Exhaustion of rights and parallel imports
- Introduction.
When analyzing the validity element of the three tier analysis that inspired the TRIPS PLUS ULTRA proposal (the other two elements are its justice and its effectiveness), we´ve said that the TRIPS Agreement sets a global standard, and that this global standard admits exceptions and limitations. We´ve also said that the relevance of the limitations must be measure in comparison with the global heart of the patent; what was set to be its heart is by far more relevant than what was left out, globally).
One of the posible limitations that countries may establish within their borders pertain the rights conferred by a patent. Within this kind of limitation, it is worth analyzing the issue of the exhaustion of rights and parallel imports.
Additionally, about this very important issue, HERE you will find an economic explanation of price discrimination how the exhaustion of rights regime interacts with the TRIPS PLUS ULTRA Proposal’s economic model.
2. The type of limit to the rights conferred by a patent: exhaustion of rights and parallel imports.
Taken from “A global solution for the protection of inventions“, pp. 168-174. Some internal citations omitted.
a) What is this type of limit?
“Finally, as a limit on the exercise of the patent right, the issue of exhaustion of rights and parallel imports should be mentioned.[1] As discussed by Desterbecq and Remiche, the theory of exhaustion of rights originated with Kohler in his book Handbuch des deutshen Patentrecht. “According to this theory once the product has been placed legally on the market, the owner can no longer rely on the patent to prevent its free circulation.” This makes perfect sense because “the patent holder cannot pretend to control the whole process of commercialization for the products” (Remiche and Desterbecq 1997, 309). As stated by Battioli, “If the exclusivity of trading intellectual rights products is interpreted in an absolute manner, their holders could control the entire chain of business transactions on such products. Carrying the situation to the extreme would be contrary to common sense, and will give the holder of intellectual rights faculties of disposition over protected goods until the physical disappearance of them” (Battioli 1997, 539).
“[1] ‘The theory of exhaustion of patent rights, according to which, once the protected product is commercialized (either by the holder of the patent or by a third party with his consent) the patent holder has materialized the benefit encouraged by the patent system by the attribution of the power to exclude, so it cannot claim a second benefit from the same product. The reason for the uniqueness of the situation created by the granting of the patent has disappeared about a subject matter when from it the benefit coming from the first provision on market trade has already been removed. Thus, the patent owner may only prevent the marketing and use of protected products manufactured or introduced on the market trade without consent. Exhaustion occurs ipso iure, so it cannot be restricted or avoided by the will of the owner’ (De las Herras 1994, 238-239).”
b) Where is the discrepancy? The scope of its application.
“The theory of exhaustion of rights is universally accepted, but in regard with the scope of its application (the limit of its impact), whether territorial, regional, or international, different conceptions have been established. The developing countries are identified with the theory of international exhaustion, while developed countries have usually established in their legislation regional or national exhaustion (with the exception of Japan [and in copyright the United states).” Conversely, the developing world typically choose international exhaustion as the standard.
“In the absence of a consensus, the TRIPS Agreement gave countries freedom in regard to this determination in strict respect of the principles of National-Treatment and Most-Favoured-Nation. “Article 6 of the TRIPS Agreement, despite its confusing wording leaves the definition of the system to apply to the discretion of countries, which means that the aforementioned paradigm is applied on a territorial, regional or international basis” (Correa 1997, 144).”
“It is noteworthy that the exhaustion of intellectual property rights is an issue that applies to all intellectual property rights in general and not only for patents, which makes its impact even greater. The subject under discussion is not the right of the holder of a patent to import his product (importation is considered exploitation) or the theory of exhaustion of rights (universally accepted). What has been discussed is the limit of the application of the exhaustion paradigm. This can be either regional (which some call communitarian) or national (which some call territorial) in one hand, or international or in the other hand.”
“According to the conception chosen by each country, foreign trade acts that are allowed will be determined. If the limit of the exhaustion is territorial, any export/import of a patented product or a product produced by a patented process can be made only with the consent of the patent owner, as part of an official network. In the other hand, if applying the principle of international exhaustion, acts of foreign trade of the product of a patent may be made by anyone who has lawfully acquired a patented product, not necessarily within the official network of the holder of a patent, but as part of a parallel network. Hence, the application of the international exhaustion of rights paradigm is known with the term parallel imports. In the first case, the patent holder will have more control over the international market of his product, while in the second case this control will be diluted. This certainly will mean a greater or lesser economic impact for the holder of the patent rights. (A greater control implies more economical rights and vice versa.)”
c) How could the TRIPS PLUS ULTRA proposal change how we see this issue.
For an economic discussion of price discrimination and how it interacts with the TRIPS PLUS ULTRA proposal, click HERE. As explained in that LINK, it seems wise to establish a system of territorial or regional exhaustion. As all the conclusions in this webpage, this recommendation is in order provided that the corrective this webpages urges comes to be established.