Exhaustion In The UK: IP Law Under Review

• Published date: 15 November 2021
• Subject Matter: Intellectual Property, Patent, Trademark
• Law Firm: Gowling WLG
• Author: Ms Kate Swaine, Gordon Harris and Ailsa Carter

The UK Government is considering the shape of the country's future regime for the 'exhaustion' of intellectual property rights.

Why do I need to know this? Because the regime settled upon will govern rules on parallel imports of genuine goods into the UK - what genuine goods can be imported into the UK and from where. If your business is involved in or interested in the movement into the UK of goods protected by a trademark or a patent, then you need to understand the law on 'exhaustion' of intellectual property in the UK.

What do I need to know? You need to know what the law in the UK is now, and how it may change before too long. So we explain below.

At the moment the law regarding genuine goods bearing a registered trademark is clear, but some aspects of the law regarding genuine patented goods are less clear; and following the Government's consultation, both regimes may change. Understanding what a new regime might look like requires understanding of the law as it stands currently in the UK, and of how it stood before the current, broadly described 'EEA-regional exhaustion' regime, was developed.

So here are the key points you need to know, in respect of patents and trademarks:

• For registered trademarks today, the UK continues to recognise and apply the EEA-regional exhaustion regime. The EEA-regional exhaustion regime has two fundamental features: (1) exhaustion in respect of goods placed on the market in the EEA by the trademark owner or with their consent, and (2) no exhaustion for goods placed on the market outside the EEA by the trademark owner or with their consent.
• Historically, the UK's registered trademark system developed as a codification of the law of passing off. So when understanding the historical approach to exhaustion in the UK in respect of trademarks, the place to start is with the law of passing off. Historically and still today, in cases of alleged passing off, the question of whether sale in the UK of parallel imported genuine goods is tortious depends upon whether the elements of passing off are established. These are: goodwill (in the UK); misrepresentation (in the UK); and damage. In applying and assessing these elements, imported goods are treated no differently to goods sold by the brand owner within the UK. Although the word 'exhaustion' is not used or seen as a type of defence in respect of passing off, the regime could most fairly be described as a form of international exhaustion.
• Similarly, before the UK joined the European Economic Community in 1973, a question of whether sale in the UK of parallel imported genuine goods infringed a registered trademark was considered by applying fundamental principles of trademark law without discriminating according to the geographical origins of the goods concerned. Although inconsistencies existed in the case law, the more authoritative judgments established the approach as a form of international exhaustion.
• For trademarks, the first of the fundamental features of the EEA's region exhaustion regime was introduced by the Court of Justice's 1974 ruling in Centrafarm v Sterling¹: putting goods into circulation in a Member State exhausted the registered trademark owner's rights in respect of those goods across the Community.
• In respect of goods parallel imported from outside the EEA, the UK continued to apply its international approach to questions of infringement of registered trademarks until the Court of Justice's 1998 ruling in Silhouette v Hartlauer², which introduced the second of the fundamental features of the EEA-regional exhaustion regime noted above.
• For patents today, it is not accurate to say that the UK's exhaustion regime is or remains that of the EEA-regional exhaustion regime provided for by Court of Justice in respect of trademarks. Certainly the EEA-regional exhaustion defence (fundamental feature (1) noted above) applies in respect of genuine goods first placed on the market within the EU/EEA by the patent owner or with their consent and subsequently parallel imported in to the UK³ However, no legislation or case law has introduced in the UK in respect of patents the second fundamental feature noted above of the EEA-regional exhaustion regime. In view of the long-standing authority of Betts v Willmott (and subsequent authorities developing the doctrine of 'implied licence') in the UK⁴, for genuine goods first placed on the market outside the EU/EEA by the patent owner or with their consent and subsequently parallel imported in to the UK, the better view is that the UK's doctrine of 'implied licence' remains good law.
• The UK's doctrine of implied licence is conceptually different to the concept of exhaustion as it is understood in EU law or in the law of the United States. The doctrine is that the purchase of a patented article carries with it the right to use or deal in the article in any way the purchaser choses unless the purchaser knows of restrictions communicated by the patentee by the time of purchase. The right is in the form of an implied licence and it applies whether the purchase of the article is from the patentee or from an earlier purchaser. If the purchase is without notice of conditions, the purchaser is free to use and deal with the article as they choose. But for as long as subsequent purchasers have notice of the patentee's conditions by the time of their purchase, the conditions continue to attach to the goods and the patentee may assert their rights under patent law in respect of dealings outside of the conditions. The doctrine of implied licence does not discriminate according to the geographical origins of the goods concerned, and so in that sense it is most fairly described as international.
• However, for goods first placed on the market outside the EU/EEA by a licensee rather than the patentee, the operation in the UK the implied licence doctrine is less clear, and is discussed below in the drop-down section for patents.

The UK's 'exhaustion' regime therefore does not have a history of being national in its reach, for patents or for trademarks. More detail of the history and operation of both regimes is discussed below in the drop-down menus.

When considering options for the UK's future exhaustion regime, stakeholders should also be aware of the approach taken by trading partners of the UK. More on this will follow.

Further detail

Patents

Patent law in the UK historically has not discriminated between goods originally placed on the market in the UK by the owner of the relevant patent and the same goods first placed on the market by that owner outside the UK and then parallel imported into the UK. The UK's approach to 'exhaustion' prior to and outside of EU law has, therefore, been international, broadly speaking.

However, it is important to distinguish between the concept of exhaustion developed in European law (and in a similar way in the United States of America), and the how the law in the UK has approached questions of patent infringement in respect of parallel imported genuine goods. Under the European doctrine of exhaustion, once the goods have been placed on the market in the EU or EEA by the owner of the patent or with their consent, the owner's rights to control subsequent dealings the goods have been exhausted and so no longer exist. In contrast, under the UK's doctrine of 'implied licence' or 'Betts v Wilmott' principle, patent law is applied in the same way to all the genuine patented goods, irrespective of where they were first placed on the market.

The UK's doctrine of implied licence developed against the background of the specific...