Table of Contents

Research Handbook on Intellectual Property Exhaustion and Parallel Imports

Research Handbook on Intellectual Property Exhaustion and Parallel Imports

Research Handbooks in Intellectual Property series

Edited by Irene Calboli and Edward Lee

From the Americas to the European Union, Asia-Pacific and Africa, countries around the world are facing increased pressure to clarify the application of intellectual property exhaustion. This wide-ranging Research Handbook explores the questions that pose themselves as a result. Should exhaustion apply at the national, regional, or international level? Should parallel imports be considered lawful imports? Should copyright, patent, and trademark laws follow the same regime? Should countries attempt to harmonize their approaches? To what extent should living matters and self-replicating technologies be subject to the principle of exhaustion? To what extent have the rise of digital goods and the “Internet of things” redefined the concept of exhaustion in cyberspace? The Handbook offers insights to the challenges surrounding these questions and highlights how one answer does not fit all.

Chapter 2: The economic rationale for exhaustion: distribution and post-sale restraints

Ariel Katz

Subjects: law - academic, intellectual property law, international economic law, trade law


The first sale doctrine, also known as the exhaustion rule of intellectual property (IP) rights, limits an IP owner’s power to control the downstream distribution and use of its intellectual goods. Despite its common law origins, “an impeccable historic pedigree,”1 and over a hundred years of adjudication, courts have never been able to draw the exact contours of the first sale doctrine or fully articulate its rationale. Proponents of narrow (or no) exhaustion rules began harnessing insights from modern antitrust law and economics to suggest that, just as antitrust law has recognized the efficiency of some post-sale restraints and relaxed its hostility toward them, so should IP law permit their imposition and provide remedies for their breach. This chapter challenges this position. It shows that post-sale restraints can be beneficial, mostly in situations of imperfect vertical integration between coproducing or collaborating firms, when used to solve organizational problems that occur during the production and distribution phases or shortly thereafter. In such situations, the law should allow IP owners and those with whom they collaborate to contract around the first sale doctrine. Beyond such limited circumstances, however, the first sale doctrine promotes important social and economic goals: it promotes efficient use of goods embodying IP, guarantees their preservation, and facilitates user innovation, while minimizing transaction costs that otherwise might impede those goals. Therefore, rather than undermining it, the economics of post-sale restraints confirm the validity of the first sale doctrine and support its continued vitality.

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