Council of Presidents Meeting Oslo - September 1999

Transcription

1 1 Council of Presidents Meeting Oslo - September 1999 Q146 - International Exhaustion of Patents Rights Summary of Oral Presentation by Knut Mager I. Introduction The commercial and legal policy question underlying the legal doctrine of international exhaustion of patent rights is whether unlimited worldwide parallel trading of patented goods should be allowed. A patentholder could not prohibit imports of patented products sold by himself or his licensees anywhere in the world in case that the law of the country of import provided for some form of consumption of patent rights based on the sale in the country of export. Such scenario is often explained as being the result of the doctrine of international exhaustion of patent rights. However, a consumption of the patentholders rights to prohibit import or resale may be based on three different legal theories. Therefore, it is useful to draw the following distinctions and use the following definitions: 1) International Exhaustion: This concept assumes that the property in the product and the rights to exploit the patent are bound together. Under this doctrine it is held that by selling the product anywhere in the world the patentholder exploits the patent and therefore exhausts the patent right. 1 2) Regional Exhaustion: A contractual provision between a group of countries provides that patent rights cannot be used to stop the circulation of goods within this group of countries if the product has been put on the market by the patentholder or with his consent within this group of countries. 2 1 Where we speak of national exhaustion, we mean that the sale in a country exhausts the patent in that country only, which is the case e. g. in Germany. 2 This concept is followed in Europe (by the EU in Artt. 28, 30 (formerly 30, 36) EC Treaty and by the EEA in Art. 5 II EEA Treaty, Art. 2 Protocol 28). In theory such a concept could be adopted by any group of countries (e. g. all WTO-members) (see below II. 2.).

2 2 3) Implied consent to resale and / or import: The law provides that a patentholder or his licensee when selling the patented product has implicitly consented to other uses such as export, resale, etc.. In contrast to 1) and 2) above this concept assumes that the property in the patented products and the patent rights in the products are not integrally bound together. Therefore, this concept allows for contractual conditions or restrictions that can be put on the purchaser of the products. II. Status Quo The following is a brief summary of the legal status quo: 1. International Exhaustion a) National Law International Exhaustion of patents is not the law in the countries of the triade. For Japan this follows clearly from the BBS Aluminium Wheel Decision of the Japanese Supreme Court 3. The US Supreme Court has indicated that a product may be sold with restrictions on its use. 4 In the European Union Art. 28 Community Patent Convention (which is of course not in force) provides explicitly for some form of regional exhaustion. A contrario it would prohibit international exhaustion. Some Latin American countries seem to provide for international exhaustion of patents. 5 The Commercial Court Zurich has distilled a doctrine of international exhaustion from the Swiss Patent Law. 6 One of the main arguments of the Court seems to be that under the doctrine of national exhaustion a patentholder could prohibit the commercial use of goods bought by a person outside of Switzerland. For example a laptop computer bought by a business person in the US and used for business purposes in Switzerland. The result that the use of the laptop computer could theoretically be stopped in Switzerland would be detrimental to international business, the court argues. In my opinion it is unfortunate that the court used that example since it was not part of the facts to be decided; also the perceived problem could most probably have been solved by exception, e.g. within the contractual law, rather than by creating a new rule in patent law. I understand that the Decision is under appeal. b) International Public Law There is no provision in international public law prescribing international exhaustion of patents. To the contrary arguments against international exhaustion could probably be drawn from two provisions: 3 Ohba, AIPPI Yearbook 1998 / IX, 157 and II 3. below 4 In the case of Keeler v. Standard Folding Bed Co. 157 U.S. 660 (1895), the Supreme Court said: When the patentee has not parted, by assignment, with any of his original rights, but chooses himself to make and vend a patented article of manufacture, it is obvious that a purchaser can use the article, and, unless restrained by contract with the patentee, can sell or dispose of the same. 5 Otamendi, AIPPI Yearbook 1998 / IX, 142 ff. 6 GRUR Int. 1999, 555 ff.

3 3 Art. 4 bis Paris Convention provides for the territoriality and independence of national patents. However, it only limits the effect of a national patent to the boundary of the granting country and it spells out that the national law determines the content of the patent right. It does not set minimum standards for the national patent law. In particular it does not restrict a country s ability to regard extraterritorial actions as relevant for the ability to enforce the national patent right. The TRIPS Agreement sets minimum standard. Art. 28 I provides for the rights to be conferred on the patentholder. Part of these rights is the right to restrict imports. It has to be kept in mind that such right is not part of the other intellectual property rights that have to be established by the members of WTO under TRIPS. Therefore one would think that importation rights have to be part of the national patent systems and that consequently the patentholder should be able to stop imports not only of counterfeited products but also of parallel imported products. 7 However, the importation right is subject to Art. 6 TRIPS. The extent of the importation right, therefore, depends on the interpretation of Art. 6. Some argue that Art. 6 TRIPS amounts to an agreement to disagree on the question of international exhaustion, thereby leaving the issue for the national legislation to determine. 8 Others come to the same result using the principle in dubio mitius. 9 These arguments have some merit. Nevertheless the more straight forward reading of Art. 6 TRIPS may be that it contains a specific provision only to the extent that it provides for the non-applicability of the WTO dispute settlement as far a international exhaustion is concerned but leaves the substance of Part II TRIPS untouched. The result of such analysis is that WTO members must structure their patent laws according to Art. 27 ff TRIPS, and therefore must confer on the patentholder the bundle of rights contained in Art. 28 (I) TRIPS, including the full right to stop importation. Of course, if countries violate that rule, there is no way to address this violation in the framework of WTO. However, where the respective national legal system gives direct effect totrips such violation may be addressed by the national courts. 2. Regional Exhaustion Regional Exhaustion is well established by the ECJ in the European Union based on Artt. 28, 30 (formerly 30, 36) EC Treaty.This is the case even where the products in the country of export are subject to price control so that the innovator cannot react to parallel imports by raising prices in the country of export. 10 The same doctrine applies 7 Straus, Implications of TRIPS Agreement in the Field of Patent Law in FROM GATT to TRIPS, The Agreement on Trade- Related Aspects of Intellectual Property Rights (Beier / Schricker eds. Munich, 1996) 160, 192 ff with further arguments. 8 Bronckers, Journal of World Trade 1998, 137, Kunz-Hallstein, GRUR 1998, 268, Merck vs. Primecrow ECJ 1996, 6285

4 4 within the European Economic Area (Art. 5 II EEA Treaty, Art. 2 Protocol 28 to EEA Treaty). 11 An argument has been constructed from GATT in order to establish regional exhaustion within the WTO territory which would amount to a quasi-international exhaustion. Artt. XI and XX d) of GATT are structurally similar to Articles 28, 30 (formerly 30, 36) EC Treaty, so the argument runs, and therefore should be interpreted similarly. Thus, the free movement of goods in the WTO territory requires a restriction of the patentholders ability to control imports. This argument is not convincing: Even if TRIPS contained no substantive law on the issue of international exhaustion, TRIPS is the place where the negotiators of the Uruguay Round balanced the sometimes conflicting principles of free trade and intellectual property, i.e. as far as patents are concerned the desire to promote innovation. A recourse to GATT which is a separate part of the WTO-architecure and whose main focus is the principle of free trade would contravene this balance and is therefore not allowed. 12 But even if one were allowed to look at GATT for legal rules on exhaustion, one cannot automatically attribute to Art. XI GATT the reading given to Article 28 (formerly 30) EC Treaty by the European Court of Justice. That would limit the autonomy of WTO and its member states since the ECJ s reading of Artt. 28,30 (formerly 30, 36) EC Treaty applied to patented goods is only one of many possible and the level of integration desired and already obtained in the European Union cannot at all be compared with that of WTO members. 3. Implied Consent Where the right of the patentholder to restrict imports is not exhausted by the sale in the country of export the patentholder can in principle prohibit the import or resale in the country of import based on a patent. On the other hand he may of course consent to the import or resale. In Japan and the USA such consent is deemed to be given implicitly if the patentholder does not explicitly restrict resale of the product. 13 There are of course three questions to be addressed (i) which actions do constitute consent to unrestricted distribution throughout the world and (ii) in which form such restriction has to be established and (iii) whether a declaration to the public (i.e. on the product) is required in order to constitute such restriction and to allow the patentholder to enforce his patents against others downstream in the chain of commerce. III. Legal Policy Considerations 11 (Art. 5 II EEA Treaty, Art. 2 Protocol 28 to EEA Treaty) Regional Exhaustion applies also within the Andean Pact countries, see Otamendi, AIPPI Yearbook 1998 / IX, Bronckers, supra, 144 ff. 13 The same seems to be true in the UK under Bett vs. Wimott (1871) and in Australia

5 5 There is nothing inherent in patent law that would call for a doctrine of international or regional exhaustion or of implied consent. To the contrary, those countries that provide for implied consent specifically assume that property in product and patent rights are separated. Those countries that provide for national exhaustion implicitly preclude international exhaustion irrespective of whether they also apply a regional exhaustion doctrine based on multilateral treaty. In any event two principles have to be weighed against each other the principle of free movement of goods among countries on one hand, and the principle of protection and promotion of invention, innovation and investment in R&D on the other hand. The principle of free movement of goods is founded in the belief that protectionism leads to inefficient allocation of resources. Its aim is not to lower prices for consumers but to create more efficient industries, full employment, higher income and standard of living. The principle of protection and promotion of inventions and innovation serves research and intends to foster technological progress for the benefit of society. Means to this end is a limited period of freedom from competition in patent protected technologies. In theory this period should be long enough to allow the innovator to recapture his investment into the R&D of the patented product. In contrast to the free movement of goods patent protection does not merely aim at more efficient production of goods to be traded but aims to expand the variety of goods that could be traded. 14 This desired dynamic effect is the reason why patents for the limited time of protection need to prevail above free movement of goods in order not to frustate its aim. In any event: the transfer of income from the innovator to the parallel trader does neither serve production efficiency nor innovation. Therefore, international exhaustion should not be the rule with respect to patents. Where national or regional exhaustion in a peculiar set of facts would lead to undesired effects (e.g. the Swiss laptop example), these could be addressed by exception using an implied consent concept. In particular when prices are regulated, which is often the case in national pharmaceutical markets, industries cannot react to parallel trade by allocating ressources more efficiently. In such cases any international consumption of patent rights would lead to unbearable distortions of competitions and would effectively undermine the capability of innovators to receive a fair return on the R & D investment This dynamic effect of patent protection is normally not incorporated in economic models dealing wit global trade. 15 Innovators would be forced to take product off the market in low price or price controlled countries.