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The end of the Brexit transition period: the exhaustion of intellectual property rights on parallel trade

After months of trade negotiations, on 24 December 2020 the UK and the EU concluded the Trade and Cooperation Agreement ("TCA").  A 'deal' was finally struck and a new trading relationship between the UK and EU was set out in the TCA. The TCA applied from 1 January 2021 following the end of the Brexit transition period and the UK left the 'single market' which meant that the EU rules on free movement of goods no longer applies to the UK. One of area's that is referred to in the TCA, is the UK's position relating to the trading in parallel goods in the European Economic Area ("EEA") and the exhaustion regime of Intellectual property ("IP") rights in goods.
 
In this article we will look into the changes made to the exhaustion regime and the impact and steps that IP rights holders should consider taking.
 
What is parallel trade
 
Parallel trade is the import and export of goods outside of a manufacturer’s distribution system without the manufacturer’s consent. Parallel trade occurs when the IP rights in those goods are ‘exhausted’. That is, they have been placed on the market within a specific territory by, or with the permission of, the IP rights holder. The 'exhaustion' of IP rights means that the IP rights vested in the goods can no longer be exercised by the IP rights holder to stop the further distribution or resale of those goods.
 
Until 31 December 2020, the exhaustion regime in the EEA and UK was the same. This meant that while IP rights may be national in scope, the placing of goods on the market in any EEA country and the UK by the IP rights holder, or with their consent, generally exhausted the IP's rights holder's ability to enforce their IP rights in those goods to prevent re-sale anywhere in the EEA and UK. However the IP rights holder in the EEA and UK could use that IP to prevent import into the EEA and UK of genuine goods placed on the market outside the EEA and UK.
 
Changes to parallel trade under the TCA
 
However effective from 1 January 2021, there have been changes around the exhaustion of IP rights in the UK. Whilst, for the time being, the UK will continue to recognise the EEA exhaustion of rights regime (meaning no change shall affect the rules associated with the importation of the IP registered goods in the UK from the EEA), there will be changes that affect the exportation of these goods from the UK to the EEA.  The key legislation that now deals with the exhaustion of rights regime in the UK is The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019 (as amended by The Intellectual Property (Amendments etc.) (EU Exit) Regulations 2020 (SI 2020/1050) ) (the "Regulations").
 
The Regulations maintain the current exhaustion regime within the UK legislative framework with regard to importation of goods into the UK from the EEA. This is confirmed further by the IPO which published guidance for businesses trading in parallel goods in  the EEA which can be located here. However the exhaustion regime included in the Regulations does not extend nor apply to the exportation of goods into the EEA from the UK. Therefore a UK IP registered holder of a good cannot prevent parallel imports from the EEA, but a EEA IP registered holder of a good is able to prevent parallel imports from the UK.
 
Impact on IP rights holders
 
The new exhaustion regime is going to have an impact on IP rights holders who export goods into the EEA. An IP rights holder will need to consider the extent to which they wish to retain control of the cross-border trade for their IP protected goods from the UK to the EEA and implement a strategy accordingly. The IP rights holder will need to consider if it wants to allow parallel exports of its IP-protected goods from the UK to the EEA . It is recommended that the IP rights holder review  its supply chain and also the individual commercial contracts in place with its distributors who trade in the EEA.
 
The IP rights holder's ability to prevent the export of goods into certain countries under the exhaustion regime should be deemed separate in comparison to any commercial agreement that restricts the importation of products into that same country. Such a commercial restriction may give rise to separate competition law issues.
 
Next steps
 
After 1 January 2021, the UK will have an opportunity to decide what its permanent exhaustion regime should be. The government plans to publish a formal consultation in early 2021 and we will let interested parties know of the publication date in due course. If you would like to know more about this topic, or for any advice, please contact Sara Stewart or your usual contact in Fieldfisher's Brand Development Team.

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