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1 December 2022FeaturesBig PharmaRebecca Anderson-Smith

Exhaustion and parallel trade: what’s next for pharma TMs?

Ever since the UK announced its intended departure from the European Union (EU), there has been much speculation about whether and how the UK would amend its trademark exhaustion and parallel trade regime. Following the recent UK government consultation, the position has become clearer, although the government has not ruled out the possibility of making further changes in the future.

What do we mean by exhaustion and parallel trade?

The doctrine of exhaustion of IP rights is a principle that limits an IP owner’s power to enforce their rights once the goods have been placed on the market by the IP owner or with their consent. Parallel trade is the import and export of genuine goods which have already been put on the market and in which the IP owner’s rights are exhausted. Together, laws on exhaustion and parallel trade help to strike a balance between the limited monopoly created by IP rights and the need to encourage competition in the market.

For some time, the EU has adopted a model of European Economic Area (EEA) regional exhaustion. This means that once goods have been put on the market in the EEA under a trademark, either by the trademark proprietor or with their consent, the proprietor’s rights are exhausted and they cannot subsequently control or object to other dealings with the goods on the basis of trademark rights.

The UK left the EU on January 31 2020 and the ‘Brexit’ transition period ended on December 31 2020. Since this time, the IP rights in goods first placed on the market in the UK have not been considered exhausted in the EU, and instead a business importing IP protected goods from the UK to the EU could require the consent of the EU rights owner.

Conversely, the UK has continued to unilaterally participate in the EEA regional exhaustion regime. Consequently, the IP rights in goods first placed on the market in the EEA are considered exhausted in the UK, and these goods can be imported into the UK without the rights owner’s permission, subject to certain conditions.

UK government consultation

In June 2021, the UK government launched a public consultation on the UK’s future exhaustion of the IP rights regime. The consultation ran for 12 weeks and closed on August 31 2021. In total, the government received 150 responses to the consultation, including from Bayer, GlaxoSmithKline, Merck Sharp & Dohme, Novartis, Pfizer, Roche, the Chartered Institute of Trade Mark Attorneys and the Chartered Institute of Patent Attorneys.

Four possible exhaustion regimes were considered:

  • Continue unilateral application of EEA regional exhaustion regime, also termed “UK+”.
  • Move to a national exhaustion regime where IP rights would only be exhausted if the goods had been placed on the market in the UK.
  • Move to an international exhaustion regime where IP rights would be considered exhausted if the goods had been placed on the market anywhere in the world.
  • Move to a mixed exhaustion regime which would combine elements of both the national and international regimes, applied across different types of IP rights.

Of the respondents who expressed a preference for one of the possible regimes, the majority favoured the current unilateral application of the EEA regional exhaustion regime (Option 1 termed “UK+”).

The government concluded its consultation in January 2022 by deciding to delay making any changes to the current system, issuing the following statement:

“The government has completed an initial analysis of the recent consultation. Unfortunately, there is not enough data available to understand the economic impact of any of the alternatives to the current UK+ regime. As a result, it has not been possible to make a decision based on the criteria originally intended. However, the government remains committed to exploring the opportunities which might come from a change to the regime. Further development of the policy framework needs to happen before reconsidering the evidence and making a decision on the future exhaustion of [the] IP rights regime.

We do not currently have a timeframe for a decision, but we will provide a further update to stakeholders and businesses in due course.”

Therefore, for now at least, the UK will retain its current unilateral EEA (UK+) exhaustion regime.

What does this mean for pharmaceutical trademark owners?

It is no surprise that many companies in the pharmaceutical sector, both brand owners and distributors, participated in the consultation. There is a considerable market for parallel imports of pharmaceuticals in the UK and EU due to the significant difference in pricing of these products across the different countries.

In a special report, “ Pharma Trade Marks: Exhaustion and Parallel Trade in the UK, the UK and German trademark experts at Mewburn Ellis have examined what this means for pharmaceutical trademark owners.

If goods have already been placed on the market in the EEA by the trademark owner or with their consent, the trademark owner’s rights will be considered exhausted, unless there are legitimate reasons for them to object to further commercial dealings with the goods.

Therefore, when given notice by a parallel importer, a trademark owner should review a sample carefully to ascertain if there has been any repackaging or relabelling, and if so, whether this is necessary.

They should also check whether there is any effect on the original condition of the product; that the manufacturer and the importer are clearly identified; and that there will be no damage to the reputation of the trademark.

Trademark rights in goods first placed on the market in the UK are not considered exhausted in the EU. A pharmaceutical trademark owner should therefore consider protecting their mark in the EU, as this may provide them with grounds to stop a business importing goods from the UK to the EU without consent.

A pharmaceutical trademark owner also needs to review their existing and new European distribution agreements to account for the differing exhaustion regimes in the UK and EU. Specifically, two licence rights will have to be granted for contract products first placed on the market in the UK—one for the initial placement and the second for any resale into the EU.

While the UK government has decided not to deviate from the UK+ exhaustion regime for now, they have not ruled out the possibility of making changes in the future. It is therefore vital that pharmaceutical trademark holders keep a close eye on developments in the UK trademark exhaustion regime, to ensure that they are taking all appropriate steps to protect their rights.

Rebecca Anderson-Smith is a partner and chartered trademark attorney at Mewburn Ellis. She can be contacted at:  rebecca.anderson@mewburn.com


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10 June 2021   Companies looking to enter the booming cannabis industry should “cast a wider net” when registering trademarks, according to a virtual panel discussion.