In a somewhat surprising development, in terms of its timing rather than the actual outcome, the UK Intellectual Property Office has published an updated response to a consultation conducted by the previous Government in 2021 on the issue of exhaustion of IP rights and parallel trade. In that earlier consultation, four possible policy options were put forward. However, in January 2022, the then Government announced that it had not been possible to reach a decision, due to insufficient data to understand the economic impact of the alternatives on the table. Almost four years since the consultation was launched, the new Government has now reached a firm conclusion, namely that the 'UK+ regime', put in place on Brexit, will continue to apply, on a permanent basis.
In the intervening period, the Government has continued to consult with interested stakeholders, and they have clearly reassured the Government that the UK+ regime has been working well. With businesses devising their supply processes around that regime, it therefore makes sense for it to be continued, both in terms of legal and practical certainty. It does mean however that the lack of reciprocity between the UK and EU around exhaustion and parallel trade also remains in place. As a result, exports of goods from the UK to the EEA will be subject to an assessment of IP rights, as relevant IP rights will not have been exhausted and may be relied upon to prevent parallel trade.
Background
In large part driven by a concern to ensure continued supplies of medicines after 1 January 2021, the former Government decided post-Brexit to continue unilaterally to participate in the EEA exhaustion regime. This meant that IP rights were still exhausted when goods were put on the market into the EEA, and so relevant goods could continue to be parallel traded into the UK. However, for the EU, the UK was now a 'third state' which meant that IP rights were no longer exhausted when relevant goods were put on the market in the UK and then exported to the EEA.
In 2021, the UKIPO consulted on a number of options for the UK's future regime for exhaustion of IP rights and parallel trade. Whilst the unilateral application of the EEA regime might have been thought to be a temporary fix, it was re-branded as the 'UK+ regime', and put forward as one of the four options for consideration. The other options were a national exhaustion regime, international exhaustion, and a mixed regime comprising different approaches for e.g., different sectors/rights.
The majority of respondents to the consultation preferred the UK+ regime to be maintained (though some did qualify their preference by stating that they saw it as the next best alternative to a national exhaustion regime). In respect of a national exhaustion regime, the Government took the view that this would not be reconcilable with the Northern Ireland Protocol (now amended by the Windsor Framework). Over one third of respondents voted in favour of a national exhaustion regime, many of whom submitted arguments against the Government's interpretation.
Outcome of consultation
The UKIPO has now confirmed that the 'unique' UK+ regime will remain in place, as this provides certainty, and strikes a fair balance between the interests of businesses and consumers. It appears that, in the intervening period since the previous response was published, there has been ongoing discussion with stakeholders who have confirmed that the UK+ regime works well. With many businesses watching the issue closely, the Government has therefore now taken steps to confirm that UK+ will remain in place permanently. Interestingly, the Government has underscored its position that a national exhaustion regime would not be compatible with the Northern Ireland Protocol (as amended by the Windsor Framework) but it has not engaged with the arguments that had been raised by some respondents. It does, however, state that a national regime could have a negative impact on the security and diversity of supply of medicines into the UK.
An international exhaustion regime meanwhile could bring increased choice and lower prices, but the Government counters this argument on the basis that any savings from parallel imports of goods into the UK from countries outside of the EEA may not be passed to UK consumers - they could, for example, be absorbed by intermediaries or offset by transportation costs.
Many businesses will welcome the certainty provided by the outcome of the consultation. Maintaining the UK+ regime, given it is well understood and applied, will avoid any transition costs in terms of contractual and licensing arrangements.