Edited by Irene Calboli and Edward Lee
Chapter 14: Regulatory responses to international patent exhaustion
Modern international trade law seeks to increase global welfare by lowering barriers to trade and encouraging competition. Multilateral treaties such as the 1947 General Agreement on Tariffs and Trade (GATT)1 have significantly lowered tariffs and led to increased trade. Additionally, the theories underlying modern trade law have been applied to non-tariff barriers to trade, so that the World Trade Organization (WTO) includes agreements addressing subjects as diverse as telecommunication, industrial and product safety standards, and intellectual property. While the overriding purpose of the WTO is to encourage free trade, this principle has not been fully applied to patent law, placing the two fields in tension. Currently, patent law grants rights that are fortified by national borders while trade law aims to diminish the relevance of borders. In one very important respect patent law remains at odds with modern trade theory in most countries. Under current United States (U.S.) law, for example, a U.S. patent holder may block the importation, use, or sale of patented goods purchased abroad, even if purchased from a seller licensed under a foreign patent. In contrast, an unconditional purchase of a patented good within the U.S. exhausts the patent holder’s rights with respect to that good. The doctrine of exhaustion (also called the first sale doctrine) advances consumer interests by limiting restraints on alienation and fosters efficient use of goods by lowering transaction costs in resale markets while limiting the patent holder to a single reward for each sale. However, because most countries do not adhere to a doctrine of international exhaustion for patents, there is no free trade in patented goods. Moreover, the current rule undermines the purposes of exhaustion in the domestic context, because the information costs associated with determining the origin and history of goods in the resale market will apply to goods first sold domestically when they are identical to imported goods first sold abroad. The current rule also adds transaction costs to the manufacture of goods, such as consumer electronic goods, that contain multiple, patented components and are sourced from multiple countries.
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