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Retained EU law and IP: Draft Regulations laid before Parliament

Posted on 3 November 2023

With the Retained EU Law (Revocation and Reform) Act 2023 (REULA) coming into effect on 1 January 2024, the Government is considering the implications of a number of its provisions, and putting into place various sets of Regulations, in exercise of the powers provided to do so under REULA.

A number of these draft Regulations are of relevance to intellectual property protection and enforcement, as follows.

Exhaustion of IP rights – preserving the status quo (for now)

Draft Regulations (The Intellectual Property (Exhaustion of rights) (Amendment) Regulations 2023) have been laid before Parliament relating to exhaustion of IP rights and parallel trade. Importantly, the purpose of these Regulations is to restate and therefore preserve the current position whereby IP rights are exhausted in the UK when relevant products are put on the market in the UK or the EEA. The reason this is necessary is because the UK's current IP exhaustion regime relies on directly effective rights relating to free movement of goods in certain provisions of the Treaty on the Functioning of the EU (TFEU). But these rights will fall away once REULA is in effect because it will repeal a provision in the EU Withdrawal Act which had preserved the recognition of certain aspects of EU law in domestic law, including direct effect of TFEU provisions.

Accordingly, the Regulations serve to ensure that there is continuity in the UK's exhaustion regime from 1 January 2024. Of course, the approach to take in relation to imports of parallel goods into the UK, and the extent to which IP rights holders and their authorised licensees can prevent such trade, has proven to be one of the most contentious post-Brexit issues to be resolved. The Government decided unilaterally, on Brexit, to continue to participate in the EEA exhaustion regime which it named 'the UK+ regime'. Significantly, the position is not reciprocated within the EU – rights are not exhausted in the EU where relevant goods have been put on the market in the UK. Despite consulting on the future exhaustion regime in 2021, the Government decided to 'park' the issue because there was not enough data to understand the economic impact of alternatives to UK+, i.e., a national exhaustion regime or an international one (or a mixed regime).

Press reports in recent months have indicated that exhaustion was back on the Government's agenda. The Explanatory Memorandum to the draft Regulations stresses that the Regulations do not affect the Government's ability to amend the territorial extent of the UK's exhaustion regime in the future but that "at the time of writing no decision has been made on the future regime", with regular engagement with a range of stakeholders ongoing.

Changes to other areas of IP law

The draft Design Right, Artist’s Resale Right and Copyright (Amendment) Regulations 2023 deal with a range of issues. In particular, they introduce certain changes in relation to Artist's Resale Right (ARR) which will come into force on 1 April 2024.

Under the ARR regime, creators of original works of art are entitled to a royalty each time their work is resold through an auction house or art market professional. The sale price is required to be calculated in Euros and the thresholds for the calculation of the resale royalty are in Euros. A royalty is only currently payable when the sale price is the sterling equivalent or more of 1000 Euros, with a sliding scale percentage based on the resale price (also set by reference to a Euro figure). Royalties are capped so that the total amount paid for a single art work currently cannot be more than 12,500 Euros.

Under the draft Regulations, the requirement to calculate the sale price in Euros will be removed, and all the specified Euro thresholds applicable to the sliding scale for calculating the royalty payable will be replaced with thresholds specified in GBP. For example, the minimum resale price for the regime to apply will now be expressed as £1,000 and maximum royalty will be capped at £12,500.

These changes will not affect any sales made where the contract date was before 1 April 2024.

The Explanatory Memorandum explains that this approach was selected as the most straightforward to operate, as opposed to fixing thresholds at current exchange rates. The Government states that the changes will reduce the regulatory burden, as it will remove the need to calculate artists' royalties based on fluctuating exchange rates, thereby reducing administrative costs and resource.

There are a number of other consequences:

  • Based on relevant data, the Government suggests that fewer than 20% of art market transactions involving ARR will be affected by the amendment.
  • UK buyers of re-sold artwork will face an estimated £0.9million increase in ARR royalty costs and UK artists will be distributed an estimated £0.8million additional ARR royalty revenue.
  • Changing the minimum resale amount to £1,000 (from 1000 Euros) will mean there will be more lower-value artworks below the minimum threshold. The Government says around 400 UK artists will no longer receive ARR, with an estimated cost of £30,000 in lost royalty revenue in 2024 (but, once inflation is taken into account, notes that the minimum threshold will still be lower in real terms than when it was first set in 2006). 
  • As fewer transactions will be caught overall, the costs for art market professionals will also be reduced (albeit there will be some familiarisation costs).
  • The maximum ARR royalty will increase from 12,500 euros to £12,500 meaning that those UK artists whose works are sold for over 2 million Euros will benefit from increased royalties. Larger portions of sales prices will also fall within the bracket for a higher percentage once expressed in pounds.
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