Exhaustion of IP rights has always been a controversial topic, and Brexit has kept the issue on centre stage.
The issue? Price differences between different national markets. On the one hand, IP rights holders want to protect national markets, maintain their profits and have incentives for R&D activities. On the other hand, free marketeers want more competition and lower prices for consumers.
What does exhaustion of rights mean?
For those not familiar with the terminology, ‘parallel trade’ is the import and export of genuine IP protected products, when IP rights in those products are ‘exhausted’ - ‘exhaustion of rights’ is the loss of the right to control distribution of the product in question once it has been placed on the market of a specified territory by the IP rights holder (or with the permission of the IP rights holder). This is the case irrespective of whether the IP right concerned is trade mark, patent, copyright and/or design.
When taken together, in practice, this means that once the IP rights holder has themselves (or has permitted a third party to) put their product in the market of any territory in the EEA, that rights holder cannot then assert their own national rights and try to stop those products from being imported and/or resold in any other territories in the EEA.
Is this system continuing after the end of the transition period?
Probably not, according to notices published recently by the European Commission and UK Intellectual Property Office. In essence, following the end of the transition period, rights over IP protected products placed on the market in an EEA territory (say France) will be exhausted in the UK and the product could be sold into the UK by a third party without further consent from the IP rights holder being required.
However, unless a further agreement is put in place between the UK and the EU, the reverse is not the same. That is, products placed on the UK market by, or with the consent of, the IP rights holder after the transition period may no longer be considered ‘exhausted’ in any EEA territory (say France). Accordingly businesses exporting these IP-protected products from the UK to the EEA could be at risk of infringement actions in an EEA territory (say France) if it sold the product in that territory without the consent of the IP rights holder.
Post-Brexit the system appears asymmetrical and unfair on UK businesses, in that IP rights holders in the EEA can block the entry of parallel imports from the UK. Time will tell if parallel trade remains collateral damage of the Brexit negotiations.
Many thanks to Emily Costello for her research assistance in preparing this blog post.