Jamie McConnell

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Consultation on Exhaustion of IP Rights

Disputes / 22 June 2021

Now that the UK has left the EU, the UK government (the government) is using its regulatory autonomy to engage in a programme that will support the UK’s independent economic and political future. Underpinning this will be the development of the UK’s intellectual property system to be in line with domestic priorities as well as developing new trading relationships with the rest of the world.

An important issue that intersects IP rights and trade of goods is the principle of exhaustion of IP rights. The exhaustion of IP rights underpins the system of parallel trade and is needed to balance the trade-off between the benefit and cost of IP rights. IP rights are exclusive rights granted to a holder and give the holder exclusive rights to use and access their creations or inventions and prevent others from using or copying them without permission.

If IP rights are too strong, they can stifle innovation because innovation is increasingly involving building on existing knowledge and innovations. Consequently, it would be beneficial to limit how far these exclusive rights can extend to balance this cost-benefit trade-off. This can be done in two ways. Firstly, by limiting the length of protection of IP rights and secondly, by limiting the reach of IP rights by limiting the control distribution: this is exhaustion of IP rights.

What is exhaustion of intellectual property rights?
IP rights protect intellectual creations and make it easier to take legal action against anyone that steals or copies intellectual property. IP rights can be infringed when another person carries out actions without the permission of the rights holder. This allows holders of IP rights to control distribution of an IP protected good. 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 in the market with the consent of the rights holder, the IP rights that protect this good are then considered to have been exhausted and in turn the right to take legal action against infringement has been lost. Subsequently, there is a loss of the right to control the distribution and resale of physical goods.

This system of exhaustion of rights means that distributors and other traders can move goods around a specified territory without the rights holder’s permission. This supports a market of secondary sales of goods, also known as parallel trade.

What is parallel trade?
Parallel trade is the import and export of IP protected goods (for example, books, car parts, medicines) by secondary market actors. Other terms used include “secondary goods” or “grey goods”. Some sectors also use the term “transnational trade” to describe the system of trade of parallel goods. On the secondary market, the movement of goods is usually on a wholesale/resale basis and forms an integral part of many supply chains. Parallel goods can move from the EEA into the UK but are not vice versa.

For the purposes of this consultation, the government has described parallel goods as goods lawfully manufactured by the rights-holder (or under a licence) that are lawfully first placed on the market, then moved across territorial borders.

Consultation
Now that the UK has left the EU, consultations will commence on the future of the UK’s parallel trading system. The government needs to decide on what the most appropriate exhaustion regime for the future will be. A few available options will be tested through the consultation and will require evidence and views on which regime should be implemented permanently. The UK will be seeking evidence to understand what the most appropriate exhaustion of IP rights regime will be and how any changes ought to be implemented.

The government has published the consultation and is welcoming businesses, representative organisations, civil society organisations, legal practitioners, creators, and consumers to contribute to this consultation.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoodsgrm.co.uk

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