20% against the dollar and the euro, which would have a considerable impact on the price of toys.

How do you support your LIMA members?
The British Government, the Treasury and the Department for International Trade do not know what is going to happen. LIMA does not have their resources. Once the future is clear – and that could be years away under the Government’s current preferred sequence of events – we will set out what we think is best for our members.

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Similarly, John Baulch, publisher of the ToyWorldMag, assesses the situation as problematic:

With few days until Brexit, UK businesses are searching for clarity and certainty – but it is proving challenging, with the situation changing daily and No Deal (the nightmare scenario) still a genuine possibility. Whichever Brexit option is chosen, there will be administrative changes for toy companies to grapple with, and one can only hope that UK enforcement authorities will be pragmatic and give companies sufficient time to transition to the new arrangements. EU authorities, however, are likely to enforce compliance with the new regulations with immediate effect.

There are several initiatives which are being prioritised by toy companies, so that they can - in theory - continue to trade as previously; some companies without an EU office are looking to open an EU subsidiary or at least appoint a representative based in the EU, while product may have to be re-approved by an EU-approved body. New safety markings would almost certainly come into force – a new UKCA mark may have to be added to product in addition to the existing CE mark.

These initial changes are just the tip of the iceberg; detaching the UK from a trading partner with which we have been inextricably linked for four decades will almost certainly result in a substantial administrative burden for UK toy companies.

And, of course, exchange rates are another massive concern: what happens to the pound will be determined by the type of Brexit we choose. Significant fluctuation is likely in any scenario, but with No Deal, there is a very real danger that sterling could fall by as much as 10-20% against the dollar and the euro, which would have a considerable impact on the price of toys. With a series of votes due in March, UK businesses are continuing to watch the situation closely, but planning is difficult – because, in many cases, no-one knows what to plan for.