Brexit and ecommerce and the future DSM: what could it mean for you?
The conventional wisdom said it couldn't happen - but it happened; we have a vote for the UK to leave the EU. The current political fallout introduces uncertainty. This moment is proving a major shock to the experiment of globalization and Brexit raises many questions about the UK's future legal system if and when the UK leaves the EU. The likely state of future law has come into focus. In the online and ecommerce space however, we perhaps have more answers than you first think. In the famous words of once United States Secretary of Defense Donald Rumsfeld, there are some known knowns; but also some known unknowns.
There are known knowns:
It will take the UK at least two years to negotiate its exit from the European Union. This isn’t going to be an overnight process and, during this interim period at least, the UK's laws will remain fully subject to EU laws. Therefore, for at least two years from the UK notifying the EU of its planned exit, EU law will apply in the UK and nothing changes. In other words, the UK will continue to be subject to the same online and internet legal framework for the immediate future, and at least 2 and likely more years. This could be viewed as the "long term" given the pace of Internet innovation.
What's more, the Consumer Rights Act 2015 which enshrines UK consumers rights under digital contracts was "home grown" in the UK and has nothing to do with EU rules. Those rules can't change even upon a Brexit so we know consumers rights in respect of faulty goods, services or digital content shouldn't change and the basic consumer contractual fairness principles in that Act will also survive. Further, if you make an misleading claim online you're accountable to the UK's Advertising Standards Agency and an area of precedent ASA findings untouched by EU laws. Even the UK's Trading Standards authority and Competition and Markets Authority are UK regulatory bodies and have clear UK only enforcement roles. Even if the UK were to exit tomorrow none of these known regimes change (unless the UK independently makes changes in order to accommodate other legal rationalisation).
So there are things we know:
As the EU has identified, despite some harmonization successes, "barriers between EU Member States still remain". Many of these barriers result from differences between national legal systems. Whilst the EU has been interested in harmonizing Member States' national laws of contract the proposed Common European Sales Law (CESL) has not progressed over the course of more than 10 years. Throughout the EU there is no harmonization of contract law principles today. The laws determining the formation of a contract, misrepresentation, entire agreement, interpretation and the majority of remedies for breach of contract are all determined by the law of each Member State. Such English and Welsh and Scottish contract law principles will remain. The contractual fundamentals underpinning online contracts don't originate from the EU and have evolved domestically for years in each Member State. Language and accessibility aside, this is why we wrestle with the issue of creating a "one-size-fits-all" EU contract today. Legally it can't be done. A risk-based approach may achieved something near-compliant (and this will remain the case post-Brexit).
We also know there are known unknowns:
Some of EU's online laws were handed down as Directives (think the Ecommerce Directive introducing "intermediary liability principles", the e-Privacy Directive giving e-marketing and cookie consent rules and the Consumer Rights Directive with its harmonized right of return and obligations to provide certain contractual information pre-contract). These Directives instructed the UK to implement its own laws in accordance with certain principles in the Directive. Once implemented, the UK and UK Regulators follow and apply the UK laws and the UK courts would hold anyone violating these laws to the UK implementation of such laws. Therefore, while many online and digital laws are baked into UK law they've been transposed into national law in the UK under powers granted by Section 2(2) of the European Communities Act 1972 ("ECA").
If and when the UK leaves the EU, we don't yet know what will happen to the ECA. Currently many believe the UK would repeal it. With no ECA, the UK would no longer be compelled to follow EU law. It's likely the UK Regulations that implement Directives under the ECA prior to the repeal of the ECA would stay in place. If so, all the above online rules emanating from Directives would survive. Any future EU Directives following the date of repeal would not be followed (unless the UK so elected). Not all "regulations" are equivalent: EU Regulations (as opposed to UK domestic Regulations) would no longer continue to have direct effect and would no longer be law in the UK. So for example, it would no longer be necessary for a UK online provider to reference on their websites an electronic link to the ODR platform (for that rule emanates from an EU Regulation (the Consumer ODR Regulation)). If the ECA goes, Europe's new data privacy laws under the GDPR would not be binding in the UK (for more on these consequences see our sister blog).
Additionally, the basis upon which we determine applicable jurisdiction also lies with EU rules. In fact both the 2001 Brussels Regulation and the 1968 Brussels Convention (subsequently acceded to by the UK in 1978) confer a right on the consumer to bring proceedings in either their own courts or courts of the Member State in which the defendant is domiciled. Plus the Brussels Regulation means a consumer is entitled to their "home courts". If and when the UK leaves the EU these rules laws won't apply (unless the UK mirrors or adopts them afresh). Whilst it's unlikely the UK will ever grant international businesses the opportunity force UK citizens to litigate in foreign courts. In this regard, you can assume similar UK rules would be adopted.
Another example is the Digital Single Market. The DSM is not law, it's an aspiration around which future EU laws may be crafted to realize its goals. With many of the proposals either at consultation or legislative drafting stage these rules are years away becoming operative EU law and binding on Member States in any event. Whilst there is no indication Brexit will stop the DSM progress, what may well be lost is the harmonization. With the UK's substantial online market outside of these plans the EU may yet deliver a simpler digital market but it can't deliver all they hoped for and promised if the UK ends up outside that market. For UK domestic online players it may be harder to sell in Europe (though, according to the rhetoric of the DSM, there is already limited cross-border trade). For the multinational trying to address and sell across European geographies it may need navigate a little more fragmentation in the future if the UK’s market doesn't adopt DSM-like rules.
But there are also unknown unknowns, the ones we don't know we don't know:
There are admittedly areas where today speculation trumps fact. On exit the existing benefits of EU membership would no longer apply (unless some form of harmonized laws is continued). For example, the elimination of tariffs on goods; the freedom to sell goods and services in the EU; the current harmonized minimum regulatory standards (think CE marking products, or lead prohibitions in hardware). We don't know whether these or similar free trade principles will endure. Perhaps an entirely new economic or trade arrangement will arise? That's the topic of exit negotiations.
Norway, Lichtenstein and Iceland are all members of the European Economic Area, but not the EU. Being a member of the EEA means that they enjoy free trade with the EU, but on condition that they submit themselves to EU laws. On exiting the EU, the UK may seek to remain within the EEA in order to continue enjoying free trade with the EU - and, if it does, it may necessarily concede to be subject to the some of Europe's laws in return.
Upon exit new national laws would be required to cover the gap in EU Regulations or other principles lost as a result of the way the UK exits. Such new legislation may ultimately end up being based on the UK's existing EU legislation or a separate regulatory environment to that in the EU may be created. If new national laws were to mirror EU legislation then the UK courts may end up relying on EU jurisprudence for guidance in interpretation albeit it would not have any legal effect in the UK. Unless the UK substantially mirrors or follows any new proposals, online operators will be faced with applying one legal approach for the UK and another for Europe (just as they may have to now when addressing services to say the US and Canada). Inconvenient yes, but not insurmountable.
It is the latter category (the unknown unknowns) that tend to be the difficult ones:
Where Rumsfeld's infamous insights are hold true is that an EU exit is unprecedented. Before the early hours of 24 June 2016 as the referendum result became clear, we had a predictable set of rules to play by. Now, undoubtedly there is uncertainty for the UK and potentially for the future of the EU. Those optimists among us still hope Brexit may not ultimately happen. When all is said and done I would anticipate the intrinsic demand and pressure of trade will cause the UK laws to align closely with EU digital and Internet rules. It may transpire that the UK online laws will continue to be heavily influenced by European plans (potentially, to the detriment of many businesses, the UK just loses its voice in moderating or influencing them). Take Switzerland, outside the EU but with virtually equivalent data protection laws (just so it can stay at the table). If they're close but slightly less burdensome the UK (already Europe's largest individual online market) could grow faster. Let's face it, it's easier to roll-out a US online model in an English speaking, common law jurisdiction than civil law and foreign language dominated market. The UK market will be attractive and just as accessible for the US. It could be isolated from the proposed "improved cross-border enforcement"!
At this stage there is plenty of speculation, we can draw on what we know but, in some areas, the only certainty is some uncertainty. There's a lot to be worked out over the coming weeks, months and years. We do know there will be change. But, as many in the tech space know, technology moves faster than the law anyway. Change will come. A wake up call yes, but business moves on and the UK market hasn't lost its love of the Internet and the early adoption of technology. The UK's online demands will continue whatever the eventual legal framework.
Mark Webber, Partner (Internet and Technology) – Silicon Valley
mark.webber@fieldfisher.com