According to Section 48 of the Patents Act, a patentee is conferred with exclusive right to prevent third parties from making, using, offering for sale, selling or importing a patent. However, there can be certain limitations to these rights. One such limitation is international exhaustion of patent rights under Section 107A (b) of the Patents Act, 1970.
It is evident that the term Exhaustion has not been defined in Indian patent law or in TRIPS Agreement. Section 107A (b) provides for importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product without infringing patentees rights. It is to be noted that the first statutory provision on parallel imports was introduced by the Patents (Amendment) Act, 2002. It was later on amended in 2005, according to which the importer need not ensure that any of the subsequent sellers from whom they buy the product were authorized by the patentee. This means that, once the product is sold or authorized to sale by the patentee, a parallel import is allowed, provided that such product is bought from any person legally. Also, such import does not amount to infringement of patentee’s rights.
In consideration with TRIPS, it offers flexibility to the member countries with respect to exhaustion. Article 28 provides for exclusive rights conferred to the patentee to prevent third parties from making, using, offering for sale, selling, or importing the patented product. But, such rights are subject to Article 6. Article 6 states that “For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights”. This gives the WTO member countries the liberty to incorporate international exhaustion into their national law and the same cannot be objected to by other members by invoking the dispute settlement mechanism. In general, when a product that is patented is sold, the seller has no further claim on the product, and the buyer can dispose of it as he or she wishes. The exhaustion is mainly in concern with rights which can be used to control the further disposition of the product. The member countries of WTO have not agreed on uniform rules regarding such exhaustions. Some may apply national exhaustion and others may apply international exhaustion. Under the doctrine of international exhaustion, if a patented product is lawfully placed on the market in one WTO Member, it can be imported without violation of patentee’s rights.
Thus, it can be said that the rationale behind the theory of exhaustion can be that the patentee has already been rewarded through the first sale and should not be allowed to profit repeatedly on the same good by controlling its use, resale or distribution or it can be said that further rights of commercial exploitation are exhausted upon the first sale of a patented article, and if such exhaustion is also assumed when such patented article is marketed abroad, then the exhaustion relates to all aspects of other commercial exploitation round the globe. In one way it can be argued that parallel importations can harm suitable exploitation of the patent and its utilization can be damaged by parallel imports from other countries. On the other hand if such a provision is not allowed it may contravene the spirit of free trade which is advocated in a number of global and regional treaties, it would also have many undesirable economic side effects.
It is very essential that the section 107A (b) of the Patent Act 1970 must be interpreted in its true spirit. The provision does not exempt all importation but places certain restrictions. It clearly states that any person can import but the words ‘authorised by law’ is subject to scrutiny of various interpretations. Further, it is also necessary that the patentee has authorized the first sale.