Monthly Archives: May 2013

Parallel Imports and the Exhaustion Doctrine: Lessons for Nigeria

In the US Supreme Court decision in the Kirtsaeng case, discussed previously, the dissenting opinion written by Ginsburg J contained some interesting observations about the approach of the United States government to the issue of exhaustion of intellectual property rights and parallel imports. In particular, Ginsburg J observed that while the majority decision of the court ‘places the United States solidly in the international exhaustion camp’, it is the position of the dissent which favours a national exhaustion doctrine that is consistent with ‘the stance the United States has taken in international negotiations’. The dissent judgment points out further that the US government ‘reached the conclusion that widespread adoption of the international exhaustion framework would be inconsistent with the long term economic interests of the United States’.

The comments of Ginsburg J reflect the important fact that policy considerations affect the type of exhaustion doctrine adopted by a particular country or even, in contemporary times, a politico-economic region. It is thus no news that there is a polarity or diversity of exhaustion regimes within the global community. While some countries favour a national exhaustion regime, there are those who favour an international exhaustion regime while a third group favour or are obliged to adopt a ‘regional’ exhaustion doctrine. The lack of international consensus regarding the form of exhaustion doctrine to adopt is reflected in the most significant instrument of recent times obliging countries to provide for protection and enforcement of intellectual property rights. That is, the WTO’s Agreement on Trade Related Aspects of Intellectual Property (TRIPS) which states that nothing in the Agreement shall be used to address the issue of exhaustion (Article 6).

To recap briefly, the exhaustion doctrine is broadly the principle that once an intellectual property right holder sells or authorises/approves the sale of a product subject to the intellectual property right, the purchaser of the product is at liberty to do with the product as s/he pleases including reselling the item. This is also known in some contexts and some countries as the ‘first sale’ doctrine. A major source of controversy, however, is that rights holders sometimes choose to sell the same product at different prices in different markets (especially different countries). Sometimes this enables a right holder to maintain a high price for the product it markets in a particular country which of course in turn opens up an opportunity for enterprise minded third parties to import the cheaper version from another market/country i.e. ‘parallel imports’. If the country in question applies a national exhaustion doctrine, the right holder will be more likely to secure prohibition of the parallel imports. On the other hand, if the country applies an international exhaustion doctrine the third party importers are more likely to be able to continue to market the parallel imports.

For poorer economy countries, it is easier to see how particular policy and economic considerations may suggest the adoption of an international exhaustion doctrine which would ordinarily allow the sourcing of products from the cheapest markets. Further, specific needs for certain products in an important sector may dictate a legislative framework that will support the sourcing of those products at comparatively low costs. This has been especially true in the understandably emotive respect of medicines generally and HIV/AIDS drugs particularly. A good example of this is the South African Medicines and Related Substances Control Act (especially No 90 of 1997) and the enormous controversy that it generated.

In the case of Nigeria, the view is often expressed that Nigeria applies a national exhaustion doctrine – at least in relation to patents. This view is usually based on the provisions of section 6(3)(b) of the Patents and Designs Act which provides in effect that rights under a patent ‘shall not extend to acts done in respect of a product covered by the patent after the product has been lawfully sold in Nigeria ….’ Some amount of caution is called for however. In the first place, the provision has not been fully tested for judicial confirmation of whether it does indeed obligate a national exhaustion doctrine in respect of patents. Second, the provision obviously only concerns patents specifically and does not extend to other forms of intellectual property such as trademarks or copyright; bear in mind that Kirtsaeng concerned copyright specifically. Third, proposed new legislation is expected to see the replacement of the provision with one that is thought to clearly provide for international exhaustion in that rights under a patent will not extend to acts done in respect of a product covered by the patent ‘after the product has been lawfully sold in any country’.

More generally, Nigeria is a common law country which inherited and adopted principles and doctrines from the common law of England and still regards decisions of the English courts on common law principles (generally excluding any modifying effect of European Union law) as of helpful and often persuasive effect, though not binding. Accordingly, the view is also held that the common law as it is applied in Nigeria probably incorporates the principle of the implied licence long recognised in common law since Betts v Wilmott (1871). The summary of this principle is that if a patentee sells or allows the product covered by a patent to be sold and does not impose any restriction on resale, the purchaser is considered at liberty to use or resell the product wherever s/he wishes.

Considering that in the absence of restriction, the principle of the implied consent can make parallel importation lawful, it can be seen as very close to the international exhaustion doctrine. Nevertheless, significant differences exist: for example, as the implied consent principle is essentially based on ‘agreement’, albeit implied, notification of restrictions to a licensed foreign seller will possibly be enough to prevent such licensee from being able to engage in parallel importation lawfully. Depending on the circumstances, it may also be that notification to third party foreign purchasers would also be enough to prevent them too from being able to engage in parallel importation lawfully. Compare this with the case of Kirtsaeng where it was noted, inter alia, that ‘Wiley Asia’s books state that they are not to be taken (without permission) into the United States.’

In light of the provision of section 6(3)(b) of the Patents and Designs Act, it is perhaps unlikely that the Nigerian courts will apply the implied consent principle in relation to patents. In other respects, there are cases in Nigerian jurisprudence where courts have been willing to grant protection in the form of injunctive relief to a local (‘sole’) distributor, and by extension its foreign licensor, against another party engaging in parallel importation e.g. Bright Motors v Honda, and The Honda Place v Globe Motors (based on parties’ ‘Terms of Settlement’, suit No. LD/1643/96). In the absence of specific provision in relation to trademarks and copyright nevertheless, it is at least arguable that the Nigerian courts may potentially be persuaded to consider and apply the implied consent principle or a form of it.

It is noteworthy that even in the United Kingdom where the adoption of a regional exhaustion doctrine (EU and EEA wide) is now obligatory and in spite of important rulings of the ‘European Court of Justice’ (e.g. the Silhouette, Davidoff & Levi Strauss cases) narrowing the possibilities for finding consent, the jurisprudence still accommodates the possibility of consent. In current English jurisprudence the consent of a right holder may still justify the importation into the UK (or even into the EU/EEA) of a product lawfully marketed outside the EU/EEA where it can be demonstrably established to the satisfaction of the courts that the right holder ‘has renounced his right to oppose placing of the goods on the market within the European Economic Area’; (‘unequivocal implied consent’). See for example Mastercigars Direct Ltd v Hunters & Frankau Ltd; Corporacion Habanos SA v Mastercigars Direct Ltd & another.

Accordingly, it will not be particularly surprising if the Nigerian courts are persuaded to apply an international exhaustion doctrine whether explicitly or in the form of an implied consent approach, particularly if anticipated legislation confirms the adoption of international exhaustion in relation to patents specifically. Although, in Kirtsaeng the US Supreme Court’s decision was based on particular American statutory provisions, it may be that the Kirtsaeng decision will embolden supporters of an international exhaustion regime in claiming that the adoption of such a regime is not per se an indication of hostility towards or lack of support for intellectual property rights and their protection.

There may be concern about other potential effects of the adoption of an international exhaustion regime. In the particular circumstances of Nigeria one such concern would be whether adoption of an international exhaustion regime would encourage the flooding of the Nigerian market with counterfeit products with particular concerns about fake medicines. Ordinarily, the adoption of an international exhaustion regime should not per se lead to an increase in the marketing of counterfeit products since the doctrine itself would allow the parallel import of genuine products marketed by or with the consent of the right owner. Nevertheless, in light of the particular danger posed by counterfeit drugs, it is incumbent on relevant authorities in any event to ensure the effective operation and enforcement of extant Nigerian statutory provisions aimed at combating that particular problem which exists even in the absence of an international exhaustion regime.