Closed consultation

UK’s future exhaustion of intellectual property rights regime: Summary of responses to the consultation

Updated 18 January 2022

Introduction

In June 2021 the UK government launched a public consultation on the UK’s future exhaustion of intellectual property (IP) rights regime.

The system of exhaustion of rights means that distributors and other traders are able to move goods (including component parts that make up goods) around a specified territory without the rights holder’s permission. This supports a market of secondary sales of legitimate goods, also known as parallel trade.

Now that the UK has left the EU, the UK has an opportunity to decide its future regime for the exhaustion of IP rights. This decision is vitally important for the UK as it will govern future rules on parallel imports into the UK.

The purpose of the consultation was to seek evidence and views from respondents to understand what the most appropriate exhaustion of IP rights regime would be for the UK. There were 4 options tested through consultation, with evidence and views required on what regime should be implemented, and if there were to be a change, how a new regime should be implemented.

The consultation ran for 12 weeks and closed on 31 August 2021.

In total, the government received 150 responses to the consultation. Respondents included businesses, organisations such as trade associations, and other private individuals. The government is grateful for all the responses received. During the consultation period, the government also held ministerial roundtables and official meetings with interested parties.

The majority of consultation responses provided qualitative evidence with respondents providing views on the exhaustion regime options and perceived impacts on parallel trade. This summary sets out an overview of the main views expressed by respondents to the questions posed in the consultation, and the views of interested parties in ministerial meetings and meetings with IPO officials during the consultation period. This document is not intended to be an assessment of the relative quality of the responses submitted.

The pharmaceutical industry and the creative industries were most heavily represented in responses to the consultation and industry-specific issues have been outlined where most relevant. However, this document summarises the breadth of views submitted and is not based solely on the number of responses received in support of, or against, a particular position. The summary includes opinions with which the government does not necessarily agree or accept as fact.

A summary of respondents can be found at Annex A and a list of respondents at Annex B.

Parallel trade to and from the UK (Questions 1 to 4)

This section of the consultation sought views on the parallel trade of legitimate physical goods, not counterfeits or purely digital content (such as a download of a song or game). The consultation focused only on parallel imports to the UK. As the UK government has no direct control on the exhaustion regimes of other countries, parallel exports were out of scope.

Question 1: Is there parallel trade in your sector?

Question 1a: If so, how do parallel imports from the European Economic Area (EEA) impact on your organisation in terms of (a) choice, (b) availability of supply and (c) competition in your marketplace?

Question 2: If you are able to, please provide the current volume or value of total imports to your organisation in the UK. If possible, please estimate the percentage of the total imports accounted for by parallel imports?

Question 3: In your business, how do you exert control over supply chains?

Question 4: For your business or organisation, how do right holders become aware and seek to stop their products being parallel imported from outside the EEA without permission?

Summary of responses received:

Parallel trade

Most respondents from industries represented in consultation responses (see Annex A) stated that there was parallel trade of goods (materials and products) in their sector. However, responses on the impact of parallel imports from the EEA on organisations varied between those whose livelihoods were dependent on commercialising parallel traded goods and rights holders.

Those dependent on commercialising parallel traded goods, such as pharmaceutical distributors, commented that parallel imports from the EEA benefitted their organisation by contributing to:

(a) a greater choice of suppliers to source goods from that could in turn be made available to customers at different price points

(b) the availability, flexibility, and security of supply of goods to support market demand and alleviate supply shortages

For example, one respondent from the pharmaceutical industry noted that increased demand for a specific drug in secondary care (namely hospitals) during the coronavirus pandemic had been met by supplies of parallel imports.

(c) a competitive market especially intra-brand competition amongst suppliers of the same branded product (or substitutable products) encouraging price convergence

Contrary views, put forward by mainly rights holders such as brand owners were that parallel imports:

(a) did not increase choice by providing a greater number of different goods because parallel imports tended to be products already available or approved in the UK, especially licenced branded goods such as branded toys and branded medicines

(b) weakened supply chain resilience due to fluctuations in supply and costs, making demand forecasting particularly difficult for brand owners

(c) did not always drive competition for the benefit of the consumer but mainly benefitted distributors (through arbitrage opportunities) and resellers (incentivised to purchase lower priced parallel imports rather than domestically sourced products to achieve higher profit margins)

Scale of parallel trade

Some respondents were able to provide estimates of the current volume or value of total imports for their business in the UK. But most were unable to provide estimates on the scale of parallel imports either at business or sector level.

Many brand manufacturers in the pharmaceutical industry argued that the volatility in the levels of parallel imports meant they could account for a high proportion of certain products and a low proportion of others at any one time. This made obtaining a reliable figure difficult. Brand manufacturers also pointed out that it could be difficult to collect information on quantities of parallel imports as they fell outside the official designated supply chain and reached consumers through many different sales routes which tended not to be tracked by data houses collating and reporting on retail sales.

Some respondents from the pharmaceutical industry estimated that the current level of parallel imported medicines provided considerable savings to the National Health Service (NHS). However, the methodology used to estimate the savings was challenged by brand manufacturers who argued that savings were mainly accounted for as profit by primary care community pharmacies and not savings to the NHS directly. It was also argued that any savings needed to be balanced against the costs of supply challenges, making a figure difficult to estimate.

Supply chains

Respondents explained that supply chain management for a given product could involve a complex national or international chain of stakeholders. Some of the most notable mechanisms identified by respondents to exert control over supply chains were:

• a robust procurement framework for goods, e.g. established mechanisms put in place by the NHS for procurement

• inventory management which was said to be especially important for some fast moving consumer goods (FMCGs) reliant on ‘just-in-time’ supply such as perishable food items, and for medicines (where it was asserted that marketing authorisation holders (MAHs) are already required by UK law to hold additional stock at their cost)

• contract management such as contractual provisions that restricted resale into certain territories

• operating a selective distribution network such as was common in the luxury goods sector to control the distribution of goods and maintain quality control over products

• routine due diligence checks on customers and business partners, although some respondents reported that their position in the supply chain meant it could be difficult to monitor operators further down the chain, e.g. to ensure adherence to required sustainable and ethical practices

The creative industries, including TV, film, video games, music, and publishing, explained that the interaction of copyright, contractual arrangements (namely licences or assignment of rights, and distribution and sales agreements) and the exhaustion regime allowed rights holders to exert control over the supply chain either directly (managed in-house) or indirectly (through licensees in different territories).

Respondents from the fashion and textiles industry also emphasised that integrating functions such as manufacturing and distribution within businesses, was difficult in an industry dominated by micro businesses. They explained that many smaller companies often rely solely on automatic IP protections to control supply chains.

Parallel imports from outside the EEA

Products being parallel imported from outside the EEA without the permission of the rights holder was not seen as a significant issue by respondents from highly regulated industries such as pharmaceuticals and the agrochemical industry (referring namely to the regulation of pesticides) due to the rigorous system of checks and verification processes that parallel goods were subject to.

However, other respondents claimed that parallel imports of goods from outside the EEA presented identification and enforcement challenges. Market surveillance techniques used to monitor and investigate sales of non-EEA originating goods was said to often be a burden on resources for business especially Small and Medium Sized Enterprises (SMEs). Respondents explained that typically rights holders will be unaware of the importation of parallel imports until the goods have entered the UK market and are discovered in legitimate retail distribution channels, especially online marketplaces. Once identified, enforcement could take the form of ceasing supply (this often relied on copyright protection such as issuing takedown notices to online retail platforms for infringement of copyright) or other contractual remedies.

Prices (Question 5)

One of the most common reasons for parallel trade is taking advantage of the price differences between two markets (known as arbitrage). While price differences are the most common reason cited for parallel trade, this section of the consultation sought views on the many variables which must be considered.

Question 5: Are there international price differentials for goods in your sector? If yes, what are the factors that influence differences in prices between countries?

Summary of responses received:

There was a consensus amongst respondents that there were international price differentials for goods in their given sector and this was a factor in businesses parallel importing goods that were cheaper to purchase in other countries. The responses to the consultation suggested that price differentials could be particularly high in pharmaceuticals and branded goods such as cosmetics, and perfumes.

Although no quantitative data was submitted, respondents identified a wide range of general factors that could influence international price differentials:

• market landscape
  
  This included market size, available sources of supply and market demand, the number of buyers and their buying power, the regulatory environment, and influences specific to local markets such as social, cultural, and religious influences, e.g. for the pricing of alcohol.
  
  
• costs of doing business
  
  This included manufacturing and distribution costs including logistical overheads such as storage of stock, local labour costs, legal and transportation costs and export/import taxes or tariffs, and other costs of doing business such as advertising and marketing.
  
  
• direct or indirect government price controls
  
  This was cited in the pharmaceutical industry where direct or indirect government price controls were often exerted through national medicine pricing mechanisms.
  
  
• commercial strategies of businesses and the availability of cheaper stock
  
  This could include end of line/clearance/unsold/old stock that could be marketed and resold as ‘new’, ‘previously unavailable’ or ‘limited editions’ in the country parallel importing it.
  
  
• fluctuations in currency exchange rates

UK’s current exhaustion regime (Questions 6 to 8)

The UK left the European Union on 31 January 2020 and the transition period ended on 31 December 2020. At the time of publication of this document, the UK is unilaterally participating in the EEA regional exhaustion regime. This means that the IP rights in goods first placed on the market in the EEA are considered exhausted in the UK. Therefore, these goods can be parallel imported into the UK without the rights holder’s permission. The IP rights in goods first placed on the market in the UK are not considered exhausted in the EEA. As a result, the rights holder may stop the parallel export of these goods into the EEA. Anyone wanting to parallel export goods to the EEA should obtain permission from the rights holder before exporting the goods. This section of the consultation sought views on the current exhaustion regime.

Question 6: Are you or your business/organisation aware of the change to the UK’s exhaustion regime that came into effect on 1 January 2021 following the end of the transition period?

Question 7: What are the costs and benefits of the current regime to your organisation? For example, in terms of choice and availability of suppliers, prices paid and regulatory standards.

Question 8: If possible, please provide examples if your business: a) has prohibited or has considered prohibiting parallel exports or b) has been prevented from parallel exporting from the UK to the EEA since 1 January 2021.

Summary of responses received:

Current exhaustion regime

Most businesses and organisations who responded to the consultation were aware of the change to the UK’s exhaustion regime that came into effect on 1 January 2021 following the end of the transition period. Most respondents stated that they had adapted to the current level of parallel trade (imports from the EEA).

However, it was also stated by some organisations that many, such as SME brand owners and small publishing houses, did not fully appreciate the extent to which the principle of exhaustion of IP rights affected them or the implications of a change of exhaustion regime.

The main views expressed by respondents on the costs of the current regime were:

• the lack of reciprocity placed parallel exporters based in the EEA at an unfair advantage compared to parallel exporters based in the UK which would not serve the UK’s interests well in the long term
  
  

• data to evaluate the current exhaustion regime would be limited due to the very short period in which the regime had been in operation and the effects of the coronavirus pandemic on business
  
  One distributor suggested that the full extent of the impact of the changes since 1 January 2021 may not be experienced until all the stock that was on the market prior to 1 January 2021 had been sold. Rights holders may then enforce their rights more aggressively to prevent parallel exports from the UK.
  
  

• a two-tier parallel import market, whereby non-EEA originating goods amongst consignments of EEA originating goods made it difficult for rights holders, Border Force or Trading Standards to identify them at the UK border
  
  

• a decrease in the number of suppliers, reported by some pharmaceutical wholesalers, due to a breakdown in parallel trade with regular trading partners within the EEA
  
  

The main views expressed by respondents on the benefits of the current regime were:

• the continuance of the current regime avoided a change to another exhaustion regime that could have a detrimental impact on some sectors
  
  

• it offered a degree of certainty that enabled businesses to plan their commercial strategies for the foreseeable future
  
  

• systems, processes and trading arrangements, e.g. no requirement to obtain permission from the rights holder to resell products from the EEA in the UK, were becoming increasingly established in business and contributed to cost and time efficiencies
  
  

• there was currently consistency of regulatory standards with the EEA which facilitated trade in parallel goods
  
  

• it balanced benefits for consumers (through healthy competition and stable prices) with rewarding appropriately the significant investment required to develop products and build brands

While most businesses did not present evidence of having been prevented from parallel exporting from the UK to the EEA since 1 January 2021, a proportion of respondents, particularly pharmaceutical distributors, had invested in adapting business models to focus on parallel imports in response to the changes in the exhaustion regime.

Assessment of options for the UK’s future exhaustion regime (Questions 9 to 13)

The government consulted on the following 4 policy options:

• option 1: UK unilateral application of an European Economic Area (EEA) exhaustion regime (“Do Nothing”) also termed as “UK+”

• option 2: Move to a national regime

• option 3: Move to an international regime

• option 4: Move to a “mixed” regime

This section of the consultation sought views on the options if the government were to change from the current exhaustion regime.

Question 9: If the government was able to change from the current unilateral regional regime (UK+ regime), would your business or organisation prefer a model which either allowed parallel imports from anywhere in the world (without the rights holder’s permission) or prohibited parallel imports into the UK (unless the rights holder’s permission is obtained)? Please outline the regime your business or organisation would prefer and explain the benefits, costs of change and risks of that change.

Question 10: Of the 4 options that the government is assessing, which exhaustion regime would you be most opposed to for your business or organisation? Please explain the reasons and set out the costs to your business or organisation and risks of that change.

Question 11: Is there clear and verifiable evidence in favour of different treatment for specific sectors, goods, or IP rights to the UK economy?

Question 12: What new activities would your business have to undertake if the government changed the current exhaustion regime? What would be the costs and benefits of such activities?

Question 13: Please outline any other issues that the government should consider when deciding on what exhaustion regime to implement, including economic, trade, consumer, or societal impacts.

Summary of responses received:

As previously stated, the pharmaceutical and creative industries were most heavily represented in responses to the consultation. This dominance is therefore reflected in the overall results. It is noted that, within pharmaceuticals there were divergent views between rights holders opposing an international regime, and pharmaceutical distributors/resellers opposing a national regime.

Of the respondents who expressed a preference for one of the options:

• the majority favoured the current UK unilateral application of the EEA exhaustion regime (Option 1 termed “UK+”)

• over a third favoured a national exhaustion regime

• a small number favoured an international exhaustion regime

• few favoured a mixed exhaustion regime

• approximately a quarter of respondents did not express a preference. Many were representative organisations such as trade bodies who represented a wide range of entities with differing interests and views. Accordingly, they chose not to advocate for or against any particular exhaustion regime but confined their response to representing the spectrum of views collected. Others stated they did not favour any of the four options presented and mooted alternatives such as a UK and Ireland only exhaustion regime, renegotiating a reciprocal EEA exhaustion regime or another form of regional exhaustion regime with a set of specific countries.

Respondents’ views on the current UK unilateral application of the EEA exhaustion regime are set out in Chapter 4. Some respondents qualified their preferred choice of a UK+ exhaustion regime by explaining that because the consultation document stated at the time of publication that the government did not consider a national regime to be readily compatible with the Northern Ireland Protocol, they had supported a UK+ regime as the next best alternative. While some others who favoured a national regime in the long term, agreed that a UK+ regime would be the best option to provide continuity and offer stability to business in the short to medium term.

International exhaustion regime

The most common reasons cited for favouring an international exhaustion regime were it could:

• augment the positive impact of parallel imports on the UK market with increased choice of goods, availability of supply and boosting of competition which in turn could provide an opportunity for consumers to benefit from cheaper prices
  
  

• present opportunities for growth of certain businesses who could use existing supply chains and distribution networks to move large quantities of cheap goods into the UK, e.g. large retailers such as supermarkets
  
  

• give businesses a strong competitive advantage over EEA counterparts by having the ability to parallel import from anywhere in the world
  
  

Over half of respondents were opposed to an international regime. This was influenced by the volume of responses from the creative industries and brand owners. The most common reasons for opposing an international regime were it could:

• lead to industry revenue losses (both domestic and export revenues) and undermine the value of certain restrictions on distribution
  
  It was argued that competition from cheaper parallel imports could lead to domestic revenue losses for many businesses, but also reduced investment in overseas markets (to mitigate the risk of those goods being parallel imported into the UK) could lead to reduced industry revenues from exports, particularly for net exporters such as the book industry.
  
  For example, those in the book industry explained that the business model of publishers relies heavily on global exports which is underpinned by territorial rights contracts, i.e. the licensing of rights territorially (either nationally or regionally) which put in place restrictions on distribution outside the specific licensee’s territory. In particular, the careful sequencing of the publication of titles and formats (such as hardbacks and export trade paperbacks) across different territories supports renumeration for creators. There was significant concern that an international exhaustion regime could undermine existing contracts or jeopardise the value of licences in certain territories and disrupt publisher release strategies that could lead to different formats competing with each other and consequently a double loss of royalties for creators from (i) a reduction in UK sales due to cheaper parallel imports, e.g. export editions; and (ii) a lower percentage of the price charged for export editions. Organisations representing authors expressed concern that authors and agents (whose commission income is tied to authors’ earnings) could see significant losses to earnings as well as the impact on the livelihood of creators such as visual artists, e.g. illustrators.
  
  

• stifle investment and innovation
  
  It was suggested that if parallel imports could be sourced from anywhere in the world, some sectors might see an exodus of businesses relocating outside of the UK, e.g. biotech SMEs due to a lack of investment in infrastructure and support for start-up businesses.
  
  An international exhaustion regime was also seen to have the likely effect of stifling innovation in R&D of new products or the creation of new works. Less R&D in bringing new goods to market or the reduction of current product lines could mean the choice of goods to meet the specific needs and preferences of UK consumers would be reduced in the long term.
  
  Others commented that introducing an international exhaustion regime would not be conducive to boosting international trade and exports.
  
  

• damage brand recognition and reputation and weaken consumer protections
  
  Opening up markets further could lead to parallel imports of goods from non-EEA foreign markets being offered for sale to consumers that are not intended for the UK market, e.g. of inferior quality, unknown provenance, or with differences in formulations and/or specifications. This could undermine confidence in the legitimacy and quality of brands. Some respondents from the publishing industry also highlighted a risk that American English editions of books imported into the UK could have a negative impact on UK English orthography.
  
  Parallel imported goods that were not intended for the UK market, could also cause consumer confusion and/or dissatisfaction. Respondents from the drinks industry highlighted a risk that parallel imported products that were materially different to the UK product, e.g. having a higher alcoholic strength, but with the same branding could be imported or not labelled in compliance with UK labelling.
  
  An international exhaustion regime could also increase the risk of products that are not compliant with recognised product safety standards, e.g. in the toy industry, entering the UK supply chain. It was argued that this had the potential to cause consumer harm and present a greater enforcement challenge.
  
  

• distort retail competition
  
  It was argued by some respondents that the anticipated increase in parallel imports under an international exhaustion regime could distort retail competition in favour of multinationals, especially large online retailers with larger economies of scale, at the expense of the high street and specialist retailers.
  
  It was also argued that instead of cheaper prices for consumers, the impact of an international exhaustion regime, may be greater price parity (based on the highest price that the market could bear).
  
  

• lead to negative environmental impacts and raise ethical concerns
  
  Parallel importing goods from outside the EEA could incur an environmental cost as longer supply chains would mean products would be transported over longer distances and there could be environmental sustainability issues, e.g. being able to work with environmentally responsible manufacturers and suppliers.
  
  There was concern amongst some respondents that the potential sourcing of lower-priced products from non-EEA foreign markets could divert supplies from less economically developed countries raising ethical concerns about equitable access to medicine or educational books.
  
  

• diminish the UK’s soft power
  
  It was suggested by some respondents that industries that are net exporters such as the creative industries may experience fewer sales of UK content abroad which could diminish the UK’s soft power gained by sharing British culture and values globally.

National exhaustion regime

The most common reasons cited for favouring a national exhaustion regime, namely by brand owners and manufacturers were that it could:

• provide rights holders (and licensees) with greater control over their IP within the UK market by limiting unauthorised distribution channels
  
  

• encourage more investment and innovation in UK industries, especially those made up of a large number of SMEs and micro businesses such as the fashion and textiles industry
  
  One respondent favoured a national exhaustion regime specifically for patented medicines. They argued that the life sciences sector was dominated by SMEs and a national exhaustion regime would support UK biotech SMEs’ ability to raise finance to support their R&D and business growth.
  
  

• allow the UK to create its own product compliance or conformity standards which would be particularly important if regulatory standards diverged significantly between the UK and the EEA in the future
  
  

• reduce the levels of infringing goods entering the UK marketplace and the resources required for internal market inspection and enforcement
  
  

• prevent distributors ‘trading off the coat tails’ of rights holders’ investment, trade reputation and goodwill
  
  

• create a sustainable supply/demand environment met by domestic supplies rather than parallel imports
  
  

• with specific reference to pharmaceuticals, improve access to consistent, reliable, and regular sources of information on supply/demand could facilitate better demand forecasting (e.g. to increase security of supply of medicines)
  
  Over a fifth of respondents indicated opposition to a national regime.

The most common reasons cited for opposing a national regime were that it could:

• isolate the UK market and drive up prices
  
  Damage to the profitability models of certain businesses such as pharmaceutical distributors (reduction in the ability to benefit from the profit margins generated by switching domestically supplied products for parallel imported alternatives) could also drive up prices for the fewer imported products (both through a reduction in competition between importers and through the reduction of demand for parallel imports).
  
  A less competitive market could lead to price rises, e.g. in the agrochemical industry if the price of essential food production increased as a result of reduced supply channels and lack of competition from parallel imports, e.g. for UK farmers, it could lead to a rise in food prices.
  
  

• affect the profitability of certain businesses
  
  A national exhaustion regime could lead to significant loss of revenue for certain businesses, i.e. those whose turnover was dependent on parallel imports (as replacing parallel imports with domestically sourced products could be costly). Such businesses could be put out of business altogether or could be forced to relocate outside of the UK. Ultimately, this could make some sectors less competitive than their EEA counterparts.
  
  

• jeopardise patient access to certain medicines
  
  Although some respondents in the pharmaceutical industry believed that in most instances pharmaceutical companies would not exercise their rights to withhold permission to parallel import a medicine into the UK under a national exhaustion regime and parallel trade in those medicines would continue, it was asserted that there are occasions when a particular medicine used to meet niche demand can only be sourced through parallel imports. Any potential discontinuation of those medicines could be of significant concern to the patients for whom sourcing an alternative treatment would be problematic.

Mixed exhaustion regime

Few respondents selected a mixed regime as their preferred option. It tended to be advanced as an option by respondents for different treatment of their sector in the absence of their preferred regime being adopted.

The main views expressed by respondents on a mixed regime were that different configurations of a mixed regime could be confusing and complicated to administer and would be likely to increase costs on business especially SMEs.

For example, different exhaustion regimes for different IP rights could be complicated given goods may be protected by multiple IP rights. One respondent explained that a single product could comprise of various rights such as patent protection in the product, trade mark protection in the name, logo, packaging design and colours, design protection (both registered and unregistered) in the pack shape and product shape and copyright protection in the pack design, instructions, guarantees and marketing material. A mixed regime would make it more difficult for a business to determine if the rights in its products were exhausted.

Other respondents explained that lack of uniformity of IP exhaustion regime between sectors could create significant challenges. For example, foods for special medical purposes could be classed as both a food and a pharmaceutical product and would therefore fall under multiple sectors and potentially different regimes. In addition, it was pointed out that businesses may operate in different sectors simultaneously, and accordingly face the complexity of grappling with different regimes within the same business.

Overall, this could give rise to disputes as to which category any given right or product fell into (and may provide opportunities for rights holders with a bundle of rights to rely on the most favourable exhaustion regime) and lead to enforcement issues.

Rights holders from the pharmaceutical industry referred to the form of mixed regime adopted by Switzerland in which the national regime that was applied to medicines differed from other goods. This was cited as an example of how medicines could be treated differently from other sectors under a UK mixed regime.

New activities to be undertaken

Most respondents suggested that if the government changed the current exhaustion regime, a period of adjustment would be needed to undertake new activities. The exact activities would be dependent on the exhaustion regime adopted but many respondents cited the need for time to implement new business procedures in response to a change of regime. This could include altering product development and manufacturing processes, establishing new supply chains and contacts, and renegotiating supply and distribution contracts ^{[footnote 1]}. Some respondents suggested that in some industries where long term contracts were commonplace, such as in construction, consideration may need to be given to compensation mechanisms for breach. Some respondents also cited the possibility of the need to restructure business models and benchmark new prices in response to a new regime. In many instances, these activities would be likely to require up-front capital expenditure and recruitment of new staff.

Other issues

Some of the other issues that were raised by respondents were:

• the benefits of a change of regime had not been convincingly articulated and a change of exhaustion regime could lead to possible unintended consequences
  
  

• any change of exhaustion regime could create uncertainty and disruption for business and undermine commercial confidence
  
  

• different exhaustion regimes around the world evolved in response to specific geo-political factors which are sufficiently different from the UK to make direct comparisons difficult
  
  

• potential shortages during the period of adjustment may need to be managed
  
  

• an increase in legal and regulatory burdens, including external legal advice and internal legal training, may fall disproportionately on SMEs

Implementation of any change (Questions 14 to 15)

If a decision is made to adopt any regime other than the current unilateral regime (UK+ regime), the government will need to consider the length of any changeover period and any other transitional provisions. Any change to the exhaustion regime would require businesses and organisations to adapt and make any required changes to their supply chains and other aspects of their business model. This section of the consultation sought views on how any change to the UK’s current exhaustion regime could be implemented.

Question 14: If the government were to change its exhaustion regime, what factors would affect the amount of time your business or organisation would need to implement a change? This may include but is not limited to changes to supply chains, contracts, product development, manufacturing processes or investment decisions. Please provide information to support your comments.

Question 15: If the government were to change its exhaustion regime, what length of time would your business or organisation need to implement the change (for example, 1 year or 3 years)? Please provide information to support your answer.

Summary of responses received:

Many business respondents asserted that if the government were to change its exhaustion regime, the factors that would affect the amount of time needed to implement the change would depend on the extent of the change, the impact on supply chains and any regulatory impact. This could not be determined precisely without more specific detail, but there was agreement that there would need to be a period of time to embed any changes.

Factors that would affect implementation of a change of exhaustion regime

If the government were to change the exhaustion regime, factors that respondents suggested could affect the amount of time needed to implement a change were:

• businesses would need time to develop new supply chains and contacts
  
  

• contracts (such as licences) and existing trade terms with trading partners would need to be reviewed, renegotiated and/or amended
  
  

• orders/forecasts would need to be modified
  
  

• businesses cases may have to be drawn up, e.g. for the development of new products (including lead times to adhere to any associated regulatory obligations)
  
  

• lead times may be required for customs and regulatory authorities to implement a revised parallel import framework
  
  For example, an international exhaustion regime may require regulatory alignment of systems and standards for parallel imports from outside the EEA.

Time required to implement a change of exhaustion regime

Estimates of the length of time required to implement a change of regime varied greatly amongst respondents.

These ranged from a lengthy implementation period of a minimum of 5 years for a national regime (suggested by some in the agrochemical industry) or for an international regime (suggested by many in the publishing sector) to approximately a year for a change to a national regime (suggested by some rights holders namely in the pharmaceutical industry who argued that a transition to a national regime could have minimal cost implications and would not require a long implementation period) or to an international regime (suggested by businesses whose turnover is dependent on commercialising parallel traded products).

Some respondents suggested consulting with stakeholders on the length of time required to implement a change of regime once the government reached a decision on whether to change from the current exhaustion regime.

Legal (Questions 16 to 17)

This section of the consultation sought views on the government’s assessment of treaties it has entered into which may limit the options of exhaustion regime available to it.

Question 16: Do you have any views on the government’s assessment of UK legislation and international treaties that are relevant to the UK’s choice and implementation of an exhaustion regime?

Question 17: Do you have any views on the government’s assessment that the Northern Ireland Protocol will mean that the regime ultimately selected by the UK government will need to allow parallel imports into Northern Ireland from the Republic of Ireland and other EEA countries?

Summary of responses received:

A large proportion of respondents accepted the government’s assessment at the time of publication of the consultation, that a potential national exhaustion regime was incompatible with the Northern Ireland Protocol which preserves the position that parallel goods may move from the Republic of Ireland and other EEA member states into Northern Ireland without restriction.

Some respondents in the creative industries and some rights holders in the pharmaceutical industry contested this assessment. They set out a counter opinion that neither the treaties or agreements (the Northern Ireland Protocol being an integral part of the Withdrawal Agreement) that the government has entered into limit the options of exhaustion regime available to it. Specifically, those respondents stated that the Northern Ireland Protocol itself should not be read as precluding a national exhaustion regime.

Many respondents from the pharmaceutical industry raised the issue of the importance of security of medicine supply, and some rights holders commented that it was unclear whether medicines would be removed from the scope of the Northern Ireland Protocol in future. Particular concern was expressed about the increasing number of discontinued medicines in Northern Ireland following the end of the transition period, and some respondents stated that parallel trade of medicines into Northern Ireland from the EEA would continue to be essential under whatever regime was adopted in the long term.

No views were expressed on the impact of the UK’s choice of exhaustion regime on the Crown Dependencies or British Overseas Territories.

Annex A: Summary of respondents

In total, the government received 150 responses to the consultation: ^{[footnote 2]}

Table 1: Respondent type

Respondent Type	Number	Percentage
Business (71) or Organisation (49)	120	80%
Individuals	17	11%
Respondent type not stated	13	9%

Table 2: Size of business

Businesses	Number	Percentage
SMEs with fewer than 250 employees	37	52%
Businesses with more than 250 employees	29	41%
Size of business not stated	5	7%

Table 3: Respondents by sector ^{[footnote 3]}

Sector	Responses
Agriculture, forestry & fishing	6
Automotive or Aerospace	1
Business administration	0
Civil society	1
Construction	1
Creative industries	54
Distribution	5
Education / Academia	5
Finance	0
Food and drink	9
Health (human or animal)	39
Information technology	6
Production/ Manufacturing	7
Public administration & defence	0
Retail	8
Transport & Storage	1
Wholesale	6
Other	23
No Sector Identified	10

Annex B: List of respondents - businesses and organisations

Abacus Medicine A/S
ACT / The App Association
Aelurus Publishing
Agrovista UK limited
AIPPI UK (the International Association for the Protection of Intellectual Property)
Alliance for Gray Market and Counterfeit Abatement
Alliance for Intellectual Property
Anti Copying in Design (ACID)
Anti-Counterfeiting Group and British Brands Group
Arts Council England
Association of Authors’ Agents
Association of Learned & Professional Society Publishers
Association of the British Pharmaceutical Industry (ABPI)
Authors’ Licensing and Collecting Society
B&S Group
Bayer Plc
BBC Studios Distribution Limited / BBC
Beachcourse Limited
Bloomsbury Publishing Plc
Bonnier Books UK
Booksellers Association
BPI (British Recorded Music Industry) Limited
Bristows LLP obo a client (‘the Respondent’)
British Association of European Pharmaceutical Distributors (BAEPD)
British Copyright Council
British Fashion Council
British Film Institute
British Footwear Association
British Generic Manufacturers Association
British Retail Consortium
British Screen Forum
British Specialist Nutrition Association Limited
British Toy and Hobby Association
Charted Institute of Trade Mark Attorneys
Chartered Institute of Patent Attorneys
Chartered Trading Standards Institute
Chemilines Group
Clayton Plant Protection (UK) Ltd
Connect Pharma
Creative Distribution Limited
Creators’ Rights Alliance
Cross Healthcare Ltd
CST Pharma Limited
Curtis Brown Group
DACS
Danone
Diageo Plc
Disturbance Press
Doncaster Pharmaceuticals Group Limited
East Riding Horticulture Ltd
Eisai Europe Limited
Elsevier Ltd
Ericsson Limited
Faber and Faber Ltd
Federation of Small Business
FICPI-UK
GlaxoSmithKlein
Gowling WLG (UK) LLP
Granta Publications
Hachette UK Ltd
Healthcare Distribution Association (HDA UK)
Highways England Company Limited
The Independent Alliance
Independent Publishers Guild
Intellectual Property Awareness Network
Intellectual Property Bar Association
Intellectual Property Lawyers’ Association
International Association of Scientific, Technical and Medical Publishers (STM)
International Trademark Association
IP Federation
IP working group of the Creative Industries Council
Irish Whiskey Association
Law Society of England and Wales
Law Society of Scotland
Lawyers for Britain
Lexon (UK) Ltd
MARQUES
Masstock Arable Ltd
McKesson UK
Mediwin PPIP Ltd
Merck Sharp & Dohme (UK) Limited
Michael O’Mara Books Ltd
Motion Picture Association
Music Publishers Association
National Pharmacy Association
National Union Journalists
Necessity Supplies Limited
NIP Pharma Limited
Norgine Pharmaceuticals Limited
Nosy Crow Ltd
Novartis AG
Nupharm Ltd
Oracle Corporation
P & AJ Cattee (Wholesale) Ltd
Pan Agriculture Limited
PCT Healthcare Ltd
Penguin Random House UK
Pfizer Limited
Plexian International Limited
Pricecheck Toiletries Limited
ProCam UK Limited
Procurri Europe Limited
Professional Publishers Association
Profile Books Ltd
Publishers Association
Publishers’ Licensing Services Limited
Publishing Scotland
Roche
SAGE Publications Ltd
Save Our Books
Scholastic Limited
Scotch Whisky Association
Scribe Publications
Shakespeare Pharma Ltd
Sigma Pharmaceuticals Plc
Society of Authors
Specialist Pharmacy Service of NHS England
Strathclyde Pharmaceuticals Limited
Taylor Vinters LLP
techUK
Teleta Pharma Ltd
Teva UK Limited
Third World Network
UK BioIndustry Association
UK Coalition for Cultural Diversity
UK Fashion & Textile Association
UK Music
Walkboost Ltd
Walpole
WGGB (Writers Union)
William Grant & Sons Ltd

In addition, 17 individuals responded to the consultation. Their responses were predominately in support of the views expressed by other respondents in the creative industries.

The government wishes to thank all those who participated in this consultation.

1. Some respondents from the pharmaceutical industry noted that the Competition and Markets Authority (CMA) was undertaking a review of the Vertical Agreements Block Exemption Regulation (VABER) and the outcome could have an impact on the enforceability of contractual restrictions on importation into the UK. ↩

2. Data is based on how respondents classified themselves in Section B of the Response Form. Not all respondents provided Section B information ↩

3. In response to question 8 in the response form, some respondents self-selected more than one sector to best describe the sector that their business or organisation was in. The total number of ‘responses by sector’ is therefore greater than 150 (the total number of responses). ↩