English 
Vol. 9 No. 1 (February 2019) pp. 13-16
EXHAUSTING INTELLECTUAL PROPERTY RIGHTS, by Shubha Ghosh and Irene Calboli.
Cambridge University Press, 2018. 218 pp., Hardcover, $120.00.
Reviewed by Samuel F. Ernst
Golden Gate University School of Law
The exhaustion doctrine refers to a principle that once an intellectual property owner sells or authorizes the sale of a protected product, the IP rights in that product are “exhausted.” The IP owner may not thereafter chase the article down the stream of commerce and use IP law to collect additional royalties or place further restrictions on the use or resale of the product. This simplified articulation of the doctrine fails to account for all of the variations on exhaustion rules in different countries and for different types of intellectual property; and fails to capture the myriad ways in which IP exhaustion intersects with complicated policy calculations, legal and economic theory, international trade, and areas of law beyond IP, such as contracts, antitrust, and the regulation of pharmaceuticals (to name a few). It takes a book to plumb the depths of exhaustion in all of its variations and implications, and that book is Shubha Ghosh and Irene Calboli’s new treatment, EXHAUSTING INTELLECTUAL PROPERTY RIGHTS. The book is a comprehensive guide to exhaustion, detailing the exhaustion regimes of many countries around the world across the various forms of intellectual property protection and against the backdrop of a clear and succinct explanation of the policy and legal theory behind IP exhaustion. To borrow the pun most readily at hand, this book exhausts the topic of IP exhaustion on many different levels.
First and foremost, the book is aggressively comparative in its scope. There has been a flurry of legal scholarship attending several major decisions by the U.S. Supreme Court in recent years that revitalized copyright and patent exhaustion in this country.1 By this author’s count, there are approximately 450 law review articles discussing just one of those decisions, Quanta Computer v. LG Electronics. Professors Ghosh and Calboli’s book reminds the myopic U.S. scholar that all of this sound and fury is just about one small corner of the exhaustion world – U.S. patent law. The book does this through an exhaustive (apologies) survey of the IP exhaustion regimes of the European Union, the United States, Canada, Mexico, Australia, New Zealand, India, China, and member countries of ASEAN (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam). Granted, the book does not discuss the exhaustion law of every country on earth (the authors offer express regrets that “there is no discussion of Switzerland, except in a short footnote in Chapter 5” (p. 2)). To correct this injustice, I will state here that Switzerland observes regional exhaustion of patent rights (except with respect to pharmaceuticals), but international exhaustion of trademarks and copyrights (except with respect to performance rights) (p. 103, n. 48)). But the authors assure us that “future editions may expand the set of representative jurisdictions” (p. 2). And the existing survey is more than sufficient to provide the reader with a framework for understanding the possible contours of the exhaustion doctrine in different jurisdictions.
Of primary importance in the comparative discussion are the different rules various countries observe with respect to whether foreign sales trigger exhaustion and with respect to the ability to write contracts that evade exhaustion. On the first issue, the Agreement on Trade-Related Aspects of Intellectual Property (the TRIPS Agreement) allows signatory nations to determine for themselves whether exhaustion of IP rights is triggered by a foreign sale, or only by a domestic sale. This has led to a fascinating laboratory of exhaustion regimes in which some countries observe national exhaustion (only a domestic sale triggers exhaustion), some countries observe international exhaustion (foreign and domestic sales trigger exhaustion), and some countries observe regional exhaustion (for example, the European Union Countries, in which the sale of a patented product anywhere in the European Union exhausts patent rights in the European Union, but not elsewhere).
On the issue of writing contracts to evade exhaustion, the authors offer the important insight that civil law countries tend to view the exhaustion of IP rights as arising from an implied license a purchaser has to use and resell the purchased item; these countries are more likely to allow for contracting around exhaustion because the implied license can be expressly revoked. On the other hand, common law countries tend to view exhaustion as arising out of the common law policy against restraints on alienability of personal property; these regimes are less likely to enforce contracts that purport to evade exhaustion because such behavior would violate this policy against servitudes.
A second way in which this book is exhaustive is that it surveys exhaustion across all of the relevant IP regimes. There are separate chapters devoted to trademark exhaustion, patent exhaustion, and copyright exhaustion. Exhaustion in each of these areas implicates different policy considerations. Moreover, exhaustion of these different types of IP rights interplays and often conflicts with other IP doctrines and areas of law, such as trade secret law and moral rights (aka “droit de suite”), topics that are explored in detail. The situation becomes even more complicated when one considers products that are subject to overlapping IP regimes. For example, a particular country may observe international exhaustion of trademark rights, meaning that a product lawfully sold overseas may be imported without running afoul of the trademark laws. But what happens when the IP owner also claims copyright protection in the product labels in a situation where, under the law of the country in question, those rights are not exhausted by a sale overseas? A product that should be in the public domain under the policy of the country’s trademark law nonetheless carries servitudes and restrictions under the copyright law. An entire chapter is dedicated to these thorny problems resulting from overlapping IP regimes.
A separate chapter is also devoted to the topic of digital technology and exhaustion. Digital technology complicates the picture because technological barriers can be imposed to prevent the reuse, copying, or resale of products even after the IP rights are exhausted. Moreover, copyright exhaustion can be foiled in situations where reuse violates reproduction rights as a technical matter. On the other hand, digital technology facilitates the instant dissemination of various products across borders in ways that can defeat IP rights.
And of course, as if comparative law were not enough, an entire chapter is devoted to the ways in which exhaustion law interacts with international trade law.
Finally, the book offers a rigorous discussion of the policy and legal theory behind IP exhaustion. This discussion is remarkably clear in light of the complexities involved, and the thesis appears to be that the complexities are fundamentally important. For example, some scholars have argued that international exhaustion benefits consumers in high-priced markets (by allowing for competition from imports), but hurts consumers in low-priced markets (by dissuading IP rights holders from engaging in useful price discrimination). Professors Ghosh and Calboli refute this argument by drawing attention to the many factors and variables this argument disregards. Whether and to what extent the prices in the two countries tend to equalize depends on consumer demand in the two countries, importation costs, regulatory costs, tourist and immigrant consumption, and other factors. It could be that national exhaustion permits IP holders to engage in predatory low pricing in the “low-priced” country in order to eliminate competition in that country and raise prices thereafter. How is the situation different for durable versus non-durable goods? What of companies that use technology or product differentiation to achieve the effects of national exhaustion in an international exhaustion regime? Maybe wealth maximization or redistribution are not the only legitimate goals of an exhaustion regime. Shouldn’t one also take into account the policies of free trade, competition, and incentives to innovate? The book even offers speculation as to what John Locke, Georg Hegel, and John Rawls would have had to say about IP exhaustion, if anyone had bothered to ask.
In the end this book does not offer pat answers to the myriad policy questions surrounding exhaustion except to point out that these questions are very complicated. The authors tell us that the goal of the book is “to show the economic, political, social, and legal choices” that are available to countries in formulating exhaustion doctrine (p. 207). The authors then undertake to explain how the exhaustion regime a country chooses “has implications for international trade, for secondhand markets, for consumer rights, and for distribution channels” (p. 207). The book achieves these ambitious goals in spectacular fashion.
Suggested Citation: 9 The IP Law Book Review 13 (2019).
© 2019 Samuel F. Ernst