The Doctrine of Exhaustion of IPR, (an attribution of the Doctrine of First Sale) refers to the consumption of rights in an Intellectual Property subject matter (Patents, Trademark and Copyright) as a consequence of the legitimate transfer or a valid transaction of sale of the title in the tangible article that incorporates or bears the intellectual property asset in question. In other words, the Doctrine of Exhaustion implies that once a valid transaction of sale takes place then the owner of the intellectual property in question cannot control or prevent the further sale of the goods bearing the said intellectual property.
As per Article 6 of the Trade Related Aspects of Intellectual Property Rights (TRIPS), the issue of exhaustion of Intellectual Property Rights is a matter of national discretion and each member country is entitled to prohibit or allow parallel imports within its own legal framework.
The origin of the Doctrine dates back to the 19th Century when the United States Supreme Court for the first time addressed the issue of exhaustion of patent rights was in Bloomer v. McQuewan (1853), wherein the Court drew a distinction between a license of the patent right and the acquisition of a patented machine. Thereafter, in 1870’s, the United States Supreme Court in the decision of Adams v. Burke and the Court in United Kingdom in the case of Betts v. Willmot, recognized the concept of “Implied license”.
As enumerated above, the issue of exhaustion of IPR is a matter of national discretion and accordingly the principle of exhaustion of IPR is divided into the following:
National Exhaustion- Under this, an authorized sale of a good incorporating the protected IP will exhaust the right to use and resale the product in question within the domestic market and hence will prevent the IP owner’s domestic enforcement of the related IPRs against those possessing, using or redistributing the particular good. One of the countries that follows the principle of national exhaustion is the USA.
International Exhaustion- Under this, once a product is put in the market anywhere in the world by the IP owner himself or authorized licensee, it is freely distributed across nations as a single market. Under the statutory provisions of the Indian Patents Act, 1970, India recognizes the principle of international exhaustion and the Indian Judiciary recognized the principle of international exhaustion of trademarks in the case of Kapil Wadhwa and Ors. Vs. Samsung Electronics Co. Ltd.
Regional Exhaustion- Under this, once the IP protected goods have been put in the market in any part of that particular region, then the right of the IP owner is exhausted and the IPR protected product can move freely within that region. UK follows the principle of regional exhaustion, hence goods that are marketed in the European Economic Area (EEA) cannot be prevented from being resold across the Member States on the basis of IPRs and rights holders have the ability to control imports from outside the EEA.
Doctrine of Exhaustion in different jurisdictions: A Comparative Analysis
Parallel imports also known as grey market imports refer to original, genuine goods (as distinct from counterfeits) which are imported into a country and sold there without authorization of the Intellectual Property Right (IP) holder.
The issue whether parallel importation of goods and the sale of those goods without permission of the proprietor of the mark amounts to infringement of the trademark or not was decided by the Hon’ble Division Bench of the High Court of Delhi in the landmark judgment of Kapil Wadhwa and Ors. Vs. Samsung Electronics Co. Ltd. In this case, the allegation raised by the Respondent i.e., Samsung was that the Appellants were purchasing printers manufactured and sold by Respondent from the foreign market under the trademark “Samsung” and after importing the same into India were selling the products in the Indian market under the Respondent’s trademark and hence amounting to infringement of their registered trademark rights in India.
The Court while setting aside order of Single Judge restraining the Appellants from importing printers, bearing the trade mark Samsung and selling the same in India held that the Appellants shall while effecting sale of Samsung/SAMSUNG printers and ink cartridges/toners, shall prominently display in their showrooms that the product sold by them have been imported from abroad and that the Respondents do not give any warranty qua the goods nor provide any after sales service and that the warranty and after sales service is provided by the appellants in their personal capacity.
Hence, the Division Bench held that the Indian legislation recognized the principle of International Exhaustion i.e. the IP rights are exhausted once the product has been sold by the IP owner or with his consent in any part of the world and therefore the parallel importation of goods without prior permission of the registered proprietor does not amount to infringement of trademark rights. However, the important provision in this regard is that the conditions of the goods must not have been changed or impaired after they are put in the market.
Sections 29(1) and 29(6) (b) - For the purposes of Infringement of trademark as envisaged under Section 29(1) of the Act, a person uses a registered mark if he offers or exposes goods for sale, puts them on the market, or stocks them for those purposes under the registered trade mark, or offers or supplies services under the registered trade mark.
Further, Section 30(3)(b) provides that where the goods bearing a registered Trade Mark are lawfully acquired by a person, the sale of the goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of the goods having been put on the market under the registered trade mark by the proprietor or with his consent.
Further, Section 30(4) of the Trade Marks Act, 1999, provides that the above sub-section (3) shall not apply where there exists legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market.
India recognizes the principle of international exhaustion under section 107-A(b) of the Indian Patents Act, 1970
Section 107-A(b) of the Indian Patents Act, 1970 succinctly states that the importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product shall not be considered as an infringement of patent rights.
The exclusive right of the Patentee on its patent product is lost the moment there is a first sale anywhere across the world, irrespective of its geographical boundaries. Hence, the rationale behind the first sale doctrine for Patents is that the buyer of a patented product can use or resell that product without infringing the patent, even though the patent owner has the rights to exclude others from unauthorized use or sale of the invention.
It is pertinent to mention here that the Indian Patent Act, 1970 neither renders any explanation with respect to the consent or proper authorization by the Patentee for sale or distribution of the product nor does it provide for any qualifications, conditions or circumstances under which a consent for importation of patented products can be obtained from the Patent owner.
One of the earliest cases in which the Indian Judiciary was confronted with the Doctrine of first sale in the context of Copyrights was in the case of Penguin Books Ltd. v. India Book Distributors. The Appellant i.e. Penguins in the case had argued that they being the exclusive licensees of the titles in question were entitled to restrain the Respondent i.e. India Book Distributors from importing the parallel American editions of 23 titles in question India. Thus, they contended that the importation of American editions for the purpose of resale in India was an infringement of the copyright of Penguins.
The Division Bench of the Hon’ble High Court of Delhi was of the opinion that though the Respondents were not printing books under the titles in question and were not guilty of primary infringement, but they issued copies of these titles for public distribution and hence were guilty of secondary infringement by importing and selling of titles of which the exclusive licensees were Penguins.
Pursuant to the aforesaid verdict of the Hon’ble Delhi High Court, Section 14 of the Copyright Act, 1957 was amended in the year 1995 and it removed the term “right to publish” from the provision of Section 14 and instead made it as “right to issue copies of the work to the public not being copies already in circulation”.
The relevant extract of the said amended statutory provision is reiterated below:
14. Meaning of Copyright. — For the purposes of this Act, “copyright” means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:
(ii) to issue copies of the work to the public not being copies already in circulation;
Hence, the decision in Penguin case was overturned by amended Section 14 and international exhaustion of copyrights in question was duly recognized in India. Experts are of the view that similar to other nations, India has also accepted the notion of international exhaustion of copyrights in view of public interests.
Warner Bros. Entertainment Inc. vs Mr. Santosh V.G.- In this case, the Plaintiffs sued the Defendant for permanent injunction and damages, claiming that the Defendant had infringed their copyrights in respect of films, by hiring, and offering infringing copies i.e. DVDs of the films in India. In the case, the DVDs of the copies were made in the US and imported into India. The Plaintiffs argued before the Court that since the importation, for the purpose of renting of these cinematographic films had not been authorized by them in India, the copies were infringing copies and their import would be barred under Section 51(b)(iv) of the Copyright Act, 1957.
The Hon’ble Delhi High Court held that the Defendant's action of giving or hiring on rent of DVDs of Plaintiff’s cinematograph films authorized for sale or rental in a particular territory outside India would constitute infringement of copyright as long as the Plaintiff's authorization was not secured.
Hence, the Court did not recognize the principle of exhaustion of copyrights with respect to importation of cinematographic films.
John Wiley & Sons Inc. & Ors. vs Prabhat Chander Kumar Jain & Ors.- In this case, John Wiley & Sons Inc., based in New York, claimed to be the owner of the copyrights in the books in question and introduced these books for low prices in India and other Asian countries. Thus, books which were otherwise costly were made available in India and other Asian countries in low prices with a disclaimer that the books shall be available for sale only in Bangladesh, Myanmar, India, Indonesia, Nepal, Pakistan, Sri Lanka and Vietnam. Hence, the book should be for sale in the country to which it is first consigned by Wiley India Pvt. Ltd. and shall not be re-exported.
The Plaintiffs alleged Defendants for making available their books for sale at low prices in the countries for which the books were not meant for like USA, UK and others. Hence, the same amounted to infringement of their copyright under Section 51 of the Copyright Act, 1957. The Hon’ble Delhi High Court while ruling in favor of the Plaintiffs, denied to recognize the principle of international exhaustion of copyright in India and noted that there was no express provision for international exhaustion is absent under the Indian law, hence it would be appropriate to confine the applicability of the same to regional exhaustion.
In view of the dichotomous opinion by Courts on the subject and prevalent law under Section 14 (ii) of the Copyright Act, 1957, the law relating to doctrine of first sale of copyright in India appears to be still elusive and obscure.
Parallel importation and international exhaustion of rights ensue economic consequences as they make genuine goods available to consumers at low prices, however often their source of resale, re-exportation, hire or rental may not be genuine or authorized and may eventually harm the reputation and goodwill of the Intellectual Property Right (IP) holder. In view of the reduced trade barriers and globalization, international exhaustion is being adopted by majority of the countries worldwide. Hence, it implies that the IP holder must therefore seek specific protection and enforce their IP rights in each country. As a result, they may hold a set of parallel national IPRs covering the same IP in several jurisdictions.
Priya Adlakha is an Associate Partner and Shilpi Saurav Sharan is a Senior Associate at SS Rana & Co.