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

Stephen Doughty Excerpts

Monday 21st January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Moon. We now know what the £171,000 an hour is being spent on. I wonder how much the Committee will contribute towards that sum and whether we will get as far as an hour’s worth.

The draft regulations are yet another example of a no-deal preparation SI, which the Prime Minister could rule out at any time she wanted by announcing that she was taking no deal off the table. [Interruption.] I am being interrupted from a sedentary position, Mrs Moon. How strange.

The Prime Minister could have ruled out no deal in her statement earlier. I just checked what she said, and yet again she has chosen not to. It seems that the Chancellor and the Business Secretary are keen on doing so, and why on earth the Prime Minister cannot is beyond me. Frankly, if she wants to work across the parties, that is exactly what she will do, and she will find a majority in this Parliament for an alternative to no deal, if and when she eventually does that. [Interruption.] More muttering from a sedentary position. How strange, again.

The SI raises a number of issues and challenges. It raises the prospect of the import of cheap products that would undercut domestic producers and drive a coach and horses through our consumer arrangements in the event of no deal. Reasons abound for ruling out no deal, and that is one of them. I shall go through some of the points that were debated at great length in the House of Lords.

The draft regulations say that in the event of no deal, existing arrangements will continue. Those arrangements are at present in the area of EU trade where IP protection within the EU has ended or been exhausted. The Minister set that out fairly, I thought. Products from anywhere in the EU can be traded across the EU without restriction once IP protection has ended.

That so-called regional exhaustion applies within the EU but not to products from outside. EU case law largely uses an example from 1999 relating to an Austrian company called Silhouette, which produced sunglasses. Older designs from the company were sold to Bulgaria, which at the time was outside the EU. Another Austrian company chose to import those older models back into Austria and sell them at substantially lower prices than the current models were being sold for.

After lengthy legal consideration, the European Court decided that that contravened EU regulations. That is the case law currently relied on for this country’s arrangements, as it is in the other EU27 and EEA member countries across the continent of Europe. Significant concerns have been raised in the sector, and by the Alliance for Intellectual Property, about the potential for legal challenge under the draft regulations, and about whether EU case law will continue to be relied on once we have left the EU. Those concerns relate to leaving with or without a deal. However, the draft regulations are about leaving with no deal.

The potential for such legal challenges raises concerns about the continuation of arrangements. A competitor could try to import a product and say that EU case law no longer applies. I know that the Government’s intention is that the situation should not cause a problem. However, legal advice has been given to the sector that such legal action could last several years and hold up a final decision. There is nothing in the SI to state whether EU case law will continue to apply to maintain the arrangements that the Minister said he wants in the event of no deal.

The question is what would happen in the situation in question. The problem would be that competitors could challenge each other, imports could be held up, and all sorts of problems and delays could arise, leading to significant concern and difficulty for businesses and consumers in this country. In the House of Lords debate, Lord Stevenson described the draft regulations as creating a “dripping roast” for lawyers. Having looked at that debate and at the representations I have been given, I am afraid I have to agree. The draft regulations are very good news for lawyers, but not much use for businesses, consumers or workers.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

I debated some of these issues at length a number of years ago, when the Intellectual Property Act 2014 was going through the House and during debates on some of the subsequent secondary legislation. This is an interesting issue and my hon. Friend makes some important points. Does he agree that there is great concern out there, particularly among those in smaller creative sectors such as musicians, self-employed people and people in the video games industry, about the chaos that will be created by the kind of Brexit the Government are pursuing and the risk that poses to their businesses?

--- Later in debate ---

[Stephen Doughty]

Does the Minister appreciate that there are genuine concerns, particularly among self-employed musicians—I draw attention to my entry in the Register of Members’ Financial Interests—and small creative companies and games companies? They are deeply concerned not only about the impact of Brexit, but about what this chaos will cost them, whether or not there is a deal, in getting such legal advice, which those in what are often low-pay industries could do without.

[Chris Skidmore]

Passing this SI today will provide the maximum possible certainty by creating the national exhaustion regime, allowing companies and creators to have that security by keeping the status quo. That is what this SI is about. We are not having a wider debate about Brexit today; this is about ensuring that, when it comes to changing this technical apparatus in law, the regime continues as it has done previously. The SI simply ensures that we can continue to tick on as we have done in the past. Its implementation is essential to ensuring that the current arrangements continue. Failing to pass this legislation before we exit would leave a period of legal uncertainty, during which businesses could incur significant litigation risks. The SI maintains arrangements that continue to support the movement of goods to the UK. For example, this could help with NHS resilience in the supply of medicines at a cheaper cost.

The hon. Member for Sefton Central also talked about the potential consequences of an international exhaustion regime. I have already stated that this is about extending the legal framework to ensure that we protect the current regional exhaustion regime. When it comes to any further alternatives, the legal and economic arguments for various options are complex, which is why the Government are conducting research on the best exhaustion regime for the UK. Were there to be a change, the Government would introduce it only following evidence gathering and analysis, alongside engagement with a wide cross-section of stakeholders. The Government are conducting a feasibility study that will look into the levels of parallel trade between the UK and the EU. That study is ongoing and the evidence from the report will form part of the next steps in the Government’s decision-making process. I believe it will be published by Ernst and Young in 2019. Obviously, the response to the report and any further policy measures will take time. There is no compelling reason to rush to an alternative system until we have seen the evidence and listened to businesses and consumers.

The hon. Gentleman mentioned public consultation. Since the referendum result, the Intellectual Property Office has engaged with businesses in several sectors about the implications of exit. I visited the IPO’s offices in Newport on Friday and found an excellent organisation whose workforce have high morale and are determined to deliver maximum possible certainty as we approach the EU withdrawal day of 29 March. I have seen the charts and I reassure the hon. Gentleman that the IPO is doing all it can to engage with stakeholders.

The usual wide engagement with businesses and individuals was not possible on a draft no-deal instrument when the Government were in the middle of sensitive negotiations on the withdrawal agreement. Public consultation on no deal would also have risked prejudicing the ongoing discussion with the EU about our future membership. However, as I said, the IPO engaged with stakeholders across a wide range of sectors, including rights holders. That was consistent with the approach to no-deal legislation across Government, as I mentioned last week in our previous discussion on statutory instruments.