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8 October 2010

Patent Exhaustion in India

By Dr. Kalyan and Ms. Sharada.

A patent grants the Patent holder exclusive rights to prevent others from making, using, selling, offering for sale in the territory of patent grant or importing an invention into the territory of patent grant. Once an unrestricted sale of the patented invention is made, the rights of the patent holder with respect to the product are exhausted and this is called as the Doctrine of Exhaustion or First Sale Doctrine. As per the Doctrine of exhaustion the first unrestricted sale of a patented item exhausts the patentee's control over that particular item. In other words, if patented product is sold without any restriction, the Patent holder loses his rights over it. For example, if A holds a patent over a tea maker and if this tea maker is sold by him without any restriction, he loses his right over the tea maker. In other words, the buyer of the tea maker is free to sell, re-sell or distribute the tea maker and his actions would not amount to infringement.

The rationale underlying the Doctrine of exhaustion is that a patent holder, who has already been rewarded through the first sale must not be allowed to profit repeatedly on the same good by controlling its use, resale or distribution. Under the doctrine, a patent holder’s exclusive right as manifested in a patent claim ends at the first sale of patented goods.

Patent exhaustion may be classified into International, National and Regional based on the extent of exhaustion. International exhaustion is a scenario where the patent holder loses his patent rights over the product, when the product is sold any where in the world. For example: If Neo has a patent in India and if the patented product is sold in USA with his authorization, his patent rights over the product in India will be exhausted. India and Japan are two examples that follow International exhaustion of patent rights.

Regional exhaustion is a scenario where the patent holder exhausts his rights over the product when the patented product is sold in a particular region. Cuntries in the European Union follow the principle of regional exhaustion. For example, if Neo sells his patented product in France, his patent rights over the product will be exhausted in Italy as well because both France and Italy are members of the European Union.

In case of National exhaustion, the patent holder exhausts his patent rights in a country only when the patented product is sold in that country. For example: If Neo has a patent in USA, and if the patented product is sold in USA, he exhausts his rights over the product in USA. Neo’s sale of the product in India, will not exhaust patent rights in USA. As mentioned in the example, United States of America follows national exhaustion.

Exhaustion provision in India

The principle of exhaustion manifests under many laws as parallel imports exception. As per the exception, importation of a patented product into a country after it has been purchased in another country from the patent holder or a person authorized by him does not amount to patent infringement. The Indian provision with respect to parallel imports reads as follows:

"107A. Certain acts not to be considered as infringement. ...

(b) importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product, shall not be considered as an infringement of patent rights."

As per the section, any person can import patented products into India after acquiring them from a person authorized to produce and sell or distribute the product under the law without infringement liability. The phrase "authorized under the law" has been the subject of discussion and debate among many groups. While some liberal groups argue that authorization under the law includes both explicit and implicit authorization under any law, conservative groups have been arguing that the authorization is limited to authorization by the patent holder under the patent law in India.

Though both arguments may have logical and philosophical grounding, I dont think neither interpretation would serve the ends of patent law in India. The liberal interpretation provides unfettered right to violate patent rights by simply setting up a manufacturing unit in a country where patent protection is not sought or does not exist and the conservative interpretation narrows the scope of parallel imports to such an extent that it becomes meaningless. A middle path that takes into consideration the rights of the patent holder and the rights of the public to carry out activities with respect to a patented product after its first sale would be most suited for the ends of patent law. Interpreting the meaning of "authorized under the law" to mean authorization under the patent law of the country from which the product is being imported would achieve the aforesaid balance. Under such an interpretation, a person will not be liable for patent infringement if he imports a patented product after purchasing the same from a person authorized under the patent law of another country. Such authorization may come from the patent holder or the patent office or government. If a patent or patent protection does not exist, there cannot be authorization and parallel import exhaustion will not apply.

For example, if Neo acquires a patent over a massage chair in India and China, Trinity can import the said chair into India from China without infringement liability after purchasing it under any of the following conditions:

a. Direct purchase from Neo;
b. Purchase from Neo's licensee or assignee.
c. Purchase from a compulsory licensee or government under certain circumstances; or
d. purchase from any person, who acquires in any of the aforesaid mechanisms.

If China does not grant the patent or does not have patent protection, Trinity cannot import into India because parallel import exception will not apply.

This interpretation ensures that rights of the patent holder are exhausted after an authorized sale in a country where patent protection exists. It gives to the public the right to use the specific product that is the subject of sale in any way without hurdles from the patent holder. The patent holder's interests are also safe-guarded because he gets the right to control authorization to some extent and prevent importation into India from a country without patent protection.
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