Lawful Repair and Illegal Reconstruction - The intersection between Competition Law and IP Law

Abstract: Competition law and intellectual property law are two equally important areas of law for creating a dynamic market and developing the economy. At first sight, these two areas of law seem to be in conflict; competition law seeks to regulate the market and promote efficient market competition, while the rationale for intellectual property right (“IPR”) is to grant their proprietor the exclusive right to dealing in them and protection against competitors. Both the EU and the U.S. recognize the importance of providing an adequate system for protecting IPRs. In the absent of protection, inventors cannot profiting from their work. This would risk depriving them of the incentive to invest in research and development. That said, certain behaviour with respect to intellectual property may have anti-competitive effects, which competition laws can and do protect against. Applying competition law and intellectual property law in parallel requires a careful balance if they are to maintain their different functions. The doctrine of exhaustion is such an attempt, trying to limit the exclusive right granted to a proprietor. Under the doctrine, the first sale of a protected article gives the purchaser a right to use it, but it does not include the right replicate the patented invention. This can also be expressed by saying that the purchaser has a right to repair his article, but does not have the right to reconstruct it. Even though the doctrine of repair and reconstruction seems straightforward, it is not always clear where the line should be drawn. Various courts have used different methods in reaching their conclusion, which might both have an impact on competition and affect the business strategy of right holders and third parties. Allowing a broad interpretation of the repair doctrine will tend to increase consumer welfare while a narrower interpretation will allow the patentee to control the market, and to a large extent’ the competition. However, neither the U.S. nor the EU have any legislation on the point nor are there absolutely clear-cut case law decisions. As a result corporations have created alternative contract law-based solutions by imposing post sale restrictions.