The status of parallel trade in the European Union and the UK

The following article is a collaboration between Jani Ihalainen of RPC and PDGB (Virginie Coursière-Pluntz and Benjamin Jacob), RPC's partner firm in France through its TerraLex network.

At the end of 2023, the Intellectual Property (Exhaustion of Rights) (Amendment) Regulations 2023 (SI 2023/1287) came into force. The regulations ensure the continuing operation of the current regime relating to exhaustion of intellectual property rights (IPR) following minor amendments to UK legislation required as a result of the Retained EU Law (Revocation and Reform) Act 2023 coming into force (in order to repeal key sections of the Withdrawal Act).

While the regulations provide no material change as to how the principle of exhaustion will operate in the UK, they confirm the current status quo and also that no decision has yet been made on the future exhaustion regime. In fact, the explanatory comments to the regulations state that DSIT and the IPO are continuing to have regular engagement with a range of stakeholders to understand their views regarding the exhaustion of rights. Given the ongoing impact of the divergence of the EU and UK exhaustion regimes, which are no longer reciprocal, a brief synopsis of the current status of parallel trade in the EU and UK is discussed below.

Why has it been easier to prevent some parallel trade after Brexit?

Under EU law, when the holder of IPRs – usually but not necessarily the manufacturer of the relevant products – consents to the introduction of units of a product into the European Economic Area¹ (EEA) market, it can no longer rely on its IPRs to oppose the circulation of those units within the EEA. The IPRs in the products are said to be “exhausted” in the EEA (this principle does not apply to counterfeit goods or purely digital content).

Following Brexit, goods first placed on the UK market from January 2021 (with the consent of the rightsholder) and then exported to an EEA country are no longer considered to be “exhausted” in the EEA market. They may only be resold in the EEA if the IP rightsholder gives its consent for third parties to do so.

We discuss how this new status quo works in practice below. Let’s assume that a French manufacturer, who owns the IP rights in an electrical appliance, has first sold a batch for resale in the UK. This batch is then re-exported into the EEA by the UK-distributor. Can the French manufacturer prevent this batch from being sold into the EEA?

If the products were first sold (i.e. placed on the market) in the UK before Brexit

Before Brexit, IPRs in units first placed on the UK market were deemed exhausted in the EEA. The French manufacturer could not therefore prevent the exportation to the EEA.

Even if the distribution agreement with its UK distributors contained clauses prohibiting resale outside the UK, that did not prevent the exhaustion of IP rights in the EEA. However, this only applied to the IPRs in the product but other remedies may have been available, such as a claim for breach of contract, ie. the French manufacturer may have had a contractual claim against the UK distributor who had breached the contractual prohibition.

If the products were first sold in the UK after Brexit

The IPRs in the units first placed on the UK market by the French manufacturer are no longer deemed exhausted in the EEA. The French manufacturer is now able to prevent export from the UK to the EEA, unless it has previously specifically consented to a resale of the goods in the EEA.

Conversely, parallel imports into the UK from the EEA are not affected by Brexit. This is because the UK retained the rule that IPRs in goods first placed on the EEA market are also deemed exhausted in the UK.

The current position in the UK and looking to the future

Since the end of the UK-EU transition period on 31 December 2020, it is no longer possible to parallel import products protected by IPRs from the UK to the EU/EEA, but it is possible to do so from the EEA to the UK.

The UK Government has consulted on the future of the exhaustion of IPRs in the UK in both 2021 and 2022 (including with the EU). Many respondents noted that the lack of reciprocity placed parallel exporters based in the EEA at an unfair advantage compared to those based in the UK, which would not serve the UK's interest well in the long term. However, in part due to the insufficiency of data to understand the economic impact of the suggested alternatives to the current regime, it was decided that no action would be taken to amend the regime (in the medium term at least). The UK Government nonetheless remains committed to exploring a potential change in the regime, although no timeframe has been given for any future decision on the UK's approach to exhaustion.