Parallel imports in the UK post-Brexit

The rules on parallel imports into the UK following Brexit are currently under government consultation, and therefore may be subject to change in the future.

Parallel imports are based on the principle of exhaustion of IP rights. Exhaustion of IP rights is essentially a limitation of the rights of an IP holder. In Europe, it is based on the EEA’s principle of the free movement of goods (although, there are various different exhaustion regimes in territories throughout the world).

How does exhaustion work?

Goods are placed on a specific market with the IP right holder’s consent, and after that point the right holder can no longer object to the re-sale of such goods within such market. We say that the IP rights subsisting in that specific product are exhausted.

It’s worth noting that, when we talk about placing goods on the market with the IP right holder’s consent, this could be placing goods on a market either by the IP right holder or by an authorised licensee.

Parallel trade is the commercial consequence of the principle of exhaustion. Once IP rights in a product are exhausted within a specific territory, a trader may sell and re-sell those products within that territory which creates a market of secondary sales. Parallel trade usually happens to take advantage of price differentials between markets. For example, a trader may purchase products in at a cheaper price in Spain, and then, prior to Brexit, import those products for sale in the UK where they may be sold at a higher price.

One important point to note here is that exhaustion of IP rights only applies to genuine goods placed on the market with the IP right holder’s consent. It does not apply to counterfeit goods.

Prior to Brexit, when the UK was part of the EEA, goods placed on the market in any territory within the EEA could be exported and imported between other EEA territories (including the UK) without further permission from the right holder. That is because the IP rights in those specific goods are exhausted within the whole of the EEA at the point the goods are placed on the market.

As the UK is no longer part of the EU or the EEA, the UK has a different system. Following Brexit, the EEA no longer considers IP rights subsisting in goods placed on the market in the UK to be exhausted in the EEA. Whereas, conversely the UK does still consider IP rights in goods placed on the market in the EEA to be exhausted in the UK. So we now have a kind of a-symmetrical system of exhaustion.

What are the implications of this?

This means that, for exports from the UK to the EEA, the IP right holder’s consent is still required to place goods on the market in the EEA. Whereas for goods imported to the UK from the EEA, the IP right holder’s consent is not required.

In June 2021, the UK Government launched a consultation on the future of parallel trade in the UK, and it sought views and evidence from stakeholders as to the most appropriate regime for the UK going forward. Importantly, this consultation relates only to parallel imports into the UK, as without any formal agreement with the EEA, the UK Government cannot enforce any regime on exports from the UK to the EEA.

The government noted in its consultation that parallel imports impact a wide range of people and businesses in the UK. It has identified various sectors which it says are “IP right intensive”, such as automotive, pharmaceuticals and fast moving consumer goods. The government estimates that these sectors contribute towards over 40% of the GDP, as well as accounting for almost 30% of jobs.

At present, there are four options on the table.

1. To stay with the current regime, which the government is calling UK+.
2. Go to a national regime, where rights in goods are exhausted only when legitimately placed on the market in the UK.
3. At the other end of the spectrum, go to an international regime, where rights are exhausted in the UK as soon as a product is placed on the market with the right holder’s consent anywhere in the world.
4. Or finally a mixed approached, meaning that some IP rights for some products in some sectors may be exhausted outside of the UK, and others not.

The government has not indicated which option it prefers, although any outcome must comply with the Northern Ireland Protocol.

The outcome of the consultation

The consultation closed at the end of August 2021, and a summary of the responses was published in January 2022. The summary confirmed that a majority of respondents favoured the current UK+ regime, while over a third favoured a national regime. The broad view is that businesses have accepted UK+ and to move away from that so soon after the recent change would be detrimental. Although interestingly, some respondents qualified their choice of UK+ on the basis that the consultation document stated at the time that the government did not believe a national regime complied with the Northern Ireland Protocol, a point which remains unclear.

Only a few respondents preferred either an international or mixed regime. In particular, the mixed regime was considered to be too complex as many goods are protected by various different IP rights and the rules for each of those rights may differ.

What is clear is that any change in the regime must take place over a lengthy transition period, possibly 1-5 years, with other transition provisions in place to protect stakeholders.

To find out more about the progress of the consultation, you can visit the gov.uk website .