Intellectual Property Rights and International Free Trade - New Jurisprudence of International Exhaustion Doctrine under Traditional Legal System

• Author: Chung-Lun Shen
• Position: Associate Professor, Department of Law, National Chengchi University, Taiwan
• Pages: 176-211

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176

Intellectual Property Rights and International Free Trade:

New Jurisprudence of International Exhaustion Doctrine

under the Traditional Legal System

Chung-Lun Shen

Associate Professor

Department of Law, National Chengchi University, Taiwan

clshen@nccu.edu.tw

Abstract. The interaction between the exhaustion of intellectual property rights and the

parallel importation has been being one of the most controversial issues under international

intellectual property laws. Consequ ently, the main purposes of this article is to assure tha t

intellectual property law—in particular, the exhaustion doctrine—is best fit to deal with the issue

of the conflict between intellectual property rights and international free trade. Meanwhile, this

article is also to determine that the international exhaustion doctrine is the optimal legal model

for the harmonization goal through examining the th eoretical arguments and observing legal

experience in the global community.

© 2012 Chung-Lun Shen .Published b y JICLT. All rights reserved.

I. Introduction

The interaction between the exhaustion of intellectual property rig hts and the parallel importation has been one

of the most controversial issues under international intellectual property laws. This issue arouses the strained

conflicting po sitions in bo th the protection of intellectual pro perty rights and the maintenance of international

free trade. Since each countr y in the global community has faced discrepant political, economic and social

backgrounds, the divergent exhaustion doctrine is preferred around the global community—basically, while the

developing countrie s are dedicated to expanding the scope of the exhaustion doctrine, the developed countries

tend to stick to more protection on intellectual propert y rights. The internationally undecided status in the

adoption of the exhaustion doctrine also led to the fact that the WTO (World Trade Organization) and the

WIPO(World Intellectual property Organization) gave up proposing the uniform exhaus tion doctrine, leaving the

member states absolute discretion in deciding the scope of the exhaust ion doctrine.

Nonetheless, there are two main potential defects in the attitude held by the WTO and the WIPO. One is

reflected in the worry about whether the national decision of the exhaustion doctrine is exactly based on

reconciling the protection of intellectual property rights and the maintenance of international free trade, some

other factors irrelevant to intel lectual property laws being excluded in the decision o f the exhaustion doctrine. If

the exhaustion doctrine is used to achieve the policy goals outside of intellectual property laws, the protection of

intellectual property rights would be excessively developed.

Another concern involves the possibility that some developed countries with strong bargaining power would

force the developing co untries to adopt the exhaustion doctrine favourable to the fulfilment of the specific

economic polic y of the developed countries through bilateral or multilateral trade negotiations. This potential

result would break down the original balance mechanism established by the exhaustion doctrine between the two

conflicting interests of intellectual property rights and international free trad e, and distort international free trade.

In view of the potential defects in the international undecided attitude about the exhaustion doc trine and the

consequential influence, in this author’s view, it is necessary to establish a globally harmonized exhaustion

doctrine in the WTO or WIPO to implicate the optimal interest balance be tween intellectual property rights and

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177

international free trade. Conseq uently, the main purposes of this article is to assure that intellectual property

law—in particular, the exhaustion doctrine—is the optimal legal approach to deal with the issue of the conflict

between intellectual property rights and international free trade. Meanwhile, this article is also to determine that

the international exhaustion doctrine is the optimal legal model for the harmonizatio n goal by examining the

theoretical arguments and observing legal experience in the global co mmunity.

This article is divided into five sections. T he first section is the introduction for this article. The second

mainly indicates the two co nflicting interests between the protection of intellectual property rights and the

maintenance of inter national free trade that are reflected in the cases of parallel importation. Another core

content of section two (2) is to determine whether intellectual property laws (the exhaustio n doctrine) are best fit

to deal with the issue of parallel importation to balance the interest consideratio n under both intellectual property

rights and international free trade.

Section 3 concentrates on the theoretical and academic d ebates over the application of the international

exhaustion doctrine on the issue of parallel importation. There are two parts in the debates—while one is based

on the policy consideration, the other is according to the economic analysis. Regarding the policy and economic

arguments, this chapter bifurcates the positions into the two groups—one for the international exhaustion

doctrine and the other against the doctrine. Section 4 contains the arguments supporting the international

exhaustion doctrine in section three,. The dissertation indicates, in ter ms of laws and international trade

practices, the weak theoretical basis and misconception about the gist of intellectual proper ty laws on the

arguments against the international exhaustion doctrine. In addition, from the angle of the observation of legal

experience in the global community, it is found that the harmonized international exhaustion doctrine would not

bring about the unbearable im pact in the global community. Consequently, the inter national exhaustion doctrine

is concluded as an optimal legal model. Moreover, this article also p robes into the issues about the application of

the international exhaustion doctrine to determine whether the internatio nal exhaustion doctrine should be

indiscriminately applied to various intellectual property rights, re-importation, and different goods embodied

with intellectual property rights. Section five develops the conclusio n of this article.

2. Intellectual Property Rights and International Free Trade—The Interests Conflicting in

Terms of Parallel Import and the Legal Approach for Resolution

2.1 The Exclusive Rights against Distribution of Goods under Intellectual Property Laws

The exclusive right under inte llectual property rights against the distribution of goods is the focus of the cases of

parallel imports. The distribution right, through le gislation or legal interpretation, under patent law, trademark

law, copyright law, is a potential threat to parallel imports.

2.1.1 Patent Law

The legislative purpose of patent law is mainly to provide inventors with a limited monopoly and sufficient

incentives to engage in cre ating or inventing new technologies benefiting people around the country.

1

Generally

speaking, the protection o f patent law, in terms of an international comparative perspective, reaches out to

infringement during manufacture and infringement after manufacture.

2

Infringement during manufacture is the

1

Clause 8 of Section 8, Article I of the Constitution of the United States: “To promote the Progress of Science and useful

arts, by s ecuring for limited Times to Authors and Inventors the exclusive Right to their respective Writings and

Discoveries;” ; See a lso Martin J. Adelman et al., Cases and Materials on Patent Law § 1.5[a][1] (3d ed. 2009) [ hereinafter

M

ARTIN

J.

A

DELMAN ET AL

.,

P

ATENT

L

AW

]; F.

S

COTT

K

IEFF ET AL

.,

P

RINCIPLE OF

P

ATENT

L

AW

-C

ASES AND M ATERIALS

66-67

(4

th

ed. 2008) [ hereinafter

F.

S

COTT

K

IEFF ET AL

.,

P

ATENT

L

AW

]; R

OBERT

P. M

ERGES ET AL

., I

NTELLECTUAL

P

ROPERTY

IN THE

N

EW

T

ECHNOLOGICAL

A

GE

23 (2d ed. 2000) [ hereinafter

M

ERGES ET AL

.,

I

NTELLECTUAL

P

ROPERTY

]; W.R. C

ORNISH

,

I

NTELLECTUAL

P

ROPERTY

: P

ATENTS

, C

OPYRIGHTS

, T

RADE

M

ARKS

AND

A

LLIED

R

IGHTS

¶¶ 3-38 to -48 (5 th ed. 2003)

[hereinafter

C

ORNISH

,

I

NTELLECTUAL

P

ROPERTY

].

2

See C

ORNISH

,

I

NTELLECTUAL

P

ROPERTY

¶¶

6-09

to -20.

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178

illegal copy or imitation of the patented products or the patented inventio n process.

3

Infringement a fter

manufacture occurs when patented products or products manufactured under a patented invention process,

regardless of the illegal copies or authorized ones, are sold, offered to sell, or imported without patentee’s

consent.

4

From the angle of infringement after manufacture, patent la w creates an exclusive right related to the

marketing of the patented products or the pro ducts under patented process, that is, the patentee has an exclusive

right to control the distribution of goods in the local market, even blocking goods from c oming into the local

market from the foreign countries.

2.1.2. Trademark Law

Traditionally, trademark law is used to protect the first user of trademark in commerce from likelihood o f

confusion of the two marks occurring when the subsequent users employ the same or similar trademark.

5

The

protection reflects consideratio n of two interests —consumer’s interest and trademark owner’s interest.

6

On

consumer’s interest, the traditional protection of trademark serves a function of source indicator, assisting

consumers in finding the accurate commercial commodities by the evaluation of trademark in mind under a low

search cost.

7

The consideration of trademark owner’s interest drives a guarantee of product q uality because

trademark law awards t he trademark owner sufficient incentive to maintain or improve the qualities of the

commodities.

8

Lately, trademark protection has evolved to cover the economic value of a trademark being formed through

the trademark owner’s investment in developing co mmodities and creating goodwill.

9

As a result, the dilution of

the reputed trademark becomes a kind of infringement under trademark la w.

10

3

See 35 U.S.C. § 271( a) (2003) (“Except as otherwise provided in this title, whoever without authority makes, uses... any

patented invention, within the United States…during the term of the Patent therefor, infringes the patent.”); See also Article

25 of Convention for the European Patent for the Common Market, 1976 Q.J. (L401) 1-28 [hereinafter the Propo sed

Community Patent Convention] (The convention is proposed for establishment of community patent and harmonization of

patent law within the European Econ omic Community and amended in 1989, but never ratified by all Member States. See

Hanns Ullrich, Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?, 8 E

UR

.

L

.

J

.

437-38 (2002).); Article 7 of Proposal for a Council Regulation on the Community Patent, Council document 7119/04, 8

March 2004[hereinafter Compact 2004]; Article 28 of Agreement on Trade-Related Aspects of Intellectual Property Rights,

Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization [hereinafter the WTO Agreement], Annex

1C, L

EGAL

I

NSTRUMENTS

—R

ESULTS O F THE

U

RUGUAY

R

OUND

vol. 31, 33 I.L.M. 81 (1994) [hereinafter the TRIPS

Agreement].

4

See 35 U.S.C. § 271(a) (2003) (“Except as otherwise provided in this title, whoever without authority…offers to sell, or

sells any patented invention, within the United States or imports into the United States any patented invention during the term

of the patented therefore, infringes the patent.”); See also Article25 of the Proposed Community Patent Convention; Article

28 of the TRIPS Agreement.

5

See M

ERGES ET AL

.,

I

NTELLECTUAL

P

ROPERTY

,

supra note 1, at 559; Polaroid Co rp. v. Polarad Elecs. Corp., 287 F.2d 492,

495 (2d Cir. 1961); AMF v. Sleekcraft Boats, 599 F.2d 341, 346 (9th Cir. 1979).

6

See T

IMOTHY

H.

H

IEBERT

,

P

ARALLEL

I

MPORTATION IN

U.S.

T

RADEMARK

L

AW

21-24

(1994)

[hereinafter H

IEBERT

,

P

ARALLEL

I

MPORTATION

].

7

See J

EREMY

P

HILLIPS

, T

RADE

M

ARK

L

AW

¶¶

2.24

to .29 (2003); C

ORNISH

,

I

NTELLECTUAL

P

ROPERTY

, supra note

1,

¶

15-24.

See also W

ILLIAM

M.

L

ANDES

&

R

ICHARD

A.

P

OSNER

,

T

HE

E

CONOMIC

S

TRUCTURE OF

I

NTELLECTUAL

P

ROPERTY

L

AW

166-68

(2003)

[hereinafter L

ANDES

&

P

OSNER

,

I

NTELLECTUAL

P

ROPERTY

L

AW

]

(“The benefits of trademarks in lowering consumer

search costs presuppose legal protection….”)

8

See H

IEBERT

,

P

ARALLEL

I

MPORTATION

,

supra note 6, at 3-6.

9

The dilution theory of trademark is introduced to the United States b y Professor Frank I. Schechter through his classic

article “The Rational Basis of Trademark Protection”. See Frank I. Schechter, The Rational Basis of Trademark Protection,

40 H

ARV

. L. R

EV

.813 (1927). Regarding the development of the dilution theory under trademark law, see T

ONY

M

ARTINO

,

T

RADEMARK

D

ILUTION

(1996).

10

See 15 U.S.C. § 1125(c) (1999); Article 5(2) of First Council Directive 89/104/EEC of 21 December 1988 to approximate

the laws of the Members States Relating to Trade Marks, 1989 Q.J. (L040) 1-7 [hereinafter E.C. Trademark Directive];

Moseley v. V Secret Catalogue, Inc., 537 U.S . 418 (2003); Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 2 08 (2d Cir. 1999);

Ringling Bros.-Barnum & Bailey Combined

Shows, Inc. v. Utah Div. of Tr avel Dev., 170 F.3d 449 (4th Cir. 1999);

Wagamama Ltd. v. City Cenre Restaurant, [1995] F.S.R. 713 (U.K. Case); Baywatch Prod. Co. Ltd. v. Home

Video Channel, [1997] F.S.R. 22.