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Exhaustion of right

  • 25 August 2016
  • Articles

Compatibility of the Industrial Property restrictive effects with the freedom of trade and competition required by the European integration

A predictable tension with the territoriality of the Industrial Property rights (DPI) derives from the process of European construction and consolidation of the Community market.

The issue driving to the analysis is shown by the fact that the freedom of trade and competition, values assigned to the European Union, collide with the monopoly at national scale conferred by the DPI. The simple exercise of exclusive rights could, potentially, hinder the free movement of goods within the Community.

As a way of solving the exposed dichotomy, there is the concept of exhaustion of rights. This rule was developed by the case law of the European Union Court of Justice and, thereafter, transposed to the laws of the Member States. The national Legislation expressly provides the exhaustion of rights through its inclusion under various Articles throughout the Portuguese Industrial Property Code.

The exhaustion of rights doctrine establishes that the holder of a specific DPI, or someone with his/her consent, by placing a product under his/her monopoly on the market, exhausts the exclusive right, concerning the referred product in the European economic area. Thus, the goods are no longer in that legal sphere and may be even sold elsewhere.

Together with the exhaustion of DPI’s, the concept of parallel imports is often mentioned. This is an import made beyond the official distribution circuit of a product. The person, who does this, is a third party different from the product manufacturer and distributers. The parallel importer purchases goods in a market where they are cheaper and places them in another market for a more expensive resale. It should be noted that the products sold by parallel imports are genuine. The importer is not a counterfeiter.

Parallel imports, according to the European Commission and the Court of Justice, are beneficial to the European Economic Area, seeing that they balance the market prices of the different Member States.

The territorial scope of the exhaustion should also be referred. The Portuguese legislator has chosen to apply the exhaustion of rights only to the scope of the European Economic Area. But, it is worth noting that, although there cannot be exhaustion in brands at international level, with regard to patents, it is up to each Member State to choose whether or not to accord the exhaustion of rights to third counties in the European Economic Area.

Is the exclusive or monopoly right of the product completely derogated when it is exhausted?

The exhaustion of right is not absolute. The DPI is not extinguished by itself, and it only ceases regarding the products that were specifically placed on the market. Any remaining goods, not yet sold, belong exclusively to the DPI holder.

After placing the product on the market, and the exhaustion thereof, other rights still remain with the DPI holder. The Portuguese Industrial Property Code excludes the principle of exhaustion of the brand right “whenever there are legitimate reasons, especially when the condition of those goods is changed or impaired after being placed on the market”.

Does the prevalence of the Exhaustion of right in the European Economic Area favour the market?

A uniquely Portuguese worldview is likely to lead us to reply that it would be more fruitful to Portugal to increase parallel imports and, consequently, the introduction of international exhaustion.

If on one side, and with regard to brands, the European legislative harmonization compels us to stick with the European exhaustion, as far as patents are concerned there remains the possibility of incorporating the international exhaustion concept in the legislation.

We shall have to wait for developments in the European political and economic situation to inquire if the trend will continue to be the European economic peer protectionism and the subsequent changelessness of the Exhaustion of right rule or if it will acquire a universal character.

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Exhaustion of right