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Intellectual Property

Exhaustion Theory: IP issues faced by distributors

Recently one of our clients faced an interesting dilemma. Having been involved with a dispute with their head distributor, they found themselves facing a claim for a breach of intellectual property rights after having on-sold the stock in question to a buyer.

The question then arose, were they in any form of breach? Or did the right, title and interest in the intellectual property and trademarks over those items already pass? Enter common sense, and a surprisingly useful legal concept in intellectual property law, the exhaustion theory of intellectual property rights.

The concept is simple, once a given product has been sold under the authorisation of the IP owner, the reselling, rental, lending and other third party commercial uses of IP-protected goods in domestic and international markets is governed by that principle going forward.

Once a product covered by an IP right, such as by a patent right, has been sold by the IP right owner or by others with the consent of the owner, the IP right is said to be exhausted. It can no longer be exercised by the owner.

Whilst this seems easy enough to grasp there are a number of concerns that arise when interpreting such an exhaustion has occurred, particularly for products sourced internationally, as this problem eventually becomes one of international law.

If you have had a dispute regarding the intellectual property rights, title and interest in products you have sourced internationally and are unsure of your rights, please contact us at Priority Business Law to discuss.

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