Lauren McFarlane: UK’s copyright exhaustion regime – the story so far

Lauren McFarlane: UK’s copyright exhaustion regime – the story so far

Lauren McFarlane

The publishing industry breathes a collective sigh of relief as UK government maintains UK’s copyright exhaustion regime – for now at least, writes Lauren McFarlane.

In the summer of 2021, the Intellectual Property Office (IPO) launched a widely publicised public consultation into UK copyright law after Brexit.

For the publishing industry, one of the most significant changes being contemplated was to the UK’s exhaustion of intellectual property regime, which sets the rules for parallel imports of intellectual property protected goods into the UK. From an IP perspective, parallel trade is the import and export of genuine IP protected goods and enables such goods to be placed on, and commercialised in, the market within a specific territory by, or with the permission of, the rights holder.

The principle of ‘exhaustion’ is an international legal doctrine which provides that a copyright owner’s right to control copies of his or her work “exhausts” on its first sale by the copyright owner, or the first sale with their consent.

What does this mean, exactly? In publishing, it means that an author is able to exercise control of the first sale of their work, giving the author the ability to dictate the price of his or her book being sold in another territory. The downside is that once “exhausted” (i.e. after the first point of sale), the copyright owner’s control ceases, which in practical terms means that books can be resold without the author being able to control by or to whom and for what price.

Crucially, however, under the existing regime, once a copy of the book has been sold outside of the EU, it cannot then be legally reimported into the EU. This creates what is essentially an intangible copyright border surrounding the EU market.

Impact of Brexit

Before the UK left the EU, the UK was part of the EU’s regional exhaustion system. This meant that IP rights in goods first placed on the market anywhere in the European Economic Area (EEA) would be considered exhausted in the rest of the EEA which (as above) meant that once the book had been sold outside the EEA, it could not then be reimported back in.

For the publishing industry, this meant that UK producers were able to 1) control distribution of their works for the first sale, which could mean having a British published book sold abroad for a specific price, and 2) prevent the importation of internationally published editions of books into the UK, meaning, in practice, that international producers were unable to undercut the domestic market.

From a practical perspective, such protection was (and is) crucial for UK authors, protecting their livelihoods by preventing the market from being flooded with cheap foreign editions of their books and also ensuring that they are able to sell their work abroad and be fairly paid for it.

Post-Brexit, the UK no longer takes part in a reciprocated exhaustion regime. As a result, the IP rights in goods first placed on the market in the UK are not considered to be exhausted in the EEA, whereas the exhaustion principle still applies with respect to the first sale of products in EU members states. This means that rights-owners can stop the parallel export of these goods into the EEA, and that UK businesses exporting such goods to the EEA need to ensure that they have the requisite permission. It also means that the system is potentially now imbalanced, leading to increased debate on whether the current position should be maintained.

Changes explored by the public consultation

In the wake of Brexit and these potential imbalances, the IPO’s public consultation sought views on potential changes to the regime as it relates to the UK. The scope of the consultation was restricted to imports to the UK, since the British government has no direct control on the exhaustion regimes as they relate to other countries. A number of options were floated as part of the consultation, including:

  1. maintaining the status quo (in terms of which imports to the UK are only automatically permitted from EEA countries);
  2. implementing a national system in which imports to the UK are not automatically permitted from any country;
  3. implementing an international system in which imports are automatically permitted from any country; and
  4. implementing a mixed system, with the ability to parallel import dependent on any decision on treatment for a specific IP right, good or sector.

Publishing industry concerns

When the UK government announced the public consultation, it was met with a wave of concern from the British publishing industry. An alliance of organisations, including the Publishers Association, the Society of Authors, and the Association of Authors’ Agents, launched the Save Our Books campaign, with the chief executive of the Publishers Association describing the proposed changes as “the biggest threat to our industry post-Brexit”.

The publishing industry was concerned, in particular, with the notion of an international system in which imports are allowed into the UK from any country, a system the industry referred to as ‘international exhaustion’. In practice, an international exhaustion would mean that authors would not be able to stop copies of their books from around the world being sold in the UK. Accordingly, the industry was reasonably concerned that changing the way that the exhaustion rules work would have presented serious dangers for the health of the British book industry, in particular:

  • Negatively impacting authors’ livelihoods: Author royalties on export sales are much lower than what authors can earn from UK sales of books published for the UK market. The proposed changes would mean authors would be unable to prevent copies of their books from around the world being sold back into the UK. This would effectively erode domestic sales, which is where the majority of UK author income comes from. This might mean authors, particularly those at the beginning of their career, are forced to leave the industry, which would be detrimental to the UK’s cultural landscape.
  • Destroying creative export markets: According to the Publishers Association, changing to international exhaustion has the potential to cause loss to the UK publishing industry’s revenue of up to 25 per cent (almost £1 billion) which would have a knock on effect on employment within the industry (something that is already a challenge).
    Concerns were also expressed across the industry about a longer-term relocation of the publishing industry away from the UK as well as a loss of identity for the UK publishing industry.

Why would this impact the identity of the industry? Because, some critics of the IPO’s consultation have argued, books are costed and designed according to the territory in which they are to be sold (this is why books have different covers depending on the country in which they are sold). If export editions could be sold back into the UK (for a lower price than UK editions), the face of UK publishing would be at risk of becoming blank, with the UK market being effectively indistinguishable from others. Longer term, this might erode domestic sales.

The outcome?

There was a collective relief across the industry when the government announced in January 2022 that due to a lack of available data, it has not been able to calculate the economic impact of any alternatives to the current regime.

As such, it has elected to maintain the UK’s current laws on exhaustion of IP rights, caveating this with confirmation that it remains “committed to exploring the opportunities which might come from a change to the regime”. This means that for now at least, the status quo is preserved, giving British authors the comfort of knowing that they can control the price of their work abroad and that the British market will not be flooded with cheap foreign editions of their books, undercutting the UK published, more expensive versions and ultimately impacting their earnings.

It remains to be seen whether the UK government will revisit the issue if and when the economic impact of any alternatives has been assessed. The industry will be keeping a watchful eye out for future announcements from the IPO.

Lauren McFarlane is a senior solicitor at BTO LLP

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