Exhaustion of intellectual property rights in the UK after Brexit – the asymmetry will continue indefinitely

The UK’s current position on the exhaustion of intellectual property (IP) rights – an asymmetrical situation which allows parallel imports into the UK from the EEA but not parallel exports from the UK to the ‘EEA – should continue indefinitely. On January 18, 2022, the UK government announced its response to the consultation process launched on June 7, 2021. It concluded that there was insufficient data available on the economic impact of burnout, so – for at the moment – it is not in a position to take a formal decision on any changes to the existing regime. No timeline for a final decision has been set and no further work on the matter is planned.

That outcome may have been on the cards since the government launched its Post-Brexit Exhaustion and Parallel Trade Consultation (the Consultation) last year. The Consultation made no formal recommendations, but set out four options:

  • maintaining the current situation (asymmetric EEA-wide depletion);
  • international (global) exhaustion;
  • domestic exhaustion (UK only); Where
  • a mixed regime (different solutions for different industries or categories of intellectual property rights).

Since she noted significant legal and/or commercial concerns regarding each of the three alternatives to maintaining the current asymmetric position (specifically national exhaustion), inaction always seemed likely. However, concerns had been raised by a separate report issued by the Growth of Innovation and Regulatory Reform Task Force (the Task Force), a body set up by No 10, which recommended the government to seize the opportunity created by Brexit to “explore” the international market. exhaustion.

How did we get here?

Since the end of the Brexit transition period on 1 January 2021, UK law on exhaustion of intellectual property rights has been governed by the Intellectual Property (Exhaustion of Rights) (Leaving the EU) Regulations 2019 ) (the 2019 settlement). These provide that intellectual property rights in goods lawfully placed on the market in the UK or elsewhere in the EEA are considered to be exhausted, so that the goods can be lawfully imported into the UK from the point of view intellectual property law. However, the position is not mutual. Under EEA rules, intellectual property rights in goods placed on the UK market are not exhausted and goods cannot be freely exported to the EEA.

The 2019 Regulations were intended as an interim solution. The purpose of the Consultation was to enable the Government to determine the permanent position. However, he noted that “the government has little data on the value and scale of parallel imports into the UKand referenced the findings of a 2018 study by Ernst & Young that found companies’ awareness and understanding of the issue of burnout is limited.

The four consultation options

1. Maintain current position

The business as usual option, which is summarized in the table below, was identified by the consultation as “least costly for businesses that depend on the EEA for the supply of goods and raw materials, while still offering the same level of choice to UK consumers”. He also noted the compatibility of this option with the UK’s international obligations, including the Northern Ireland Protocol.

Table 1: exhaustion – current position

2. International exhaustion

Adopting an international regime would mean that intellectual property rights in the UK would be exhausted once goods have been placed on the market anywhere in the world by or with the consent of the rights holder. This position is summarized in the table below.

Table 2: international exhaustion

The Consultation noted both the benefits and the concerns of international exhaustion. This could increase consumer choice and reduce prices. However, it could also confuse consumers if goods destined for overseas markets – and therefore raising consumer safety concerns or incorporating unsuitable regulatory standards – enter the UK. International exhaustion could also affect the availability of goods such as books or pharmaceuticals in developing countries (if low-cost goods intended for use in those countries were diverted to the UK for resale to higher prices, which could also lead to an undercutting of prevailing UK prices).

3. National Exhaustion

A national exhaustion regime would mean, as set out below, that intellectual property rights were only exhausted if they had previously been placed on the market in the UK (again by or with the consent of the owner of the right).

Table 3: national exhaustion

The Consultation effectively ruled out national exhaustion as an option for two reasons. First, it could reduce supply and choice for consumers since parallel imports would not be allowed. Secondly, and more importantly, it was found to be incompatible with the Northern Ireland Protocol, which requires parallel imports into Northern Ireland from the Republic of Ireland and other EU Member States are permitted without restriction.

4. A mixed diet

Finally, the consultation examined the possibility of a “mixed regime” in which different industrial sectors, types of goods or intellectual property rights would be subject to different exhaustion regimes. Switzerland currently applies such a regime with national exhaustion applicable to medicinal products and EEA-wide or international exhaustion for most other products. Australia has also experimented with limited restrictions on the parallel import of books.

The consultation notes that any mixed regime would be complex, difficult for businesses and consumers to understand, and could raise issues under the Northern Ireland Protocol.

Responses to the consultation

A total of 150 responses were submitted for consultation, most of them from the pharmaceutical and creative industries. A clear divide emerged between, on the one hand, respondents engaged in parallel trade and, on the other hand, right holders. The former insisting on the advantages of parallel trade, the latter expressing greater skepticism. Particular attention was given to the savings made by the National Health Service (NHS) through the parallel importation of medicines. The magnitude of these savings was disputed, and the government eventually concluded that it was difficult to calculate precise figures. Indeed, he noted that because parallel-traded goods often do not pass through standard distribution channels, the quantities and values ​​of such goods are difficult to track.

Regarding the four options presented in the consultation, the majority of respondents were in favor of maintaining the current asymmetric exhaustion regime. International exhaustion was opposed by more than half of respondents, with only a small number supporting it. Similarly, there was little support for a mixed diet. Around a third of those polled argued for national exhaustion, but a large share of those polled accepted the government’s legal analysis that national exhaustion would be incompatible with the Northern Ireland Protocol.

In concrete terms, the companies that responded to the Consultation underlined the need for a long transition period – at least 5 years – in the event of the introduction of changes.

Formally, the Government’s response to the Consultation is not the final word on exhaustion. However, any change to the existing position under the 2019 Regulations now seems extremely unlikely in the short to medium term. Responses to the consultation favored the existing regime, showed little support for the alternatives (in fact outright opposition to international exhaustion) and confirmed that it is very difficult to find economic data that could support every change. Perhaps more importantly, companies made it clear that a long transition period would be required if any changes were introduced. Under these circumstances, the current regime of exhaustion of intellectual property rights in the UK seems likely to remain in place for some time.

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