The UK Intellectual Property Office ("IPO") has produced a consultation paper and launched a survey (available here) on the future of the UK's exhaustion of intellectual property ("IP") rights and parallel trade regime.
The survey is relevant to all UK consumers, as well as to any companies who either wish to import materials and other goods and/or face the prospect of competition from overseas.
Responses to the consultation should be sent to [email protected] by 23:45 (UK time) on 31 August 2021.
What is parallel trade?
Parallel trade is the import (and export) of genuine goods protected by IP rights, and occurs where the IP rights are said to have been 'exhausted' – being where the goods are put on the relevant market by, or with the consent of, the IP-right owner.
This is referred to as 'exhaustion' because, usually, the owner cannot rely on the IP rights protecting the goods in order to prevent the further distribution or resale of those goods.
Current UK exhaustion regime
Under the current regime – in place since 31 December 2020 when the UK left the single market of European Economic Area ("EEA") – the UK has adopted an asymmetrical arrangement referred to as "UK+". This "UK+" regime means that goods put on the market for circulation within the EEA from 1 January 2021 may be imported into the UK, and right-holders cannot rely upon their IP rights to prevent further distribution of such goods. This position has been adopted despite the fact that goods put on the market in the UK which are imported to the EEA are not automatically treated as in free circulation within the EEA. This means that importation of UK-approved goods to the EEA may be still be prohibited if done without the consent of the relevant IP rights holders.
Options for reform
The UKIPO's paper explains that there are four possible options for any post-Brexit reform of the exhaustion regime, the benefits and drawbacks of which are explained below.
For all four options, outbound parallel export of goods to the member states of the EEA are not automatically permitted.
1. Maintain the "UK+" regime (or "do nothing")
As explained above, the UK has chosen unilaterally to continue to participate in the regional exhaustion system of the EEA. Accordingly, under the "UK+" regime, the inbound parallel import into the UK of goods already freely circulating within the EEA market, are permitted. However, without any reciprocity from the EEA, the parallel export of goods in circulation in the UK alone are not automatically permitted within the remaining EEA countries.
- Benefits: This option is likely to maintain the same level of choice of goods for UK consumers. For businesses reliant on the EEA for supply of goods and raw materials, the UKIPO takes the view that this option would likely be the least costly
- Drawbacks: As there is no guaranteed reciprocity from EEA member states, it may not be possible to export parallel goods to such countries and there will likely be costs for UK exporters in having to check whether such goods are permitted to be resold in the EEA.
2. National exhaustion
Under a national regime, inbound parallel import to the UK of goods from the EEA (or any country) would not be automatically permitted. IP rights in goods would be considered exhausted only in the UK once they were put on the market in the UK. Rights holders would be able to prevent the re-sale to the UK of any IP-protected goods that were not first placed on the market in the UK. Consequently, businesses would not be able to parallel import goods from outside the UK.
- Benefits: As a national regime would offer rights holders greater control over the trade of their goods, IP rights may become perceived as stronger. This may lead to new licensing and market entry opportunities for rights holders and incentivise investment, research and development into creating new intellectual property
- Drawbacks: A national regime could potentially reduce supply and choice for consumers. The price of goods could also increase, as there may be fewer goods in the market and IP rights holders would have more control over their goods. In addition, the UK Government considers that such an arrangement would conflict with the Northern Ireland Protocol that allows for the free circulation of goods across the border between Eire and the province.
3. International exhaustion
Under a regime of international exhaustion, IP rights in genuine goods (i.e. those manufactured by or on behalf of the IP owner) would be considered exhausted in the UK once they had been put on the market in any other country. Inbound parallel import of goods from the EEA (or any other country) would be permitted automatically without the rights holder's permission, assuming the goods have any other necessary authorisation (e.g. for regulated goods such as medicines).
- Benefits: As goods could be parallel imported from anywhere in the world, an international regime, through arbitrage and sourcing from low price countries, is likely to increase consumer choice and the supply of goods while reducing UK consumer prices
- Drawbacks: An international regime could lead to concerns over consumer safety and the quality of goods since different regulatory product standards might apply in different countries. Indeed, IP owners might vary the goods which it sells in certain countries in terms of the quality of raw materials or to cater for local taste, from the standard of the variant sold in the UK markets.
Moreover, an international regime could prove to be very disruptive for the established distribution arrangements that global IP rights holders might operate, with the consequence that distributors faced with the prospect of competition from imports become disincentivised to invest in the brands etc. Finally, the diversion of goods from "Least Developed Countries" because they are cheaper, might affect adversely the availability of goods in such developing countries.
4. "Mixed" regime
A mixed regime would treat a specific IP right, good or sector in a different manner as regards exhaustion. The ability to parallel import depends on any decision on treatment for a specific IP right, good or sector. For instance, in Switzerland, there is a different exhaustion regime for pharmaceuticals in that the domestic industry is protected by way of a national system which effectively prevents parallel imported pharmaceuticals without the permission of the IP owners.
- Benefits: A tailored approach could be taken to specific IP rights or sectors
- Drawbacks: As many goods are protected by multiple IP rights, under a mixed regime, it could be difficult for businesses to determine where the rights in the goods are exhausted and where they are not.
Call for responses
When the Government commissioned research two years ago into the issue, the conclusion was that there was little evidence as to the impact and scale of parallel imports in the UK.
The Government wants to ensure that any exhaustion regime that it adopts is evidence-based and seems hopeful that, if individuals and businesses respond and engage more fully with the consultation process, the platform from which change can be introduced will be better.