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Corporate Affairs

Keeping the Sector Safe & Strong

In the second in our new regular series of in-depth updates from Walpole's Corporate Affairs team, we take a look at the progress made across several key areas for the business and the luxury sector as a whole, including: The Exhaustion of IP Rights consultation from Department for Business, Energy & Industrial Strategy (BEIS); Business Rates Review consultation; Walpole's Corporate Affairs Working Group; New Trade Envoys; and The Future of Luxury Summit 2021
25th Aug 2021
Corporate Affairs Keeping the Sector Safe & Strong

Overview

 

Welcome back to the monthly Corporate Affairs update, it is our great pleasure to be able to tell you a bit more about the work that the team has been doing in the past few weeks to keep the sector safe and strong and represented at the highest level. Between burdens of Brexit and the impact of the pandemic, Walpole has reacted quickly to ensure that the very best environment exists for our members to prosper within this new landscape and is already seeing the benefits of investing in strengthening our in-house and agency capabilities to deliver this work.

It is increasingly clear that the post-Brexit environment is creating a number of additional challenges for the luxury sector in the UK, not least in the number of consultations coming thick and fast from government from Westminster on key legislative and regulatory issues which affect the luxury business model.

Below, you can see some of the key topics that we have been working on.  

If you have any questions, please get in touch with Charlotte Keesing, Carly von Speyr and Tania Pearson. We are available and would be delighted to talk.

 

The Exhaustion of IP Rights consultation from Department for Business, Energy & Industrial Strategy (BEIS)

 

What is the principle of exhaustion?

At its simplest, the principle of exhaustion sets a limit on the ability of IP rights holders to control the distribution of goods protected by those rights. For many years as members of the EU single market the UK has considered first sale within the European Economic Area (EEA) to be the point at which the control of a rights holder expires. This approach has allowed the trade of goods on the secondary market to flourish between EEA countries, while retaining the ability of rights holders to prevent imports into the EEA of goods that they have sold elsewhere in the world.

Why is it important?

The future exhaustion regime is important because it will govern future rules on parallel trade.  Parallel trade is the cross-border movement of goods that have already been placed on the market in a specific geographic territory. It is important to businesses and consumers as any potential changes may impact a wide range of sectors where there is parallel trade of physical goods which are protected by copyright, design rights, patents and/or trademarks. 

What is set to change?

The Government is considering four options for the UK's future exhaustion of rights regime:

UK+ regime – this is the current situation, and would involve the UK maintaining unilateral participation in the EEA regional exhaustion regime (but this does involve an asymmetry in relation to parallel trade from the UK into the EEA)

National exhaustion regime – Intellectual Property Rights (IPR) would be considered exhausted in the UK only once goods are placed on the market in the UK. Whilst this option would be most attractive to IPR owners, the Government's position (on which it is seeking feedback) is that it is not reconcilable with the Northern Ireland Protocol as part of the UK/EU Withdrawal Agreement (The EU Commission does not share this view).

International exhaustion regime – parallel imports of goods would be automatically permitted from any country in the world. This would mean IPR owners would lose control of the parallel trade of their goods. Luxury brands with robust selective distribution systems in place may be well positioned to avoid the rise in parallel imports but this is not always the case or they may have weaker distribution systems outside the EEA which could be targeted by UK parallel traders.   

Mixed regime – under a mixed regime, different sectors, goods or rights could have different exhaustion regimes applied to them. Aside from the potential complexity and uncertainty of a mixed regime, the Government again notes that it would need to be reconciled with the NI Protocol.

Which regime would be preferable for UK luxury?

The UK is currently unilaterally participating in the EEA regional exhaustion regime without reciprocation – IP rights in goods first placed on the market in the EEA are considered exhausted in the UK and can be parallel imported into the UK without the rights holder’s permission. This asymmetric position results in benefits to brand owners selling into the EU and not for brand owners selling into the UK.

Walpole prefers a move to a national exhaustion regime and we do not believe national exhaustion regime ruled out by the NI Protocol.  National exhaustion will remove the current asymmetry of the UK+ exhaustion regime and enable brand owners to have full control of their IP and protect the investments that they have made in it. We have recommended that the adoption of a national exhaustion regime would have a reasonable implementation period to prepare for change.

If the government adopts a national exhaustion regime, British luxury brands would have greater control over brand image and reputation, enabling the preservation of the extensive investment made in establishing and nurturing a demand for products.   This would protect the continued creativity, investment and innovation behind UK luxury products and marketing. If a national exhaustion regime is ruled out, Walpole has pressed for an 18-month period for further assessment of the current UK+ regime and further consultation with business to establish if a bi-lateral agreement could be implemented with the EU.

What is the Government expected to prefer?

Various stakeholders have speculated on the motivations of Government, such as: a desire to clear up the asymmetry of the current UK+ exhaustion regime; and the desire to introduce an international exhaustion regime to drive down prices of medicines to lower the NHS Bill, and to appeal to British voters by driving down the price of consumer goods. There has also been speculation that an international regime is deemed to fit with the agenda to liberalise trade.

Why would an international exhaustion regime potentially harm the luxury sector?

Walpole is strongly arguing against the implementation of an international exhaustion regime because it will lead to a weakening of IP protections for British luxury brands. It may also result in several other potentially damaging outcomes that place the UK at competitive disadvantage with the EU including reduction in investment by IP owners; a reduction in the UK’s attractiveness to innovative businesses wishing to set up base here; possible relocation of British businesses to the EU and elsewhere; a reduction in home-grown innovation and the creation of new technologies, particularly those that drive sustainability.

Increase in parallel-traded goods

Luxury brands work hard to offer goods of the highest quality and a system of international exhaustion will likely increase the flow of parallel-traded goods into the UK which may not have been stored, packaged or presented properly, thus reducing consumer satisfaction and damaging consumers’ trust and luxury brands’ reputations.

Counterfeit products

International exhaustion potentially increases the routes to market of counterfeit products, making it more difficult to detect counterfeits, particularly when combined with parallel goods (including those from past seasons).  The mixing of parallel goods with counterfeit products also complicates the criminal prosecution of counterfeiting activities. 

Compromising sustainability

There will also be impacts on the UK’s sustainability agenda. The British luxury sector is focused on driving the sustainability agenda and has always been committed to quality of the highest order and strong values.  UK luxury has multiplicity of world-leading sustainability initiatives including designing out waste in production processes; pioneering hyper-local, hyper-transparent ‘farm to finished product’ supply chains to develop the world’s lowest carbon foot-print leather and cashmere; sourcing commercially viable, renewable, chemically safer, eco-certified textiles; investments in ensuring the longevity of products and circularity breathing new life into bags and other goods, and partnering with businesses which provide fashion rental services; amongst many others. An increased flow of parallel-traded goods into the UK could undermine luxury brands’ ability to provide such a substantial degree of investment in schemes such as these.

Impact on innovation

Walpole has argued that start-ups will find it difficult to enter new markets because an international regime will lead to parallel trade undercutting their businesses. Whilst other countries, such as the USA, operate international exhaustion regimes it is important to note that other markets are based on different case law to the UK.

Walpole’s work

The team has been working with Sally Britton from law firm and Walpole strategic partner Mishcon de Reya on the submission for the Intellectual Property Office consultation on the UK’s future regime for exhaustion of intellectual property (IP) rights. Members have provided crucial case studies and data and consultation with broader creative industry stakeholders and follow trade associations including the British Fashion Council and UKFT has proven incredibly useful in shaping Walpole’s position. We now have a draft submission which will be finalised in the coming days before the 31st August deadline and will share a copy of the full and final submission in due course.

 

Business Rates Review consultation

 

Business rates reform is an important issue for high-end retailers, not just for the world-famous brands, but because new and exciting smaller British luxury brands are being priced out of the retail market which is detrimental to the health of our sector and means less choice for customers.

With this in mind, Walpole submitted a response to the Business Rates Review consultation, asking the Government to:

1. Reduce the burden of Business Rates, not just for SMEs but all businesses, especially those in Britain’s high-end shopping districts as well as high streets.
2. Introduce One Year Revaluations, already the business rate system is disconnected from business performance. According to the New West End Company, in the West End, the business rates revaluation implemented in 2017 saw business rates bills rise by an average of 80% while sales during the same revaluation period (2008-2017) rose by just 30%. Meaning there is no link between property value and occupiers’ performance.

The current five-year revaluation and two-year Antecedent Valuation Date (AVD) makes the link between current economic performance and business rates even more remote.  A three-year revaluation is better than five years, but still not good enough.  A one-year revaluation must be a clear priority, not something for “long-term consideration”.

We will report back on this issue as information arises.


Corporate Affairs Working Group

 

The purpose of the working group is to create a two-way dialogue between Walpole and members to ensure alignment across policy priorities and challenges, share and receive intelligence including legislative changes and generally collaborate to create maximum impact for our sector politically and to wider stakeholders.

The first meeting of the newly created Corporate Affairs Working Group took place on Wednesday 28th August. We were joined by Walpole members McLaren, Chanel, LVMH, Dorchester Collection, William Grant, Burberry and Estee Lauder and Hawthorn Advisors, who presented both their political engagement strategy for Walpole a horizon map of the key legislative and political themes for the next 18 months.

The key themes that arose from the meeting are outlined below and Hawthorn will be working with members to integrate these into our on-going work to change the narrative around luxury and ensure that the Government and other influential decision makers give British luxury the recognition, and the share of voice on policy, that it deserves.

Priorities: Vat Res, Brexit (including Movement of people, supply chains, divergence of policy), Exports, Sustainability and Levelling Up.

Additional themes/issues: Counterfeiting, Modern Slavery and Business Rates

The group will have its second meeting in September and initiatives will be communicated in this space going forward. If you would like further information please contact Charlotte, Carly or Tania.


New Trade Envoys

 

As a highly export-focussed sector, Walpole welcomed news of the appointment by the Department of International Trade of ten new Trade Envoys on Monday. Trade Envoys use their skills, experience, and market knowledge to help UK businesses find new export and investment opportunities and promote UK trade in their specified market. 

Beyond exports, British luxury supports the UK’s soft power and helps support the UK’s reputation around the world, post-Brexit. Our highly entrepreneurial sector represents a microcosm of the UK’s future trading relations with the world and it has never been more important to use every avenue to communicate this to political audiences. British luxury brands are poised to capitalise on the opportunities arising from the UK’s ability to plough its own furrow in relation to international trade and Walpole will add (market relevant) Trade Envoys to its political stakeholder engagement plan to promote all that British luxury has to offer, whilst also pressing for a reduction in barriers to trade when necessary.

New appointments:

- Lord Botham appointed to Australia
- David Mundell MP (Con) appointed to New Zealand
- Conor Burns MP (Con) appointed to Canada
- Stephen Timms MP (Lab) appointed to Switzerland and Liechtenstein
- Marco Longhi MP (Con) appointed to Brazil
- Baroness Hoey appointed to Ghana
- Mark Eastwood MP (Con) appointed to Pakistan
- Lord Walney [John Woodcock] appointed to Tanzania
- Felicity Buchan MP (Con) appointed to Iceland and Norway
- Sir Jeffrey Donaldson MP (DUP) appointed to Cameroon, in addition to his role as Prime Minister’s Trade Envoy to Egypt

The Future of Luxury Summit 2021

 

The Future of British Luxury Summit taking place on Monday 6th September at The Londoner Hotel in Leicester Square in association with Facebook, ESW and TONG. The Summit will be Walpole’s first large scale, in-person event in 18-months and will explore a range of topics including new business models; customer insight and engagement; the latest insights from China; sustainability and diversity; the importance of cultural connections; leadership; the future of shopping the evolution of retail as well as the outlook for global travel and the future hospitality trends. At a time of considerable flux for the sector, the Summit is an invaluable event for corporate and public affairs and communications professionals from across the membership. Attendees can expect to super-charge their knowledge of the British luxury sector right now and gain a broader understanding of the economic, political and business landscape for the next 12 months.

Book your tickets here.

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