The UK is consulting on four possible regimes, although it appears to rule out national exhaustion as an option. The result could have a major impact on intellectual property owners and anyone affected by parallel trade.
What is the problem?
The exhaustion of rights regime determines the ability of intellectual property rights holders to use their intellectual property rights to control what happens to goods benefiting from those rights once such goods have legitimately been placed on the market. . In particular, it determines their ability to prevent goods from crossing territorial borders (so-called parallel trade).
The EU operates a regional regime of exhaustion of rights. This means that holders of intellectual property rights cannot use their rights to prevent goods protected by intellectual property lawfully placed on the market in the EEA from circulating within the EEA; their rights would be exhausted. However, right holders can rely on their intellectual property rights to oppose the entry of goods into the EEA from third countries outside the EEA.
Since the end of the Brexit transition period, the UK has unilaterally participated in the EEA regional exhaustion regime. Conversely, the United Kingdom is now a third country with regard to the EEA. This means that intellectual property rights cannot be used to prevent goods legitimately placed on the market from moving from the EEA to the UK, but can now be used to prevent such goods from moving from the UK to the EEA. As far as the UK is concerned, this was a temporary measure to ensure the continuous flow of goods such as pharmaceuticals from the EEA to the UK.
The British government now has launched its long-awaited consultation on the future British exhaustion of rights regime. Four plans are open to consultation:
- the current unilateral EEA regime (known as “UK +”)
- national exhaustion
- international exhaustion, and
As the government appears to have ruled out a national regime as incompatible with the Northern Ireland Protocol and seems skeptical about the feasibility of a mixed regime, the focus seems to be on the existing unilateral EEA regime or international exhaustion.
The outcome of the consultation will be important to all those affected by parallel trade, including:
- Intellectual property owners
- Intellectual property licensors and licensees
- those who simultaneously import goods and raw materials into the UK
- those who sell or supply such goods, and
- those involved in complex manufacturing and supply chains involving the UK and third countries.
The government emphasizes that the consumer goods, luxury goods, printing, publishing, pharmaceuticals and automotive sectors are particularly affected. Since exhaustion applies to trademarks, designs, copyrights and patents, the owners of all such rights may be affected.
The consultation is open to responses from June 7 to August 31, 2021. In addition to soliciting the opinions of all concerned, the government is keen to obtain data on the extent of parallel trade in the UK and the impact of the current regime (past attempts to collect such data have proven to be largely unsuccessful).
Want to know more?
Four plans are open to consultation:
The current unilateral regional EEA / UK + regime
Under this regime, once the goods are legitimately placed on the market in the EEA, duties are considered exhausted in the UK. In other words, intellectual property rights cannot be used to prevent goods from moving from the EEA to the UK. The government says this option would be the cheapest for EEA-dependent businesses to supply goods and raw materials, while still providing the same level of choice for UK consumers. The government states that it considers this regime compatible with TRIPS (including the most-favored-nation provision in TRIPS) and GATT.
Under this scheme, duties are not considered exhausted in the UK until the goods are legitimately placed on the UK market. The government says the scheme could mean intellectual property rights are seen as stronger, but potentially reduce supply and choice (and raise prices) for UK consumers. However, it also states that this option is incompatible with the Northern Ireland Protocol. It is included in the consultation only for the sake of completeness and to gather available evidence on the economic impact.
Under this regime, duties are considered exhausted in the UK when goods are legitimately placed on the market anywhere in the world. Intellectual property rights cannot be used to prevent the entry into the UK of goods legitimately placed on the market anywhere in the world. The government considers that this regime could mean that intellectual property rights are perceived to be weaker, but potentially increase supply and choice (and lower prices) for UK consumers. This regime would have important implications for IP owners as it would limit their ability to prevent the parallel importation of goods into the UK.
A mixed diet
This would mean that different regimes are adopted depending on the intellectual property right, good or sector in question. Switzerland is cited as an example of a country with a mixed regime, where drugs are treated differently from other commodities. The government emphasizes that such a regime can be complex and difficult to understand for consumers and businesses.
It is important to note that the consultation does not cover:
- Exhaustion of rights in purely digital goods (such as music or books purchased and downloaded from an online store for use on a mobile device).
- Geographical indications or plant variety rights.
- Counterfeit goods. This is because parallel trade is the trade in legitimate physical goods, not counterfeit goods.
- Parallel exports. Indeed, the UK government has no control over the exhaustion of rights regimes in other countries. For example, now that the UK is no longer a member of the EU, intellectual property rights can be used to prevent goods legitimately placed on the UK market from entering the EEA. The net result is that those who import and sell goods from the UK into the EEA must now consider the IP position.
The government has also said it does not expect the new regime to affect goods passing through the UK. Finally, the consultation does not cover the details of the law surrounding any regime of exhaustion of rights (such as the notion of consent).