Due to the UK leaving the European Economic Area (EEA), the UK government is having to rethink how the principle of exhaustion should work in the UK as a standalone nation. On the 7th of June, the Intellectual Property Office (IPO) published an open consultation into how the UK is planning on implementing a new regime on the exhaustion of IP rights and parallel trade. Their paper outlined the possible options the UK are considering and are asking for the views of businesses and traders alike, to see what the best option moving forward would be. If a business moves, sells or relies on goods such as books, car parts or toiletries that have already been first placed on the market in another territory, the consultation is likely to be important to them.
So, What is the exhaustion of IP rights?
Intellectual property (IP) rights protect intellectual creations, so for example a copyright may protect a new book or song; a trademark may protect a new logo for a brand and a patent may protect a new invention. Having these rights will enable a person to take legal action against someone who infringes these rights (by selling, copying, or importing a protected product).
An exhaustion of rights means that the right to take action against infringement is constrained. Once a good has been placed on the market in a specific territory by, or with the consent of, the rights holder, the IP rights that protect these goods are considered to be “exhausted”. This means that the owner of that product loses the right to control distribution and resale of the product. A basic example is if a person buys a magazine, then the copyright is considered exhausted in the market in which it was purchased. This means that the author of that magazine (the rights holder) cannot stop the person from then selling the magazine to another person within the region where the book was put on the market.
This exhaustion of rights is important in the market as there needs to be a balance between the benefit and costs of IP. The system of exhaustion of rights means that distributors and other traders are able to move goods (including parts that make up goods) around a specified territory without the rights holder’s permission. This supports a market of secondary sales of legitimate goods, also known as parallel trade.
What is Parallel Trade?
Parallel trade is the cross-border movement of goods that have already been placed on the market in a specific geographic territory. The term parallel goods is used to describe the goods that are involved in this type of trade, where they have been lawfully manufactured in one country and are then placed on the market in another country and are moved across territorial borders. Parallel trade enables businesses to purchase goods in one country where the goods may be cheaper, parallel import them into another country where the same goods would generally be more expensive and then sell them at the higher price.
Before the UK left the EEA, parallel goods were able to move freely both ways, however this is no longer the case. This is why the consultation is looking for the views of businesses, legal practitioners and creators of new products, technologies and creative works, to help them decide how to move forward. As exhaustion affects all four main parts of IP (patents, copyrights, trademarks and designs), the government is also interested in views from users and holders of these rights.
Since 1 January 2021, the UK is taking part in a unilateral EEA exhaustion system.This means that the IP rights in goods first placed on the market in the EEA are considered exhausted in the UK. Therefore, these goods can be parallel imported into the UK without the rights holder’s permission. The IP rights in goods first placed on the market in the UK are not considered exhausted in the EEA. As a result, the rights holder may stop the parallel export of these goods into the EEA.
Unilateral EEA or UK+ Regime
This would be keeping the current regime that is in place. This means that parallel imports from the EEA into the UK would continue to be allowed. However, as at present, parallel exports from the UK to the EEA could be prohibited.
Under this regime, the IP rights in goods would be considered exhausted only in the UK once they were put on the market in the UK. Accordingly, businesses would not be able to parallel import goods from outside the UK.
Further details on costs and benefits of a national regime can be found in the Impact Assessment.
This type of regime would see the IP rights in goods considered exhausted in the UK once they had been put on the market in any other country. This means that these goods could be parallel imported into the UK from any country in the world without the rights holder’s permission. Parallel exports from the UK to other countries could still be stopped by the rights holder because other countries may not consider the IP rights in the goods to be exhausted. The main difference between this and the UK+ regime is that under an international regime, parallel goods could be imported from the EEA and any other country in the world.
A more detailed discussion of the costs and benefits of an international regime can be found in the Impact Assessment.
The UK could adopt a mixed regime, where one set of goods or rights are subject to one type of regime, and other types are subject to a different regime. For example, Switzerland has a regime in which most goods can be parallel imported but there is a national regime for medicines.
At present, the UK is undecided on which option to proceed with as they are still assessing the options based on representations, evidence and opinions they receive. The consultation is open until the 31st August 2021.
To read the full consultation, see UK’s future exhaustion of intellectual property rights regime.