“National exhaustion is off the agenda” – reaction as UK government opens consultation on post-Brexit regime

• UK government seeks comments on the UK’s future regime of IP exhaustion
• Following Brexit UK has participated in the EEA regional exhaustion regime
• Options include national regime, Swiss-style approach or international regime

The UK government has launched a consultation on the UK’s future regime for the exhaustion of IP rights and parallel trade, laying out various options for respondents to consider. In response, a leading expert claims the consultation reveals how the British government has “effectively ruled out the adoption of a ‘national’ exhaustion of rights regime” in the UK – something that will have “major implications for brand owners”.

The post-Brexit regime for IP exhaustion in the UK remains up in the air since the country’s exit from the European Union (a subject that has been extensively covered on WTR). Since the end of the Brexit transition period on 1 January 2021, the UK no longer participates in the EU’s regional exhaustion of IP rights system. Since then, the UK has been unilaterally participating in the EEA’s regional exhaustion regime, meaning that 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. However, IP rights in goods first placed on the market in the UK are not considered exhausted in the EEA. As a result of this, a rights holder can stop the parallel export of these goods into the EEA and anyone wanting to parallel export goods to the EEA should obtain permission from the rights holder before exporting the goods.

For that reason, the UK’s government’s consultation – which was announced by the UK Intellectual Property Office (UKIPO) earlier today – is an important one. Introducing the consultation, UK Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, admits that the choice of a new regime “will be a difficult and possibly contentious one” but hopes feedback will help “find the balance which best serves the needs of the UK economy, the UK public and the UK as a whole”. Interested parties have until 31 August 2021 to have their say, the registry confirmed, and it presents four options to consider and, unusually, provides an opinion on each from the UK government:

• A regional EEA regime (otherwise known as a “UK+” regime), which the UK government describes as the “do nothing” approach as it maintains the existing regime which came into force at the start of the year;
• A national regime, wherein IP rights in goods would be considered exhausted only in the UK once they were put on the market in the UK (meaning businesses would not be able to parallel import goods from outside the UK), which the UK government states would “lead to reduced consumer choice” and claims “the prices of goods may increase as there would be potentially fewer goods in the market”;
• An international regime, in which IP rights in goods would be considered exhausted in the UK once they had been put on the market in any other country, which the UK government states “could increase consumer choice and supply” and “may also mean a reduction in prices of goods”, but “could cause IP rights to be perceived as weaker than if there was a national regime”;
• A mixed regime, wherein specific goods and sectors could be subject to one regime and all other goods, sectors and IP rights subject to a different regime (Switzerland has a regime in which most goods can be parallel imported but there is a national regime for medicines), which the UK government says “may be complex and may present challenges for businesses and consumers to understand”.

Talking to WTR, HGF partner and chartered trademark attorney Lee Curtis says he “welcomes that the government is already providing its opinion” on the different exhaustion options. “It has put forward pros and cons of different regimes and clearly has a preference for certain regimes over others,” he expands. “Whether you consider a change in regime worse than the regime pre-Brexit will depend on your outlook. No doubt retailers and consumers might well welcome an international exhaustion of rights regime, as it could push down prices and herald a flood of cheaper branded products into the UK. However, such a regime would not be welcomed by brand owners.”

Crucially, the Northern Ireland Protocol “seems to have effectively ruled out the adoption of a ‘national’ exhaustion of rights regime”, Curtis adds, “which was the regime I understand was advocated by INTA”. While the Brexit agreement and the NI Protocol are silent on the issue of exhaustion, the UK government’s comments in the consultation admits that a national exhaustion regime would cause ‘issues’ with the protocol (as it could potentially restrict trade across the Irish border). “There could have been means and ways around this issue” he further notes, “but it seems the government just does not want to deal with this ‘political hot potato’ and national exhaustion really does not accord with its general free trade principles.”

While a national regime is clearly not favoured by the UK government, Curtis admits he is “surprised” that it is “clearly very ‘cool’ on a mixed regime”, although suggests that “it seems very unlikely a Swiss style ‘mixed regime’ will be adopted”. Therefore, it appears there are two “real options” being considered: the status quo or following international exhaustion. If the latter is adopted, Curtis concludes, it would have “major implications for brand owners”.

For that reason, then, it is critical that the trademark community takes part in the consultation before it’s too late.