Quarterly International Ip Law Update

• Citation: Vol. 47 No. 2
• Publication year: 2022
• Author: David Tseng
• topic: Trademark,Intellectual Property

QUARTERLY INTERNATIONAL IP LAW UPDATE

AUTHORS

David Tseng
TSMC

Mariana Noli
Noli IP Solutions PC

Leaf Williams
Reichman Jorgensen LLP

A FINE KETTLE OF FISH: MOTLEY PARALLEL IMPORT REGIMES

The term "parallel imports" (sometimes called "gray market goods"), implicates the importation and distribution of goods that were produced and sold legally (they are non-counterfeit), without the authorization of an entity that owns some intellectual property right in the good. The importation and sale may or may not be legal, depending on the "exhaustion" regime of the area in which they are sold.¹ "Exhaustion" means that, per the regime in play, after an IP rights holder has profited from the first sale of a product, it must allow the resale of the product in that jurisdiction.²

Because the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), gives member nations latitude to select their exhaustion regimes,³ systems vary widely across nations, and protections for different types of intellectual property within the same areas may also lead to disparate enforcement outcomes.

There are four general types of exhaustion regimes with different geographical scopes. The most restrictive type is "national exhaustion" in which the rights of an IP owner are exhausted only once the goods are sold or manufactured in the country whose intellectual property rights the owner has invoked.⁴ In a national exhaustion jurisdiction, the IP owner can prevent parallel importation of IP rights-containing products that are intended for another market (though the IP owner may authorize re-sale in exchange for additional compensation in a licensing agreement with a foreign distributor or manufacturer). This allows an IP rights owner to set varying prices in different national markets. For example, an owner might charge more for a pharmaceutical product in a wealthy country, and less in one where the market might not bear a higher cost.⁵ The IP owner might also want to set a lower price in an area where the competition is higher to establish a strong position. This level of exhaustion is typically tied to patent rights since patentability standards can vary significantly

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across jurisdictions. Mozambique, Uganda, Australia, Mexico, and Brazil are examples of countries that have adopted national exhaustion in the patent arena.⁶

International exhaustion is the least restrictive, and it provides that once the goods have been placed on the market somewhere in the world by the IP-rights holder or with the IP-rights holder's consent, the owner has exhausted it rights in relation to the sale of those goods anywhere in the world.⁷ This type of regime prohibits the IP owner from preventing third parties from reselling the products at issue both abroad and in the IP owner's own domestic market and allows retailers to take advantage of price differentials to import from the cheapest areas.⁸ Cambodia, Canada, Chile, and Ghana allow for international patent exhaustion.⁹ India follows international exhaustion in regard to trademark rights.¹⁰ Some countries that proscribe an international exhaustion regime may have "material difference" caveats, or carve outs that specify that if an importer or reseller damages, impairs, or changes the goods in a way that could damage the reputation of the IP owner or harm the product, the IP owner can sue for infringement—this caveat exists, for example, under Turkish trademark law.¹¹

Regional exhaustion is considered an intermediate type, where IP rights are exhausted once the good has been sold within a particular region, so a specific set of countries may permit parallel imports from one another, but not from the rest of the world. The European Union generally follows regional exhaustion principles, as do the members of the African Intellectual Property Organization for patent rights.¹²

The most realistic regime is a hybrid one, that may differentiate exhaustion requirements based on the IP right or product at issue, and in fact, many countries do have mixed policies for parallel imports. For example, Switzerland (which is not a member of the EU), practices regional patent exhaustion with EU member countries, but pharmaceuticals are subject to national patent exhaustion in Switzerland.¹³ Nicaragua follows international exhaustion for trademark and patents, but national exhaustion for copyrights.¹⁴ Likewise, in the United States, trademark, patent, and copyright laws each tackle parallel imports in a different way.¹⁵ The reasons for the...