What Are the Implications for World Trade - Essay Example

Exhaustion of patent right: What are the Implications for World Trade? Affiliation I. The modern day international trade laws are created with the objective of enabling fair competition in the global market. The laws seek to create the ability of all countries to venture in global trade competition. These objectives have led to the creation of less traffic barriers, industry products safety standards, telecommunication regulations and intellectual property laws. These provisions have increased the ease at which corporations can enter and venture in the global market. Regardless of the changes, patent laws have not been developed enough to curb the inconsistency in the patent laws used by countries. Specifically, the applicable patent laws provide right to patent holders to divide the global market and forbid or permit trade from one nation to another. For this reason, patented goods are limited in the extent at which they could be traded based along national borders. The patent laws have been, however, made more trade friendly in specific economic regions. For instance, nations in the Eurozone may be governed by similar patent laws has increasing the ease of trade of patented goods. The exhaustion doctrine in regards to property law, seeks to limit the authority of the patent holder in influencing the trade of their product after an authorized sale of an article to another party. The doctrine allows for the patent holder to be fairly rewarded for the sale of the property rights but thereafter prevents the IP owner to limit the trade, free disposition or movement channels of the product. Exhaustion of patent right: What are the Implications for World Trade? II. Introduction The exhaustion of patent right doctrine refers to the limitation of the IP owner to prevent the distribution of a product after the sale of the property rights. The creation of the doctrine was created after an increase in the disturbance of distribution channels by patent owners that limited the free trade of their products. For instance, if a corporation has a patent on product A, they have the right to determine the trade along national border of the product even after the sale of their property rights. However, under the exhaustion doctrine the right of the IP owner are termed as exhausted after an authorized sale of their property rights. Consequently, the purchaser of the property rights has the right to sell or distribute the product in any trade channels. However, the IP owner is still permitted to restrict the reinvention or recreation of the article by the purchaser. In an argument by Anderman the relationship between the IP owner and the purchaser under the exhaustion doctrine is only existent to limit the reinvention of the sold article without the authorization of the IP owner1. The author further asserts that the doctrine considers the need to retain article originality2. The realization of the exhaustion doctrine has greatly improved the extent at which patent articles are traded across the globe. However, the article has not been effective in creation a fair of free trade areas for purchasers of property rights. For this reason, there is the need for the revision of the doctrine to improve the objectives of creating a free international trade area. Correa points out that the authority of IP owners to limit their authority on property rights are still existent due to the differences in patent rights embraced by different nations3. Specifically, IP owners are allowed to use existing laws in their nation to challenge the authority of purchasers of their article. For this reason, the aim to attain a free trade area across the globe cannot be attained with these existing restrictions. However, significant positive implications have been experienced in the world trade due to the creation of the exhaustion doctrine of patent rights. This paper will analyse the exhaustion of patent law doctrine and its provisions on the international trade of patented articles. The analysis will include cases mentioned under patent laws as required by national borders as well as the exhaustion doctrine of property laws. The implications on the world trade of the exhaustion doctrine of patent rights will be provided. III. Research Questions What is the definition of the exhaustion of patent right in regards to creating of a free and fair world trade? At what extent does the exhaustion doctrine of patent rights over rule the patent laws within a nation’s border? What are the specific the impacts of the exhaustion doctrine in the mentioning of cases related to patent rights? What are the implications of the exhaustion of patent rights on the world trade? IV. Literature Review Objectives of the Doctrine The problem of article limitation by IP owners is major problem in the global market. In an argument by Ueta IP owners have been imposing non-required limitations on purchasers after an authorized sale4. The author further asserts that IP owners have made it difficult for purchasers to extend their brands in other nations5. In an example, an IP owner may limit the extent at which their article may be distributed. In regards to patent rights, the IP owner is provided with the authority to control the sale of the article. This has been a major problem in the international trade. This is based on that regardless of the fact that a sale of an article is authorized, the purchaser is not provided with complete rights of distribution of the article. Correa is of the assumption that the patent rights in nations do not fully address the rights of the purchaser as they provide IP owners with complete authority of article rights6. Consequently, IP owner limit the free trade of sold articles. Anderman defines the exhaustion doctrine as a strategy by which IP owners are limited in their aim to control the trade of sold articles7. The author asserts that over the years IP owners have created regulations that do not allow the proper distribution of purchased articles8. Prior to the creation of the exhaustion doctrine, existing laws on patent rights only functioned as way of protecting the originality of exiting articles. With increasing globalization, the functions of the laws changed due to trade restrictions after authorized sale of articles. Numerous articles purchased across border line are limited in the way the purchaser may extend their distribution channels. For this reason, cross border trade across the globe have been limited. The argument is shared by Okediji & Bagley who assert that with increasing globalization cross border trade has become a necessity, but this is only possible by the creation of fair regulated trade area9. In addition, different nations have varying trade laws making cross border trade less easy and unfair for cross border traders. However, the creation of the exhaustion doctrine acts as a partnership between nations on how to create aligning property rights. Specifically, the doctrine provides that the patent laws in each must be respected by the IP owner. The exhaustion doctrine also seeks to protect third parties. A third party may arise when a person or an organization acquires an article from a purchaser of the patent. In this case, the third party is not in contract with the IP owner. Additionally, the third party is only answerable to the party that sold them the article. If the third party sells or recreates the original article, the IP owner may charge for infringement of the patent. Before the creation of the exhaustion doctrine, the third party would be found liable for the infringement of patent laws. However, the exhaustion doctrine completely relieves this authority from the IP owner. Moreover, the third party was not provided with trade limitations by the IP owner. Correa is of the assumption that a third party in a patent article is not governed by the original limitation of the article if the IP owner did not limit the sale of the article10. Consequently, the third party is only liable for infringements caused between them and the original purchaser under the patent laws of their country. In an argument by Ueta a third party is further protected if they reinvent a product in a country different from the original purchaser or the IP owner11. The exhaustion doctrine, however, protect the IP owner from parallel importation of patented products. Parallel importation refers to the importation of similar products as exported from the same country. In relation to patent rights, a purchaser of an article may export products to the country they purchased the article from. For IP owners, this is creation of competition by a product they had patented for this specific market. Under the United States patent laws, parallel importation of a patented product is limited to the permission of the IP owner. The exhaustion doctrine recognizes the assumption that a purchaser may extent the article to the original area the patent was give. For this reason, the doctrine protects the IP owner from competition of a similar product. The rule on parallel importation is also admissible considering that the situation is governed by the patent laws of one country. A country has the authority to limit importation to their country. Under the doctrine, the world trade area can only be fair if the trade regulations of each nation are respected and admissible in their jurisdiction12. Limitations of the Doctrine The exhaustion doctrine also limits the rights of the purchaser based on incomplete sale of articles. The doctrine is only relevant and applicable in situations where sale of article is complete as stated in the purchasing contract. On most occasions, the IP owner may not sell the full article. For this reason, the IP owner still owns the parts of the article not sold. In an argument by Okediji & Bagley the exhaustion doctrine only covers the provisions and agreements of the purchasing contract13. Regardless of that the purchaser may claim the full rights to the article, the liability of the IP owner is not stated in the doctrine under this situation. The incomplete sale of articles mainly occurs in the purchasing of Intel or software. Intangible products need to be completely defined before the purchase if the purchaser is to claim full ownership. Ueta points out that if the parts of the article are not sold without the knowledge of the purchaser, only parts on sale are covered by the exhaustion doctrine14. Boonfueng, however, points out that the sale of incomplete article should be permitted considering that the IP owner may require retaining specific parts of an article15. By not allowing sale of incomplete products, the doctrine limits free trade considering that cross boarder by IP owner would be limited. The exhaustion doctrine is, however, limited after a resale of an article. In an argument by Cross & Miller a patent resale nullifies the authority of the doctrine to limit the reinvention and recreation of a patented article16. The authors further assert that the benefit to IP holders from the doctrine is to limit the recreate a product with similar qualities should be protected regardless of the need to increase the freedom of purchasers17. The argument is based on the fact that after a resale the article is not covered by the rights of the IP owner, but the agreement between the purchaser and the third party. The problem could be addressed by creating regulations that limit the authority of the purchaser in regards to limiting the contents of a resale agreement. Cross & Miller are of the assumption that the doctrine should be developed to include the requirement that purchasers should include limitations to reinvention or recreation by a third party18. This recommendation would ensure that the original article is protected as desired by the IP owner. Case Study Microsoft Corp. v. AT&T Corp AT&T was provided with a patent over a program that could digitally compress and encode speech recorded on a computer. On the other hand, Microsoft had under its windows operating system an application, NetMeeting, which could be able to encrypt recorded speech in the same manner as AT&T’s products19. This created a great probability of patent infringement. Microsoft exported the master version software to its manufacturers. The manufacturers then made copies from the master copy and installed them in computers that were shipped abroad. AT&T filed a complaint against Microsoft on windows installation and foreign replication. Under the United States’ patent laws, infringement does not occur when patented product is sold abroad but it occurs when component of an original invention are exported abroad with the objective of combination. From this provision, the District Court ruled in favour of AT&T and Microsoft was held liable for the damages filed by AT&T. However, this decision was reversed by the Supreme Court which ruled in favour of Microsoft citing that the combination of the original component of the product was made in countries that are not governed by the United States’ patent law20. For this reason, the decision whether patent laws were infringed should be determined under the laws on the countries in where the replication and installation was done. The court’s decision was influenced by the existing exhaustion laws that limited the rights of the IP owner, AT&T, to minimize the extent at which they could limit the distribution of the software. In addition, the court recognized that foreign nations were involved in the case with varying patent laws from the United States’ laws. For this reason, these laws have to be respected in the creation of fair trade regulations. From the outcome of the case, it is accurate that the exhaustion doctrine seeks to protect the rights of the purchaser or third party. In addition, the IP are limited in their way of influencing cross trade regulations based on the patent laws only in one country. Implications on the World Trade Firstly, the increase in cross border trade has been significant. Previously, patent owners could determine the sale of their article regardless of the ownership of the article. This limited the venturing of cross border trades due to these restrictions. In addition, laws in different nations were not aligned to protect the rights of the purchaser after acquiring patented products. For this reason, they were exposed to numerous court cases which found them liable of infringing patent laws of more than one country. However, the creation of exhaustion laws allows the purchaser liable under the patent laws of their country. Most importantly, the rights of the IP owner are only considered in the situation of recreation and reinvention of their original product. The selection of distribution channels and location are fully under the rights of the purchaser21. The other implication is that court cases on international patent infringement are easily addressed and mentioned. Prior to the doctrine, international patent cases were mentioned in regards to the provision patent laws of the nation where the situation took place. This provided an advantage to the person to who the host nation is affiliated to. For instance, if the purchaser is from country B and the patent owner from country A, a patent infringement case would be heard under the laws of country A. This is an unfair approach considering that the purchaser might have acted under the provision of patent laws used in country B. However, the exhaustion doctrine addresses the problem by the creation of a common law of international patent, and the provision that the rights of the IP owner shift to the purchaser after an authorized sale of the article. This has made it easier for the legal system to determine the liable party in cases of patent infringement. The exhaustion doctrine has also created a free trade area in the global market. Okediji & Bagley define a free trade area as a property of a market that allows trade without restrictions unbiased from one party to another22. Consequently, by allowing the purchaser to exercise their right to a patented product, a free trade area is created since the IP owner is not permitted to disturb the distribution channels used in the trade of the product. V. Conclusion From the arguments presented, it is accurate to assert the definition of the exhaustion doctrine of patent rights aims to address both the needs of the IP owner and the purchaser. The doctrine seeks to protect the purchaser from the patent authority of the IP owner based on trade and distribution disturbance. The purchaser is also provided with the ability to utilise his investment they acquired after the purchase of an article. The doctrine also seeks to enable the purchase of a patent to increase the extent at which they could trade across global borders. To the IP owner, the doctrine only offers protection against recreation or reinvention of their article. Additionally, the purchaser owner is not protected by the doctrine if they legally agree to terms of distribution and trade of an article prior to the sale. For this reason, the IP owner is authorized to create limitation to the article trade before transaction, and the doctrine would protect the desires of the IP owner. The implications of the doctrine on the global trade have been significant. With globalization, the transfer of goods from one nation to another has been made easier and less limiting for purchaser of patents. Consequently, the global market has benefited due to the creation of a free trade area. On the other hand, IP owners have been enabled to retain the originality of their articles even after an authorized sale. Conclusively, the realization of the exhaustion doctrine of patent rights have not been completely effective in creating a free –world trade area, but the implications on the global trade have been massive in regards to eliminating limitations on the trade of purchased patented products. References Anderman S, The Interface Between Intellectual Property Rights and Competition Policy. (Cambridge University Press 2007). Boonfueng K, A Non-harmonized Perspective on Parallel Imports: The Protection of Intellectual Property Rights and the Free Movement of Goods in International Trade. (Pro Quest 2003). Correa C, Intellectual Property Rights, the WTO and Developing Countries: The TRIPS Agreement and Policy Options. (Zed Books 2010). Cross F. & Miller R, The Legal Environment of Business: Text and Cases -- Ethical, Regulatory, Global, and E-Commerce Issues. (Cengage Learning 2008). Microsoft Corp. v, AT&T Corp 550 U.S. 437 [2007]. Okediji, R. & Bagley M, Patent Law in Global Perspective. (Oxford University Press 2014). Ueta T, Patent Exhaustion: A Comparison of the Patent Exhaustion Doctrine in Canada, China, Europe, Japan, Korea, and the United States. (University of Washington 2007). Read More