There is no simple ‘yes’ or ‘no’ answer to the question of whether a manufacturer of good who sells his goods abroad can still assert his patent and trademark rights if those goods are re-sold into the US without his authorization. The issue is whether the doctrine of exhaustion or ‘first sale’ extinguishes his rights to sue for infringement.

As noted in one learned treatise, United States patent, copyright and trademark law have all traditionally been tempered by the ‘doctrine of exhaustion,’ also called the ‘doctrine of first sale’. This ‘first sale doctrine,’ and the rationale behind it, is fully discussed in: Margreth Barrett, The United States’ Doctrine of Exhaustion: Parallel Imports of Patented Goods, 27 N. Ky. L. Rev. 911 (2000), excerpted below.

This doctrine provides that once an intellectual property owner releases or authorizes others to release goods bearing or embodying the intellectual property into the stream of commerce, it exhausts its right to control the goods; purchasers and their successors in title are free to use and resell the goods without seeking the intellectual property owner’s authorization or paying a further royalty. The doctrine of exhaustion reflects at least two important policies underlying the United States’ intellectual property laws.

First, the doctrine honors the law’s general abhorrence of restraints on alienation, and the interference such restraints impose on a free market. Second, it reflects the traditional understanding in United States law that intellectual property rights are limited rights afforded to individuals not by virtue of any natural right; but for the specific purpose of accomplishing a pragmatic goal: promotion of the general public welfare.

Perhaps the most perplexing problem that arises in connection with the doctrine of exhaustion is its application to parallel imports. Parallel imports are goods that are sold, or authorized for sale, abroad by the United States intellectual property owner, but are subsequently imported into the United States without the United States intellectual property owner’s authorization.

Assuming that the United States intellectual property owner (or an affiliated business entity) made the first sale abroad, or authorized a licensee to do so in return for a royalty payment, it can be characterized as having received the benefit of the first sale of the good, as envisioned by the United States intellectual property laws. Should the doctrine of exhaustion apply, releasing the goods from further control by the intellectual property owner, so that subsequent purchasers can import them into the United States and resell them in competition with the United States rights owner? Two competing theories have emerged to address this quandary.

The “international exhaustion” or “universality” theory provides that the doctrine of exhaustion should apply whenever the United States intellectual property owner sells or authorizes the first sale of the good, regardless — of whether the good was manufactured or originally sold in the United States, or abroad.

The “territorial” or “domestic” exhaustion theory essentially limits the doctrine of exhaustion to goods manufactured and initially sold within the territory of the United States.

A United States intellectual property owner selling goods abroad does not benefit from its United States intellectual property rights in the sale. Therefore, it should be able to assert those rights (for the first time) when the goods enter the United States without the owner’s authorization.

The United States has adopted neither the international exhaustion nor the territorial exhaustion theory, to its fullest possible extent. The specific application of the doctrine of exhaustion in each of the three primary intellectual property regimes has varied, in part because of differences in the statutory language codifying each regime, and in part because of perceived differences in the purposes of each regime.

Trademarks

Recent case opinions construing Lanham Act § 42 and Tariff Act § 526 establish a partial or qualified rule of international exhaustion for United States trademark owners: as a general rule, United States trademark owners lack authority to prevent the import and resale of parallel imports, as long as the United States owner itself, or an affiliated business entity, put the goods bearing the mark on the market abroad. However, an important exception to this rule arises when the imported goods differ materially from those the United States trademark owner sells domestically. In such cases, courts have reasoned, consumers may be misled by the importer’s sales of the foreign goods bearing the same mark—they may rely on the mark to indicate that the foreign goods possess the same qualities that their domestic counterparts have, when they do not. Since the very purpose of trademark rights is to avoid such consumer confusion about the nature or quality of goods, courts have reasoned that trademark owners must be permitted a cause of action for trademark infringement to prevent the parallel imports under these circumstances.

Patents

In 1994, Congress amended the United States Patent Act to incorporate, for the first time, an express right of importation, seeming on the surface to invite litigation over parallel import of patented goods.

As amended by the Uruguay Round Agreements Act, Patent Act § I54(a)(1) provides:

Every patent shall contain a short title of the invention and grant to the patentee, his heirs or assigns, the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States, and, if the invention is a process, of the right to exclude others from using, offering for sale or selling throughout the United States, or importing into the United States, products made by that process, referring to the specification for the particulars thereof.

35 U.S.C. § I54(a)(I) (1994). Section 271(a), as amended, provides:

[e]xcept as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent. 35 U.S.C. § 271(a).

Until recently, courts had relatively little to say about the applicability of United States patents to prohibit parallel import of goods embodying patented inventions. In 2001 the United States Court of Appeals for the Federal Circuit seemingly adopted the “territorial” exhaustion theory for United States patents. * Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001). In that case, the Federal Circuit held that only certain cameras that were first sold in the United States triggered the patent exhaustion doctrine. Cameras sold outside of the United States were held not to have exhausted the United States patent owner’s rights. The Federal Circuit recently affirmed this view in *Fujifilm Corp. v. Benun, 605 F.3d 1366 (Fed. Cir. 2010). Thus, the most recent jurisprudence from the Federal Circuit states an explicit adoption of the “territorial” exhaustion theory.