The government has published its
response to the consultation on the exhaustion regime for IP rights. The overall conclusion is that the UK will permanently maintain its UK+ IP exhaustion regime, the bespoke (and asymmetrical) regional exhaustion regime that has been in place since Brexit.
When goods are first placed on the market in the EEA with the IP owner’s consent, IP rights will be exhausted in the UK. This means that IP owners cannot prevent the parallel importation of those goods from the EEA into the UK, which the UK government deemed necessary for the continued supply of medicines. However, the system doesn’t work the other way around. When goods are legitimately placed on the market in the UK, EU rights are not considered to be exhausted, and IP owners can still prevent their import from the UK into the EU.
Overall, as this is a continuation of the temporary system that has been in place since Brexit, this outcome provides certainty and continuity. Businesses in the life sciences industry can continue to operate under current exhaustion rules and to utilise their existing business models and supply chains.
Background
This consultation was launched back in 2021, after the UK left the EU’s single market and exhaustion regime. The UK wanted to choose how IP rights should apply to genuine (physical) goods that are first sold outside of the UK, bought by secondary market actors, and imported into the UK. This includes the parallel importation of medicines from the EEA for marketing in the UK.
The consultation sought evidence and views from stakeholders on four possible future regime options. There were 150 respondents, and a majority reported that the current UK+ regime was working well. The government therefore concluded that the UK+ regime, which was initially put in place as a temporary measure, is the option that can best provide an effective balance to the different interests of the marketplace. The consultation failed to find robust quantitative evidence to support any change.
Discounted regimes
The consultation considered but the UK government ultimately discounted the following alternative regimes:
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National exhaustion: IP rights are only exhausted when goods are placed on the UK market. The consultation concluded that this regime would not be reconcilable with obligations set out in the Northern Ireland Protocol, as amended by the Windsor Framework. These require the movement of goods from the Republic of Ireland and other EU member states into Northern Ireland without restriction. Of particular interest to the life sciences sector, is the significant domestic risk identified in the response that a national exhaustion regime may negatively impact the security and diversity of supply of medicines into the UK. The government considers this risk to outweigh any potential benefits of a national regime encouraging the development of products that are more tailored to UK consumers.
- International exhaustion: IP rights are exhausted when goods are placed on the market in any country. Whilst there were arguments that his could lead to lower prices for consumers, the consultation concluded that there was no evidence that this would happen, primarily because savings might not be passed on and might be absorbed by intermediaries or offset by transportation costs. Furthermore, there could be a reduction in goods tailored specifically to the UK market. Overall, there was little support for this option and the creative industry raised concerns about how it could damage their sector.
- A mixed exhaustion regime: This would apply a different exhaustion regime to different goods, different sectors, or different IP rights. Again, this option had little support. Its design would require further consideration, and this would lead to regulatory uncertainty for businesses. It would also create the largest regulatory burden, as specific rules for each type of good, sector or IP right could create substantial operational and administrative challenges.
Accordingly, the government has chosen to maintain the UK+ exhaustion regime permanently with immediate effect. It considers this to be a stable and well-understood regime, which protects the IP assets of creators and innovators, whilst also providing for choice and competition within the market.
Key takeaways for the life sciences industry
- Overall, this outcome leads to certainty and continuity for businesses in the life sciences industry. The UK+ exhaustion regime is well-understood and avoids any transition costs because it allows businesses to continue to utilise their existing business models and supply chains. Businesses and IP rights holders can continue to operate on the basis of the UK’s current exhaustion rules and there is no need to amend contractual and licensing practices or other supply operations.
- The decision to reject a national exhaustion regime is not particularly surprising, considering the heavy reliance by the NHS on access to lower priced medicines. Some respondents had estimated that parallel imported medicines provided considerable savings to the 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. Some respondents had also expressed the view that pharmaceutical companies would not exercise their rights to withhold permission to parallel importation of medicines into the UK. However, others asserted that there are occasions when a particular medicine used to meet niche demand can only be sourced through parallel imports and any discontinuation of those medicines could be of significant concern to the patients who would have problems sourcing an alternative treatment.
