Definition and Evaluation of The Principle of Exhaustion of Intellectual Property Rights

Section I Definition of The Principle of Exhaustion of Intellectual Property Rights

1.Theoretical basis

Anyone who lawfully obtains the intellectual property product can dispose of the intellectual property product freely, as long as it does not infringe the exclusive right of the intellectual property owner. The principle of exhaustion of rights is an important issue in intellectual property law. Exhaustion of rights is not only related to the basic theoretical issues of intellectual property such as the characteristics of intellectual property, the characteristics of the object of intellectual property and the purpose of intellectual property law, but also related to the problem of parallel import in real life.

From the perspective of intellectual property function, the theoretical basis of right exhaustion is economic benefit return. The establishment of intellectual property system aims to protect the rights of inventors and creators of works, so that they can make full use of their own intellectual products to realize their own economic interests without others competing with them. The essence of intellectual property is interest.

It grants economic privileges to individuals or units solely for the purpose of generating greater public interests. The principle of exhaustion of rights is a restriction on the rights of the intellectual property owner, “it is set up to balance the negative effects of the exclusive rights of the intellectual property owner, and its main purpose is to impose necessary restrictions on the rights of the intellectual property owner, so as to avoid excessive monopoly and hinder the free circulation of products.” At present, scholars generally believe that one of the basic characteristics of intellectual property is its exclusivity or exclusivity, which is in contradiction with the free circulation of goods. The principle of exhaustion of rights is produced to solve this contradiction. Ensuring the free circulation of goods is the purpose of the principle of exhaustion of rights.

However, researcher Xu Zhao believes that the theoretical basis of the principle of exhaustion of rights is the theory of economic benefit return, that is, after the intellectual property owner exclusively manufactures and sells his intellectual property products based on the provisions of the law, he has obtained the due economic benefits from this exclusive manufacturing and sales activities, and the basic functions of intellectual property have been realized. The intellectual property system gives the obligee exclusive rights to ensure that the obligee can make full use of his intellectual achievements to manufacture and sell intellectual property products without others’ counterfeiting and imitation, so as to realize his own economic interests. After the obligee obtains full economic returns (the second return of benefits) by relying on this exclusive guarantee condition, the function of intellectual property has been realized, and he should not continue to exert further control over the intellectual property product. Otherwise, it will hinder the circulation of goods and damage the interests of the public.

From the perspective of jurisprudence, the theoretical basis of exhaustion of rights is the balance between private interests and social interests. If the principle of exhaustion of rights is included in the analysis of jurisprudence and legal philosophy, it can be considered as follows: from the perspective of legal thought, at the end of the 19th century, the right standard gradually changed from individual standard to social standard, especially after entering the 20th century, this transformation is more obvious. Early rights based doctrine advocated freedom and rights, which was reflected in the field of intellectual property. Intellectual property is an absolute and exclusive right. In addition to the two characteristics of timeliness and regionality, it was endowed with the same meaning as ownership. The initial intellectual property rights were almost unlimited. With the development of society and the progress of legal thoughts, the standard of individual rights has gradually given way to the standard of social rights. The standard of social rights has changed from extreme respect for individual rights and freedoms to paying more attention to social interests, paying more attention to the maintenance of social interests and the all-round development and progress of society, and paying more attention to the balance between personal interests and the overall interests of society. The idea of social standard is embodied in the field of intellectual property, which is to impose necessary restrictions on the rights of intellectual property owners. The principle of exhaustion of rights is one of the restrictive measures, which reflects the balance between personal interests and social interests in the protection of intellectual property rights. The value goal of the principle of exhaustion of rights in intellectual property law is to balance personal interests and social interests in order to achieve social fairness and justice.

2.The performance of the principle of exhaustion of rights in various fields of intellectual property

2.1. Patent right

In the field of patent rights, once the patented products manufactured or imported by the patentee himself or the patented products manufactured or imported by others authorized by the patentee or the products obtained directly according to the patented method are put on the market, the patentee loses control of his patented products. The use, sale or promise of sale of the patented product by the transferee of the product or others shall not be regarded as infringement. From the perspective of ownership, the principle of exhaustion of rights is reasonable. The transferee of the patented product obtains the ownership of the product after paying the price of the product. As the owner, the transferee of the patented product can certainly dispose of its product freely. There is no difference between patented products and general products. However, there are two different rights on patented products at the same time, namely, patent right and ownership, but these two rights belong to different obligees – the patentee and the assignee of patented products. The transferee of the patented product only obtains the ownership of the patented product, and the patent right still belongs to the patentee (intellectual property and carrier property rights are separated) – the principle of exhaustion of patent rights applies, and the right to use and sell the product should be exhausted, otherwise the transferee of the patented product will lose significance in purchasing the product.

To grasp the principle of patent exhaustion, we need to pay attention to that: the object of patent exhaustion is the patent right of every patented product put on the market, which can be explained by the benefit return theory. For the patented products put on the market, the patentee has obtained the corresponding benefit return from the sales, and the patent right has played its role. Therefore, he should no longer exercise further control over the patented products, but the patent right of the patentee for the whole invention and creation is not exhausted. The principle of exhaustion of patent rights is only applicable to patented products that are put into the market legally. The so-called patented products that are put into the market without permission do not have the problem of exhaustion of rights. The patented products legally put on the market include: the patented products put on the market by the patentee; Patented products that the patentee authorizes others (licensees) to put on the market; Patented products put on the market by the first user; Patented products put into the market by the beneficiary of compulsory license; Patented products that are approved by government agencies to promote the application of patents and put on the market.

The principle of patent exhaustion applies not only to patented products put on the market with the consent of the patentee, but also to patented products put on the market by the patentee because of some moral or legal obligations. First of all, for the first user to put patented products on the market, paragraph 2 of Article 63 of China’s patent law stipulates that it is not considered an infringement. After all, the first user has made the same product, used the same method or made necessary preparations for manufacturing and use before the patentee’s patent application date. Instead of using the patentee’s invention and creation, he uses his own independent invention and creation. In order to protect the prior rights of the prior user and its prior investment, the law makes such a provision, which is essentially a balance of interests between the prior user and the patentee. Therefore, the patentee has no further control over the patented products put on the market by the first user, that is, the patents attached to these products are exhausted. If the patentee is allowed to exert control over the patented product put on the market by the first user, it will inevitably hinder the circulation of the product. This will not only damage the interests of consumers, but also the interests of the first user, resulting in the consequences of the fact that the first user’s first use right is restricted, which is contrary to the law’s recognition of the first user’s first use right. Secondly, for patented products put on the market due to compulsory licensing and promotion and application, although it is involuntary for the patentee, the patentee also loses the right to further control this product, that is, patent exhaustion.

Because the patentee has realized its economic interests in this product (articles 14 and 54 of the patent law clearly stipulate that the promotion and application implementation unit and the licensee of compulsory license shall pay reasonable royalties to the patentee), this economic interest is one-time. The essence of the exclusive right is that the obligee enjoys the exclusive conditions granted by the patent law and makes profits alone. In the case of issuing a compulsory license, the patentee also realizes its economic interests for the patented products put on the market by the Licensee. The purpose of the patent has been achieved, so the patentee has no right to control the product. If the patentee still enjoys the patent right for the patented products put into the market through compulsory licensing and promotion and application, and the use and sales of products are still subject to the patentee, then the compulsory licensing and promotion and application of patents are meaningless.

2.2.Trademark right

In the field of trademark rights, the exhaustion of rights is manifested as: once the owner of the registered trademark legally places the goods with its trademark in the circulation field, the trademark owner loses the control over the batch of products, and the trademark rights represented on the goods are eliminated. The trademark rights of the trademark owner are exhausted, and anyone’s resale of the goods is not regarded as infringement. If the transferee of the goods changes its registered trademark and puts the goods with the changed trademark back on the market without the consent of the owner of the registered trademark in the process of reselling the goods, this behavior of the reseller is an infringement of the exclusive right to use the trademark. In this case, the trademark right of the trademark owner is not exhausted. Item 4 of Article 52 of the revised trademark law clearly stipulates that “without the consent of the trademark registrant, changing its registered trademark and putting the goods with the changed registered trademark back on the market” is an infringement of the exclusive right to use a registered trademark. The most famous case is the battle between “Maple Leaf and crocodile” in Beijing in 1994. Experts have different opinions and express their opinions. However, because the trademark law at that time did not specify this, the case was shelved for a long time.

Why is it an infringement of the exclusive right to use the trademark that the reseller replaces the trademark in the process of resale? According to the theory of exhaustion of trademark rights, the trademark owner has no right to control the trademark goods put on the market for the first time? This book believes that the basic function of a trademark is to distinguish the source of goods or services. Based on this, the owner of the trademark has the exclusive right to sell his products with his own trademark. In the case of “Maple Leaf and crocodile”, the Reseller’s act of replacing the trademark just destroys the basic function of distinguishing the source of the trademark. Consumers can’t see the shadow of “Maple Leaf” from the “crocodile” trademark on the product, “crocodile” misled and deceived consumers, and the hope of “Maple Leaf” enterprises to create their own brand was also destroyed. “Maple Leaf” means that the function of commodity source is completely lost, and the connection between “Maple Leaf” trademark and commodity is cut off. Therefore, the act of replacing others’ registered trademarks and placing products in the circulation field is an infringement of the exclusive right to use trademarks. In this case, the trademark right of the trademark owner is not exhausted, and he has the right to require the final consumer to see his registered trademark on the purchased goods.

2.3. Copyright

In the field of copyright, the principle of exhaustion of rights is embodied in the exhaustion of distribution rights. That is, after the copyright owner distributes the original or copy of the work to the public by means of sale or gift, others can freely disseminate the work without being restricted by the copyright owner, that is, the distribution right can only be exercised once. The copyright owner has obtained corresponding economic benefits from the first sale of the work, so he can no longer control the resale and distribution of the work. China’s copyright law has no explicit provisions on the exhaustion of distribution rights, but in practice, it is generally not recognized that copyright owners can continue to control the circulation of their works after normal exercise of their rights once. Like the exhaustion of patent rights, the exhaustion of copyright owners’ distribution rights is also for copyright products that are legally put on the market. The distribution rights attached to these products are exhausted, and the distribution rights of their entire works are not exhausted.

The revised copyright law of China will separate the rental right from the distribution right. In the provisions of the original copyright law, rental is a way of distribution. Since the distribution right of the copyright owner is exhausted, the rental right under the distribution right also applies to the exhaustion of rights. The new “copyright law” lists the rental right independently, which means that the distribution right of the copyright owner can be exhausted at one time, but its rental right is not exhausted. The copyright owner has the right to control the rental of copyright works. The provisions on the implementation of the international copyright treaty promulgated and implemented by the State Council in September 1992 clearly stipulates the inexhaustible right to rent. Article 14 stipulates that the copyright owner of a foreign work may authorize or prohibit others from renting copies of his work after authorizing others to distribute copies of his work. In other words, after the copyright owner’s distribution right is exhausted, the rental right still exists and has not been exhausted.

Section II Evaluation of The Principle of Exhaustion of Intellectual Property Rights

1.Exhaustion of Rights is a Reasonable Restriction on Intellectual Property Rights

Intellectual property is regional, so is the exhaustion of rights regional? There are mainly two views on this issue: one is that the exhaustion of rights, like intellectual property itself, is regional, and the exhaustion of rights in a country does not lead to its exhaustion in the international market; The second is that once the obligee puts the intellectual property products on the market by himself or with his consent, his rights to this batch of products will be exhausted worldwide. How to treat this problem? The author believes that we should first correctly understand the connotation of the two different concepts of exhaustion of rights and regionality. The principle of exhaustion of rights was originally a provision of domestic law. Its original intention was to balance the interests of intellectual property rights holders and intellectual property product owners and ensure the free circulation of goods in China. Regionality is one of the basic characteristics of intellectual property. Intellectual property is the product of national laws. The acquisition and protection of intellectual property are stipulated by the laws of one country and are not affected by other countries. Although these are two different problems, there is a certain connection between them.

Rights are endowed by national laws and have regional characteristics, and the exhaustion of rights, as a restriction on rights, naturally has regional characteristics. Moreover, at that time, international trade was not developed, and intellectual property products were mainly circulated in China. But later, with the development of international trade, intellectual property products also began to move towards the international market, not limited to domestic circulation. Especially with the development of global economic integration, this situation is more obvious. In the process of the flow of intellectual property products in the international market, it is possible to damage the interests of the intellectual property rights holders of other countries. Therefore, the intellectual property rights holders of the importing countries of intellectual property products often oppose parallel imports based on the regionality and independence of intellectual property, while the parallel importers defend on the ground of exhaustion of rights. Therefore, the question of whether the exhaustion of rights is universal or international exhaustion of rights arises.

It can be seen that there was no dispute between the universality and regionality of exhaustion of rights at first, but only with the development of international trade and the emergence of parallel imports.

Secondly, we should correctly interpret the theory of international exhaustion. The universality of right exhaustion is the development of the regionality of right exhaustion. Recognizing the universality of the exhaustion of intellectual property rights in a country does not expand the scope of the effectiveness of the right. It still needs to be based on the importing country of intellectual property products. However, the behavior of the same obligee exercising his intellectual property in another country has an impact on the effectiveness of his relevant intellectual property in his own country, which is specific. According to the universality of exhaustion of rights, exhaustion of rights is not only the exhaustion of the rights of the obligee to the products put on the domestic market, but also the exhaustion of the rights of the products put on the foreign market by the obligee or its licensees when they are imported into the country in parallel. There is a misunderstanding about this problem, that is, to talk about the exhaustion of rights without specific intellectual property products. Leaving aside specific intellectual property products, it is meaningless to talk about the universality of exhaustion of rights. Exhaustion of rights refers to the specific intellectual property products. It refers to the exhaustion of the rights of the obligee “to the intellectual property products put on the market by himself or with his consent”. It refers to the exhaustion of some rights embodied in the specific intellectual property products. It is the exhaustion of specific rights, rather than the exhaustion of abstract and all intellectual property rights. Previous discussions have left the specific intellectual property products to talk about the exhaustion of rights, and the results have drawn wrong conclusions.

2.Rationality of International Exhaustion Theory

International exhaustion theory, based on the function or purpose of intellectual property, emphasizes that the obligee can only get a return once. No matter how many rights the obligee obtains in how many countries, the obligee of the same batch of products can only get one profit, and cannot make repeated profits. Its advantage is that it can avoid the obligee from using domestic monopoly to artificially divide the market and implement differential pricing; The disadvantage is that it reduces the commercial value of a country’s intellectual property rights and the degree of protection of obligees. The principle of exhaustion of rights (International Exhaustion Theory) is the theoretical pillar to support parallel imports, and the regional principle is the theoretical basis to oppose parallel imports. Parallel import refers to the act of importing and selling intellectual property products by a third party in international trade when an intellectual property right is protected by more than two countries without the permission of the intellectual property right holder or the exclusive license holder.

Because: (1) goods imported in parallel are obtained through legal means such as purchase, rather than illegal channels such as smuggling; (2) The goods imported in parallel are manufactured or licensed by the intellectual property right holder, and are authentic goods rather than counterfeit goods; (3) The intellectual property rights involved in parallel import are protected by law in the importing country. (4) The import behavior of parallel import has not been approved by the intellectual property owner of the importing country.

Whether parallel import infringes intellectual property rights varies in different fields. Some people argue that in the field of patents and copyrights, we should adopt the regional principle to prohibit parallel imports, and in the field of trademarks, we should adopt the principle of exhaustion of rights to conditionally allow parallel imports.

3.Support Parallel Export Through the Principle of Exhaustion of Rights

3.1. In the field of patents, for the parallel import behavior, the focus of controversy is: when the patentee has the patent right for the same invention and creation in both countries, if the patentee sells or permits others to sell his patented products in country a without any restrictions, does the buyer’s import of the patented products legally purchased by him into country B infringe the patentee’s patent right in country B? Using the principle of exhaustion of rights, we can draw a conclusion that the importer has not infringed the patent right of the patentee in country B. Whether this batch of patented products are sold by the patentee himself in country a or licensed by others in country a, he has benefited from the sale. His patent rights have been exhausted through the first sale of patented products, and he cannot obtain a secondary return from this batch of patented products.

Therefore, the importer’s import behavior does not infringe. If a government stipulates in the law that the patentee has the right to import from its own economic policies and trade policies, the import behavior of the importer without the permission of the patentee at this time constitutes infringement. Article 11 of the patent law also stipulates that the patentee has the right to import, and the patentee can resist the parallel import behavior of a third party. This reflects the improvement of the state’s protection of the patentee, that is, allowing the patentee to obtain a secondary return on its patented products.

3.2. In the field of trademarks, according to the principle of exhaustion of trademark rights, in general, parallel imports do not constitute infringement of trademark rights. The parallel import of trademark goods or the resale and distribution of goods is a normal business activity. It is not aimed at trademarks. Generally speaking, it has nothing to do with trademark rights. It is a non trademark behavior. The goods imported by parallel importers are legal goods, that is, they are legally manufactured and use legal trademarks, not fake or counterfeit goods. Since there is no counterfeiting and illegal use of trademarks used by goods imported in parallel, parallel imports do not infringe trademark rights. If the trademark registrant has realized economic interests through direct use or licensing others, he has no right to restrict others’ non trademark behavior, that is, parallel import.

In general, the parallel import of trademark goods does not infringe the trademark right. Most countries in the world also believe that the parallel import of trademark goods does not infringe. Of course, parallel imports are not infringing in all cases. In the process of commodity circulation, if the quality of commodities has changed and the trademark can no longer indicate the stable quality of commodities, the trademark owner has the right to prohibit parallel import. Even sometimes, the quality of the goods has not changed, but the reseller has repackaged or re labeled the trademark goods in the process of reselling, and the trademark owner believes that the Reseller’s behavior has damaged the identification function of the trademark or damaged the reputation of the trademark. In this case, the trademark owner also has the right to prohibit parallel import.

3.3. In the field of copyright, the problem of parallel import is similar to that in the field of patent. The copyright owner enjoys the exclusive right to a certain work in both countries, and now the right owner grants its distribution right to the work in country B to the Licensee in the form of exclusive license. The importer of country a purchases the works issued by the Licensee from the exclusive licensee of country B and imports them into country A. then, does the importer’s behavior infringe the distribution right of the copyright owner in country a? From the perspective of exhaustion of rights, the behavior of importers does not infringe. The most fundamental reason is that the copyright owner has obtained the benefit return from the exclusive license fee, and its distribution right has been exhausted. However, if the law of country a focuses on protecting the interests of its copyright owners, stipulates in the law that the copyright owners have the right to import or expressly prohibits parallel imports, then parallel imports constitute infringement.

The world intellectual property organization also tends to give copyright owners the right to import. The copyright law does not stipulate the import right of the copyright owner, but the provisions on the implementation of international copyright treaties endow the copyright owner of foreign works with the import right. The US government opposes parallel imports in principle. This shows that the principle of exhaustion of rights in the field of copyright can not be fully used to support parallel imports.

To sum up, the principle of exhaustion of rights can be used to support parallel imports, but it is not the only basis to determine whether parallel imports infringe. Whether parallel imports infringe ultimately depends on a country’s economic policy, trade policy and the provisions of relevant laws and regulations that reflect the intention of the policy. And law is determined by interests. It regulates and controls all kinds of objective interest phenomena in social relations purposefully and directionally to promote the formation and development of interests.

 

4. On the Exhaustion of Insurance Rights

“First sale” in the field of intellectual property refers to the behavior that the intellectual property owner or its authorized person places the intellectual product on the market for the first time. When the obligee carries out the first sale, he has no right to control the resale of the part of knowledge products sold, which is the most typical manifestation of the principle of exhaustion of rights. In copyright law, this is called “exhaustion of distribution rights” or “exhaustion of sales rights”.

The principle of exhaustion of distribution rights is not the same in the copyright laws of various countries. For example, Article 109 of the United States Copyright Law stipulates that the owner of a specific copy or record contained in a copyright work may sell or dispose of the copy or record. The second paragraph of Article 17 of the copyright law of Germany in 1965 stipulates that once the original or copy of a work enters the circulation field by means of transfer of ownership with the consent of the person entitled to sell the article in the territory to which this Law applies, the further sale of the article is recognized by law. However, France and Belgium, which most emphasize the moral rights of authors, treat the right of sale and the right of reproduction equally, because the right of reproduction of authors cannot be exhausted due to the first sale, so these two countries have not recognized the application of the principle of exhaustion of rights in domestic copyright law.

Article l.111-3 of the French intellectual property Code stipulates that intellectual property should be independent of the property rights of any tangible object. The acquisition of such an object does not enable the recipient to obtain any rights stipulated in this law, which shall be enjoyed by the author or his legal heir. In other words, even if the carrier of knowledge products has been transferred, the copyright owner still retains all the rights in the copyright, which can be regarded as an indirect negation of the principle of exhaustion of rights.

However, according to the current legislative situation of various countries in the world, it is a trend to write the principle of “exhaustion of distribution rights” into copyright law, which is in line with the requirements of the development of copyright law. The reason is that on a particular copy of a work, it carries both the copyright of the copyright owner and the real right of the copy owner. On the issue of who has the right to dispose of the copy, intellectual property and real right seem to conflict, more specifically, the right of sale in the copyright and the right of disposition in the ownership seem to conflict.

In this case, the intellectual property owner must give up part of his rights, because the essence of the act of selling the copy is not the sale of intellectual property, but the sale of the copy carrier, which is the sale of real “things” rather than the sale of abstract “rights”, and the owner is exercising his disposal right. Therefore, the priority of real right is inevitable here, and the owner of real right has the right to exclude the interference of others in the exercise of his real rights, even the copyright owner is no exception. On the contrary, if the copyright owner is allowed to control the further circulation of the copy after it is sold, it is bound to damage the rights of the owner of the copy, and it is not conducive to the free circulation of knowledge goods, which is contrary to the unique social nature of knowledge products, that is, the wide dissemination of advanced ideas and culture.

 

5.On the Exhaustion of Exhibition Rights

This means that after the original of a specific type of work is sold, the exhibition right of the work will be transferred to the owner of the original, that is, the exhibition right of the copyright owner will be exhausted. The exhibition right itself is a copyright property right enjoyed by the authors of art, photography and other works. At present, the Berne Convention for the protection of literary and artistic works has not expressly stipulated the exhibition right of works. Article 18 of the Chinese copyright law stipulates that the transfer of the ownership of the original works of art and other works is not considered as the transfer of the copyright of the works, but the exhibition right of the original works of art is enjoyed by the original owner. As mentioned above, copyright and the real right of its carrier are two different concepts. They can exist at the same time without contradiction. The disposition of one right does not affect the other. But this kind of non influence is relative. Specifically, as a part of the copyright of works such as art, the exhibition right is transferred with the transfer of its carrier property right, and the principle of exhaustion of rights is embodied here.

On the one hand, this is a kind of protection for the owner of the carrier property right, but also a restriction on the copyright owner. If the exhibition right is not transferred and still exists in the hands of the copyright owner, the property owner will not be able to fully exercise its ownership, which will reduce the desire of the buyer, which is not conducive to the realization of the economic interests of the copyright owner. At the same time, the exhibition right can only be implemented with the help of the original. When the original has been transferred, it is meaningless for the copyright owner to control the exhibition right.

However, some scholars believe that the principle of “partial exhaustion” should be implemented for issues such as the ownership of the right to exhibition after the artworks have been sold. Specifically, the author still has the right to prohibit others from exhibiting without permission, and the permission of the author is still required to buy the main exhibition of the painting. At the same time, the right that the author should usually enjoy to decide to display the work is also exhausted with the transfer of the carrier property right, that is, the author can no longer decide to display the work by himself, but must obtain the consent of the owner of the property right. It can be seen that in this case, only half of the exclusive rights of the author is “prohibiting others from exercising the right to exhibition”, and there is no other half of “exercising the right to exhibition by oneself”, which is “partial exhaustion”. In this case, it is actually a compromise between copyright and carrier real right, creating two incomplete rights. The author believes that it is not feasible for two reasons:

First, if the owners of the original works fail to exhibit their works according to their own wishes in order to obtain certain economic or other benefits, their desire to buy the original works of art will be seriously hit, which will have an impact on the market of art works;

Second, if the consent of the copyright owner is required for each exhibition, unnecessary social costs will be incurred. For the owner who has obtained the property right of the original, it is unreasonable to let them bear such costs for the exercise of ownership.