Regulatory / Doing Business Issues
This article deals with certain issues that may arise in relation to digital services business in the UK post-Brexit. Digital services businesses are not directly regulated / licensed but are subject to some common EU wide rules. These rules may or may not diverge after Brexit depending on how Brexit unfolds.
At present, there is very strong assurance that the UK cannot place any barriers hidden or otherwise to business. These strong guarantees may disappear after Brexit. A trade agreement may be entered but it is unlikely to have the strength and assurance of the current EU arrangements. Outside of the EU there is a risk there could, over time, be conditions and restrictions which make it more difficult for traders to provide the business from outside the UK than at present.
It seems unlikely that the UK would place significant direct barriers to digital services business. Traders may have to deal with some new changes in regulation and compliance issues for UK trading after Brexit. The most of the existing EU derived business rules that apply in the UK are to be re-enacted as they now are, immediately after Brexit. However, there could be changes later which would cause them to diverge from the EU rules in the medium to longer-term.
There is a likelihood of a future trade agreement under which the UK gives some level of assurance that it will not diverge from EU rules. These rules are unlikely to be directly enforceable by individuals and will be nowhere near as significant as the EU rules. However, they may give significant comfort and lead to a situation where the EU and UK rules are very highly aligned indefinitely.
The Repeal (and Restatement) Act
The “Repeal” Act will re-enact existing EU law in the UK, including those elements of the law that are not reflected in free-standing UK legislation on Brexit day. Most directly applicable EU regulations will continue to have effect.
If there is a conflict between pre-Brexit laws and post-Brexit laws between two pre-Brexit laws, one of which has an EU basis, and one of which is not, the EU basis (which would have carried the principle of EU supremacy) will take precedence (necessary to maintain consistency).
Brexit will mean that courts may no longer refer to the Court of Justice for rulings on points of EU law. Previously where matters had concerned the UK, UK advocates participated. Intrinsically references, etc., from the UK will cease to exist so that the remaining case law might become somewhat different than it might otherwise have been.
EU Rights to Trade
An important aspect of membership of the European Union is that all member states are bound by the terms of the EU Treaty freedoms to trade. The EU treaties have very important rights which allow a business established in one EU state to sell goods, provide services, invest or establish itself in another EU state. These are the so-called four freedoms and are also bound up with the freedom of movement of workers and persons setting up businesses.
There are two critical aspects of these freedoms that are very relevant to digital services business in the context of Brexit. First is the fact that the Treaty freedoms can be enforced directly by any private business against any government, governmental, trade or another body in another EU state.
The second is that the rules in the Treaty take precedence over and automatically overrule practices, trade rules, governmental rules and even laws in other EU states which in any way inhibit the exercise of the above basic rights. These rights in the present context include the right to provide services such as digital services/information society services to a customer in another EU state, here the UK.
The uniqueness and significance of these rights cannot be overstated. They guarantee and enable traders at present to provide digital services to UK-based customers. Furthermore, the rights are both rights to provide the services and the recipient’s rights to receive the services from another EU provider.
While the UK is a member of the EU traders can have the assurance that even if the UK government passed a law either directly or indirectly inhibiting traders in providing the services, that law would be invalid. Traders would be entitled to go into a court in the UK and the court would be obliged to give expression to the right to provide the services and overrule and disapply even a UK national law to the contrary. This gives traders or any other business providing digital services with the confidence that governments cannot interfere with rights to provide the services.
UK’s Approach and Proposals
Traditionally the United Kingdom has been very liberal in not placing restrictions on the international provision of services. It does not tend to place restrictions on third-party providers even at present. However, the point is that outside the EU the UK could place either express restrictions or more hidden subtle restrictions.
It is possible for states to place hidden and subtle and not so subtle barriers to foreign sellers by for example requiring that such and such a provider must have a number of UK shareholders, have some establishment within the state, have UK directors, or comply with some conditions which are easy for UK providers to comply with not so easy for out-of-state providers.
Future Trading Declaration
The future trading declaration accompanies the Withdrawal Agreement. It sets out the broad parameters of the future relationship. This is not binding but is a statement of the broad intentions of the parties.
The declaration states that the EU and UK intend to enter a deep, comprehensive and balanced trade agreement. This is to cover both goods and services and go well beyond the standard provisions in free-trade agreements and services covering almost all sectors including most methods of supply (including from the other state). It is to provide for a prohibition on discrimination against traders from the other state so that anti-discrimination principles will apply in respect of trading in Northern Ireland. The arrangement is to cover all or most business services.
In common with most modern trade agreements, there is an ambition that domestic regulation is to be transparent efficient and compatible with the above principles. This seeks to avoid unnecessary regulatory requirements. There is to be voluntary regulatory cooperation.
The future trading declaration says that the EU and UK will preserve regulatory autonomy i.e. remain free to set own rules) but should include provisions in the agreement to promote regulatory approaches which are transparent, efficient, compatible to the extent possible and which avoid unnecessary regulatory requirements.
The EU and the UK should agree on disciplines (rules) on domestic regulation including horizontal provisions such as licensing procedures and specific regulatory provisions in certain areas. There should be a framework for voluntary regulatory cooperation in areas of mutual interest including the exchange of information. Arrangements may be developed on recognition of professional qualifications.
The future relationship declaration contemplates that there may be equivalent rules which might not be automatically recognised. It is hard to assess exactly what shape this may take in the final agreement. It is very far short of the present position.
In the area of digital trade, the EU and UK declare their intent to facilitate electronic commerce address unjustified barriers to trade by electronic means and ensure an open information trustworthy online environment.
- DIGITAL 40. In the context of the increasing digitalisation of trade covering both services and goods, the Parties should establish provisions to facilitate electronic commerce, address unjustified barriers to trade by electronic means, and ensure an open, secure and trustworthy online environment for businesses and consumers, such as on electronic trust and authentication services or on not requiring prior authorisation solely on the grounds that the service is provided by electronic means. These provisions should also facilitate cross-border data flows and address unjustified data localisation requirements, noting that this facilitation will not affect the Parties’ personal data protection rules.
- The Parties should provide, through sectoral provisions in telecommunication services, for fair and equal access to public telecommunication networks and services to each other’s services suppliers and address anticompetitive practices.
- The Parties should work together though multilateral and multi-stakeholder fora, and establish a dialogue to exchange information, experience and best practice relating to emerging technologies
EU UK Trade Agreements
Unless the agreement between the EU and UK creates something like the EU with a single overall court conferring private rights on traders to challenge other governments, the likelihood is that traders would have no effective come back or remedy if the UK government or some other governmental or trade body, was to place restrictions on non-UK businesses making e-commerce sales into the UK.
It seems unlikely that the UK and EU will enter a trade agreement with a single overall court to which traders can make private claims of this nature against the other government, which might resemble the current CJEU. The UK has made a big play of not being under the EU Court of Justice or subject to its jurisdiction to override British rules and laws.
It is likely that any trade dispute mechanism will be at the state to state level. This means that traders will not have the assurance in perpetuity as traders would have if the UK was in the EU that the UK must allow traders to provide digital services to UK customers from Ireland without restriction.
No Deal Assurance on IP
The EU no-deal publication on intellectual property indicated that broad recognition of intellectual property would continue to apply even in the event of a hard Brexit. There are existing international conventions on the basis of which copyright is recognised internationally in almost all countries and this would cover copyright in computer software in the event of a no-deal Brexit. The EU and UK are a party to the main international treaties on copyright and related rights.
The UK has confirmed that is continued membership of the main international treaties on copyright will ensure the scope of protection of copyright in the UK will remain largely unchanged.
After Brexit in the absence of a new agreement, a particular risk in a no-deal scenario is that the present very integrated systems for recognition of court orders throughout the EU will no longer apply to the EU. Older conventions and rules would but they are more onerous.
We mention below some cornerstone EU-based rules relevant to e-commerce and web marketing because traders sell goods to UK-based customers. The rules are extensive, and we mention them to emphasise that the EU-based rules on which traders now rely as regards the UK which may be vulnerable to change in the future.
Once again, the UK has promised to re-enact these rules and common sense would suggest that they will not greatly diverge. However, there is nothing guaranteed in this respect.
There are legal requirements for website information under the E-Commerce Directive. These have effect in the EU at present. The UK intends to re-enact the legislation automatically on the date of the effect of Brexit might change after that.
The E-Commerce directive requires information appearing on a company’s website including the following
- full name of the company
- registered office registered number
- geographical address
- effective contact details
- how to register a choice regarding unsolicited commercial communications
- (prominently and in each communication when asked to provide information such as registration form)
- details of trade registers in which the service provider has entered his name or is registered
- where the activity is subject to an authorisation scheme, details of the supervisory authority
- particulars of any professional body licensing and rights of recourse thereunder
- certain information about prices
Certain information is required in relation to the entry into the contracts and the exercise of rights to withdraw. It includes
- the technical steps to conclude a contract
- where the contract is accessible
- means for identifying and correcting input errors
- the language offered for the conclusion of contracts
- information and codes of conduct
- acknowledgements of receipt of order
- means of correcting errors
There are significant additional limitations on email marketing under EU law over and above the limitations applicable under data protection legislation. Traders will be familiar with these rules which greatly limit unsolicited communications through various mediums including email. The most significant restrictions apply to mailing persons. Prior consent is required for communications. There are obligations to clearly identify the sender. There are obligations to display certain information prominently
The consumer rights directive sets out extensive information which is required before any contract is entered online. The information required is quite detailed and is not set out here. The breach is an offence as well as that certain important consequences follow.
Confirmation of the concluded contract must be given in a durable medium unless provided pre-contract in a durable medium (which may be a PDF). There are limited circumstances in which a consumer may opt-out of standard rights.
In the case of a consumer contract, there is a right of cancellation within 14 days. If the above rules are not carefully followed the cancellation period can be greatly extended. There are some exceptions to cancellation, but they are narrowly defined. When a contract is cancelled, the trader must reimburse payments made without delay and in any event within 14 days.
There are provisions regarding expressing explicit consent to any payment obligations beyond those for the principal obligation. There must not be default consent.