Creative industries warn IP rights under threat by hunt for ‘Brexit dividends’

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British intellectual property rights are under threat from a government review searching for potential “Brexit dividends”, warn creative industry executives and business groups.

Business secretary Kemi Badenoch is considering whether to push for reforms to the regime around so-called “exhaustion” of IP rights in the UK, according to multiple industry and government sources.

IP rules prevent UK-made products such as books, toys, clothes and pharmaceuticals that have been sold abroad at a lower price in line with local market conditions from being resold at that discount in Britain. When the rights are “exhausted”, there is a danger that a new parallel market will develop.

The threat to the current IP regime has sparked fears in the creative industries that there could be a glut of cheap, copycat products undercutting prices in the UK.

One leading executive in the sector said the government was using the issue to demonstrate “Brexit dividends”, with some rightwing politicians seeing a benefit in forcing down prices by opening up the UK market to imports. But he added that this would hurt British industry.

Before Brexit, the UK was part of the EU’s regional rights regime, which prevented goods from outside the European Economic Area entering its market without the rights holder’s consent.

When Britain left the bloc, IP rules were retained. The UK regime was subject to a consultation in 2021 when Kwasi Kwarteng was business secretary but ministers could not come to a decision.

The Publishers Association (PA) has forecast that changes to IP rights would cause a loss of up to £2.2bn to the publishing industry, as well as disincentivising the UK’s export market. It also said that Britain could be flooded with copies of books tailored to other international audiences.

The British Chambers of Commerce called on the government to retain the existing regime, noting that more than half of the respondents to a government consultation had argued for keeping the same approach as used before Brexit.

“Changing the position could lead to additional compliance and verification costs for small and medium-sized businesses. We would favour retention of the existing approach to IP exhaustion,” said William Bain, the BCC’s head of trade policy.

The pharmaceutical industry has also warned that relaxing the rules around IP exhaustion would risk medicines being diverted from lower-income countries to the UK, where they can be sold by distributors at a higher price.

The industry is also concerned about the increased pressure placed on the UK regulator to curb the risk of substandard pharmaceutical products entering the UK supply chain.

“We could potentially see medicines of differing standards leaking into the UK supply chain . . . making it more difficult for pharmaceutical companies to safeguard supply to UK patients, and add more pressure on the safety regulator,” said Claire Machin, executive director of the Association of the British Pharmaceutical Industry, the trade body for leading drugmakers.

She added that profits from reselling medicines back to the UK would accrue to distributors rather than to the companies that invested in the IP behind drugs, deterring investment.

Steve Elliott, chief executive of the Chemical Industries Association, a trade body, said any reforms should not lead to a reduction in the length of patent protections, which were important for promoting investment in product development.

He also urged ministers to take a collaborative approach with other jurisdictions. “It is much better when countries can work together on legislative matters, which is why we are keen to work alongside the European Union and other areas of the world to ensure safe production and use of chemicals,” he added.

A government spokesperson confirmed that the policy was being reviewed: “We are considering all options for the future exhaustion of intellectual property rights following the UK’s departure from the EU and will announce a decision in due course.”

The spokesperson added that the government wanted to “ensure our intellectual property regime incentivises innovation while enabling competitive markets and greater consumer choice”.