Legal position on international exhaustion


Dear Editor,

The principle of international exhaustion of intellectual property rights and the parallel importation following from it have been a contentious issue in international trade.

Notably, the so-called terms “parallel imports” and “exhaustion” have not been expressly used in the Patents Act, 1970 (amended act). However, section 107A(b) of sethe act exempts certain acts related to the import of patented products by any person from a person duly authorized under the law to produce and sell or distribute the product from being considered to be an infringement of the patent. Section 107A was introduced in the existing act by way of Patents (Amendment) Act, 2002, and was finally amended by way of the Patents (Amendment) Act, 2005.

While section 107A(b) provides protection against patent infringement, the precise contours of this provision still remain uncertain. The provision, however, has not been subject to judicial scrutiny and there is no case law in this area.

At first blush, it may seem that this provision refers to international exhaustion or unauthorized parallel imports. But an analysis of the principles of harmonious statutory interpretation and the pertinent legislative debates on the Patents Act (2005) coupled with the lack of a strong and unambiguous precedent recognizing international exhaustion seems to sway the popular assumption the other way.

The doctrine of exhaustion of patent rights was recently addressed in the cases of Koninklijke Philips Electronics NV v Rajesh Bansal, and Koninklijke Philips NV v Bhagirathi Electronics and Ors concerning infringement of standard essential patents (SEP). Philips had filed the two suits alleging infringement of its essential DVD video player patent.

In deciding the issue of infringement in favour of the plaintiff, Delhi High Court dismissed the alternative defence raised by the defendants that the plaintiff’s patent rights could not be exercised against them on the common law doctrine of exhaustion because the plaintiff had already put its product in the market. The defendants claimed that they assembled DVD players with chips purchased from trading company Shun Tak (Hong Kong) and Sheenland Corporation, both of which were authorized vendors and hence were not liable for infringement.

The court, however rejected their plea and held that the defendants failed to dis-charge the onus of proving that both Shun Tak and Sheenland were the licensees of the plaintiff. The court rejected their entire plea that they were using MediaTek chips and holding that it had neither been proven that MediaTek was plaintiff’s licensee nor that the hardware sold to them by MediaTek was pursuant to a license.

However, an interesting question to consider is whether the judgment makes a clear distinction between the “licensee” and “vendor” as the court simply considered the definition of the term “exclusive license” found in section 2(1)(f) of the act for this purpose. The court, therefore, missed the opportunity to address the full scope of the exhaustion argument.

Another interesting aspect of the case would have been if the court had been faced with a situation where the defendants had put forward a convincing argument of being bona fide purchasers from the vendors or suppliers who were authorized under a foreign law to sell or distribute the impugned product, but had no permission to sell in India from the Indian patentee.

The issue of the applicability of section 107A(b) defence was previously addressed in the case of Strix Limited v Maharaja Appliances Limited, where the defendant took a defence that it imported the impugned product (electric kettles) from a Chinese supplier, who held a patent. However, in the absence of timely evidence, the court rejected the applicability of the defence observing that the defendant was expected to import a product after first checking if the Chinese supplier held a valid patent or not. Unfortunately, the question whether the factum of existence of a Chinese patent would have indeed legally justified the importation under the provisions of section 107A(b) was left unclarified in the decision.

Section 107A(b) is highly relevant and it is hoped that a fitting case involving its interpretation will come up in the higher courts, offering relevant and interesting jurisprudence on the issues involved.


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