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New consultation: Government consults on changes to intellectual property ‘exhaustion’ rules to protect UK businesses against competition from EEA rivals

Author: Atom Content Marketing

Published: 01 Jul 2021

UK businesses selling products benefiting from intellectual property (IP) rights to customers in the EEA will welcome a UK government consultation on the future application of the ‘exhaustion’ regime to those sales, which could reduce competition from EEA rivals in the UK.

Intellectual property (IP) laws stop a third party infringing any IP rights you own in a product – for example, because you designed or invented it, own copyright in it or created the brand name and/or logo used in relation to it (or you acquired those rights from someone who did). One way they protect you is by stopping someone else distributing (usually by selling) that product without your permission.

However, there are limits to that protection. One is that once you have put your product on the market for the first time in a particular territory – for example, by selling it to someone there – you are usually said to have ‘exhausted’ your IP rights in that territory. That means anyone else can acquire the product and sell it on within that territory without your permission.

An example given by the UK government is that, if you sell a book in which you have IP rights in a particular territory, you cannot use your IP rights in the book to stop the buyer from then selling it to someone else there, because you exhausted your IP rights in that book there when you made your sale.

It is therefore important to know when your rights in a product are exhausted.

For these purposes, the European Economic Area (the EEA, ie the EU member states, plus Norway, Iceland and Liechtenstein) is treated as one territory. So, once an owner of IP rights in a product sells that product in the EEA for the first time, the IP owner’s rights are treated as exhausted throughout the whole of the EEA. Anyone in the EEA can then buy that product and sell it anywhere in the EEA without infringing the IP owner’s rights.

While the UK was a member of the EU, this meant that, if an EEA business sold a product in which it had IP rights to a UK business, the sale exhausted the IP owner’s rights. The UK business was therefore free to sell the product on to a customer anywhere within the EEA without the IP rights owner’s permission.

But now that the UK is no longer an EU member state, the sale of a product in which it owns IP rights by an EEA business to a UK customer no longer exhausts the EEA IP owner’s rights - because the sale in the UK was not made in the EEA. Therefore the UK customer can no longer offer that product for sale in the EEA without the seller’s permission. In particular, the UK customer cannot export it back into the EEA business’s home country and offer it for sale in competition with that business’ products.

However, the converse is not true. Even though the UK has left the EU, a sale of a product in which it owns IP rights by a UK business to an EEA customer continues to be treated as exhausting the UK business’ IP rights in the product in the EEA. The buyer can both offer that product for sale anywhere within the EEA, and also import it back into the UK and sell it in competition with the UK business, without the UK IP rights owner’s permission.

The government recognises that this puts UK businesses in sectors such as wholesale, pharmaceuticals, fast moving consumer goods and aeroplane and car parts at a disadvantage and is consulting on the UK’s future exhaustion of intellectual property rights regime.

Operative date

  • Now

Recommendation

  • UK businesses affected by the UK government’s current approach to exhaustion of IP rights following product sales in the EEA should consider responding to the consultation.
Disclaimer

This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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