Research Handbooks in Intellectual Property series
Edited by Irene Calboli and Edward Lee
Chapter 12: Exhaustion of intellectual property rights and the principle of territoriality in the United States
The geographical scope of exhaustion is one of the most controversial issues in all of intellectual property law. Exhaustion occurs when the owner of an intellectual property right transfers ownership of a particular embodiment of that right, such as by selling a book or a DVD embodying a copyrighted literary work or movie, a machine with a patented design, or a consumer product sold under a trademark. Geographical scope refers to the geographical limits, if any, within which the sale must take place, or the article must be manufactured, in order to trigger exhaustion. The two principal variants are national exhaustion and international exhaustion.1 With the former, intellectual property rights to a particular article are exhausted only if it is sold or manufactured within the country whose intellectual property laws the rights owner has invoked. In the case of the latter, the location of sale or manufacture is irrelevant, and any authorized transfer of ownership results in exhaustion. Which exhaustion regime applies can have enormous consequences for rights owners. Under a national exhaustion regime, a rights owner can control or prohibit a secondary market in those products that are manufactured or first sold abroad, and can prevent parallel importation, thereby making segmentation of national markets possible. International exhaustion inhibits or curtails the possibility of achieving these goals. The choice of regime has equally significant implications for consumers of these goods, as it may determine whether a consumer can find a used or refurbished article on the secondary market, or a cheaper version that was manufactured in another country and aimed at a lower-income market.
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