The doctrine of International Exhaustion of Intellectual Property Rights means that the right for the first time holders lose their right to control the re-sale of the protected goods, once the same is sold. In other words, the IPR owner cannot restrict the right of the subsequent re-sale and this principle is known as “First Sale Doctrine” and accordingly his rights to this extent are exhausted. The rationale behind the Doctrine is that the IPR owner has received the full benefit of the IPR from the first sale.

Although the issue of exhaustion of IPR rights is valid for trade mark, copyrights as well as for patents, the present article deals with the legal provisions with respect to patent rights only.

In order to understand the meaning of the doctrine of exhaustion, we need to understand its implication more clearly and more particularly in case of a patent. The purpose of exhaustion specially with reference to International Trade for Parallel Imports is to strike a balance between a public interest and the private interest of the IP owners.

The issue is growing importance as different countries have different provisions on international exhaustion of IPR but the increasing globalization of trade and investment demands harmonization of IPR laws and the issue becomes more complex when TRIPs Agreement does not allow its Dispute Settlement Body to restore the issues on exhaustion.

Article 6 of the TRIPs Agreement provides flexibility to the member countries for having different rules in respect of doctrine of International Exhaustion. The provisions of Article 6 of the TRIPs Agreement are as below –

“[f]or the purposes of dispute settlement under [TRIPS], subject to the provisions of Articles 3 and 4 above, nothing in [TRIPS] shall be used to address the issue of the exhaustion of intellectual property rights.” Section 48(a) of the Indian Patent Act, 1970, gives inter alia the following rights to a patent holder or a patentee, i.e.,

• Where the subject matter of the patent is a product, the exclusive right to prevent third parties , who do not have his consent, from the act of
• Making,
• Using,
• Offering for sale,
• Selling or
• Importing for those purposes that product in India.

Similar right is valid for a process patent under Clause (b) of Section 48.

Out of the above five rights as enumerated above, the right to making and using are purely for protection of the technology and invention for production of the product and this right remains fully protected under all circumstances for the full term of the Patent. It is only the other economic rights which are embedded in the product are subject to the rule of exhaustion. The basic idea is to allow free movement or circulation of goods produced and first put to market by the patentee, that this law says that the exclusivity to resale gets exhausted.

Some of the exclusive rights such as right for sale, import etc are subject to extinction under the doctrine of international exhaustion. The above right gets partially obstructed or restricted by an overriding provision as contained in Section 107A (b) which provides –

“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 Indian Patent Act, 1970, follows the principle of International Exhaustion. It implies that once the Patentee sells goods outside India, the importer of the goods has the right to resale the imported goods in India. This is called Parallel Import and International Exhaustion. This may affect the exclusive rights of the Patentee to restrict the person who has imported such goods from a person who has resold the patented goods to India subsequent to import in his country.

It means that if a trader in Bangladesh imports goods from a registered patent owner say Hero Honda a motor cycle or through a distributor at a price and sells it either to an Indian buyer in India or to a customer in Sri Lanka at a price which is more competitive than the original patent owner and makes profit, it is legal under the rule of Parallel Import and International Exhaustion.

The context of the principle of exhaustion has three aspects –

• National:-Under this rule the right to use, offer for sale and selling only is exhausted. Making and importing is not affected.
• Regional:-Under this for example within European Union or say within NAFTA or ASEAN there can be parallel import and exhaustion of rights for imports.
• International:-Under this there is exhaustion of exclusive rights for imports from any country in the world.

The question as to why the parallel importer purchases original products in the international market and export then to third countries can be answered from the very concept of comparative cost advantage. The IPR owners generally have different prices for different markets depending upon number of factors such as cost of production in different geographical regions for cheaper cost of labor or raw material including tax rates. Parallel importers can purchase from the low price countries and then resale then in countries where the prices are higher. This is done legally and legitimately under the rules of exhaustion. There are some difficulties if the country of origin puts certain restriction on the first importer for resale under the terms of contract even if it follows the rules international valuation.

There is a need for further research and synchronization of the doctrine of international exhaustion in order to harmonize the IPR Laws around the world