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

Baroness Kingsmill Excerpts

Wednesday 6th February 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the Grand Committee debate we had on this instrument on 14 January was extensive and wide-ranging; I am grateful to all noble Lords who took part so rigorously. Following that debate, I wrote a letter to noble Lords who participated, providing details on specific matters raised, which I placed in the Library.

The EU-derived law which provides for the current EEA regional exhaustion regime needs amending to ensure that it continues to function appropriately after exit as retained EU law. This instrument, therefore, provides a temporary solution if we leave the EU without a deal. If Parliament does not agree to this SI, it would expose businesses to considerable uncertainty and the risk of litigation. During the Grand Committee debate, noble Lords asked whether UK businesses and rights holders were put at a disadvantage. This arrangement should not disadvantage UK businesses compared to EU businesses. UK and EU businesses exporting secondary market goods from the UK to the EU may be more restricted, but that restriction would apply equally to all businesses, whether they are based in Brussels or Birmingham, and it depends on where rights are held and which direction the goods are travelling, not on nationality.

At this point, I would like to mention correspondence I received from the Publishers Association. Publishing is a key contributor to the UK economy and the sector considers that this instrument is,

“of immense importance to the UK’s publishing industry, and it is vital that it proceeds into law”,

and,

“helps avoid a potential regulatory cliff-edge for books, offering interim certainty to the industry, while the longer-term exhaustion framework is consulted upon”.

For the benefit of the House, I wanted to expand on some key matters raised in Grand Committee.

[Baroness Kingsmill (Lab)]

My Lords—

[Lord Henley]

I am not going to give way. I think it would be more convenient if I made my speech, allowing the House to listen to it, and then took questions. I will continue.

In Grand Committee, noble Lords asked about the approach taken to consultation on the drafting of this no-deal instrument. The legislative approach for exhaustion of IP rights in a no-deal scenario was being developed at a time of considerable sensitivity over the ongoing withdrawal agreement negotiations and the shape of the future relationship. This meant that the usual formal consultation on the legislative instrument was not appropriate. The level of consultation was consistent with the approach being taken with respect to no-deal legislation across government. My officials have engaged with businesses across many sectors since the referendum. They have spoken to rights holders, distribution companies, academics and trade associations. This engagement helped establish support for the legislative approach taken on this instrument. It is ongoing engagement that will continue as the work progresses, not just on exhaustion but more widely too.

While this instrument is intended to provide a temporary fix if the UK exits the EU without a deal, the Government are already considering options for what exhaustion regime is best for the UK in the future. Such an important decision on the UK’s future exhaustion regime is not to be rushed. It is not sensible to put a sunset clause on this instrument. We intend to take the necessary time to build a robust evidence base and to consult with businesses and consumers before any major decision is made on the UK’s future exhaustion regime.

I appreciate that noble Lords have asked about the process for assessing the impact of the adjustments made by this instrument to retained EU law, as they have asked about other such instruments. I believe I have addressed this matter in my letter to noble Lords, and I hope that the explanation was helpful.

Finally, on a specific point, noble Lords in Grand Committee raised a question as to whether the law relating to exhaustion of rights would be interpreted in accordance with pre-exit EU case law, most notably the Silhouette case. The answer is yes, it will, in accordance with the provisions of the withdrawal Act. In addition, Regulation 2 of this instrument makes it clear that the effect of domestic retained EU law under Section 4 of the withdrawal Act relating to exhaustion of rights does not change after exit, despite the UK not being an EU member state. Whatever effect it had in the UK before exit will be the same after exit.

To summarise, this instrument is important to support the movement of parallel goods, including essential commodities such as medicines. It is a necessary technical fix for UK laws to prepare for our exit from the EU and to provide legal certainty in a no-deal situation. I understand that stakeholders remain very interested in the Government’s future plans on this matter, and I know that my officials at the Intellectual Property Office are keen to have continued constructive engagement with them. The Government value their input in helping them better understand the views of businesses and consumers. I beg to move.

[Baroness Kingsmill]

My Lords, I merely want to tell the Minister that I too have been advised by the publishing industry. It is with some reluctance that it has agreed that this is necessary legislation, because of the uncertainty that it would otherwise suffer.

The British publishing industry exports more books than any other country. This piece of legislation is vital for it. While it recognises the importance of this SI going through as a temporary fix, it is nevertheless typical of the kind of rushed legislation that has been necessary because of Brexit. This is another example of a gold-standard industry being put at risk because of the pressure to rush that we are all under.

I emphasise that the correspondence that I have had with the publishing industry has suggested that it is extremely unclear about what will happen and that the uncertainty around the long-term provisions for these particular and very important rights causes it considerable concern. For the record, can the Minister clarify this point?

[Lord Clement-Jones (LD)]

My Lords, whatever the merits of these SIs, I am pleased that we are now debating them on the Floor of the House. I referred in Committee to what my noble friend Lord Tyler said about the critical importance of effective and timely scrutiny of Brexit-related secondary legislation. We have to do this properly. I noticed that the tag in front of this business is “Business expected to be brief”, but we do still have a few loose ends, even after the Minister’s opening statement.

The problem throughout has been inadequate public consultation and the lack of any sunsetting on these statutory instruments. In his letter of 21 January, the Minister defends the lack of proper public consultation as not being meaningful when,

“no wider policy changes were being taken forward”,

and because it,

“would have risked removing the EU’s incentive to agree to an ambitious future relationship on intellectual property”.

I fail to see the substance of the first point, as these SIs are more than technical, and the logic of the second, as, in my experience, contingency plans do not prejudice negotiations.

As we have discussed, we are unilaterally allowing EU 27 goods already placed on the market there to be exported to the UK, which is good news for parallel importers but not as good for parallel exporters from the UK. It is clear from the Government’s small print that these exporters may well need to seek permission to gain entry into the EU. That remains the case.

The Minister did not respond about what the Government are doing to mitigate their situation, by advice or otherwise. I was pleased that he confirmed that the ruling in the Silhouette case and those that followed will apply post Brexit to this modified exhaustion regime. In his letter and in Regulation 2(2), the Minister prays this in aid. It could still have been dealt with expressly in the language of the statutory instrument.

In his responses, the Minister also failed to totally clarify the work being conducted by the IPO into a future exhaustion regime. I very much agree with the noble Baroness, Lady Kingsmill, about how we know about the Government’s current thinking emerging from the review and research, and about organisations such as the Publishers Association asking for the Government’s assurance that they will avoid an international copyright exhaustion regime being implemented in the longer term. Indeed, they are asking for an effective national exhaustion regime so that the UK’s outstanding creative industries, including the publishing industry, will be properly supported. Is that the intention of a future exhaustion regime?

I do not know whether the noble Lord, Lord Adonis, will speak on this SI, but there are a number of aspects that have not yet been covered on the subject of intellectual property rights—the geographical indications, for instance. I see that there is now a draft statutory instrument on what will happen to design rights in the event of a no-deal Brexit. I look forward to that debate. Then there is the very important aspect of rights of representation by IP advisers, trademark attorneys and the like. I do not recall the Minister talking about that either when he addressed us in Committee.

Finally, I express bafflement at the fate of the draft Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations, which the sifting committee and our own Secondary Legislation Scrutiny Committee considered should be dealt with by the affirmative procedure. I do not think the Minister answered that question. When will the draft SI come before us? There are some loose ends and I hope that in the course of the debate the Minister will be able to tidy them up.

--- Later in debate ---

[Lord Henley]

If there are findings that it is necessary to publish I give an assurance those will be published. If the noble Lord will bear with me, I want to talk about the future and make it clear that the IPO will consult and publish the findings properly so that the noble Lord and others with an interest will know what is going on.

I turn to some of the other points I want to address—I was not about to sit down, because there are other points to be dealt with. The noble Baroness, Lady Kingsmill, asked about long-term certainty for publishers and referred to the letter from the Publishers Association. I repeat what I said in my remarks: the Publishers Association made it very clear that it saw it as vital that these regulations should be on the statute book in the event of no deal.

[Baroness Kingsmill]

The Publishers Association also made it clear that this was not entirely satisfactory, but that it was an essential interim position that needs to be taken. As it said in the letter, this is not ideal, but something forced on publishers. My point really was that this wonderful industry, which is gold standard, as we all know, has been forced to accept unsatisfactory legislation because it is a last-minute attempt to put a finger in the dyke of the possibility of a no-deal Brexit. The publishers again made it clear in the letter that they need some clarity about the future. That is the point I want the Minister to cover in his answer.

[Lord Henley]

I do not accept the noble Baroness’s metaphors, but I repeat what was said, and the noble Baroness is quite right to repeat the other parts of the message from the Publishers Association.

I come to the point I was about to deal with: the long-term certainty that the Publishers Association and the noble Baroness are looking for. The regional exhaustion regime currently in place supports frictionless trade in goods within the EEA and is considered to provide the optimal balance between the interests of rights holders and consumers. Consumers in the UK will continue to have access to a wide range of products at more competitive prices. Maintaining the current arrangements avoids the uncertainty of cost for UK businesses and consumers associated with a change of exhaustion regime, while the UK considers the impact of a future change to the regime. The SIs, we have made clear, essentially preserve that status quo, but that allows us time to consider evidence and consult on any future change.

I shall move on to the sunset clause, raised by the noble Lord, Lord Clement-Jones. Again, I believe I dealt with this in my opening remarks, but the instrument is intended to be a temporary measure. The Government are considering options for the future. As I made clear, that will continue with extensive stakeholder engagement and consultation, and we must make sure that we have robust evidence. Until we have dealt with that, we will need this in place in the event of no deal. Therefore it is not necessary to have the sunset clause referred to by the noble Lord and the noble Lord, Lord Adonis. Planned research removes the purpose of the sunset clause and the consultation will, in the end, provide the appropriate solution for the future.

I turn to the noble Lord’s further question, on mitigation for exporters. I make it clear that the arrangement will not disadvantage UK businesses, as opposed to EU businesses, as the effect depends on where businesses hold rights, and not on which country they are based in. A continuation of the status quo will minimise any negative economic impact. For example, it will allow existing import arrangements into the UK to continue, including for businesses that rely on secondary market goods. Businesses wishing to continue to parallel export goods from the UK to the EU will need to check with owners of rights in the EU—which may be UK businesses themselves—whether they need permission to do so. For example, UK businesses owning trademarks in the UK and EEA may choose to limit how their goods are parallel exported from the UK to the EEA, if they wish to exploit market conditions such as consumer preferences and labelling regulations.