Future UK IP rights exhaustion regime decision delayed

The Intellectual Property Office (IPO) consulted on possible options for reform last year, but it has now said that there is currently insufficient evidence on which to make a decision on what the future regime should be.

“The government has completed an initial analysis of the recent consultation,” the IPO said. “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. We do not currently have a timeframe for a decision, but we will provide a further update to stakeholders and businesses in due course,” it said.

The principle of the exhaustion of rights essentially provides that once goods have been placed on the market by a rightsholder or with their consent, the rightsholder cannot then prevent the onward sale of those goods by asserting its IP rights, which extend to preventing the first sale into a new territory. As a result, where the IP rights relating to goods have been exhausted, there is an opportunity for others to engage in the parallel trade of those goods.

The IP rights exhaustion regime as relating to the UK and the EU changed when Brexit took effect.

Pre-Brexit, the UK was part of the EU which operates a regional exhaustion of rights regime. Once goods have been put on the market anywhere in the single market, such goods can flow freely around the European Economic Area (EEA) and rightsholders cannot assert their IP rights to prevent this onward sale. However, on the whole, IP rights could be asserted to prevent goods from outside of the EEA entering the European market without the rightsholder’s consent. This is because, for non-EEA goods, the IP rights are not considered ‘exhausted’ when the goods are first put on the market. 

When the UK ceased to be an EU member state, the UK government decided to continue to recognise that the first placing of products on the market in the EEA, and not just within the UK market, will exhaust the IP rights in those products. However, this position was not reciprocated by the EU, meaning goods placed on the UK market are no longer counted as having been placed on the EEA market for the purposes of IP rights exhaustion.

In respect of IP rights in goods arriving in the UK from non-EEA countries, as before under the EU regime, the rights are not considered ‘exhausted’ when the goods are first put on the market.

In its consultation on possible changes to the IP rights exhaustion regime in the UK last year, the IPO said it was considering three options: continuation of the current unilateral exhaustion regime, also known as ‘UK+’; a new international regime that would automatically permit the import of goods from any country, assuming there was separate authorisation for regulated goods such as medicines, while exports would be automatically permitted only to other countries with an international regime; or a mixed regime, where the ability to parallel import goods would depend on any decision on the treatment for a specific IP right, good or sector.

At the time, the IPO ruled out adopting a national regime, which would enable brand owners to assert their IP rights over non-UK goods, because it was considered that this risked cutting across the Northern Ireland Protocol – a treaty that forms part of the EU and UK’s agreed post-Brexit arrangements – since the protocol guarantees the flow of goods from Ireland and the rest of the EEA into Northern Ireland.

Emily Swithenbank, a brand protection expert at Pinsent Masons, said the summary of responses the IPO received to its consultation, now published, highlight the difficulty the government faces in balancing the interests of different businesses in deciding on the future IP rights exhaustion regime.

“It is perhaps unsurprising that the responses to the consultation shows a divide between brand owners, manufacturers and those in the creative industries opposing an international regime on the one side and distributors, who favour wider movement of goods, opposing a national regime on the other,” Swithenbank said. “This is particularly so in the responses within the pharmaceutical industry where the regulatory conditions across Europe are such that significant price differentials exist between markets creating extensive opportunities for parallel trade which impacts both market share for manufacturers but also raises issues of supply chain continuity.”

“The IPO has said that it has insufficient data to make a decision on the future regime meaning that we will continue with the current regional UK+ regime for the time-being. It is not clear if the IPO is actively seeking further evidence and data, or what the timescale may be for reconsidering this question, but the reference to the need to develop the policy framework indicates there are other issues that first need to be addressed. This includes questions regarding the Northern Ireland Protocol which the IPO used as the basis for its position that a national regime was not really an option. A change to the Protocol could see in future a move away from the currently preferred UK+ model,” she said.