Article 6 TRIPS addresses issues regarding the exhaustion of IP rights. In essence, the principle of exhaustion establishes that once a product which is protected by an IP right129 legitimately enters the market, that specific product is no longer protected by the exclusive rights of the right holder.130 The rationale behind the exhaustion of rights is that after an IP rights holder makes a first sale of a product, he/she is economically compensated for his/her innovative efforts in regard to that specific product.131 With the transfer of a good, the purchaser thus receives the right to freely use and dispose of that product without restriction.132 The exhaustion of IP rights, however, does not impact the right of an IP right holder to prevent others from making a protected product, meaning the manufacturing of generic copies remains subject to authorisation by the rights holder.133
Generally, three systems of exhaustion can be identified. The first is the principle of national exhaustion, the second is the principle of regional exhaustion, and the third is the principle of international exhaustion. The principle of national exhaustion provides that once a product is placed on the domestic market, the IP rights holder can no longer
128 UNCTAD-ICTSD (n 35) 24.
129 The question of when a product is legitimately placed on a market is not conclusively answered by international IP laws. In particular, there are controversies concerning whether goods
manufactured under a compulsory license can be considered as legitimately placed on the market.
It may be argued that by providing adequate compensation to an IP rights holder for products manufactured under a compulsory license, the legitimate economic interests of the rights holder in respect of those products are satisfied. A different view proposes that in order for a product to be legitimately placed on the market, the consent of the rights holder is required, meaning either that the right holder himself places the product on the market by selling it, or that a product is placed on the market in accordance with a (voluntary) licensee granted by the rights holder. See thereto:
Correa CM, Trade Related Aspects of Intellectual Property Rights: A Commentary on the TRIPS Agreement (OUP 2007) 84-85; Gervais DJ, The TRIPS Agreement: Drafting History and Analysis (4th edn, Sweet & Maxwell 2012) para 2.99.
130 Sellin J (n 35) 165-166.
131 UNCTAD-ICTSD (n 35) 93.
132 ibid.
133 ibid.
65 control sales of that specific product within the domestic market.134 Similarly, the principle of regional exhaustion provides that once a product is placed on a regional market, the IP right holder can no longer control sales of this specific product within the trade region, as for example adopted in the EU.135 In contrast, the principle of international exhaustion provides that once a product is legally placed on a market anywhere in the world, the IP rights holder can no longer control importation and sales of that specific product in any country that adopts this principle of exhaustion.136 The principle of international exhaustion opens up the possibility of parallel trade, i.e. the parallel importation of products legally placed on another market, without the authorisation of the IP rights holder.137
In regard to the domestic implementation of an exhaustion system, Article 6 TRIPS provides:
For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.138
By exempting issues of exhaustion from the WTO DSU, the TRIPS Agreement provides a flexibility for WTO member states to determine their own preferred way of dealing with issues of exhaustion, indicating that members are free to choose any principles, subject to the non-discrimination requirements of Articles 3 and 4 TRIPS.
This interpretation, however, is not undisputed. In the field of patents, Article 28(1) TRIPS provides that a patent holder can prevent third parties from importing a patented product or a product produced using a patented process, as elaborated below in 2.4.3.3.139 It may therefore be argued that a system of international exhaustion, which facilitates parallel importation, would violate the right to prevent the importation of patented products.140 It can be suggested, however, that the exhaustion of rights defines
134 Sellin J (n 35) 166.
135 Saggi K, ‘Regional exhaustion of intellectual property’ (2014) 10 International Journal of Economic Theory 125, 126.
The principle of regional exhaustion, however, may arguably amount to an infringement of the MFN treatment under Article 4 TRIPS, by treating WTO members within a region differently than members outside the region. See thereto: Gervais DJ, The TRIPS Agreement (n 129) para 2.102;
Saggi K (n 135) 126.
136 UNCTAD-ICTSD (n 35) 93.
137 Correa CM, A commentary on the TRIPS Agreement (n 129) 78.
138 TRIPS Agreement (n 32) Article 6.
139 ibid Article 28(1).
140 cf. UNCTAD-ICTSD (n 35) 94.
66 an end to IP protection claims, including those of Article 28, in that the legitimate interests of the IP rights holder are fulfilled with respect to the specific product. It therefore seems likely that the international exhaustion principle can be applied alongside Article 28 without contradiction. Additionally, Footnote 6 to Article 28 TRIPS explicitly provides that the conferred rights ‘in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6.’141 The controversy regarding legitimate principles of exhaustion was further addressed by the Doha Declaration, which settled any dispute by reaffirming in Paragraph 5(d):
The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.142
This reaffirmation is of particular relevance, as the right to facilitate parallel importation under the principle of international exhaustion has been considered by many developing countries as a key element for protecting public health, because pharmaceutical products can be imported from countries where they are available at a lower price.143 In the context of pharmaceutical products, however, parallel importation can have negative impacts as well. A common practice of pharmaceutical corporations is to offer certain medications at cheaper prices on markets in developing countries and LDCs.144 Permitting parallel trade, may then have the negative impact that pharmaceutical corporations refrain from such differential pricing strategies, to prevent lower priced medicines from entering wealthy markets.145 According to Correa, however, the risk of cheaper medicines from developing countries entering developed markets is often overstated, as parallel importation is only worthwhile when price differences are significant, and because developed countries can further take measures, consistent with WTO rules, to restrict such parallel imports.146
141 TRIPS Agreement (n 32) Footnote 6 to Article 28; see thereto: Correa CM, A commentary on the TRIPS Agreement (n 129) 82.
142 Doha Declaration (n 64) Paragraph 5(d).
143 Correa CM, A commentary on the TRIPS Agreement (n 129) 80.
144 cf. Sellin J (n 35) 191.
145 Correa CM, A commentary on the TRIPS Agreement (n 129) 88.
146 ibid 88-89.
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