The Division Bench of the High Court of Delhi says it is, after having ruled in favour of “International Exhaustion” in the case of Kapil Wadhwa vs. Samsung Electronics Ltd., the only latest case available on the Doctrine of Exhaustion in India. So the bundle of exclusive rights granted to a trademark holder does not seem to include the fact that they cannot restrain parallel importers of those products who exploit this doctrine to benefit themselves.

Parallel imports, as one might know, is when genuine branded goods (yes, they are not counterfeit goods), that are not intended for a particular Country as per the wishes of the trademark owner, are anyway imported into that Country by unauthorized dealers at cheaper rates and are sold in the Country on par with current market rate of the said product; thereby, taking advantage of the doctrine of exhaustion.

What is this Doctrine of Exhaustion?

Doctrine of Exhaustion basically means that an owner of a particular good ceases to have control over further sale of his goods once he has made a valid transaction of sale. In other words, if the trademarked goods are once put on the market by the owner or by his consent, and once purchased legitimately, the trademark owner or any one deriving his title from him cannot prevent sale of such good, as the exclusive right to sell goods bearing the mark is ‘exhausted’ by the first sale; then the exclusive right to sell goods bearing the mark cannot be exercised twice in respect of the same goods. Hence, this doctrine is otherwise called as the doctrine of first sale. What’s more, there are different modes of exhaustion as well, which are recognized internationally.

  1. Doctrine of International exhaustion works on the assumption that the whole world is one market or one country and thus goods once sold in any part of such market or country operates as exhaustion of rights of the trademark owner over such goods.
  1. Doctrine of Regional exhaustion is when goods bearing a trademark are first sold by or with the consent of the owner in any Country, which is a part of any specific region, then the owner cannot prevent subsequent sale in his own Country or in any other Country which also is a part of that specific region. The European Union has adopted regional exhaustion.
  1. Doctrine of National exhaustion stipulates that once a product has been sold in the domestic market for the first time by or with the consent of the owner, for which he has received a consideration, he then ceases to have control over any subsequent sale of the same in the domestic market, in the sense, he can neither prevent subsequent sale of the said product nor can he claim any profit arising from a subsequent sale nor can he sue for infringement of his trademark. The rationale behind this principle is that the owner has already derived a profit arising out of the first sale; hence, he cannot keep deriving profit out of a sale that was not made by him.

Current position in India:

Section 30 sub-clauses (3) and (4)[1] of the Indian Trademarks Act, 1999, deals with the exhaustion of rights after first sale of goods. From a cursory reading of the same, one would deduce that the intention of the legislature was to recognize domestic exhaustion only.

In the case involving parallel imports and trademarks, the Plaintiffs were successful in getting an ex parte order directing the Customs authorities to notify all ports to bar imports of defendant’s goods.

In another case tried by the Delhi High Court, an ex parte injunction was granted to the plaintiff thereby preventing the defendant from importing genuine Samsung products into India from China.

The most recent case is that of Kapil Wadhwa vs. Samsung Electronics Ltd where the High Court of Delhi has ruled otherwise on the basis that the scope of the expression ‘the market’ in Section 30 (3) is not limited to domestic markets.

So, should India recognize national or international exhaustion?

When a section is as clear as Section 30(3), the words of the section must be given their plain, ordinary and literal meaning. So, when the section says sale of goods ‘in the market’, it must be interpreted to mean sale of goods ‘in India’, as otherwise it will give a ticket to anyone to purchase goods from Indian market and sell it anywhere in the worldwide market. Also, by a mere reading of the opening words “where the goods bearing a registered trade mark are lawfully acquired by a person” clearly reflects that the said acquisition is within the domestic market. In other words, if the trademark is registered in one Country, then goods bearing the said registered trademark can be lawfully acquired from that Country only.

Moreover, restricting parallel imports into the Country will result in elimination of the confusion caused among those classes of purchasers who are looking to buy the genuine product meant for that Country. Also, it will generally benefit local licensees of that Country.

A balance must be struck between the two possible conflicting policy objectives, where on one hand parallel imports benefit the consumers and promote free trade and competition to increase supply of goods at lower prices, on the other hand, in order to attract foreign direct and indirect investment, prohibition of certain forms of competition should be done. It will be interesting to see the Court’s final position on the issue.

This article has been authored by Durga Bhatt, an IP Law practitioner.