Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Monday 14th January 2019 Grand Committee

Many questions arise from this SI and the others, and I very much hope that the Minister will be able to answer them.

[Lord Stevenson of Balmacara (Lab)]

My Lords, it has been a lonely journey to the heart of the intellectual property policies in this country. The noble Lord, Lord Clement-Jones, and I have been stepping together on this route for a number of years. It is really nice to see so much additional expertise brought to the table and shared with us. We have got off to a slightly ropey start, but I do not think anybody could argue that we have failed to reach the heart of the arguments now. I pay due regard particularly to the noble Baroness, Lady Bowles, who is a living legend on these matters and brings expertise from her work in previous lives, and to my noble friends Lady Kingsmill and Lord Adonis. Together with the noble Lord, Lord Clement-Jones, they have displayed the sort of expertise and knowledge we need when we address these issues.

I have only four points. I think they largely cover what my noble friend Lord Adonis, the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Bowles, have said, so I will not repeat them at length. They raise issues of some substance which make me worry that the SIs in this area—this is the first of three but, as we have heard, there are more to come—are the equivalent of poking a wasps’ nest with a stick. An awful lot of rather difficult and worrying issues need to be addressed, and we have very little time to look at them. Whether there is a deal or no deal, these will not go away. They will need to be addressed, and we should think very hard about how we do so. I agree with the noble Lord, Lord Clement-Jones, that we ignore it at our peril.

A number of speakers have asked whether these draft regulations change current policy or impose new liabilities or obligations and, if so, to what extent. I listened carefully to the Minister as he got into his stride, and I do not think he really answered the question he raises for us in his letter, circulated on 7 January—I understand a copy is in the Library—which asserts that the regulations,

“do not change current policy”.

As mentioned on a number of occasions, there has been no formal consultation, some unreported discussion, no impact statement and no calculations. Yet out of this, a one-way ticket has been offered to exporters who bring intellectual property into the UK. No opportunity has been given to our fellow citizens working in the UK and producing goods they wish to export to the EU, who have no certainty that there will be any ability to benefit from parallel arrangements. This question seems not to have been answered so far by the Government and needs to be addressed properly if we are to go forward.

The noble Baroness, Lady Bowles, mentioned the asymmetry of the arrangement that the Government have come up with—absent discussion, a costing or an impact statement—and suggested that there may be more downside to this than has been said. Her suggestion of a sunset clause is a very good idea and may be something the Government should think harder about before they come back with an SI on the Floor of the House.

My third point is that made by my noble friend Lord Adonis in his careful consideration of the European Commission’s statement of September 2017. The pinning of all our hopes on a deal that may be negotiable in the future is not a satisfactory business proposition; it will send shivers down the community we are talking about here, a community of creators and intellectual property persons working in one of our most productive areas of activity, on which we pin great hope in the industrial strategy. Yet that is what it is: without any certainty on a regional basis, let alone on the international points made by the noble Lord, Lord Clement-Jones, the climate for those creative industry specialists working in intellectual property and seeking to export it seems extremely damaging. I hope that the Minister has something more to say about that.

Finally, on the legal issues, the Silhouette case comes up for all three SIs before us—it makes a good case for us considering them together, but we are not doing that. The legal issues are worrying. The legal note that I wish to refer to suggests that the basis on which this has been considered is somewhat whimsical. The argument is that it is possible that courts will not follow the Silhouette case in this area. That seems an unreasonable basis on which the Government should make regulation. If that is the case, the narrow question, raised by the noble Lord, Lord Clement-Jones, is whether the Silhouette case will necessarily become part of retained EU case law under the EU withdrawal Act 2017. We need certainty on this; if the Minister is not able to give us a clear view at this stage, I would be grateful if he could write to us on this point, because it is the key issue for those concerned.

The note says that even if the case law does fall within the definition of retained EU case law—so there is a doubt about this—it is relevant only to retained EU law which is unmodified on or after exit day. I would be grateful if that complicated idea could be unpacked, because I do not understand it. The note, which is supposed to be an explanatory memorandum for us, then says:

“Arguably”—


in other words, it is making an argument to us that it hopes we will accept,

“the retained EU law on exhaustion of rights will be materially modified on exit day, as a result of the amendments in the Exhaustion SI, because the Government is changing an EEA-wide exhaustion regime of which the UK is currently part, to a one-way”.

That makes the point that this is a one-way ticket, which is a very difficult argument to make to those affected by it. To cap it all, the unforeseen consequences listed at the end of the statement are quite horrendous:

“The UK Courts will have to follow the case law which established the principle of ‘international exhaustion’”—


a point made by the noble Lord, Lord Clement-Jones; this is a very big step away from where we are—under what is called,

“the implied licence theory in the UK”.

I suspect that lawyers listening to and reading this will be gratified to hear that a dripping roast is being created by this new SI. The document goes on to say that,

“rights-holders will not be able to prevent goods first placed on the market in a non-EEA country”,

to be brought into and resold in the UK. This was the question raised by my noble friend Lady Kingsmill, about what damage would be done to existing operators of intellectual property. The UK market could be,

“affected by cheap goods from countries where genuine goods are sold more cheaply … Consumer confusion may also arise in the UK, where genuine goods are sold under the same mark but are in fact different (e.g. toothpaste and chocolate)”—

I am sure there are many other examples. It continues:

“An international exhaustion regime is a much greater threat to UK retailers and manufacturers … In a worst case scenario intellectual property rights-holders will no longer be incentivized to produce goods for the UK because prices have been driven down”.


These are very worrying concerns for anybody who might be affected by this. I think the Government are skating on very thin ice with this issue. They have not made the case that this does not change current policy; it certainly does and it is a one-way ticket which is not satisfactory for those involved.

[Lord Henley]

My Lords, as always, I thank all noble Lords for their contributions, and hope I can deal with all the relevant points. As always, I will offer to write on those which I find harder to address, and hope noble Lords will be content with those letters.

I remind the Committee of exactly what we are doing. This order, since we are now dealing with them as three orders, is a result of the withdrawal Act, an Act which has been through both Houses and sets out powers precisely so that the Government could make contingency measures in the event of there being no deal. That is why we have brought forward the Intellectual Property (Exhaustion of Rights) Regulations that we are debating: to deal with that no-deal situation. As I and others have made clear on other occasions when dealing with EU exit regulations, of which there are quite a number, they are contingency measures designed to deal with the possibility that there is no deal. We expect that there will be a deal, but at this stage, in advance of debates in another place and other matters, it would be an irresponsible Government who did not make appropriate plans to deal with no deal so as to provide business with a degree of certainty.

The Government are therefore considering various options for the future. We are undertaking research and consultation on what would be the most appropriate exhaustion regime for the future, but that is for another day. We will deal with that in due course, but it is not what we are debating this afternoon. That will take time, and I do not believe there is a compelling reason to rush to an alternative system until we have seen the evidence and listened to what businesses and consumers have to say.

--- Later in debate ---

[Lord Henley]

My Lords, I reject any suggestion that officials have been constrained in what they can do. The point I was trying to make is that we are talking about two things. We are talking about what happens in the event of us leaving without a deal. If we do, we need to set certain things in place, which is what these regulations do. Meanwhile, we will continue to negotiate as part of the whole withdrawal process to get the right deal. We will then get the right things in place. At that point, further instruments will no doubt come before the House—I look forward to debating them—and those will follow full, frank and proper consultation with all concerned. There has been a degree of consultation on these regulations, but they deal purely with a no-deal situation.

[Lord Stevenson of Balmacara]

I am grateful to the noble Lord for giving way. I was going to try to be helpful, although he may not welcome the intervention. When we have had similar discussions on SIs and similar confusion and annoyance have been expressed on all sides about the fact that consultation has not been done in the usual manner and statements have not been provided, the Government have used the argument—the noble Lord did not use it on this occasion—that the de minimis provision is that the department has made an estimate, which is presumably accepted by Ministers, that the burden of the costs that will fall on the industries affected by the SI is less than £5 million. Is that the case with this arrangement—yes or no?

[Lord Henley]

I cannot remember whether that is the case with this set of regulations, but the noble Lord is right that, obviously, we do not consult on SIs with an impact of that order. My understanding is that he is correct, in that there is little or no impact in the case of these regulations. That is why most businesses to which I have spoken are broadly in favour of the regional exhaustion regime.