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The UK Intellectual Property Office has kicked-off its much awaited consultation on the UK's future exhaustion regime for all IP rights, now that the UK is no longer part of the EU-system. It is urging businesses to respond to its questions and the four options on the table.
Towards the end of 2020, as the Prime Minister, Boris Johnson, was frantically negotiating the future trade deal between the UK and EU (see our blog, EU-UK Trade and Cooperation Agreement: what does it mean for IP?), the IPO announced that it would be launching a formal consultation in 2021 to help determine the most appropriate IP exhaustion regime for the UK which would underpin future rules on parallel imports for the UK should be. It might not quite be "early 2021" any more, but a substantial consultation nevertheless arrived into our inboxes earlier this week, together with an initial impact assessment. (See the IPO's press release on 7 June 2021.)
What is the current post-Brexit exhaustion regime?
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. (For further details see our briefing papers, Brexit and exhaustion of intellectual property rights and Brexit and intellectual property a new horizon, published last autumn.)
According to the consultation paper, key sectors particularly influenced by parallel trade include fast-moving consumer goods (FMCG), luxury goods, print and publishing, pharmaceuticals and automotive.
Options on the table
As the IPO explains in the consultation document, following Brexit the UK is no longer "bound" by the EU legal framework and has the "opportunity to choose" its future exhaustion of IP rights regime and decide how to implement any change. It sets out four possible options:
| Option | Type of regime | Parallel imports into the UK? |
| 1 | Unilateral EEA (UK+) regime (Ie current system from 1 January 2021) |
Only automatically permitted from EEA countries (assuming there is separate authorisation for regulated goods such as medicines) |
| 2 | National |
Not automatically permitted from any country |
| 3 | International |
Automatically permitted from any country (assuming there is separate authorisation for regulated goods such as medicines) |
| 4 | Mixed |
Ability to parallel import will depend on any decision on treatment for a specific IP right, good or sector |
The government states in the consultation document that at present it does not have a preferred option for the UK’s future exhaustion regime. However, it considers that options 1, 3 and 4 above are more readily reconcilable with the Northern Ireland Protocol, which allows goods to move freely from EU member states (including the Republic of Ireland) into Northern Ireland. (Option 2 has been included only for the sake of completeness and so that the IPO can gather evidence on its potential impact.)
The IPO takes each option in turn discussing their pros and cons, including:
- Option 1: The government thinks that this option – the "do nothing" option - would be the least costly for businesses reliant on the EEA for supply of goods and raw materials, whilst continuing to provide the same level of choice for UK consumers.
- Option 3: This option of an international regime could increase consumer choice and supply as goods could be parallel imported from anywhere in the world, and might even lead to price reductions. However, it could reduce the value of IP rights (including their value to licensees) and could lead to consumer safety issues due to different regulatory systems.
- Option 4: This “mixed” option is where a specific good, sector or IP right are subject to one regime and all other goods, sectors and IP rights are subject to a different regime. Some countries have this type of system, eg Switzerland where most goods can be parallel imported, but there is a national regime for medicines. Australia has also experimented with parallel import restrictions on books. This mixed regime option could be complex and present challenges for businesses and consumers to understand. If there was a different regime for a particular type of IP right, this could be particularly complex because many goods are protected by multiple IP rights.
Consultation questions and timing
The IPO is looking for responses to a wide range of questions, from information about the value of parallel trade to individual businesses, details of price differentials, feedback on the four proposed options, and whether respondents are aware of the change to the UK’s exhaustion regime from 1 January 2021 and how this is affecting them. Respondents are invited to answer as many as they wish – there is no obligation to complete them all!
Towards the end of the consultation paper, the IPO asks important questions about the length of time that businesses think could be needed to adapt to a new regime, such as in relation to supply chains, contracts, product development, manufacturing processes or investment decisions. For example, would it be one year or three years?
The deadline for responding to the consultation is 31 August 2021. (The details can be found on the IPO's website.)
Final thoughts
As the government recognises in the Ministerial Foreword to the consultation paper the choice of a new exhaustion regime for the UK is going to be a difficult and possibly contentious one. Whatever system is adopted it will take time for businesses to adapt when they are still adjusting to the new regime following Brexit (as well as all the issues stemming from the Covid pandemic). The government does not provide any timeline as to when we might expect it to publish its response to the consultation, however given that any other option (apart from the "do nothing" option) will involve legislative change, it is not going to be a quick process.
The IPO began to lay some groundwork for exploring future exhaustion options when it commissioned a feasibility study by Ernst & Young which was published in June 2019. However, as the IPO notes in the current consultation paper there are still evidence gaps with little data on the value and scale of parallel imports to the UK which the government hopes will now be forthcoming.
If you would like to discuss this consultation and any issues surrounding exhaustion and parallel imports further, please contact a member of our IP team.