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No change (for now!) to UK post-Brexit exhaustion regime

Heidi Hurdle
09/02/2022

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United Kingdom

We reported back in June 2021 that the UK Intellectual Property Office had launched its much awaited consultation on the UK's future exhaustion regime given that the UK is no longer part of the EU system and now the results are in! The UK government has announced that it will keep the current post-Brexit regime - for the time being at least.

Quick recap

By way of a reminder, before the UK left the EU, the UK was a part of the EU’s regional exhaustion system. This meant that IP rights in goods first placed on the market anywhere in the EEA, by or with the right-owners consent, would be considered exhausted in the rest of the EEA. As a result, goods could be both parallel imported into the UK from the EEA and parallel exported out of the UK to the EEA.

From 1 January 2021, the UK no longer takes part in a reciprocated EEA exhaustion regime. Although parallel imports from the EEA to the UK remain freely importable (with the UK unilaterally participating in the EEA regional exhaustion regime for now), the same is not true of parallel imports from the UK into the EEA. The IP rights in goods first placed on the market in the UK are not considered exhausted in the EEA. Consequently, rights-owners can stop the parallel export of these goods into the EEA and UK businesses exporting IP-protected goods to the EEA need to ensure they have the requisite permission.

The aim of the consultation was to seek evidence and views from respondents to understand what the most appropriate exhaustion regime should be for the UK. It focused only on parallel imports to the UK; as the UK government has no direct control on the exhaustion regimes of other countries, parallel exports were out of scope. There were four options tested through consultation, with evidence and views required on what regime should be implemented, and if there were to be a change, how a new regime should be implemented. (See our blog for the details of the consultation, What will be the future UK regime for parallel imports? IPO consultation kicks-off!)

Government decision

The consultation closed on 31 August 2021 and the IPO recently announced that there is not yet enough data to support a change from the current post-Brexit system:

"The government has completed an initial analysis of the recent consultation. Unfortunately, there is not enough data available to understand the economic impact of any of the alternatives to the current UK+ regime. As a result, it has not been possible to make a decision based on the criteria originally intended. However, the government remains committed to exploring the opportunities which might come from a change to the regime. Further development of the policy framework needs to happen before reconsidering the evidence and making a decision on the future exhaustion of IP rights regime".

There is currently no timeframe for a further decision - all that the IPO has said is that there will be a further update in "due course".

Summary of responses

There were 150 responses to the consultation, which included those from trade associations, with the pharmaceutical and creative industries being most heavily represented in the responses. (The government has published a detailed summary of all the responses.) Most respondents favoured the current UK unilateral application of the EEA exhaustion regime (the so-called UK+ regime) which was seen by some as being the best option to provide continuity and stability to business in the short to medium term.

In the consultation document the government said it did not consider a national regime to be readily compatible with the Northern Ireland Protocol, which allows goods to move freely from EU member states (including the Republic of Ireland) into Northern Ireland, but asked for views on this assumption. Some of the respondents to the consultation questioned this assessment and put forward a detailed opposing position concluding that the Protocol itself should not be read as precluding a national exhaustion regime.

Final thoughts

It is not surprising that the government has not yet made a definitive decision on the UK's future regime for parallel imports, instead opting for the "do nothing" option and keeping the current UK+ regime, when there is no easy "one size fits all" answer. There is also limited data to evaluate the current system due to the very short period in which it has been in operation and the continuing effects of the coronavirus pandemic on business (as some respondents noted).

If and when the government does change the current regime, businesses will need a period of adjustment to implement new business procedures. This could include altering product development and manufacturing processes, establishing new supply chains and contacts, and renegotiating supply and distribution contracts. This is something the government has clearly taken on board in its consultation, and although estimates of the length of time required to implement a change of regime varied greatly amongst respondents, it is very unlikely that the government will introduce such a fundamental shake-up overnight. It will also involve legislative change, which is rarely a quick process.

With thanks to Kurt Shead, Trainee Solicitor, for his contribution to this blog.

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