Exhaustion of rights pre-Brexit
Exhaustion of rights post-Brexit
What about goods from outside the EEA post-Brexit?
What about Northern Ireland?
What did the UK IPO consultation consider?
What were the results of the consultation?
No decision for now
Why does the Northern Ireland Protocol impact the decision?
In January 2022, the UK Intellectual Property Office (IPO) published the public feedback it received in its consultation on the future exhaustion of IP rights regime to be adopted in the United Kingdom. The consultation has proved inconclusive; with only 150 respondents, a lack of data and a changing policy framework (including concerning the Northern Ireland Protocol), any decision on the future regime appears to have been put off for consideration another day.
Exhaustion of rights pre-Brexit
The principle of the "exhaustion of rights" essentially provides that once goods have been placed on the market by a rights holder or with their consent, the rights holder cannot then assert its IP rights to prevent the onward sale of those goods into a new territory. As a result, where the IP rights relating to goods have been exhausted, there will be an opportunity for others to engage in the parallel trade of those goods.
Pre-Brexit, the United Kingdom was part of the European Union, which operates a regional exhaustion of rights regime. Once goods have been put on the market anywhere in the single market, they can flow freely around the European Economic Area (EEA) and rights holders cannot assert their IP rights to prevent this.
However, on the whole, IP rights can be asserted to prevent goods from outside of the EEA entering the European market without the rights holder'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. The effect of this is commonly termed "fortress Europe" because goods can move around within the EEA market but not in respect of those goods put on the market by rights holders in non-EEA markets.
Exhaustion of rights post-Brexit
Following the end of the Brexit implementation period (IP completion day) on 31 December 2020, the United Kingdom ceased to be part of the EEA and therefore the rights relating to goods put on the UK market are not considered "exhausted" from the perspective of EU countries. Rights holders can, therefore, prevent the flow of goods they put on the market in the United Kingdom into any EEA territory.
However, rather than immediately adopting its own exhaustion of rights regime, the United Kingdom decided to maintain the status quo. This means that, although the United Kingdom is no longer part of the EEA, the rights in goods put on the market in the EEA are considered exhausted in the United Kingdom. This "UK+" exhaustion regime currently in place means UK rights holders cannot prevent the flow of goods from the EEA into the United Kingdom.
What about goods from outside the EEA post-Brexit?
The case law of the Court of Justice of the European Union (CJEU) which determined that, save for patents, international exhaustion of IP rights cannot apply in respect of goods put on the market outside of the EEA still applies in the United Kingdom as retained EU law, though it is open to the Court of Appeal in England and Wales and the UK Supreme Court to diverge from that case law. The cases ruled on by the CJEU considered the interpretation of EU law. Now, though, with the United Kingdom no longer part of the single market and the Treaty on the Functioning of the European Union not operating in Great Britain at least, there may be scope to challenge this. The likelihood is, however, that in respect of goods put on the market both outside the EEA and within, the position on exhaustion of rights in the United Kingdom will remain as it is until the UK government directs a change in approach.
As with the rest of the United Kingdom, Northern Ireland adopts the same UK+ EEA regional exhaustion of rights regime. Goods can flow freely from Ireland, or anywhere else in the EEA, into Northern Ireland without rights holders being able to enforce their rights. The Northern Ireland Protocol also provides that certain EU legislation must be adopted in Northern Ireland to enable goods to flow around the island of Ireland; both in and out of Northern Ireland. However, the slight wrinkle is that, as part of the EEA, Ireland cannot adopt a different exhaustion of rights regime to the other territories. Therefore, notwithstanding the Protocol, rights holders in Ireland can still enforce their IP rights to stop their goods put on the market in Northern Ireland flowing into that country.
What did the UK IPO consultation consider?
The current UK+ exhaustion of rights regime was considered a temporary solution until, following a consultation, a more permanent regime was fixed.
The UK IPO ran a consultation in 2021, concluding on 31 August 2021, asking respondents whether the United Kingdom should keep the current exhaustion of rights regime, or change it.
Four possible options were under consideration in the consultation:
- option one – UK+ to maintain the status quo. This is a continuation of the current unilateral application of an EEA regional exhaustion regime;
- option two – national exhaustion. A national exhaustion regime would mean that only goods put on the market in the United Kingdom can flow around the United Kingdom. Goods put on the market in any other country, European or otherwise, can be stopped from entering the UK market by relying upon UK IP rights;
- option three – international exhaustion. If an international exhaustion regime were to apply, goods put on the market in any country, anywhere in the world, could be parallel imported into the United Kingdom and IP rights could not be asserted to prevent the first sale of that product in the United Kingdom; or
- option four – mixed regime. Under a mixed regime, certain IP rights or certain types of goods may have a different exhaustion regime applied to them. Switzerland, which is not part of the European Union or the EEA but is part of the European single market, has a mixed regime. Switzerland has adopted a unilateral EEA regional exhaustion regime with the exception of fixed price goods, primarily medicines, for which national exhaustion applies.
While the UK IPO sought views on the four regimes, it also said that it considered a national regime incompatible with the Northern Ireland Protocol and as such ruled out adopting that option.
What were the results of the consultation?
There were 150 respondents to the consultation (not as high a number as no doubt the UK IPO had hoped) and the majority of the respondents came from the life sciences sector and the creative industries. A summary of the general views of those respondents has been published by the UK IPO here.
The most favoured option by respondents was a continuation of the current UK+ regime, but a number of respondents qualified that response as being preferred because of the difficulties with the national regime and the Northern Ireland Protocol.
More than 50% of respondents opposed an international regime, citing concerns about stifling innovation, the environmental impact, domestic revenue losses, goods of inferior quality or different standards hitting the UK market and the distortion of retail competition in favour of multinationals. Unsurprisingly, brand owners, manufacturers and those in the creative industries were most opposed to this regime.
More than 20% of respondents expressed opposition to a national exhaustion regime, with this group primarily comprising distributors and those who depend upon the supply of goods from Europe. Their concern was isolating the UK market and prices being driven up. Others, however, considered that a national regime would encourage investment and innovation in the United Kingdom.
A mixed regime was generally not favoured by respondents.
Reconciling the competing views in the consultation responses is in itself a real challenge for the UK IPO. Nevertheless, following its analysis of the results, the UK IPO stated that it was because there is "not enough data available to understand the economic impact of any of the alternatives to the current UK+ regime" that it has not been possible for the IPO to make a decision on which exhaustion regime would be most appropriate for the United Kingdom going forward.
Consequently, the United Kingdom will continue with the current regional UK+ regime for the time being. It is not clear whether the IPO is actively seeking further evidence and data, or what the timescale may be for reconsidering this question, but the IPO's reference to the need to develop a policy framework indicates there are other issues that first need to be addressed. This includes questions regarding the Northern Ireland Protocol.
Why does the Northern Ireland Protocol impact the decision?
The Northern Ireland Protocol was agreed to avoid a hard border on the island of Ireland following Brexit. It prohibits restrictions on exports and imports between the European Union and Northern Ireland. The United Kingdom has interpreted this to mean that exhaustion of rights between the European Union and the United Kingdom, or at least Northern Ireland, must apply. If not, for rights holders enforcing their IP rights in Northern Ireland in respect of goods coming over the border, this would be a prohibited "restriction on imports".
However, this interpretation is the subject of debate and competing views were presented in the consultation. The position of the European Commission is that the Protocol does not mandate the exhaustion of rights. Consequently, rights holders in Ireland can enforce their IP rights in respect of goods arriving from Northern Ireland.
Keeping open the Irish border has resulted in the creation of an Irish sea border between Ireland and Great Britain, resulting in additional challenges for the supply of goods and trade between Great Britain and Northern Ireland. Consequently, discussions are ongoing between the United Kingdom and the European Union over potential changes to the Protocol.
However these difficulties are resolved, the Protocol is unlikely to remain in its current form and any changes could see, in the future, a move away from the presently adopted UK+ exhaustion model.
For further information on this topic please contact Emily Swithenbank at Pinsent Masons by telephone (+44 20 7418 8250) or email (emily.swithenbank@pinsentmasons.com). The Pinsent Masons website can be accessed at www.pinsentmasons.com.