‘UK+’ IP rights ‘exhaustion’ regime maintained

Emily Swithenbank of Pinsent Masons was commenting after the UK government confirmed that it will retain the current so-called ‘UK+’ intellectual property (IP) rights exhaustion regime that has been in operation since Brexit. It had consulted on possible alternatives.

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.

Swithenbank added: “When the exhaustion of rights has occurred, it is only if the goods are then modified by third parties or otherwise where the parallel trade could damage the trade mark reputation can IP owners potentially step in to ensure their trade mark rights are protected.”     

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. This means that EU IP rights can be invoked to prevent trade from the UK.

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.

The Intellectual Property Office (IPO) consulted on possible options for reform in June 2021, including a fully international exhaustion regime under which UK IP rights in goods would be considered exhausted after those goods had been placed on any market around the world for the first time. However, it deferred deciding on reform when it responded in early 2022, citing insufficient evidence on which to base a decision.

Now, however, the IPO has said that persisting with the post-Brexit IP rights exhaustion regime, which is colloquially referred to as the ‘UK+’ regime, is the best option, describing it as “a stable, well-understood regime that meets our objective to provide balance by having parallel importation laws which promote the interests of the British people and our IP-rich businesses”.

Minister for AI and digital government, Feryal Clark, said: “This is an important step in maintaining the strength of our world-leading intellectual property framework. The decision we’ve taken not only gives businesses the certainty they’ve been calling for, but ensures consumers have choice and fair access to a wide range of goods.”

As well as considering moving to an international regime, the government had consulted on adopting a national IP rights exhaustion regime, which would enable brand owners to assert their IP rights over non-UK goods. However, it ruled this out 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.

Swithenbank said: “Brand owners will be disappointed that the imbalance in the existing regime, which does not favour UK IP owners, will be the permanent system and, in the pharmaceutical industry at least, the perceived savings for consumers from parallel imports appear not to be a reality.”

“While IP rights cannot be asserted to apply a blanket ban on imports into the UK, it is still possible to rely upon trade mark rights if there is a risk of damage to reputation – whether from poor quality or confusing packaging or because the goods are not the same as those on the UK market. The expectation is that, notwithstanding the new strategic partnership agreed between the UK and EU, there will, over time, be regulatory divergence between the UK and EU in certain industries. This will inevitably give rise to the enforcement of trade mark rights for imports into the UK. It will be interesting to see how the courts address this conflict with the UK’s adoption of EU principles of free movement of goods,” she added.