Trademark law, like almost any other right, has limits. One of these limits, when it comes to trademark law, is the exhaustion of trademark rights.
What is the exhaustion of trademark rights?
By way of introduction, we define the exhaustion of trademark rights as a limitation to the exclusive Industrial Property rights that a trademark grants to its owner and which consists of the fact that, once a product or service has been marketed (for the first time) – which is distinguished with a certain trademark/distinctive sign – certain prerogatives are extinguished for this product. In other words, in the interests of the free movement of goods and freedom of trade, the control that can be exercised after the first sale by the proprietor is, to a certain extent, exhausted.
The main effect of this figure, therefore, is the loss of control by the holder over subsequent distributions of the said good, since, once it is on the market, it is understood that the possibility of preventing its marketing and distribution (by the holder, of course) has been exhausted, since it is already part of the commercial activity. In other words, a third party who has acquired a certain product, which is distinguished by a trademark, can subsequently distribute it on the market to another third party.
How does trademark exhaustion work in the Andean Community?
Decision 486 of the Andean Community, a supranational norm for the countries of the region that regulates the aspects of Industrial Property in that territory, tells us in article 157 that:
“third parties may, without the consent of the owner of the registered trademark, use in the market their own name, address or pseudonym, a geographical name or any other certain indication relating to the kind, quality, quantity, destination, value, place of origin or time of production of their products or of the provision of their services or other characteristics thereof; provided that this is done in good faith, does not constitute use as a trademark, and such use is limited to identification or information purposes and is not likely to mislead the public as to the origin of the goods or services”.
This provision aims to guarantee the distribution of trademarks in such a way as not to impede the development of trade in an optimal and efficient manner, under the principle of good faith.
Furthermore, the aforementioned article goes on to state that the registration of a trademark does not confer on its owner the right to prohibit a third party from using the trademark to advertise (including in comparative advertising), offer for sale or indicate the existence or availability of such goods or services. The same applies to indicating the compatibility or suitability of spare parts or accessories for use with the goods bearing the registered trademark, provided that such use is in good faith, is limited to the purpose of informing the public and is not likely to mislead the public as to the commercial origin of the respective goods or services.
In this way, the regulation broadens the spectrum of protection inevitably entailed by commercial activity, essentially consisting of advertising activities and aimed at the dissemination of the product in order to achieve the most effective subsequent marketing of the product, as well as to safeguard due competition.
In turn, Article 158 of the aforementioned Decision already focuses its protection directly on the exhaustion of this right when it states:
“Registration of a trademark shall not confer the right to prevent a third party from engaging in acts of commerce in respect of a product protected by such registration after that product has been put on the market in any country by the proprietor of the registration or by another person with the consent of the proprietor or with economic links to him, in particular where the products and the containers or packaging in direct contact therewith have not undergone any modification, alteration or deterioration“.
For the purposes of the preceding paragraph, two persons shall be deemed to be economically connected where one may directly or indirectly exercise decisive influence over the other with regard to the exploitation of the rights in the trade mark, or where a third party may exercise such influence over both persons”.
The rule is clear: the exhaustion of the trademark right starts at the moment the product is put on the market. From that moment onwards, any third party may carry out acts in trade without the need to seek the consent of the proprietor or of a person authorized or economically linked to him.
Example: TOYOSA, S.A. vs EXPOMOTOR. Case 452-IP-2017:
The Court of Justice of the Andean Community had the opportunity to rule on this right in the case TOYOSA, S.A. vs EXPOMOTOR, in which it interpreted the aforementioned article 158 stating that parallel importation is that which is legally carried out by an importer other than the authorized representative or distributor; in other words, that which is carried out with a legitimate branded product but outside the official commercial chain. However, a series of requirements are logically necessary, which the Court itself stated in that decision, and these are:
(1) That the importation is carried out by an importer other than the authorised representative or distributor;
(2) the imported product must be original;
(3) that the imported product is outside the official commercial chain;
(4) the imported product was lawfully acquired on the market of another country; and
(5) the product was sold by the right holder himself, or by a person with his consent, or by a person economically linked to the right holder.
This last point is fundamental because when we speak of trademark exhaustion, we are effectively referring to the fact that the owner’s consent is not necessary for the distribution of the product or service, however, once the said good has already been introduced into the commercial activity; in other words, once the first sale has taken place, for which the owner’s consent is of course necessary.
This is intended to promote the free movement of goods and services and to respect competition law. The trade mark owner is thus prevented from controlling the future prices of the product and the way it is marketed.
This is why the Court states that “parallel imports promote greater “intra-brand” competition in the market, which benefits consumers, as it generates a greater supply to satisfy existing demand. Although it is a competition between products that have the same brand, if the brand has a dominant position in the market, such competition is relevant for consumers. It is precisely parallel imports that prevent the consolidation of monopolies“.
Access to the full Prejudicial Interpretation of the case: here.
The regulations relating to the exhaustion of trademark rights in the CAN are common to all the countries that make up the CAN, and are not excessively strict in limiting this legal figure to the region alone, but are somewhat flexible in establishing provisions that make up a framework of a more international nature.
Therefore, these provisions, as we have mentioned, seek to be one of the main pillars in the protection of free trade and due competition, preventing restrictions and controls that restrict the activity of trade itself.
The vast majority of provisions on the subject are the result of the needs of multinational integration schemes, which see in the dynamics of globalization the task of adopting common international regulations that facilitate and protect the commercial activity of States and their regional neighbours. It is for this reason that the exhaustion of trademark rights in the CAN is not only a modern manifestation of the evolution of trade and market dynamics, but also constitutes, in turn, a clear manifestation of international agreement, where the borders of internal markets are crossed in order to adapt the conditions not only of the States but also of regional schemes to the new legal and commercial conditions of international relations.