Will grey market get Brexit boost?

Bond Dickinson's Patrick Cantrill and Rose Smalley argue that a 'hard Brexit' could spell a sea change for parallel importers in the UK

The indications are that the UK might be moving to a "hard Brexit", i.e. full departure from the Single Market with few, if any, transitional arrangements. Such an outcome could spell the end of the supportive regime that entitles IP owners to restrain the resale within Europe of grey market parallel imports emanating without their consent from outside the European Economic Area (EEA).

Therefore, with the UK presumably setting out its store as a free trade market open for global business, Brexit might provide opportunities for importers and resellers if the UK were to revert to the position that existed before our entry into the EU, whereby goods put on the market with IP owners' consent anywhere in the world would be generally available for resale elsewhere.

This article speculates on what would be the consequences if the UK were to revert to such a liberal trade approach.

Treatment of parallel imports

Within the computer peripheral sector the brokerage trade has created substantial tension between the interests of IP owners and those of the reseller and consumer. IP owners assert that they should control the distribution and resale of their goods around the world, whereas parallel traders argue that if the goods are genuine, then in accordance with global free trade, consumers/end users in the country of import should be permitted to benefit from lower prices available elsewhere.

Unsurprisingly, there are differing views worldwide on how to address this tension. Some countries including Australia, Canada and the US lean towards "international exhaustion", the underlying principle of which is that (unless there is some material difference between the goods sold in the country of export and those sold in the importing country) IP owners have already been rewarded from the initial sale and should not use their national IP rights to restrain the subsequent resale of those goods. The IP owners' rights are "exhausted".

However, within the EU, the doctrine of "Fortress Europe" was developed much to the benefit of IP owners. Rulings by the European Court in such cases as Silhouette and Zino Davidoff conferred on IP owners great control to prevent the resale or importation of genuine goods sourced from outside the EU without their consent. Under such judgements, consent will not be assumed simply because the goods are genuine and the burden falls on the importer/reseller to prove that the IP owner must have intended that the goods were released for free circulation within the EU.

The impact Of Brexit

Crucially, prior to the UK harmonising its IP laws with the other member states of the EU, it had also applied a doctrine of international exhaustion. Accordingly, if Brexit were to occur with no specific measures in place addressing parallel imports into the UK, a vacuum would appear and the UK courts might then revert to the judgements and law as existed before the adoption of the concept of Fortress Europe.

If such a change did occur, IP owners would be robbed of the rights and remedies that allow them to exercise tight control over the resale into the UK of genuine goods emanating from outside the EU. Currently, such remedies include:

• Injunctions to restrain parallel trade of goods from outside the EU, enforced throughout the member states. Although if it is difficult for resellers to identify goods which are in free circulation within the EU with the consent of IP owners from those genuine goods which are not, the UK courts will usually qualify the injunction by requiring a mechanism whereby the IP owners may be consulted as to whether potential future sales are available for sale within Europe.
• Damages. Generally, the UK courts will grant compensation to successful claimants in parallel import cases if they can demonstrate a link between such compensation and the acts of which they complain. Accordingly, compensation is usually assessed on the basis of either (i) the claimant showing that it has lost sales as a result of the reseller's actions; (ii) the actual profit made by the reseller; and/or (iii) what is an appropriate licence fee.
  Although the UK courts are generous, the onus is on the claimant to prove its loss. It cannot recover twice in respect of the same dealings and will have to account for what has already been recovered from the reseller's supplier or other parties. Moreover, if it chooses to seek by way of compensation the profits made by the reseller, the courts will often not allow the full period of profits if the claimant has delayed in bringing its claim. Finally, in the case of lost sales, it must prove it would have made all or most of the sales made by resellers, at the value demanded.
• Disclosure to identify the reseller's suppliers and customers. The UK courts appreciate these needs and will generally grant such orders, but will often impose limits on the nature and scope of such disclosure especially where there is a danger that the information might threaten to disrupt any legitimate business activities of the importers or resellers.

There are those who argue that the abandonment of Fortress Europe and the resumption by the UK of international exhaustion is not only desirable but completely in accordance with a post-Brexit world in which the UK would embrace global free trade.

The truth is more likely that the Vote Leave result was a complete surprise to all and prior to the outcome few, if any, had given any thought to the dramatic impact that Brexit would have on the IP systems across Europe. It is probably only with hindsight that even those who advocated Brexit have come to appreciate how widespread and dramatic these changes will be.

Therefore, it seems likely that brand and other IP owners will lobby the UK government to preserve the existing controls against parallel importers and/or restructure their networks to address a situation where post-Brexit, the UK becomes a parallel import-free zone.

Rose Smalley (pictured) is a solicitor at law firm Bond Dickinson's Intellectual Property Department. Patrick Cantrill is Bond Dickinson's head of Intellectual Property. For further information, email: [email protected] or visit Bond Dickinson's website.