The future of parallel imports and the implications for rights holders

 

IP rights need to be balanced with the need for a competitive market and consumer choice. The exhaustion principle is a mechanism that helps to achieve this aim as it facilitates free movement of goods.

Parallel trade is defined as the ‘cross-border movement of genuine physical goods that have already been put in the market by the rights holder’. It is the import and export of goods protected by IP, that are already sold in a specific market. IP owners can control the secondary distribution of their IP protected goods and this control is restricted by the exhaustion principle .Exhaustion is the idea that once goods are on the market, the IP owner cannot prevent further distribution or resale of those goods. In other words, the IP rights that they could have relied on prior to putting their goods on the market are ‘exhausted’ and can no longer be exercised.

Previous position 

Prior to leaving the EU, the UK was part of the EU’s regional exhaustion system. This meant that the IP rights in any goods first sold in the European Economic Area (EEA), would be considered exhausted if these same goods were then imported to the UK. The EEA includes all EU member states, Iceland, Lichtenstein and Norway.

Current position 

Since 1 January 2021, the UK has left the regional exhaustion regime and is now subject to a default regime. Under the default regime, goods first sold in the EEA may be imported into the UK from the EEA and the IP rights in those goods would be considered exhausted. However, the IP rights in goods first sold in the UK that and then exported to the EEA would not be exhausted, meaning that any export of goods from the UK to the EEA will only be possible with the consent of the IP rights holder.

The consultation 

The UK government wants to give UK consumers and businesses a chance to have their say on what the new regime should look like. The government prepared a consultation with four possible regimes that may be adopted. The rules governing the import of goods will be dependent on the regime adopted. However, the rules governing the export of goods from the UK will be the same under each of the regimes suggested, namely that the export of goods from the UK will not be automatically permitted except to countries with an international regime. The four options are as follows:

1. Unilateral EEA (UK+) regime;
2. National regime;
3. International exhaustion; and
4. Mixed exhaustion rights.

Unilateral EEA (UK+) regime

The first option is a continuation of the current position where the UK are unilateral participants of the regional exhaustion regime so the position is not reciprocated in relation to exports. This means that parallel imports of goods into the UK will be allowed from the EEA and the relevant IP rights will be considered exhausted. However, conversely, parallel exports from the UK to the EEA will continue to require the consent of the IP rights holder.

National regime

The second option is a national regime which would mean that only UK IP rights would be considered exhausted when they are first sold in the UK. IP rights subsisting in parallel imports from outside the UK would not be exhausted. The consultation document considers that UK IP rights may be perceived as stronger as a result as IP rights owners would be given greater control over their products. However, consumers may be left with less of a choice and the price of goods may increase in the UK on the basis that there would be less of a choice available.

International regime 

The third option is an international regime which would allow for the free import of goods into the UK from any other country in the world and the IP rights would be considered exhausted once on the market in another country. However, the export of goods from the UK to the other countries would depend on the exhaustion regime in place in that particular country. The onus would be on the UK exporter to check the regime in the relevant country. This option is different to the second option in that UK IP rights may be perceived as weaker. However, the consultation document suggests that this option may work to increase the choice available to consumers.

Mixed regime 

The final option is a ‘mixed’ regime which would mean that different IP rights, goods or sectors will be governed by separate regimes. The intricacies of this regime are not known and the consultation document itself highlights that this option might be confusing and complex. However, Switzerland has a mixed regime approach in place so this option has worked elsewhere.

Next steps

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