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What impact Brexit will have on technology and innovation

Siw Grinaker on

Brexit is closing in. Get the essentials on what the UK leaving the EU means for technology and innovation.

This summer it is nearly three years since the United Kingdom voted to withdraw from the European Union, and the time is almost due for the actual "Brexit" to take place. There are tonnes of different concerns and ramifications related to Brexit, but in this article we will take an essential look at what impact there will be on the sectors of technology and innovation.

To begin with, don’t panic. The UK is still currently a member of the EU—with all the obligations and benefits a full membership entails. After Brexit, most likely some time in 2019, the global law firm Norton Rose Fulbright writes that the impact on technology and innovation depends on what model the UK adopts for its relationship with the EU:

Model

Impact

European Economic Area

Changes may be minimal

European Free Trade Association

Changes will depend on sector specific agreements

Undisclosed, further distancing

May cause more extensive changes

While we can forecast specific changes related to signed treaties and future obligations, Nigel Green, CEO of financial advisory firm deVere, cuts to the chase:

"We won’t know if the Brexit deal is good, bad or ugly for another 10 years," he says according to technology leader website Information Age. With this point in mind, we can carefully consider the greatest impact Brexit most likely will have upon tech and innovation.

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Table of contents

Digital innovation and AI

E-commerce and trade

Digital Single Market

STEM concerns and labour immigration

Call for government measures

Opportunities with Brexit

Brexit and resource access

More legal ramifications

Digital innovation and AI

London is currently the world’s no. 3 leading technology hub, after Silicon Valley and New York City, writes the Dutch research organisation TNO in an Innovation for Life paper. The UK has access to finance, markets, talent, and R&D, with strong creative and fintech sectors.

Key areas for digital innovation on the UK-EU axis are AI (artificial intelligence), robotics, and HPC (high-performance computing). The UK has a particularly strong research output on AI, while at the same time the "Big Four" tech companies (Google, Amazon, Facebook, and Apple) are investing tenfolds of billion US dollars in strategic research such as Machine Learning.

The UK will still have leading AI institutes and companies after Brexit, as well as continued access to Big Four investments. This will likely keep the UK as a forerunner, especially in the area of AI in years to come.

See also: Top 10 trends in digital experiences for 2019 »

"Soft power and our world-class universities will be the driver," says former minister and Brexit Secretary, Dominic Raab, as reported by Information Age. Information Age also quotes Lord Clement-Jones CBE, Co-Chair of the House of Lords Select Committee on Artificial Intelligence, as suggesting that the UK could see "a Cambrian explosion in AI," referring to a geological age when a sudden spurt of change and complex organisms evolved in a relative short period of time.

The claims are supported by several analytical firms: Big Innovation Centre and Deep Knowledge Analytics both suggest the UK is on its way to third place in the global rankings for the AI industry, behind the US and China. The market for AI is in high demand: Professional services firm PwC predicts that AI can boost global GDP by $15 trillion between now and 2030.

TNO suggests that EU countries may need to intensify measures to boost the EU startup ecosystem—in particular the access to finance, markets, and the links to the US and Asia. Also, it will be vital for the EU startups and scale-ups to have a strong EU-UK data sharing regime and mobility programme, like visas. In order to continue the EU and UK position in AI, companies and organisations from both jurisdictions need to maintain and cultivate strategic R&D partnerships.

E-commerce and trade

TNO reports that there is a higher percentage of online sales in the UK compared to the US and the EU. A strong basis for e-commerce means that vendors look upon the UK as a strong market with growth potential, resulting in an influx of American and Asian e-commerce platforms in Europe, and especially in the UK.

Law firm Norton Rose Fulbright notes the following key pieces in EU legislation with a tie to e-commerce and information society services in English law:

EU legislation

Description

The E-commerce Directive

Requires providers of information society services to provide certain information about themselves and details on how contracts made through electronic means are made.

The Electronic Identification Regulation

Provides, among other things, for evidential weight to be given to electronic signatures.

TNO advises that EU countries should foster e-commerce partnerships with American and Asian based platforms. The same strategy goes without saying for the UK, regardless of Brexit.

The British Embassy in Oslo points out that the Withdrawal Agreement and the Political Declaration have provided a firm commitment from the EU and the UK that both parties will seek to agree new and specific arrangements on digital. This covers a wide range of areas, including e-commerce, telecoms, and emerging technologies, reflecting the growth and prominence of global digital trade.

"The UK’s proposal on digital will ensure that we remain a world-leading digital economy and grow even further. Last year UK tech firms attracted more inward investment than any other European country," the Embassy states in an email to Enonic.

The focus on continued commitment on trade means unbroken support of digital trade with the EU and the rest of the world, and will preserve domestic flexibility for these areas. The aim is to ensure that the UK can create the best regulatory environment for digital which is able to respond to the creation and evolution of new technologies.

Digital Single Market

The Digital Single Market (SDM) is a policy belonging to the European Single Market that covers digital marketing, e-commerce, and telecommunications. Prime Minister Theresa May has previously confirmed that the UK will remain outside the EU’s SDM. But, as described by Norton Rose Fulbright, the EU will regardless of Brexit proceed with proposals to enact new regulations for a harmonised market.

After Brexit, establishment of companies in the UK will be affected by the restrictive nature of the over-the-top (OTT) services like mobile networks, and a possible divergence in regulation between the UK and the EU. Further, the discontinuing of EU state aid could lead to less UK government investment in infrastructure to isolated areas. The spectrum policy will most likely remain unchanged, as the UK is still a member of CEPT and the ITU, international organisations dealing with spectrum issues.

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The consequences for the EU may be that they lose access to their most vital startup ecosystem with the UK—including the UK markets, finance, talent, and link to the US. With more flexible regulation, the UK may strengthen its incentives and global position, possibly leaving other EU tech hubs behind. But the UK will now face competition from the EU, in particular access to talent, and risk falling behind on AI R&D, in spite of recent EU pledges.

STEM concerns and labour immigration

The Knowledge Exchange Blog has reported on increasing concerns among the STEM (science, technology, engineering, and maths) community of researchers and professionals following Brexit. The union Prospect, which gathers 50,000 scientists, engineers, and technical specialists, has for instance issued the following statement:

"Science is an international endeavour and continued free movement of people is vitally important both to the public interest and the wider economy."

The free movement of people across borders is a large concern, but so is the funding situation. The UK contributes 12% to the overall EU budget, while receiving 15.5% of all EU science funding in return. Another real concern is EU nationals feeling less welcome in the UK after the Brexit referendum in 2016. In order to continue the tradition of a welcoming and open atmosphere in the UK universities and market, UK nationals need to be cognisant about such possible issues.

The British Embassy in Oslo has declared that the UK is an open country, open for business with the world and to those who come here to contribute, and that this will continue after the UK leaves the EU.

"We have benefited greatly from our historically welcoming attitude to immigration—which has enriched our country and culture, creating more jobs and supporting our public services. Under our new system we will continue to do so," the Embassy states, pointing further to the white paper The UK’s Future Skills-based Immigration System. The white paper details the package which will support the economy and enable the UK to take control of immigration.

"In line with the Migration Advisory Committee's recommendation, we will focus on high skills, and prioritise those migrants who bring most benefit to the UK, maximising the benefits of immigration. It will be a single skills-based system that will take account of the needs of all nations of the UK."

Recognising the depth of the UK-EU relationship, the UK has made a sovereign choice to seek reciprocal mobility arrangements with the EU in a defined number of areas, for example to allow business professionals to move to provide services, or tourists to continue to travel visa-free. This is reflected in the Political Declaration on the future relationship.

See also: The skills you need to build successful digital experiences »

Politicians and the government have made efforts to appease the STEM community in some of their concerns, e.g. guaranteeing to underwrite EU funding won by UK organisations through programmes such as Horizon 2020.

PM Theresa May has stated that "[w]e will welcome agreement to continue to collaborate with our European partners on major science, research, and technology initiatives, for example in space exploration, clean energy, and medical technologies." The House of Lords Science and Technology Committee has also issued an idea to host, in partnership with governments and funding bodies from other countries, one or more new, large-scale international research facilities in the UK.

The British Embassy in Oslo has also affirmed that one of the core objectives of the UK is to continue the collaboration with European partners on major science, research, and technology initiatives.

"We are committed to strengthening the UK's world-leading science and research base, ensuring we remain a go-to place for researchers, innovators and investors in technology," the Embassy writes to Enonic. Pointing out that these are key elements vital to the UK's prosperity, the commitment to the STEM community forms an integral part of the Government's modern industrial strategy.

Call for government measures

Several UK businesses have voiced a legitimate concern about the UK market losing its position globally following Brexit, and have called for the government to clarify what measures it possibly will undertake.

"The government must be saying and doing more to reassure local and global players that they will protect those elements that currently make the market so attractive, said Martin Linstrom, managing director in AI company IPsoft, according to Information Age.

It remains a concern that the UK may lose its position as Europe’s leading hub for technology talent after Brexit. Uncertainty among business leaders surrounds the future of innovation in the UK, as software developer talent in the UK is predicted to decrease following Brexit. A majority of CIOs are also looking at staffing outside the UK to assist in the development and deployment of software after Brexit.

While the current UK tech credentials remain strong, concerned business leaders refers to history—where tech advancements have occurred due to collaboration and joint work across multiple geographies. The call among several business leaders is therefore for the politicians to work hard to maintain a strong and common European tech community.

"What we need now is clarity," says Head of Pivotal Labs EMEA, Robbie Clutton, according to Information Age. "The longer we continue with such uncertainty, the greater the damage not only on the European tech community, but also on our national economy."

Opportunities with Brexit

Despite all the uncertainty surrounding Brexit, the UK technology sector is still attracting high-skilled global talent. Not all business leaders believe the tech sector was significantly aided or hindered by the UK membership in the EU, and therefore don’t believe Brexit will have as large an impact. Privacy laws like GDPR and ePrivacy do have an impact, however, and in light of these legal requirements the UK must ensure the adequate transfer of data between the EU and the UK post-Brexit.

"Some reports indicate that London continues to be a leading location for tech companies to relocate to, but a recent study from the Open University suggests this may change after a formal split from the EU," said Robbie Clutton of Pivotal Labs, according to Data Economy.

"However, what is abundantly clear, is that organisations must chart a course for innovation, with software development and new technologies both key ingredients for UK prosperity post-Brexit. In order to succeed, this will require people, process, technology, and a culture that fosters agility, experimentation and solving problems for the user."

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According to Information Age, the Social Enterprise Entrepreneur and Digital Transformation Expert Richard Skellett said: "Software as a Service ( SaaS) is a way of life for cloud software companies, but we need to look at how this might fit into the emerging global world and the tax pressures that each country is faced with, particularly post-Brexit.

"The UK has a wonderful opportunity to combine cloud computing and integrity of data flows to deliver next generation solutions for the Global Market."

Brexit and resource access

On 25 November 2018, the Government published its Political Declaration setting out the agreed future relationship with the EU and stresses the UK's commitment to:

  • A free trade area for goods, with no tariffs and no quotas, combining deep regulatory and customs cooperation and underpinned by provisions ensuring open and fair competition. This is the first such agreement between an advanced economy and the EU.
  • Ambitious arrangements for services and investment that go well beyond WTO commitments, and build on recent EU FTAs, alongside new arrangements on financial services.
  • New and specific arrangements on digital, covering a wide range of areas, including e-commerce, telecoms and emerging technologies, reflecting the growth and prominence of global digital trade.
  • Arrangements to allow the EU and UK to provide for greater protection of Intellectual Property rights than is available under existing treaties.
  • Opportunities for greater reciprocal market access for procurement than under the WTO Government Procurement Agreement.
  • Provisions to ensure open and fair competition, proportionate with the overall economic relationship, covering state aid, competition, social and employment standards, environmental standards, and relevant tax matters.

More legal ramifications

Law firm Norton Rose Fulbright has written extensively on the subject of Brexit and legal implications for technology and innovation. Here are the essential points regarding several key areas:

Data privacy

The default position after Brexit is that the UK is no longer a "safe third country," only a "third country." Hence, personal data transfer from the EU to the UK will only occur if the EU Commission finds the UK data protection regime to be "adequate," which means equivalent to the EU data protection regime. If the EU Commission lands on this conclusion, data transfers will continue without additional export measures or derogations.

The UK government has published a vision based on mutual recognition of each other’s data protection frameworks and continued regulatory cooperation, which include:

  • A role for the UK Information Commissioner on the European Data Protection Board
  • Continued representation on the EU’s One Stop Shop
  • Allowing the EU Commission to assess whether the UK passes the "adequacy" test
  • An international treaty

The EU Commission is reluctant to give a third country influence over EU norms and enforcement settings, and has not responded positively to the UK’s proposal. In order to make the EU Commission regard the vision more favourably, the UK parliamentary Select Committee on Brexit and Data has urged the UK government to accept the jurisdiction of the Court of Justice of the European Union in data privacy. The committee also suggests that the UK government should start urging the Commission to commence their adequacy assessment as soon as possible, as this process can take up to a year.

Until an arrangement is in place, EU controllers and processors will only be able to transfer personal data to the UK by the following means:

Scenario

Impact

No adequacy

EU exporters will need to implement an export mechanism—like model clauses or binding corporate rules—or rely on a derogation—like consent of the data subject or public interest exemption.

Immediately after Brexit

Both the UK and EU rules should still be essentially identical, allowing for businesses with subsidiaries across the two borders to collect, aggregate, and process personal data as before. The main difference is that businesses will need to deal with data protection authorities in both the UK and the EU.

No adequacy in the long term

There may be further deviations from today’s arrangement.

Adequacy in the long term

It is likely that the UK will remain closely aligned with the EU regime to maintain the status and allowing free flow of personal data.

Consumer and commercial

Norton Rose Fulbright reports that several EU requirements are already implemented into UK law in the areas of commercial law and consumer protection law. Here is a list of the most important ones:

Legal area

Specific directives

Commercial law

  • Commercial Agents Directive
  • Late Payments Directive
  • Misleading and Comparative Advertising Directive
  • Audiovisual Media Services Directive

Consumer protection law

  • Unfair Contract Terms Directive (partially)
  • Consumer Rights Directive (partially)
  • Unfair Commercial Practices Directive
  • Services Directive
  • Equal Treatment Directive
  • Directive on Alternative Dispute Resolution for Consumer Disputes

A considerable body of UK consumer protection law will continue to be aligned with EU law after Brexit under the European Union (Withdrawal) Act 2018. Any change in legal requirements depends on the transitional and savings arrangement under this act.

See also: How to deliver the best digital experiences for your customers »

Outsourcing

The EU has a Transfer of Undertakings Directive which is implemented in the UK going under the name Transfer of Undertakings (Protection of Employment) Regulations 2006, or "TUPE" for short. TUPE is a vital part of UK labour law, protecting employees whose business is being transferred to another business.

If the UK chooses to repeal TUPE upon Brexit, how will it impact outsourcing business models?

Scenario

Impact

Short term

No change to employee rights, as confirmed by the government.

Medium to long term

If TUPE no longer applies in the UK, pricing models might need to vary between the UK and the EU. Outsource suppliers must consider if freedom from TUPE regulations provides opportunities to mitigate risk in their services.

Intellectual property rights

Patent rights

The current system of national patent protection obtained via the UK Intellectual Property Office (UKIPO) or the non-EU institution European Patent Office will remain unchanged. However, a revamp of the patent system in the EU is currently underway, which will enable proprietors of inventions to apply for a single, pan-EU Unitary Patent through a Unified Patent Court (UPC).

The UK has ratified the UPC agreement, but continued participation after Brexit depends on the agreement of all participating EU member states. Businesses should in any case review their patent protection and future enforcement strategies, bearing in mind that the continued participation of the UK after Brexit is somewhat uncertain.

Trademark rights

UK trademarks obtained through UKIPO remains unchanged, but EU trademarks will no longer cover the UK after Brexit. At the end of the Brexit transition period, it is agreed upon that a EU trademark right holder will become holder of the comparable UK right without a re-examination.

It is also agreed upon that UK rights and EU rights should have the same filing date, priority date, and claimed seniority.

Design rights

UK registered designs obtained through the UKIPO and the UK unregistered design right remains unchanged. EU design rights will no longer cover the UK after Brexit, but—in a similar manner of trademark rights—the design right holder will become the holder of the comparable UK right without re-examination.

Unregistered community design rights arising before the end of the Brexit transition period will continue to apply in the same way in the UK, but the UK has yet to provide for designers to obtain an unregistered design right with the same scope as an unregistered community design right in the UK.

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Copyright

There is no change to copyright protection in the UK as it is not harmonised across the EU. Copyright law can be altered in the future in certain contexts, as governed by EU law already implemented into UK legislation—such as the Software Directive.

Database rights

Database rights arising before the end of the Brexit transition period will continue to apply in the same way in the UK, with the term of protection in the UK lasting at least equal to the remaining period of protection in the EU.

Past and present database rights holders must keep track on qualification provisions, like being a national of a member state or having their habitual residence in the EU.

EU Top Level Domain names

The .eu Top Level Domain (TLD) will no longer apply to the United Kingdom as from the withdrawal date, meaning businesses based in the UK no longer will be able to establish or renew .eu domain names. After the withdrawal date, UK rights cannot be invoked in revocation procedures for speculative and abusive registration.

Telecoms and media

In the realm of telecommunications and media, consumers will continue to benefit from EU laws that have been implemented into English law—unless the laws are repealed or changed.

After Brexit, the UK must negotiate a partnership agreement with the EU, but it is difficult to say whether UK consumers will enjoy some or all the same rights as the EU consumers. The UK will need to adopt and comply with relevant EU legislative measures, or develop its own laws consistent with evolving EU regulation.

International roaming charges for UK consumers travelling the EU might not be subject to legislative protection, as the UK parliament can’t legislate for wholesale roaming rates charged back by EU mobile companies. Bilateral agreements between UK mobile companies and their EU counterparts should therefore be reached instead.

***

The impact of Brexit upon technology and innovation is a large topic, subject to complexities among everything from regulations to market fluctuations. As a general rule of thumb, it is best advised for your business to prepare for the worst and hope for the best in terms of continued cooperation between the UK and the EU.

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Topics: 
brexit
innovation
artificial intelligence
GDPR
digital strategy