By Elisha Juttla

During the UK’s EU membership, the law governing trade marks was harmonised across the EU. Trade-marked goods sold in one EU state could be exported and sold in another EU state in accordance with free trade and free movement of goods. This was seen as a good thing for parallel traders who could buy products in one country and sell them at a higher price in another. This operates on the doctrine of exhaustion. In other words, the rights of the trade mark owner must be ‘exhausted’ before parallel trade. This ‘exhaustion’ occurs when trade-marked goods are first sold in the EEA by the owners or with their consent. After these products are first sold, brand holders are then unable to control further resale of these products unless they have legitimate reasons to oppose such interference. This was referred to as a ‘regional EEA exhaustion model’ and provision was made for this via a number of statutory instruments.

Since the EU referendum result was announced in June 2016, questions have been raised regarding trade mark exhaustion after Brexit. By virtue of the EU-UK Withdrawal Agreement, it was agreed that trade mark rights in both territories before the end of the transition period shall remain exhausted. This meant the regional EEA exhaustion model remained intact until 31 December 2020. It was believed this would minimise any potential disruption in order for the UK Government to weigh up the possible avenues for a post-Brexit UK.

During the transition period, legal commentators put forth three main models the UK could adopt beyond Brexit:

1. Regional Exhaustion – This would retain the existing framework and was favoured in order to maintain the status quo. Here the UK could follow the approach in Norway which is not a member of the EU but has full access to the single European market through a number of agreements.
2. National Exhaustion – This would reduce the region of exhaustion to the UK. However, this was ruled out fairly early on as it is likely to result in negative economic consequences such as narrowing consumer choice and signalling hostility towards the UK’s future trading partners.
3. International Exhaustion – This was the pre-EU position of the UK. This would mean that a trade mark owners’ rights are exhausted as soon as they place their goods on the market anywhere in the world (not just in the EEA). Again, however, this was not a favoured approach because it allows for parallel traders to ‘free-ride’ on the selling power and symbolic value attached to the trade mark and may reduce the quality of the trade-marked products. Here the UK could have sought inspiration from the USA which embraces an international exhaustion stance with a few caveats, for example if the goods resold are ‘materially different’ then trade mark owners can assert their rights against parallel traders.

Towards the end of the transition period, it became clear that the UK Government would establish some sort of trade deal with the EU given 47 years of deep ties. That said, if talks broke down then a ‘no deal’ Brexit would mean the UK would fall back on the WTO rules that regulate international trade for countries that do not have free trade agreements like the USA.

On 24 December 2020, the EU and UK negotiators struck a deal which took effect on 1 January 2021. This meant that the Withdrawal Agreement ended on 31 December 2020 and existing EU treaties, EU free movement of rights and general principles of EU law no longer apply in the UK. Although it will not embrace the same level of economic integration enjoyed by the UK when part of the EU, the Trade and Cooperation Agreement is now the law governing UK-EU relations. Given the Brexit uncertainty caused by the Withdrawal Agreement which does not specify what will happen to trade-marked products after the transition period, it was hoped the Trade and Cooperation Agreement would bring greater certainty for the parties engaged in the practice of parallel trade. This Agreement has confirmed the right of each side to set its own rules on exhaustion which has established an asymmetrical regional exhaustion regime. In other words, the UK is continuing with EEA exhaustion like we are an EU member state. By contrast, the EU is not adopting this approach and goods placed in the UK market will not be deemed exhausted in the EEA and will require consent. As there is no reciprocal recognition of trade mark rights, the Trade and Cooperation Agreement has been criticised for being flawed and ill-defined.

Experts in this field have stated that questions surrounding trade mark exhaustion are still left unanswered after the Brexit deal. It is expected that this asymmetrical framework will be reviewed in early 2021 by the UK Government and Intellectual Property Office where there are hopes for an express provision concerning exhaustion. Brand owners and trade mark practitioners want to see a period of stability in this area and exhaustion is an area we suspect to see focus on in the next coming months.