This article was written on 13 March 2019. The content was relevant at the time of writing, but may have since changed. For our latest Brexit updates, please access our Brexit Hub.
Changes to the exhaustion of rights doctrine could affect your business after Brexit. Read on to find out how.
Consider the following questions:
Do you sell your product at a different price point in the UK compared with elsewhere in Europe?
Do you buy or sell a product in the UK, and then re-sell it in Europe?
Do you buy or sell a product in Europe (outside the UK), and then re-sell it in the UK?
If your business doesn’t take part in these activities, might you nonetheless be affected by a change in the activity of another business that does?
If the answer to any of these questions is yes, you might want to keep reading!
What does exhaustion of rights mean?
IP rights generally give you the right to control the introduction of your protected product to a particular market.
Rights holders have the ability to prevent the unauthorised flow of their product into the European Economic Area (EEA) from elsewhere in the world. For this reason, the EEA can be referred to as ‘Fortress Europe’. However, internally the EU applies the concept of ‘regional exhaustion’: once a protected product is duly purchased inside EEA, i.e. inside the protective walls of Fortress Europe, the product can be freely moved and re-sold within the EEA. The rights of the IP holder over the protected product are said to have been ‘exhausted’ when the holder introduced their product to market inside the EEA.
Why is this relevant now?
The UK is moving outside the walls of ‘Fortress Europe’, and the rules on exhaustion of rights may change depending on the Brexit outcome. This could mean that moving patented products across the channel after Brexit may suddenly constitute patent infringement, even if they were legitimately purchased.
Deal or no-deal - What happens if there is a no-deal Brexit?
Initially, the UK will continue to recognise exhaustion of rights in the EEA . However, the EEA will not automatically recognise exhaustion in the UK.
This one-way ‘offer’ from the UK government is made to prevent the disruption of imports such as pharmaceuticals into the UK after Brexit, and in the hope that the EEA will do the same. However, if the EEA does not reciprocate, exports from the UK to the EEA will be disrupted after Brexit.
This would mean a patented product sold in the EEA could be imported into the UK without infringing patent rights, but such a product sold in the UK could not necessarily be imported into the EEA without seeking the permission of patent holders. Legitimately buying a patented product in the UK and then importing it into the EEA could be an infringement of a patent in force in the EEA.
This could be a particularly tricky issue to navigate for the pharmaceutical industry, where patents are typically validated and in force in many if not all EEA countries.
Looking further into the future, there are three main possibilities:
The initial one-way exhaustion described above could continue indefinitely, meaning patented goods could move freely from the EEA to the UK but not the other way.
Alternatively, an agreement could be reached with the EU restoring EEA recognition of UK exhaustion, meaning patented goods could move freely between the UK and the EEA.
Finally, the UK could stop recognising exhaustion in the EEA, meaning that patented goods could not move between the UK and the EEA in either direction without the permission of patent holders.
It’s even being speculated that the UK government may decide to adopt a doctrine of ‘international exhaustion’. This would mean a UK intellectual property right would be exhausted by authorised sale of the product anywhere in the world. Reducing the efficacy of UK rights in this way would annoy patent owning businesses, but UK consumers would benefit in the short-term as the price of consumer products would likely plummet due to free importation into the UK from lower cost regions. Thankfully, this scenario is considered to be very unlikely.
Deal or no-deal - What happens if there is a deal?
The draft withdrawal agreement specifies that rights which were exhausted before the end of the transition period (up to 31 December 2020, extendable by up to two years) shall remain exhausted in both the European Union and the United Kingdom , meaning that products sold before the end of the transition period can be freely moved between the UK and the EEA.
Long term impact
The outcome after the end of the transition period will depend on any negotiated deal. The Political Declaration, which is not binding, states that “The Parties should maintain the freedom to establish their own regimes for the exhaustion of intellectual property rights”. Although vague, this could be read as a hint that mutual recognition of exhaustion between the UK and the EEA is unlikely.
How should business owners prepare themselves?
Any business involved in exporting products from the UK to an EEA country, or dependent on other businesses involved in this type of activity, should consider whether these products may be covered by patent or design rights in that EEA country. A patent attorney can investigate which patents and/or designs are in force, their geographical scope and remaining term. A trade mark attorney can perform the same investigations for registered trade marks. If the products are covered by such rights, they may need to seek permission from rights holders to continue in the event of a no-deal Brexit.
Please contact Tom Hamer or Rupert Belsham, or your usual Kilburn and Strode advisor if you would like to discuss any of these issues.
The UK government’s official advice on exhaustion of rights post-Brexit in the event of no deal is here.
 The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2018
 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, Article 61