International Exhaustion and Parallel Importation

While developing your export strategy, you should verify, preferably by consulting a qualified professional, whether a buyer  could legally resell in another market IP-protected goods bought from, or with the consent of, your SME without having to seek your consent.  This issue will only arise if you have already protected or would be protecting your IP rights in the domestic as well as in export market(s).  Similarly, if your SME has bought goods that are protected by a patent, trademark, industrial design and/or copyright, then you should ascertain whether you would need the formal agreement of the IP owner(s) to sell those goods abroad, that is, in another market(s) (i.e. whether the IP rights are considered to be “exhausted"). You may be surprised that the answers to these questions are rather complex and may not only be different from one country to another but may also depend on the kind of IP rights involved.

Before discussing these issues, we must define what is meant by “exhaustion” of IP rights. “Exhaustion” refers to one of the limits of intellectual property rights. Once a product protected by an IP right has been marketed either by your SME or by others with your consent, the IP rights of commercial exploitation over this given product can no longer be exercised by your SME, as they are “exhausted”. Sometimes this limitation is also called the “first sale doctrine”, as the rights of commercial exploitation for a given product end with the product’s first sale. Unless otherwise specified by law, subsequent acts of resale, rental, lending or other forms of commercial use by third parties can no longer be controlled or opposed by your SME. There is a fairly broad consensus that this applies at least within the context of the domestic market.

There is less consensus as to what extent the sale of an IP protected product abroad can exhaust the IP rights over this product in the context of domestic law. The issue becomes relevant in cases of so-called “parallel importation”. Parallel importation refers to the import of goods outside the distribution channels contractually negotiated by the manufacturer. Because the manufacturer/IP owner has no contractual connection with a parallel importer, the imported goods are sometimes referred to as “grey market goods”, which in fact is somewhat misleading, as the goods as such are original, only the distribution channels are not controlled by the manufacturer/IP owner. Based upon the right of importation that an IP right confers upon the IP owner, the latter may try to oppose such importation in order to separate markets. If, however, marketing of the product abroad by the IP owner or with his consent leads to the exhaustion of the domestic IP right, also the right of importation is exhausted and can thus no longer be invoked against such parallel importation.

The above principles have different implications depending on whether the country of importation, for reasons of law or policy, applies the concept of national, regional or international exhaustion. The concept of national exhaustion does not allow the IP owner to control the commercial exploitation of goods put on the domestic market by the IP owner or with his consent. However, the IP owner (or his authorized licensee) could still oppose the importation of original goods marketed abroad based on the right of importation. In the case of regional exhaustion, the first sale of the IP protected product by the IP owner or with his consent exhausts any IP rights over these given products not only domestically, but within the whole region, and parallel imports within the region can no longer be opposed based on the IP right. Where a country applies the concept of international exhaustion, 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.

National IP offices, or IP agents/attorneys, should be able to inform you as to which provisions or case law applies in the relevant country for each type of IP right.

For further information on recent decisions and different approaches in civil law and common law countries and in the international context, see document ATRIP/GVA/99/6 “Parallel Imports and International Trade” [PDF] (presented at the Annual Meeting of the International Association for the Advancement of Teaching and Research in Intellectual Property (ATRIP) at the headquarters of WIPO in Geneva (July 7 to 9, 1999)).