Post-sale Restrictions & Exhaustion of Intellectual Property Rights. An Analysis of Post-Sale Restrictions in the EU: Their Effects on Exhaustion and Enforceability between the Contracting Parties

Abstract: Exhaustion of rights is of critical importance for the free transfer of goods and as such, the functioning of any market economy. Exhaustion of rights is the consumption of rights in intellectual property subject matter as a consequence of the legitimate transfer of title in the tangible article that incorporates or bears the intellectual property in question. The principles of the exhaustion doctrine are still unsettled in many jurisdictions, including the EU. In the U.S., the Federal Circuit decided a case in 1992 where it argued an alternative rationale to the doctrine and upheld post–sale restrictions as preserving patent rights. The case has not been explicitly overruled and there are, as a result, two competing rationales behind the U.S. exhaustion doctrine. Part of the thesis is dedicated to the EU view on this alternative rationale.

The purpose of this thesis has been to examine the enforceability and effect of post–sale restrictions in relation to exhaustion of intellectual property rights and competition law in the EU, applying a law and economics perspective. The main focus has been to find whether a holder of an intellectual property right, by using post–sale restrictions, may control when exhaustion occurs, and also if post–sale restrictions preserve control over the sold goods by means of contract law. The analysis has included the application of traditional deductive legal method to construe current law in the EU and the U.S.. A comparison between the two territories focuses on the underlying rationale of the U.S. conditional sale doctrine that allows the intellectual property holder to preserve rights by post–sale restrictions and how this doctrine would be met if it surfaced in the EU. Another comparative issue discussed is the two jurisdictions’ different views on the capability of a licensee to make an exhausting sale. In addition, a law and economics perspective has been added to the analysis of EU law, with a critical view of the design of the exhaustion doctrine and what implications would arise in relation to the use of post–sale restrictions.

The analysis construes the examination of the exhaustion doctrine elements and to what extend the proprietor may assert control over exhaustion or, following exhaustion, the good. The conclusion is that the proprietor has limited possibilities to control the occurrence of exhaustion but that he is more likely to succeed asserting control under contract law, although at risk of unenforceability defenses. Furthermore, the comparison finds that the CJEU is not likely to accept the alternative exhaustion rationale offered in the U.S. by the Federal Circuit, and that the EU attitude towards licensees making exhausting sales is better balanced than the U.S.’ view because this attitude does not give incentive to structure transactions with intermediaries (to contract around exhaustion), which is also more economically efficient. Economic efficiency is found to benefit from intellectual property rights under the dynamic efficiency theory but only if they are properly limited so that their negative effects on the market, as market failures, are minimized. Exhaustion is an important instrument in promoting economic efficiency by limiting these negative consequences. This effect of exhaustion could be diminished if post–sale restrictions were allowed to dispose of it.