Exhaustion of intellectual property rights

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An intellectual property right (IPR) gives you the sole right to use and exploit that right. This can be, for example, selling a product bearing a certain trademark or copying and making available a copyright protected computer program. IPR’s are in their nature territorial, meaning that the protection is limited to the countries where the protection exists. Therefore, as a general rule, an IPR owner can stop everyone else from selling a product protected by the IPR in the country where the protection exists.

An exception from the general rule is the principle of exhaustion. In a nutshell, exhaustion means that when a product is lawfully put on the market, that product is exhausted, i.e. the IPR owner has lost its right to exercise the IPR protection in relation to that product. A simple example is that of an automobile manufacturer owning IPR in its vehicles. This manufacturer can prohibit other companies from selling vehicles infringing its patents, trademarks and designs, however, he/she cannot prohibit customers who have bought its vehicles from reselling them to third parties.

Exhaustion of IPR can be both international and national but only applies to the disposal right of that product. Buying, for example, a film does not make it legal to exploit the film in any matter desired. The copyright protection of the film remains, and with it the exclusive right to show it in public. In Europe, exhaustion is applicable for any product put on the market within the entire European Economic Area. For example, a product that is sold in Spain by the owner, or with the owner’s consent, can freely be resold Sweden (so called “parallel import”).

In contrast, the Court of Justice of the European Union has made it clear that parallel importation into the EEA of a product sold for the first time outside the EEA is not allowed. Therefore, in such circumstances, the IPR owner has the right to prohibit any such imported products even if they are original products manufactured by the IPR owner.

The principle of exhaustion is an important aspect to consider as an IPR owner. By understanding the principle of exhaustion and through using a clear IPR strategy, an IPR owner can better control its products and therefore maximise its IPR protection.

For any questions on IPR protection or the exhaustion of IPR please contact David Leffler.

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