The UK’s future regime for the exhaustion of intellectual property rights

It is an old joke, and a truism, in the IP community that thinking through the exhaustion of intellectual property rights (IPRs) is, well, exhausting. This is because the subject itself is so complex, the implications so far-reaching, and perspectives so diverse, that analysis and discussion can too easily descend down a metaphorical rabbit hole. It is unsurprising, then, that considering and responding in August 2021 to the UK government’s consultation on the UK’s future regime for the exhaustion of IPRs took up a great deal of time, thought and energy. For new readers, who might be wondering what “exhaustion of IPRs” even means, the government’s consultation document[1] explains it in the following terms: “The right to take legal action against infringement is constrained by a system known as exhaustion of IP rights. 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 this good are considered to be “exhausted”. This means that the right to take legal action against infringement has been lost.” Once the IPRs protecting good have been exhausted, they can legitimately be moved across territorial borders, in what is known as “parallel trade”. So far, so much jargon, you might think. But the regime that any nation implements to regulate this parallel trade can have huge impacts, positive or negative, for business and commerce of all sorts, for consumers, and for national economies as a whole. It’s a big deal, which is why getting it right is so important. The consultation document invited views on four possible exhaustion regimes. It is worth being clear that they only relate to the UK’s own exhaustion regime: none of them has any impact on the regimes which the UK’s trading partners choose to apply to parallel imports from the UK into their territories. Taking each in turn in the order they were presented in the consultation:

·      “Unilateral EEA or UK+ exhaustion”

This is the “do nothing” option and would maintain the current regime, which came into force on 1 January 2021. This means that parallel imports from the European Economic Area (EEA) into the UK would continue to be allowed, while parallel exports from the UK to the EEA could be prohibited. In discussion, IP Federation members noted that the UK+ system, by maintaining the status quo, entails the least disruption for business. We also recognised that under a UK+ regime, UK consumers and businesses would retain certain benefits they had while the UK was part of the EU. For example, UK consumers could benefit from prices that are as competitive as any in Europe. And UK manufacturers could take comfort that, should they need to, they could achieve supply chain resilience by sourcing their IP-protected input materials (e.g. IP-protected components) from parallel import channels around Europe. On the other hand, it was questioned whether, given the short time since the UK left the EU, the current position can truly be regarded as a status quo. On that view, if there is divergence in IP laws between the UK and the EU, there might be problems for rights owners in the future if a UK+ system is adopted.

• “National exhaustion”

Under this regime, the IPRs in goods would be exhausted in the UK only if they were first put on the market in the UK. This means businesses would not be able to parallel import goods from outside the UK. IP Federation members saw how this could incentivise innovative and creative business in the UK. This is because national exhaustion is closely consistent with a strong IP system, which in turn provides the best incentive for value-adding, innovative and creative businesses, which in turn benefits con­sumers and the economy. This may be particularly true for “home grown” UK businesses, often SMEs, which must be permitted to protect and benefit from sales in their home market. A national exhaustion system would also enable IP rights owners to continue to ensure that only high-quality, genuine products are supplied to UK consumers. Members acknowledged, however, that any adoption of a national exhaustion regime would be subject to a potential issue under the Northern Ireland Protocol issue.

• “International exhaustion”

In this case, the IPRs in goods would be exhausted in the UK once they had been legitimately put on the market anywhere in the world. Although the IP Federation has historically opposed international exhaustion, in discussion it was recognised that for companies that develop complex products with component parts that are subject to IP licensing arrange­ments, not all of which are owned by the manufacturers of the component parts, an international exhaustion regime may greatly simplify the ability to secure a supply chain to provide goods to consumers in the UK. An alternative view was that supply chain management can be ad­dressed through contractual arrangements, and that supply chain manage­ment should not prevail over the importance of strong IPRs for the UK. Further, there was an argument that any limitations on international supply chains (if that arises) would have the effect of stimulating domestic supply from within the UK, which would be to the benefit of the UK economy. It can also be argued that an international exhaustion regime would be damaging to the UK economy, in particular to UK-based businesses seeking to expand into or retain sales in foreign markets.

• “Mixed regime”

This option would see different exhaustion regimes applied to different goods, sectors or IPRs. The IP Federation’s members generally felt this would not be a desirable approach, in view of the additional complexity it would entail. In its response to the consultation, the IP Federation noted that, given the very different options for exhaustion being considered by the government, the outcome of the consultation is extremely important to the IP landscape in the UK, and hence to the future health and prosperity of the UK economy. The response also made clear that there was a degree of divergence of view among IP Federation members. This might have militated against making a response at all. But one of the strengths of the IP Federation lies in its cross-sectoral membership, which can bring a wide range of perspectives; another is its ability to engage in open, evidence-based discussion, and agree con­structive ways forward, even when members’ views do differ. We also hope that by making a response, we will have helped the UK government make proposals which take better account of the needs of innovative British industry. And of course the IP Federation looks forward to commenting on those proposals in due course. Sean Dennehey, Consultant to the IP Federation [1] https://www.gov.uk/government/consultations/uks-future-exhaustion-of-intellectual-property-rights-regime/the-uks-future-regime-for-the-exhaustion-of-ip-rights

Report for the Chartered Institute of Patent Attorneys (CIPA) and the IP Federation The European Patent Convention and its Economic Impact on UK Innovation by Tony Clayton, former Chief Economist UK IPO As sent to Ms Amanda Solloway, IP Minister, and Mr Crawford Falconer, Chief Trade Negotiation Adviser and Second Permanent Secretary at the Department for International Trade, on 29 June 2020.

As in all recent years, the unitary patent and Unified Patent Court (UPC) dossier has been among the Federation’s highest priorities in the last 12 months, following the long-awaited agreement between the European Parliament and Council in late 2012 which resulted in the unitary patent and language Regulations being adopted in December 2012, and signature of the UPC Agreement on 19 February 2013.

The Federation continually engages with the European Patent Office (EPO) to provide input to consultations, on matters relating to implementing and on ancillary regulations to the European Patent Convention (EPC) and to procedures of the EPO. The Federation maintains ongoing working relationships with EPO representatives including meetings with the President and Directors throughout the year.

The Federation continually engages with the European Patent Office (EPO) to provide input to consultations on matters relating to implementing and ancillary regulations to the European Patent Convention (EPC) and to procedures of the EPO. The Federation maintains ongoing working relationships with EPO representatives, including meetings with the President and Directors throughout the year.

As in all recent years, the unitary patent and Unified Patent Court (UPC) dossier has been among the Federation’s highest priorities in the last 12 months, following the long-awaited agreement between the European Parliament and Council in late 2012 which resulted in the unitary patent and language Regulations being adopted in December 2012, and signature of the UPC Agreement on 19 February 2013.

As in all recent years, the unitary patent and Unified Patent Court (UPC) dossier has been among the Federation’s highest priorities in the last 18 months, following the long-awaited agreement between the European Parliament and Council in late 2012 which resulted in the unitary patent and language Regulations being adopted in December 2012, and signature of the UPC Agreement on 19 February 2013.

The dossier continued to move forward smoothly during the first half of 2016, with first Finland, then Bulgaria, joining the list of countries which had ratified, bringing the total to 10 (one mandatory ratifying country, France, plus nine of the required 10 others). Addition­ally, steady progress was made in a number of other countries, notably including in both the two remaining mandatory ratification countries, the UK and Germany. Other important milestones included adoption of the rules on court fees (including the zero fee for the opt-out) and the handover of the IT system by the UK to the team in Luxembourg. Then came 23 June and the UK’s decision to leave the EU. This was of significance to the UPC project, of course, due to the widely held view that participation in the UPC was strictly limited to EU states. 

The IP Federation continually engages with the European Patent Office (EPO) to provide input on consultations relating to implementing regulations, ancillary regulations to the European Patent Convention (EPC) and procedures of the EPO. The Federation main­tains ongoing working relationships with EPO representatives including holding meetings with the President and Directors throughout the year.

The Federation has engaged with the European Patent Office (EPO) throughout 2015 to pro­vide input on matters relating to implementing and ancillary regulations to the European Patent Convention (EPC) and to procedures of the EPO. The Federation maintains ongoing working relationships with EPO representatives including meetings with the President and Directors throughout the year.

In March 2015 the President of the EPO submitted a Proposal for a structural reform of the EPO Boards of Appeal (BOA) (CA/16/15) prompted by decision R 19/12 of the Enlarged Board of Appeal. The President’s proposal is intended to increase the organisational and managerial autonomy of the BOA, the perception of their independence and also their efficiency. The proposal introduces a new President of the BOA who will not be a Vice President of the EPO and who will have organisational, managerial and budgetary responsibility for the BOA reporting to a new subsidiary committee of the Administrative Council (AC), the Board of Appeal Committee (BOAC). It is proposed that the BOAC will com­prise AC members, experienced judges, the President of the EPO and the President of the BOA. The BOAC will monitor efficiency and independence of the BOA while guiding on recruitment of board members. The President further proposed to relocate the BOA to pro­vide geographic separation from the EPO to improve the perception of independence.

In 2015, as in 2013 and 2014, the unitary patent and Unified Patent Court (UPC) dossier has been among the Federation’s highest priorities, following the long-awaited agreement between the European Parliament and Council in late 2012 which resulted in the unitary patent and language Regulations being adopted in December 2012, and signature of the UPC Agreement on 19 February 2013.

The dossier has continued to move forward during 2015, with new ratifications during the year bringing the total to eight. It now appears possible that the required number of rati­fica­tions (13 including the UK and Germany) will be achieved by mid-2016 such that the Prepar­atory Committee’s revised target date for commencement of the new system (January 2017) is potentially achievable – though spring or summer 2017 seems more likely.