Limits to the exercise of IPR. The exhaustion principle

Former EU Commissioner of competition Mario Monti speaking (2004): innovation can marry competition? For some probably not. Some have argued about conflicting aims of IPR law and competition law. Mario Monti firmly beliefs that we need both for a dynamic society but we have to achieve a good balance.

Joaquin Almunia, responsible for competition policy: A well functioning IPR system can in fact promote competition by encouraging firms to invest in innovation

IP rights can be used to compartmentalize the Eu (internal) market (contrary to free competition), there are circumstances in which the exercise of IP rights may be restricted in EU law

Divergent objectives to competition Law:

Protection of industrial property law and the principle of unified community market
reconciling the objectives
- existence vs exercise
- exhaustion of rights

THE EXHAUSTION PRINCIPLE : The industrial right is exhausted when the owner puts the goods protected by the right on the market

It applies to: patents, utility models, Trade marks, Registered design, copyrighted products, copyrighted services

GEOGRAPHIC SCOPE OF EXHAUSTION : products put on the market in CE e EEA. Products marketed by the right-holder or with its consent in CE/EEA countries

The EEA agreement contains the same principles of free movement than the CE Treaty

Developing of the exhaustion principle: The Deutsche gramophone case

French DG’s subsidiary Polydor marketed in France sound recording with DG consent
DG supplied records produced in Germany to Polydor in France
Polydor supplied them to an undertaking in a third country which resold them to a firm in Germany which resold to Metro
Metro marketed them in Germany undercutting DG’s standard price
DG’s sued Metro for breach of copyright

There was no agreement between parties, thus no application 81

The court: The exercise to prevent the imports would go beyond the specific subject matter of the right

DG has exercised its German right by putting records on the market, and any further exercise of the rights was not permitted by community law: the rights where exhausted

If products are imported from third countries, free movement only applies when products in free circulation within CE (no world wide application)

Exception if the right holder consent to third country imports within EEA

The burden of proofs corresponds to the third party who relies on it

The principle may be extended to other countries by international agreements

Modalities of exhaustion principle