Rights of the IP Holders and Buyers Trading in the EU - Assignment Example

?“The consistent theme in the ECJ’s jurisprudence is that once the property right owner has placed the goods on the EC market itself or has consentedto such marketing, the goods can move freely throughout the EC. They cannot be opposed by the right holder” Critically discuss this statement in relation to parallel imports and the exhaustion of rights. Introduction The above statement concerns the position of the intellectual rights property holder once he places his product or agrees to place his product on the EC market. An IP rights holder may be from a member state within the E.U or from outside the E.U. member state. This paper examines rights of the IP holders and buyers trading in the EU and various principles involved in the light of IPR protection a holder is entitled to as a reward for dedication of his resources and efforts towards development of his product with quality. Internal market Article 14 of the EC treaty seeks to create an Internal Market without internal borders so as to facilitate free movement of goods, persons, service and capital known as “four freedoms:. The European Court of Justice (ECJ) has been consistently nullifying all national laws and practices of member states that militate against the said four freedoms ever since the Dassonvile decision in which the ECJ has stated that laws of the member states that hinder free movement of goods are to be treated as imposing restrictions (quantitative). 1. This is contrary to article 28 (ex article 32) which prohibits import restrictions among the community members. However the Dassonvile interpretation was later narrowed down by exclusion of certain selling arrangements from the purview of article 28 by what is known as Keck judgement 2 Public interest reason was preferred to free movement of goods in this case. Problem arises when there is conflict between the two articles which are both legitimate i.e free movement of goods and exceptions to free movement respectively. Article 30 prescribes certain conditions, prohibitions or restriction s on imports, exports or goods in transit for reasons of protection of industrial property. It is argued that these restrictions should not be arbitrarily applied as discrimination or indirect restriction on trade between member states. If it is to be considered that article 30 is in complete derogation of article 28 then there is no meaning in the principle of internal market which the EU is committed to as most of goods that come to the market are tagged with intellectual property rights. Articles 28 and 30 are now the articles 34 and 36 of TFEU. ECJ has justified its interference in respect of IPR in order to preserve and perpetuate the Internal Market and avoid separation of EC into several national markets. The ECJ foresaw the possibility of IP R holders abusing the exclusive rights so as to prevent free movement of his goods from one Member State to another. At the same time, ECJ felt the need to protect the IPR holders as a reward for their efforts and also to ensure free movement of goods within the community. In Deutsche Grammophon Gesellschaft mbH v Metro-SB-GroBmarkte GmbH & co, KG3, ECJ declared that national laws perpetuating the IPR rights would defeat the very basic purpose of the treaty. To overcome this situation, The ECJ found an approach what is known as “splitting the IPR into two” “a. The existence of an intellectual property right (protection of ownership as such) and b) the use of intellectual property right (limitations on the use of an IP right)4, although it has been countered that existence and use of a right is not possible since the existence logically covers the use also. But this is quite misleading since an IP has different specific factors from that of any other property wherein rights of the owner terminate once the property is disposed while in an IP, certain rights such as moral rights are inalienable and thus the rights last with the previous owner even after the property is disposed. It is therefore logical to maintain that in the case of an IP product physically is in possession of the new purchaser or user while IPRs remain with the rights holder’s possession. The issue is how to balance between the two rights. ECJ’s objective is to limit the invocation of the various property rights rather than the existence of the property. The rights of the two are be moral rights and economic rights. The moral rights last till end of protection term he is entitled to while economic rights extinguish once the goods are placed on the market. 5 Exhaustion of rights It is well known that property rights are not absolute and subject to limitations such as rights- of- way. In order to uphold the public policy, ECJ thought fit to balance the rights of an individual with that of community and developed what is called the doctrine of exhaustion identical to the American first sale doctrine introduced for the first time in Europe by the decisions German Reichsericht (Imperial court of Justice) way back in 1902. The decisions invoked demarcation of line between the intellectual property rights of the producer and proprietary rights of the buyer over the goods.6 The doctrine of exhaustion envisages that owner’s rights of use in the property are not of endless duration but they are extinguished or exhausted once the goods are placed on the market in the legal sense with the prior consent of the IP rights holder. Exhaustion applies to only individual goods and not to types of goods or to product lines7 Prof. Torremans posits that exhaustion is aimed at prevention of use of the trade marks rights on the same goods twice. It is because once the object of exclusive rights is fulfilled by letting the owner release the goods with his trade mark on a market, any more usage by the owner of the trade mark in order to restrict the circulation of goods on the market would tantamount to abuse of right.8 Prof Torremans ‘argument applies not only to Trade Marks but also to other forms of IPR. It will be detrimental to the Internal Market if the IPR holder is allowed to exercise his economic rights over the goods that are already on the market with his knowledge and agreement. ECJ has also held that exhaustion takes place on the products are placed on the EC market in Silhoutte International Schmied GmbH & Co. KG v Hartlauer Handelsgesellschaft mbH, [1998] 9 Exhaustion of IP owner’s right is no different from termination of a right if one follows the case law of ECJ. It must be noted that exhaustion is in relation to a specific market and hence it is not permissible to move his goods from one market to another without his consent. This is what raises the controversy as to the territorial application of the doctrine in connection with importation of the IP owner’s product from one country to another. ECJ has responded to this question by holding that the countries within the EC are considered as a one market i.e European Economic Area as established by case law vide Centra Farm BV and Adriaan De Peijper v Sterling Drug Inc [1974]10 Centrafarm case concerned an importation drugs from England and Germany to the Netherlands medicines manufactured by Sterling Drug Inc. Centrafarm had an advantage of saving in price by importing the medicines from Germany and England instead of buying from Sterling Drugs Inc. The condition stipulated by the Sterling Drugs Inc was that goods be marketed in England and Germany only. Sterling had been charging higher prices on Netherlands market and faced complaints when Centrafarm sought to sell its medicines at lesser prices than charged by Sterling Drugs to Netherlands market. Sterling therefore sued Centrafarm in Dutch courts for injunction against its imports for violation of its patent rights. ECJ faced with the situation to decide whether the exercise of patent right to prevent imports would be attracted by the exemption available under Article 30 or would such an injunction would militate against the principle of free movement of goods enshrined under Article 28. The decision spelt out “Inasmuch as it provides an exception to one of the fundamental principles of the common market, Article 30 in fact only admits derogations from the free movement of goods where such derogations are justified for the purpose of safeguarding rights which constitute the specific subject matter of this property.”11 since the patentee has a guaranteed protection of exclusive right over his invention so as to manufacture and put the product into the market for circulation for the first time. He could exercise his rights directly or through grant of licences to third parties. In this case, Sterling Drugs Inc having already put the products for the first time in the market for the first, cannot be allowed to claim continuation of rights exhausted to prevent disruption of free movement of goods. In Merck /Prime Crown and Beechem /Europharm [1996]12 , question arose whether an IP owner could claim adequate protection if public regulations controlled the freedom of the IP owner in determining quantitative restrictions and price of the product. The ECJ has ruled that such situations cannot deserve deviation of principle of free movement of goods. The exhaustion of rights applies to only markets such as EC and there is “no international or global exhaustion of rights.” Parallel Imports It refers to an unauthorized party exploiting the exhaustion of rights doctrine by importing goods which are cheaper than the price from the source controlled by the IP rights owner. 13 The parallel imports aim at dismantling monopolistic tendency of the owner. The advantage is that consumers are largely benefited by the savings in price. 14 Parallel imports are lawful. Centrafarm discussed above is a case in point legitimizing parallel imports. One exception to parallel imports relates to quality impairment through repackaging or relabeling. ECJ has held that pharmaceutical trade mark owner could restrain repackaging by the importer which could directly or indirectly change the original condition by removal of external packaging, putting additional label or instructions and without the identification of the repacker. The relevant cases were Merck, Sharp & Dohme GmbH v. Paranova Pharmazeutika Handels GmbH, and Boehringer Ingelheim KG v. Swingward Ltd.15 The privilege of parallel importation stems from the doctrine of exhaustion of rights. It must be noted that exhaustion of rights is recognized in WTO/Trips agreement. Each country under the WTO has the right of formulating its own policies and rules in respect of exhaustion of rights and parallel importation.16 However, EU member states are governed by EU Directive in this regard. Trade Mark Directive No 89/10/EEC 17 is a codification of existing case law concerning the exhaustion of rights. The Directive recognised harmonization with the national trade marks law of the member counties reflecting the position taken by the WTO in this regard. Conclusion It would be clear from the above analysis that the twin concepts of exhaustion of rights and parallel imports are mutually inclusive and co-existing. The IP rights owner is denied of any further protection once his product is placed on the EC market and under circulation for the first time. Any further distribution in any form is governed by these two twin concepts and subject to local laws of the respective member state in this regard. As there is no such international exhaustion of rights, the ECJ cannot allow EU consumers to buy low cost products which are available at higher prices at specialist stores. Branded and designer products such as Calvin Klein, Armani, and Dolce are available at lesser prices outside the EU area. The ECJ‘s patronage of IPRs over the free movement of goods and subsidiarity in certain cases is an aberration considering the ECJ’s consistent record of upholding the free movement of goods. Since the ECJ case law is ever fluid, only the time can decide the future position of ECJ in this regard. Bibliography Cases Case No 8/74 Dassonville [1974] ECR 837, para 5.Case No C-78/70, Deutsche Grammophon Gesellschaft mbH v Metro=SB-GroBmarkte GmbH & co, KG] 1971] ECR 487, para 12Case 15/74, Centra Farm BV and Adriaan De Peijper v Sterling Drug Inc [1974] ECR 1147. Joined Cases C-267 and 268/91, Bernard Keck and Daniel Mithouard, [1993] ECR I-6097 Merck /Prime Crown and Beechem /Europharm [1996] ECR I-6285 Silhoutte International Schmied GmbH & Co. KG v Hartlauer Handelsgesellschaft mbH, [1998] ECR I-4799, para 18. Case no.443/99 Merck, Sharp & Dohme GmbH v. Paranova Pharmazeutika Handels GmbH, ECJ Case No C 143/00 Boehringer Ingelheim KG v. Swingward Ltd, ECJ Journals Abbott Fredrick M. , Parallel Importation: Economic and Social Welfare dimensions. (International Institute for Sustainable Development (IISD), 2007).5 Ginter Carri, Free Movement of Goods and Parallel Imports in the Internal Market of the EU, European Journal Law Reform, VII (3/4) 505-507. Jain Sneha, Parallel Imports and Trademark Law. (Journal of Intellectual Property Rights. ILS Law College, 2009). P15 Jeremy Phillips, Trade Mark Law: A Practical Anatomy (Oxford Univesrity Press, London, 2003) 273-275 Torremans P. , International Exhaustion in the European Union in the light of Zino Davidoff: Contract v Trade Mark Law? Yusuf A.A. & Moncayo von Hase A, Intellectual Property Protection and International Trade- Exhaustion of Rights Revisited, 16 World Competition 115-131 at 117 (1992). Read More