Overview of the principle of exhaustion of rights

The principle of exhaustion of rights means that after the intellectual property owner or licensee legally puts the intellectual property products on the market, part or all of the exclusive rights of the intellectual property rights to these products are exhausted. This principle aims to reduce transaction costs, achieve social welfare, and promote the creation and dissemination of works, the maintenance of goodwill, and the continuous innovation of science and technology.

Legal basis for exhaustion of rights

Patent rights

Article 75 of the Patent Law of the People's Republic of China stipulates: "After a patented product or a product directly obtained by a patented method is sold by the patentee or an entity or individual authorized by the patentee, the use, promise to sell, sale, or import of the product shall not be deemed as an infringement of the patent right."

This provision clarifies the legal status of the exhaustion of patent rights.

Copyright

Although the Copyright Law of the People's Republic of China does not explicitly stipulate the exhaustion of rights, according to legal theory, the "one-time exhaustion principle of distribution rights" applies, that is, after the original or copy of the work is sold or transferred according to law, the owner of the original or copy of the work can sell or give away the original or copy again without the copyright owner's permission for the distribution right.

Trademark rights

The Trademark Law of the People's Republic of China does not explicitly stipulate the exhaustion of trademark rights, but it has become a consensus in judicial practice. For goods with trademark rights, after the trademark right holder or licensee sells or transfers them in a legal manner, the trademark right holder's trademark rights attached to the specific goods are exhausted.

Protection of new plant varieties

Regulations Article 6 of the Regulations of the People's Republic of China on the Protection of New Plant Varieties states that the unit or individual that completes the breeding has the exclusive right to its authorized variety. This means that no unit or individual may produce or sell the breeding materials of the authorized variety for commercial purposes without the permission of the variety right owner (variety right holder), nor may it reuse the breeding materials of the authorized variety for the production of another variety for commercial purposes.

Exhaustion of rights and legitimate source defense

Exhaustion of rights and legitimate source defense are often confused in judicial practice. The exhaustion of rights defense is based on the purchase from the right holder or his licensor; while the legitimate source defense is aimed at the sale of infringing products, but objectively, because the infringing products are legally obtained and can explain the provider, subjectively, they do not know that the products sold are infringing intellectual property rights.

Rights in parallel imports

Exhaustion of rights is particularly prominent in terms of trademark rights. my country's legislation does not stipulate the issue of parallel import of trademark rights, and the international community has only reached a compromise solution on the issue of parallel imports, that is, Article 6 of the TRIPS Agreement stipulates that it is left to the member states to solve it. The people's courts of my country tend to make a determination on whether the infringement is based on the specific facts of the "parallel imported" goods. The focus of consideration is that the parallel imported goods themselves are goods legally sold abroad by the trademark right holder or its authorized entity, and there is no substantial difference between the parallel imported goods and the goods sold in the domestic market. Generally, no infringement is determined.

Situations where exhaustion of rights cannot be applied Rights

The exhaustion principle is not applicable without restriction. For example, whether the act of repackaging genuine products and affixing the trademark of the right holder before selling them constitutes infringement of trademark rights depends on whether the repackaging has damaged the quality assurance function of the trademark.

Objects of the implementation of the principle of exhaustion of rights

The object of the implementation of the principle of exhaustion of rights is intellectual property products, that is, products that can substantially contain all the characteristics of a certain intellectual property.

Two situations of exhaustion of rights

1. First sale: After the intellectual property right holder sells the product, he shall not charge licensing fees to downstream distributors and users.

2. Compensation for infringement: If the right holder receives compensation for a batch of infringing products, he shall not demand compensation from any actor again based on intellectual property infringement for this batch of products.

Case Analysis of the Principle of Exhaustion of Rights

Case 1: Exhaustion of Trademark Rights and Parallel Import

In the case of plaintiff A Paper Co., Ltd. and plaintiff (Nantong) Living Products Co., Ltd. suing defendant Hangzhou Trading Co., Ltd. for trademark infringement, the court held that the alleged infringing goods were produced by plaintiff A, and the defendant imported them in parallel and sold them domestically without making any changes to the goods. The trademark marked on the goods was "GOO.N", and the correspondence between the trademark and the source of the goods was real, which would not cause confusion and misunderstanding among consumers. Therefore, the source identification function of the trademark involved was not affected. This case recognized the "international exhaustion" of the trademark "rights exhaustion" rule.

In the above case, if the alleged infringing goods are indeed from the trademark owner or its authorized entity, the trademark owner has realized the commercial value of the trademark from the "first" sale, and can no longer prevent others from "secondary" sales or reasonable commercial marketing, otherwise it will hinder the process of establishing a normal free competition order in the market. Therefore, "parallel import" should be accepted by the judiciary and not be considered to constitute trademark infringement.

Case 2: Unauthorized replacement of trademark packaging can easily lead to reduced recognition

In the case of the plaintiff Beijing Technology Co., Ltd. suing the defendant Beijing Electronics Co., Ltd. and its affiliated branches for trademark infringement, the court held that after the defendant company and its branches imported Samsung optical storage devices from the United States, they removed the panel of the optical drive after arrival, sprayed the panel in silver or painted the "SAMSUNG" logo on it, and then reinstalled the optical drive. In particular, the optical storage devices were shipped for sale after being packed in a packaging box using the plaintiff's exclusive right to use trademark. This act of repackaging and using the registered trademark No. 3082993, which the defendant has the exclusive right to use, reduces the recognition function of the registered trademark for sales agents, and consumers are prone to misunderstanding and confusion about the source and specific sellers of Samsung optical storage devices. This act of changing packaging and unauthorized use of other people's trademarks disrupts the market economic order, damages the plaintiff's trademark rights, and constitutes trademark infringement.

Conclusion

The principle of exhaustion of rights plays a vital role in the intellectual property legal system. Through the above case analysis, we can see that the principle of exhaustion of rights not only helps to resolve intellectual property disputes, but also promotes the free flow of goods and the healthy development of the market. However, the application of the principle of exhaustion of rights is not unlimited, and it requires detailed consideration based on the specific circumstances of the case in specific judicial practice.