Brexit and exhaustion of rights

Parallel trade is the import (and export) of genuine goods protected by intellectual property ("IP") rights, and occurs where the IP rights are said to have been 'exhausted' – 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.

The European Union ("EU") implements a system of regional exhaustion, known as 'Fortress Europe', to help facilitate the free movement of goods. Therefore, once the IP owner has, or has authorised a third party to, put a product on the market anywhere in the European Economic Area ("EEA"), the IP owner cannot assert its national rights in any one of the relevant countries in order to prevent those goods from being imported and/or resold in other parts of the EEA.

Anyone wishing to import genuine IP-protected goods into a country within the EEA must prove that the IP owner has, expressly or by inference, consented to those goods being placed on the market in the EEA. This system provides an effective mechanism under which:

• IP owners can successfully prevent the importation of goods into the EEA that have only been authorised for circulation outside of the EEA; and
• consumers can freely access goods which have been approved for distribution within the EEA (with only limited circumstances in which the IP owner is entitled to prevent this).

This can assist IP owners in maintaining different pricing and marketing strategies in different territories, as well as ensuring that consumers only receive products meeting strict EEA quality standards that are authorised for distribution in the market.

Can I import goods into the UK from the EEA?

Goods placed on the market in the EEA (other than in the United Kingdom ("UK")) by, or with the consent of, the right-holder before or on 31 December 2020 will continue to be exhausted in the EEA and the UK thereafter. Therefore, such goods (subject to any contractual restrictions) will be capable of being imported into the UK on or after 1 January 2021, without any question of exhaustion being in issue.

However, the relevant legislation (The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019) only refers specifically to the position of rights exhausted "immediately before exit day" (being 31 December 2020).

The position regarding goods placed on the market in the EEA (other than in the UK) by, or with the consent of, the right-holder on or after 1 January 2021 is less clear.

The UK Government guidance suggest that such goods placed on the market in any part of the EEA on or after 1 January 2021 will continue to be treated as exhausted if they are exported to the UK, meaning parallel imports in the UK from the EEA would remain unaffected and thus right-holders will be restrained in preventing such exports.

In support of this, the general view of commentators is that, as the decisions of the Court of Justice of the EU that established the 'Fortress Europe' doctrine have been adopted into UK law and still apply – at least, for the moment – goods placed on the EEA market on or after 1 January 2021 by or with the consent of the IP owner will be treated as exhausted in the UK.

Are goods put on the market in the UK exhausted in the EEA?

With regard to goods put on the UK market by, or with the consent of, the right-holder on or after 1 January 2021 which are then exported to the EEA, as the UK is now a third country, the IP owner could use its rights to restrain the exportation of such goods from the UK for resale into the EEA.

The UK Government guidance states that "businesses exporting these IP-protected goods from the UK to the EEA might need the right holder's consent", since rights-holders might be able to assert their rights in the EEA to prevent the importation from the UK.

Accordingly, with regard to exhaustion and goods placed on the market on or after 1 January 2021, the position appears to be asymmetrical for the moment.

UK Government consultation on exhaustion of rights

This asymmetrical position has been the subject of much commentary and criticism. As a result, the UK Government launched a consultation to seek views on what the UK’s future exhaustion of IP rights regime should be. Responses to the consultation are requested by 31 August 2021.

Differences for patent-protected goods

The position on patent-protected goods is slightly different, given that national patent protection is harmonised under the European Patent Convention 2000, which is not a construct of EU law. Further, the free movement of goods within the EU is guaranteed under the Treaty on the Functioning of the European Union and the Agreement on the EEA, both of which will be "retained EU law". Consequently, the law governing patent-protected imports from the EEA to the UK will remain as it stood on 31 December 2020 for now. As a result, the position regarding products placed on the market in the UK on or after 1 January 2021 which are protected by patents is a little clearer than with other IP rights.

In the UK, the principle of 'implied licence' applies – whereby the owner of patented goods has an implied licence to use, sell and import such goods (subject to any express agreement to the contrary and/or special conditions). However, unlike the UK, the laws of certain other EU member states provide that a national patent can be asserted against parallel imports, subject only to the principle of free movement of goods within the EEA.

By way of an example, if a patent owner authorises the sale of patented goods in the USA:

• if the patented goods were imported into the UK for resale, the patent owner could not enforce its UK patent to prevent the resale of such goods in the UK, as the reseller can rely on its implied licence in defence of any infringement action; but

• if the patented goods were imported into the EEA, the patent owner would be able to enforce its national patent rights – in respect of those EEA member states where there is no "implied licence" – in order to prevent the resale of such patented goods.

It is anticipated that this principle will continue to govern imports into the UK of patented products put on the market in third countries by or with the consent of the patent owner.

What if my question is not answered here?

Please contact any member of our Intellectual Property team if you have any additional questions.