Technology

1 July, 2016

The current situation:

The tech sector has been one of the fastest growing industries in the UK, and now accounts for around 10% of GDP. London’s Tech City is considered by many to be the tech gateway to Europe and it is uncertain what impact Brexit will have on this. There are many issues which tech businesses will now be thinking about including data protection, intellectual property (IP), cyber security, research and development funding, IT procurement and skills and immigration. London has become a well-established tech hub with major international players such as Google and Facebook having a large presence here. Tech City has fostered hundreds of start-ups and the fintech industry has grown significantly with London being one of the financial capitals of the world. This growth has spread out into regional hubs in areas like Reading and Brighton and the new prime minister will want to ensure that the UK’s reputation as the tech capital of Europe remains.

 

What might change?

Whether pro-leave or pro-remain, most businesses will probably be hoping for a reduction in data protection requirements, particularly when looking to the new EU General Data Protection Regulation (GDPR) due to be brought in from May 2018. Many will therefore be disappointed to note that a material easing of data protection requirements is unlikely, for a number of reasons which are discussed in more detail in our data protection article.

Another key concern for the technology industry is the protection of intellectual property (IP) post Brexit. Upon exit from the EU, UK businesses could lose the protection of EU-wide IP registrations such as EU Trademarks (previously known as Community Trademarks), Registered Community Designs and the emerging Unitary Patent. However, there is no cause for immediate concern as all the current rules and systems still apply and will continue to do so until Brexit has been negotiated which could take a considerable time.  

Once outside of the EU, the UK will no longer be obliged to implement EU Directives, such as the Network & Information Security (NIS) Directive, into its national law. However, the UK will no doubt wish to continue to trade with the EU and maintaining comparable legislation regarding the exchange of information and cyber security is likely in order to help to avoid barriers to trade.

The European Investment Fund (EIF) is one of the largest investors in venture capitalism, investing EUR2.3bn in the UK between 2011 and 2015. Because there are so many start-ups in the tech industry, it would have undoubtedly benefitted from this investment. Future investment from the EIF will remain uncertain until the terms of Brexit are clearer. Similarly while the markets remain volatile and banks cautious, funding generally may be harder to access in the short term.

The EU contributes a significant amount in funding for research projects on future technologies and alternative sources of funding will need to be identified to make up for the shortfall when these contributions cease.

Another consideration will be the future of IT procurement. How companies bid for IT contracts in the public sector is currently governed by EU laws and this will change but it is too early to say what impact this will have.

The tech industry relies on the brightest minds and most innovative thinkers and many employees in the UK tech industry are from Europe and other countries. If immigration becomes tougher we may find that there is a skills shortage and equally EU citizens may see the UK as a less attractive employment proposition.

 

What impact could this have on UK businesses?

While there are many uncertainties, the tech sector remains buoyant and is the most global of industries so it should be able to weather the EU storm better than most. The demand for services will continue to grow and the creative and entrepreneurial minds within the sector have based their careers on innovation, adaptation and change.

 

What you need to be thinking about now:

What will happen next in terms of the mechanics of the UK’s exit is, at this point, uncertain. It still needs to be established whether the UK will remain part of the European Free Trade Association (EFTA) or the European Economic Area (EEA), what trade deals it can agree with the remaining EU countries and whether, as a default, the trade rules of the World Trade Organisation (WTO) will apply. It is likely to be some time before these questions are answered. However, it would be prudent for technology businesses to take this opportunity to carry out an audit of their existing IP to identify what IP, if any, is covered by EU registrations so that they can react quickly when it becomes clear what transitional steps need to be taken to protect this IP post exit.

Businesses should also review any key commercial contracts which have an EU or international element to determine what effect Brexit will have on those agreements. Issues which should be considered include: will trading costs increase and can those costs be passed on to clients? Is there a risk that workers from the EU could leave the business? What will be the commercial impact of ongoing currency fluctuations? Do any territorial scopes and non-compete restrictions need to be redefined?

If you have a query about any aspect of this blog or the technology sector, please contact Pete Kenyon at pete.kenyon@crippspg.co.uk.