Legal & Government Affairs Update Issue 4 - 2019
General Election 2019 and the UK software sector
At the time of writing the election manifesto documents of the main parties have yet to be released, but we are still hearing plenty of promises from every party about what they will deliver if they get into power. How will what the major parties are promising impact our industry?
To put everyone's least favourite topic first, it is almost impossible to talk about the upcoming election without somebody mentioning Brexit. The Brexit process from here will broadly come in two stages: getting a withdrawal agreement passed and then agreeing a future relationship with the EU. Whatever model the UK chooses for the future relationship will have the biggest impact on the software sector and UK economy as a whole.
The Conservatives are promising to deliver the latest withdrawal agreement negotiated with the EU and then seek a future relationship based on a free trade agreement outside of the Single Market and Customs Union (a hard Brexit). This will allow the UK to set its trade policy independently of the EU, but will probably mean putting up more barriers to trade with the continent than are currently in place.
Labour are promising to renegotiate the withdrawal agreement with a greater focus on protecting things like worker's rights and the environment in future. They are then promising a second referendum on EU membership but have not said whether they will campaign for remain or for any renegotiated withdrawal deal they get (that will be decided after the election if they get into power). In terms of the future relationship with the EU, it seems as though Labour will stay more closely aligned to the EU Single Market and Customs Union (a softer Brexit). This should make getting a deal on the future relationship easier and put up fewer barriers to trade with the EU, but will probably limit the UK's ability to do its own trade deals.
The Liberal Democrat proposal of simply revoking the UK's withdrawal and cancelling Brexit will keep our relationship with the EU exactly as it is. If they don't get a majority (the most likely outcome), expect the Lib Dems to continue to support remain efforts. The Scottish National Party looks likely to get a similar number of seats as they have at the moment. They also back remain but won’t form a coalition unless they get a second referendum on Scottish independence.
At the end of the Leave scale we have the Brexit Party, who want the hardest form of Brexit: leaving the EU without a withdrawal agreement. This will ensure that the UK is out of the Single Market and Customs Union. They would end the negotiations over the withdrawal agreement. There would still have to be some arrangement reached with the EU on trade after that, and the Brexit Party would likely support a free trade agreement that keeps the UK's laws and trade independent of the EU.
So what does all this mean for the UK software and digital sector more broadly? Let's look at some of the areas that might be affected.
1. Flow of data with the EU
Since the implementation of the General Data Protection Regulation in the EU in 2018, the standards for the protection and use of personal data in the EU have become stricter, and the free flow of personal data to countries outside of the EU has become more restricted. Companies wanting to transfer personal data outside of the EU can only do so freely to countries that the EU has declared have sufficient and equivalent data protections laws in place. Otherwise model contract clauses must be put in place to ensure the personal data is handled properly in the non-EU country.
If the UK ends up outside of the Single Market and Customs Union, the EU has not confirmed that it will automatically be granted equivalent status to the UK despite having exactly the same laws in place. This will mean that, at least until the equivalence evaluation process is complete; EU companies will not be able to transfer personal data to the UK freely. This is likely to have a negative impact on UK software companies that rely on the flow of personal data from the EU for their business. UK software companies could be put under pressure to renegotiate contracts with EU companies to put model data transfer clauses in place, but this is still not a water-tight solution.
Without getting too technical on the specifics of data protection law, the problem with relying on the model contract clauses is that they don't cover all of the data processing relationships that can exist between companies. This means there could still be an element of risk for companies transferring personal data to the UK for processing where this is not covered by the model clauses, because the EU could still decide that the agreement they come up with is insufficient.
The flow of personal data the other way (from the UK to EU) looks like it will be less affected. The UK under both Teresa May's and Boris Johnson's premiership has promised to keep data protection law and standards as they are, and has unilaterally promised to recognise the equivalence of EU data protection standards. This means that the transfer of personal data to the EU by UK companies can continue as before.
2. Investment in the UK
Investment in the UK economy is important for its growth and the software industry is no different. Brexit produces two factors that affect investment: uncertainty and the attractiveness of the UK's position depending on the outcome of Brexit.
Whatever the outcome of Brexit is, the removal of the uncertainty should produce a positive impact on investment. Businesses holding off on making investment decisions will at least know where the UK stands and some may then decide to invest into the UK.
On the attractiveness of the UK's position for investors following Brexit, the economic consensus is that all forms of Brexit will reduce the levels of investment in the UK in the short to medium term as businesses in the UK will have less access to EU markets.
So a harder Brexit is likely to lead to reduced foreign investment into the UK, but leaving the Single Market and Customs Union would free up the UK government's ability to invest directly in the economy because it will no longer be bound by restrictive EU laws limiting state aid. An ambitious hard Brexit strategy might see the government compensate directly for any fall in foreign investment by directing state investment into certain sectors. One would expect the software sector to be a beneficiary of such government investment.
3. Access to talent
Access to a large pool of skilled and talented individuals is key to the success of UK software companies. A Tech UK report from 2017 found that 18% of the UK digital sector's employees were foreign born, with one third of that total coming from the EU. With sufficient investment in skills and training, the UK might be able to compensate for any difficulties in hiring foreign employees post-Brexit, but that would take a number of years.
Much of the talk among hard Brexit supporters is around limiting immigration into the UK, possibly by introducing an "Australian style" point system to evaluate people wanting to move to the UK. It is unclear whether any party would implement such a system in a way that hurts businesses' ability to hire skilled workers from overseas. It is likely that a government implementing a more restrictive immigration system would try to mitigate the impact on business but it is still possible that tightening immigration controls would limit access to talent, either because of difficulties in the system or because it would put people off moving to the UK.
Labour (at least the party's membership) and the Lib Dems are generally more open to immigration and are unlikely to take steps to put stricter immigration controls in place.
Parties' stance on UK digital and software sector
With Brexit dominating the election debate (and this newsletter) there isn't much time left for politicians to talk about other policies. Even key pillars of the domestic agenda (the NHS, education and policing) are jostling for airtime with Brexit.
It would be very surprising if any party said that supporting the UK's technology sector was not a priority, but so far in the campaign we have heard very little about it. When the parties release their election manifestos we will have a better sense of their plans for UK tech, but what do we know about their plans now?
The 2017 Conservative election manifesto was strong on technology, with an ambitious plan on supporting the development of tech firms in the UK. It included plans for a Digital Charter to set out the UK's position on the future of regulating digital companies, a new industrial strategy to support the industry and improved access to apprenticeship levy funding for digital skills training. Investment in broadband infrastructure and a focus on reducing harm online also featured.
Boris Johnson's speech to Conservative party conference in October talked a lot about the need to support investment and growth in UK technology, so it would not be surprising to see similarly ambitious plans be published ahead of the upcoming election.
Labour's 2017 election manifesto was less specifically focussed on the technology sector, but had big plans for investment in the UK economy as a whole and recognised that UK technology would play a big part. Labour had and continues to have a strong focus on improving skills relevant to the tech sector through training and apprenticeships. The party's plans for tackling climate change as part of its "Green New Deal" also recognises the key role technology, and of course software, will have to play.
Labour also want to do more to make sure US tech companies (Google, Apple, Amazon, Facebook etc.) pay more tax on their UK operations. If these companies do less business in the UK as a result it could harm the UK software sector. Increased taxation could also lead to reduced investment and growth in the UK tech sector as a whole. On the other hand, this policy might help level the playing field with smaller UK companies.
The Liberal Democrats 2017 manifesto talked about harnessing the benefits of new technologies and supporting digital industries. There was also a promise to roll out faster broadband for businesses.
The party has gained momentum since Jo Swinson took charge, primarily on the back of their anti-Brexit stance, but we haven't heard much about the party's current proposals for the UK's tech sector since then. It is probably reasonable to expect some positive ideas for supporting UK tech from the party when their manifesto is released.
Much has been made of the Brexit campaign's use of technology and social media to reach out to voters and there are signs that the Brexit Party has adopted similar tactics in its election campaign. The party hasn't said much about what it would do support the UK tech or software sectors specifically however.
Scottish National Party
The Scottish National Party (SNP) looks likely to win the large majority of seats in Scotland and could form part of a coalition in government. The SNP talk about supporting the technology industry, as well as investing in green technology.
Readers are advised to keep an eye on the information the parties put out in the press, speeches and manifestos. We could see some interesting ideas and proposals if politicians talk about something other than Brexit.
Brexit will have an impact on the UK software sector but there are a lot of possibilities and variables (Brexit is nothing if not complicated) so it's difficult to say for sure what the impact will be. Generally a harder form of Brexit appears likely to make trade with the EU more difficult and could harm the industry. Government intervention will be needed to mitigate this.
Otherwise the parties have not said a great deal on their plans for the wider UK tech sector. It is somewhat concerning that one of the country's most dynamic and successful sectors is getting so little attention. However one does wonder how much bandwidth there will be in government for any particularly ambitious plans while Brexit is going on.
I do hope readers do not suffer too much Brexit fatigue as the campaigns continue.
Legislation & Case Law Update
EU report shows levels of internet piracy falling among younger people
The 2019 Intellectual Property and Youth Scoreboard report, published by the European Intellectual Property Office (EUIPO) in October 2019, collects information gathered from young people aged 15-24 in the 28 EU Member States about their attitudes the infringement of intellectual property rights in digital content and physical goods.
The report compares the results to those of a similar survey conducted in 2016 and states that many of the findings show a similar picture. However one particularly notable trend is that there has been a decrease of 5 percentage points in the number of 15-24 year olds who have accessed illegal downloads online.
The total number of young people who have access illegal downloads is still high, around one third, but the decrease is positive news for the industry. The report suggests that greater access to and use of subscription based services and an understanding of the impact of piracy on the individuals responsible for the creation of copyright material, as well as the detrimental effect on whole industries, is causing young people to think again before engaging in online piracy.
Software piracy remains a problem for the industry, but let's hope this trend continues and more people turn away from illicit use.
Cyber Security Incentives and Regulation Review 2020: Call for Evidence
On 4 November 2019, the UK Government launched a call for evidence to support its Review of current Cyber Security Incentives and Regulation, which is looking at how the Government can help organisations better protect themselves online.
The key things the Government is looking to achieve with this Review is to:
- understand the barriers which prevent organisations from improving their cyber security;
- understand the effectiveness of existing regulations and guidance including GDPR and NIS; and
- develop a range of policy proposals to address any gaps.
This Call for Evidence is looking to support this by gathering information from industry and stakeholders on the barriers to taking action on cyber security, what information would help organisations invest in cyber security, and what more could be done to encourage more effective cyber risk management.
The questions in the Call for Evidence are particularly concerned with whether commercial rational is a barrier to organisation in managing their cyber risk effectively. Also, how the Government or industry can develop a standardised, accessible transparent approach to defining and assessing the key information underpinning cyber risk management.
Readers can respond to the Call for Action by following the link below:
Super Pumped: the Battle for Uber by Mike Isaac
Super Pumped chronicles the dramatic and controversial rise of Uber to become one of the world's largest technology companies. The company set out to revolutionise transportation but has been the subject of much criticism.
The book focussed on the build-up to a disastrous twelve-month period in which Uber's ambitious former-CEO Travis Kalanick was unceremoniously ousted. The book is a gripping read and gives a fantastic insight into cutthroat Silicon Valley culture.
Mike Isaac, an award-winning New York Times correspondent, tells a gripping story of ambition and deception based on interviews with current and former employees, and previously unpublished documents. This book comes recommended for anyone interested in reading about the challenges at one of the world's most successful tech start-ups.