First Sale Doctrine and the Exhaustion of IP Rights

Defining the First Sale Doctrine

First Sale Doctrine is one of the exceptions to the rights conferred to IP owners. This doctrine curtails the IP owners’ rights after its products are first sold to a purchaser. By this, the purchaser is entitled to re-sell the branded product in the market as per his wish or advertise about the same without the consent of the actual owner. However, the provision to re-sell a branded item is limited by certain conditions, which have evolved through various rules and judicial precedents. The rules have been discussed in detail below, in the light of the relevant cases. However, the essence of the limitations which are applied on the re-sale by a purchaser remains that there shall be no scope of confusion for the prospective buyers about the actual owner of the brand, or a state where the reputation of the actual brand may be tarnished.

The Origins of First Sale Doctrine

It was the Supreme Court of the United States which initially discussed this doctrine. In the case of Prestonettes, Inc. v. Coty defendants were involved in reselling the products which they have purchased from the plaintiff. The packaging, however, included the actual trademark of the plaintiff and nothing else to confuse the consumers about the product’s actual owner. Here, the court held that this would not amount to trademark infringement, because there was no intention to deceive the consumers. After this landmark decision, the doctrine of the first sale came to be recognized. Later on, the doctrine was not just limited to the trademarks, but it also got extended to other forms of IP.

first sale

Other Criteria for Exhaustion of IP Rights

The courts of the United States have discussed this aspect in length through various judicial precedents. As per them, the actual owner of a mark can overcome the defense of ‘first sale’ by establishing that the unauthorized reseller has been using goods that are not comparable to the quality of original goods manufactured/sold by the owner. Certain points to be noted while assessing this are:

  1. The actual owner maintains a specific standard quality in its products.
  2. The standards are applied consistently by the owner.
  3. The reseller is not following the said standards.
  4. The sale of such products would confuse the buyers and tarnish the reputation of the brand.

In India, it was the case of Kapil Wadhwa & Ors v. Samsung Electronics Co. Ltd & Anr. that introduced this doctrine to the courts. In this case, Samsung filed a suit for trademark infringement to restrain the defendants from importing certain printers from Korea and selling them in Indian markets. Moreover, the said models which the Defendants were selling were not being sold by Samsung in India. The court delivered its judgment on lines of the Principle of International Exhaustion of Rights. This, when coupled with a reading of Section 30(3) and 30(4) of the Trademark Act, 1999 would not amount to an infringement. This was held because the goods sold by defendants were not being altered from their original state (as they were, during the sale executed by the plaintiff). Since there was no change in the packaging, nature, and quality of goods, defendants cannot be held liable for causing harm to the reputation of the plaintiff regarding the original brand.

Channels of Procurement

Another important condition which shall be taken into account while discussing the protection under this doctrine was laid down in the case of Philip Morris Products S.A. v. Sameer & Ors. In this case, a strong emphasis was given on the mode of acquiring the products/goods which have been used for re-selling in the open market. It was said that the leverage to resell the purchased goods won’t be provided to the parties if those goods have been acquired through unauthorized channels/sources.  

In addition, the trade policy of the actual owner has to be considered as well. For instance, exporting the goods under the defense of ‘First sale’ won’t be permitted if the goods were originally meant for domestic sale. This can be confirmed by the nature of the contract between the actual owner and other authorized sellers. Unauthorized export under such conditions would infringe the rights of the actual owner under Section 29 (1) read with Section 29 (6) of the Act.

Conclusion

Having discussed the above points, it can be safely stated that this doctrine is one of its kind. It is intended to strike a perfect balance between trademark protection and opposing monopolization of the market. The rules have been established lately, resulting in mainstreaming the doctrine in India in various IP domains. However, further judicial decisions in this area will play a vital role in shaping the application of the doctrine in complex fact scenarios.

Author: Unnat Akhouri, Legal Intern at PA Legal.

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