Future UK regime for exhaustion of IP rights: IPO consultation

Summary

Background

IP rights are exhausted where the goods are put on the market by, or with the consent of, the rights holder. The rights holder cannot rely on the IP rights protecting the goods in order to prevent the further distribution or resale of those goods.

Under the system adopted by the EU, once a rights holder has, or has authorised a third party to, put a product on the market anywhere in the EEA, the rights holder cannot assert its national rights in any one of the countries within the EEA in order to prevent those goods from being imported or resold in other parts of the EEA. However, this no longer applies to the UK now that it has left the UK.

The World Trade Organization's (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement allows WTO member states to provide for the use of patented subject matter without the authorisation of the rights holder in certain circumstances. The TRIPS Agreement contains a most favoured nation (MFN) provision, which requires that all WTO member countries are treated equally.

Facts

The consultation sets out four options for the UK's future exhaustion regime:

• A unilateral EEA (UK+) regime which involves keeping the current regime, with parallel imports being allowed only one way, from the EEA to the UK, except to the extent that any other EEA member state chooses to reciprocate and allow parallel imports from the UK. The government considers this option to be compatible with the TRIPS agreement, including its MFN provision.
• A national regime under which IP rights are only exhausted in the UK when put on the market in the UK, meaning a prohibition on parallel imports from outside the UK. However, a national regime would be incompatible with the Northern Ireland Protocol, which allows goods to move freely from EU member states, including the Republic of Ireland, into Northern Ireland and the government is therefore unlikely to select this option. It would benefit IP rights holders, as they would have greater control over the distribution of their products and possibly increased market share and return on investment.
• An international regime under which IP rights would also be exhausted in the UK when put on the market anywhere outside the UK. This would mean that goods could be freely imported into the UK from the rest of the world without the permission of the rights holder, while the lawfulness of parallel exports from the UK would depend on the law in the destination country. This option would reduce the value of IP rights, including their value to licensees, and could cause product safety and quality issues. It could also increase the incidence of shipments of legitimate parallel goods being used to mask counterfeit goods. However, it would be likely to improve consumer choice and reduce prices and would be advantageous to manufacturers who have a complex supply chain and import components that contain IP rights.
• A mixed regime under which specific goods, sectors or IP rights are subject to one regime, while others are subject to a different regime. Switzerland uses this model, operating a policy of national exhaustion just for medicines. Any mixed regime would have to be compliant with the Northern Ireland Protocol. Although a mixed regime is possible in theory, the government considers that it could be difficult for businesses and consumers to understand and might be difficult to apply if a product had multiple IP rights that were variously subject to both regimes.

The government states that it does not have a preferred option but will need to ensure that any new policy is consistent with its existing treaty obligations, including the Northern Ireland Protocol, which is not readily reconcilable with national exhaustion. It seeks views on which option respondents would prefer, and the length of time that would be needed for businesses to adapt to a new regime.

The consultation also discusses the impact of different exhaustion regimes on:

• Licensing, territorial rights and contracts, as international exhaustion is likely to reduce the value of licences. Any change in the exhaustion regime will require the renegotiation of existing licences, which is likely to be costly.
• Products made from component parts and transformed goods, such as in the fashion sector.
• Transit goods, although it is unlikely that the UK's choice of exhaustion regime would affect the movement of transit goods across borders.
• Consumer choice and the potential for consumer confusion. National exhaustion would reduce these.
• Innovation, as international exhaustion is likely to weaken IP rights and discourage innovation.
• Interaction with unregistered design rights. Since the end of the Brexit transition period, first disclosure of a design in the UK only gives rise to UK unregistered design rights, while first disclosure in an EU member state gives rise to EU design rights. This means that if a product protected by EU design right were to be first put on the market in the UK, it might not be considered exhausted in the EU, and it could not be exported to the EU without the consent of the design rights holder.

Source: IPO: Consultation document on the UK's future regime for exhaustion of IP rights, 7 June 2021, www.gov.uk/government/consultations/uks-future-exhaustion-of-intellectual-property-rights-regime/the-uks-future-regime-for-the-exhaustion-of-ip-rights. Comments are requested by 31 August 2021

First published in the August issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.