Recently, The Financial Times reported that British IP rights are at risk due to a government review seeking "Brexit dividends."
The main issues at play here are supporting business in the creation and exploitation of IP rights while at the same time ensuring flexibility in the supply of products and competitive pricing for consumers.
At the moment if products are first sold anywhere in the UK or the EEA by IP right owners they cannot stop re-sale in the UK. This provides some assurance to IP right owners that if their products are exported to other markets outside the EEA where they sell for much lower prices, third parties cannot re-sell them in the UK to undercut UK pricing for the same products. On the other hand, the status quo allows importers, retailers and wholesalers to source genuine products from the EEA for re-sale in the UK to help keep pricing down for consumers and allow resilience in the supply chain if there is shortage of products in the UK.
Before making comment on possible changes to the status quo it is important to consider what the government might plan to replace the existing exhaustion regime with. There has been no clear indication from the government here but the specific alternatives discussed in the output of the government’s consultation on this topic in January 2022 are as follows:
- At one extreme they could decide on “international exhaustion” – this would mean that if products are first sold by IP right owners anywhere in the world they would not be able to stop re-sale into the UK. There would be some clear benefits to importers and distributors in that there would be greater opportunities to source products more cost-effectively and consumers may benefit from greater choice and lower prices. However, this would not encourage IP right owners to manufacture or sell products in the UK or export products outside the UK. It’s also the case that by removing the ability for businesses to use IP rights to prevent re-sale of their products there may be a greater regulatory burden on the government to protect consumers and ensure products not specifically designed to meet UK regulatory standards do not flood the market in the UK.
- On the other end of the scale the government could impose “national exhaustion” whereby IP rights are not exhausted unless the products are first sold in the UK. This would mean any products first sold anywhere else, including the EEA, could not be re-sold in the UK without the IP right holder’s consent. This would certainly allow IP right owners more control of their IP rights, would help encourage exports by UK businesses (since there would be no fear of being undercut by products first sold to any markets where the sale price is lower) and could ease the regulatory burden on the government since all products would originally have to have been designed to meet UK standards. However, there could be a negative impact on consumer choice, trade with the EEA countries could be more difficult and it might jeopardise supply of products from alternative sources in the event there were shortages of products in the UK.
- The final alternative discussed would be a “mixed” regime with different rules for different products – this would allow some benefits to IP right owners while allowing more flexibility in the supply chain and choice for consumers. However, this could be confusing for businesses and consumers to understand and for the government to implement and enforce.
None of these options are a perfect solution and it is not surprising that the government has not yet made a decision.
In its report on the consultation the government suggests that compliance with the current Northern Ireland Protocol would make a “national exhaustion” regime particularly challenging to implement. Given the complexity of a “mixed” regime and the possible negative impact of an “international” regime on IP right owners looking to manufacture and sell products in the UK and export products from the UK, the status quo probably offers the best balance for IP right owners and consumers - at least while the question of the Northern Ireland Protocol and a possible UK trade deal with the EU have not been finalised. On this basis there doesn’t seem a need to rush into a decision now.
