DR.

RAM MANOHAR LOHIA NATIONAL

LAW UNIVERSITY, LUCKNOW

INTELLECTUAL PROPERTY RIGHT-I

Project
On
Exhaustion principle in Trademarks and
Judicial position in India

Submitted to: Submitted by:

Ms. Priya Anuragini Sakshi
Asst. Professor (Law) B.A.LL.B (VI SEM.)
Roll no. -111
 TABLE OF CONTENTS

1. Introduction
2. Exhaustion principle in Trademark
3. Types of exhaustion of Rights
4. Indian Position
5. Conclusion
6. Bibliography

Statement of Purpose
Exhaustion principle in trademark talks about the exhaustion of trademark rights of proprietor
in market. This is important for the free market of trademark goods without any prohibition
from the proprietor. As there are different scopes of exhaustion principle in trademark so I
would like to learn about them with the help of this project and also wants to know how it is
applicable for the free market of goods.

Research question:
1. What do we mean by exhaustion principle in trademark and how international
application of this principle is different from national application?
2. To find out the scope of this principle in different part of this world.
3. Extent of this principle in Indian framework.
4. How Indian Judiciary has interpreted the application of this principle?

Hypothesis:

Exhaustion principle in trademark allows the people to deal with the goods in market freely
without any prohibition from the proprietor of trademarked good as this principle exhausted
all the rights of trademark proprietor once he sales his goods at the very first time. If
exhaustion principle would not have been there then it would not possible to deal with the
goods in the market as it would be violation of rights of trademark proprietor.

SCOPE: Scope of my project would be extended to international level though it would deal
with Indian case laws only.

INTRODUCTION
Trademark is the medium to show the source and quality of the goods therefore trademark
proprietors are entitle to certain rights to protect their mark. Trademark proprietors have right
to exclusive use of the goods. He is also entitled to prevent sell of goods bearing his
trademark by third party without his permission, otherwise consumers will get confuse with
the source, origin and quality of the good. But principle of exhaustion of trademark rights
takes away the rights of trademark proprietor. Once the goods has been put on the market for
sell, rights of trademark proprietor gets exhausted. He cannot further prevent the sell the
goods in the market once he has sold the goods in market reason being that once the
proprietor sold goods, he has been able to earn economical advantage. Though exhaustion
principle exhausted rights of trademark proprietor but it is not absolute exhaustion of rights,
there are some exceptions in which rights are not exhausted. We will see them in details.
There are different scopes of exhaustion principle. Different countries have adopted different
extent of exhaustion principle. There is also some amount of confusion as to which country
has adopted which form of exhaustion principle. We will see in details about the adoption of
exhaustion of trademark right principle by different countries.
If we see in Indian prospective, section 30 (3) of Trademark Act, 1999 talk about exhaustion
principle. There was some confusion about the scope of exhaustion right in India but
judiciary help in determining its scope.

EXHAUSTION PRINCIPLE IN TRADEMARK

Generally exhaustion of rights means that rights of intellectual property owner get exhausted
when goods first sold in the market and in case of trademark also it means that rights of
trademark proprietor exhausted once goods has been put on the market. Exhaustion means
that trademark rights cannot be used to prevent further trade in the goods. The concept behind
such exhaustion of rights is economical advantage gained by proprietor once the goods were
first put on the market by the owner of right or by his consent. 1 He cannot exercised right
twice in respect of same good. Put on the market means when the goods have been sold and
not when kept in ware house or displayed in shop without being sold.2
Trademark proprietor has rights to prohibits initial marketing or release of goods in the
market by any other third party but once he has put goods on the market, all his rights get
exhausted and he cannot prohibits the sale of goods in the market by third party. 3 But
exhaustion of trademark rights is not absolute which means if third party is not using
registered trademark in honest and fair dealing with the market or using so to damage marks
reputation , proprietor of rights can use his rights to protect the reputation of his marks.4

1http://www.mondaq.com/india/x/365208/Trademark/Transformation+Of+Principle+Of+Exhaustion
+Of+Rights

2 Helen E Norman, Intellectual property law, 2 nd edition, Page no. 446

3 Amanda Michaels with Andrew Norris, Trademark law, 4 th edition, Page no. 166

4 L. Bently & B. Sherman, Intellectual Property Law, 3rd edition, Page no. 943
TYPES OF EXHAUSTION OF RIGHTS: There are 3 types of exhaustion of rights:

1. National exhaustion: National exhaustion means exhaustion of rights in the territory

in which goods were originally manufactured. Once the goods have been put on the
market by the owner of rights or by his consent, rights of trademark proprietor would
get exhausted within that domestic market. Owner of rights cannot further impose
restriction on the fair dealing of the goods in the domestic market but he has all the
rights to prohibit dealing with the goods in any market other than the market in which
trademark is registered because in case of national exhaustion, rights get exhausted
within the domestic framework only. Trademark proprietor can neither prevent
subsequent sale nor he can claim any profit arising out of subsequent sale nor can he
sue for infringement of his trademark.5

2. International exhaustion: International exhaustion means that rights of trademark

proprietor would get exhausted internationally. Once the goods bearing trademark put
on the market rights get exhausted internationally. Owner cannot restrict trade of
goods even in abroad market. If product is exported in market outside India then
owner cannot prohibits further sale of the product.

3. Regional exhaustion: Regional exhaustion of trademark means that rights of

trademark proprietor will get exhausted not only in the domestic market only but also
in the whole region of that country. These regions are depending upon the association
of different countries on different basis (for ex. SAARC, commonwealth etc.). If any
particular good bearing trademark is sold at first time in any country of that specific
region by the owner or by his consent, then the owner cannot prohibit subsequent sale
in his own country or in any country of that region. EUROPEAN UNION has adopted
regional exhaustion.6

5http://www.selvamandselvam.in/blog/exhaustion-of-trademark-rights-in-india-the-whole-world-is-
one-market-or-is-it-2/

6 http://www.selvamandselvam.in/blog/exhaustion-of-trademark-rights-in-india-the-whole-world-is-
one-market-or-is-it-2/
These are 3 different limits of exhaustion principle. Different countries follow different limits
of this principle. Germany has adopted for international exhaustion. 7 Some Scandinavian
countries, Ireland and Austria, also follow international exhaustion. Italy has adopted
domestic exhaustion.8 EU9 and UK10 has also adopted regional exhaustion.11 Brazil and
Turkey have incorporated the principle of National exhaustion. Singapore, Hong Kong has
embodied International Exhaustion.12

INDIAN POSITION

Before the trademark act, 1999 exhaustion principle in trademark law was recognised in
trademark act, 1940 and in trademark act, 1958. Section 22 of trademark act, 1940 and
section 30 of trademark act, 1958 stated that there is no infringement in certain
circumstances.13

7 In Cinzano v. Java Kaffeeges chafte, cinzano Germany held not entitled to use
its trademark rights to prevent importation of cinzano vermouth made by
Spanish subsidiary or French exclusive licensee, each with taste variations
designed to flatter local palates. (W. Cornish, D. Llewelyn and T. Aplin, Intellectual
property: patents, copyrights, Trademark and Allied rights, Page no. 810)

8 W. Cornish, D. Llewelyn and T. Aplin, Intellectual property: patents, copyrights,

Trademark and Allied rights, Page no. 811

9 Article 7 of European trademark directives: 1. the trademark shall not entitle the
proprietor to prohibit its use in relation to goods which have been put on the market in
the community under that trademark by the proprietor or with his consent. 2. Paragraph
1 shall not apply where there exist legitimate reasons for the proprietor to oppose further
commercialisation of the goods, especially where the condition of the goods in changed
or impaired after they have been put on the market.

10 Section 12 of UK trademark act, 1994: (1) A registered trade mark is not infringed by
the use of the trade mark in relation to goods which have been put on the market in the
European Economic Area under that trade mark by the proprietor or with his consent. (2)
Subs. (1) does not apply where there exist legitimate reasons for the proprietor to oppose
further dealings in the goods (in particular, where the condition of the goods has been
changed or impaired after they have been put on the market).

11 Para 46, Kapil Wadhwa v Samsung Electronics Co. Ltd.

12 Para 46, Kapil Wadhwa v Samsung Electronics Co. Ltd.

Section 30 of trademark act, 1999 stated the exceptions to the infringement of registered
trademark. Sub-clause (3) of section 3014 talks about the exhaustion principle15. It stated that
once the certain goods bearing a registered trademark are lawfully acquired by a person, the
subsequent sale of the goods in the market or otherwise dealing in those goods is not an
infringement, just because the ownership in respect of the registered trademark has changed
by reason of any assignment of the mark. This section recognises the principle that the rights
of the trademark proprietor are exhausted when the goods are put on the market by the
proprietor or with his consent, so acquisition of such goods and subsequent dealing in those
goods by any person does not attract any infringement action.16

This matter was dealt in the case Samsung Electronics Company Limited v Kapil Wadhwa. 17
In this case Samsung Electronics Company Ltd. (P1) was a company incorporated in Korea.
Samsung India Electronics Pvt. Ltd. (P2) was subsidiary company incorporated in India.
Samsung Electronics Co. ltd. was in the business of manufacture printer under the trademark
named SAMSUNG and it has also licensed Indian company to use this trademark. The
plaintiffs have stated that printers are sold in India through the authorized channel of resellers
and partners of P2, and any third party who is not authorized by the plaintiff cannot
legitimately sell, advertise the printers in India. Plaintiff has also mentioned that they are
selling and advertising their products through website Samsung.com/in. Plaintiff said in his
complaint that defendant were selling grey market printers of the plaintiffs in the market and
not the one supplied by the P2. Plaintiff also claimed that these products were without the

13 https://indiancaselaws.files.wordpress.com/2014/04/parallel-import-
exhaustion-principle-in-india1.pdf

14Section 30 (3) Where the goods bearing a registered trade mark are lawfully acquired
by a person, the sale of the goods in the market or otherwise dealing in those goods by
that person or by a person claiming under or through him is not infringement of a trade
by reason only of- (b) the goods having been put on the market under the registered
trademark by the proprietor or with his consent.

15 Para 57, Kapil Wadhwa v Samsung Electronic Co. Ltd.

16 Kc Kailashm/Ramu Vedaraman, Law of trademark & Geographical Indications,

Law, Practise and Procedure, 2nd edition 2005, page no. 517

17 2012 SCC online Del 1004

MRP and were not earmarked to be sold in the Indian market which means that defendant
purchases these goods from foreign market and import them in India and selling them at price
lesser than the MRP of the printer manufactured by the plaintiff company.

Plaintiff challenged the said act of the defendants on the basis that the act of defendants of
importation without the consent of the registered proprietor would amounts to infringement
of its trademark in view of section 29 of the act, 1999. But defendant said that no change in
condition of the printer is done also they counter the act of infringement saying that they are
doing parallel import which is permissible under the law and would not amount to
infringement. Defendants contended in his written statement that plaintiffs or owner of
trademark cannot impose restriction on import, sale/resale of genuine products originating
from the plaintiffs as plaintiffs are estopped from challenging the subsequent sales by way of
exhaustion rule under section 30 of the act 1999. Defendant also contended that Indian law
follows international exhaustion but plaintiff argued that India follows domestic exhaustion.

The Delhi high court after hearing both the party held that the claim of plaintiff is justified
because law does not give any unfettered right of importation of goods under the mark.
Justice Manmohan singh said that section 30(3) just operates an exception by putting limits to
the rights conferred upon the registered proprietor and cannot be equated the one giving some
additional right to import the genuine goods from the international market.

Court has also held that the opening of section 30 (3) of the act 1999 where the goods
bearing a registered trademark are lawfully acquired by a person is important. Here
acquisition of goods is within the domestic market or market in which trademark is registered
and not from any other market.18 Now there is also one another interpretation of word market
in put on the market. Single bench of Delhi High Court decided that here also market
means domestic market and no other market. Court interpreted the Section 30(3) and its sub
clause (b) and said that this section operate in the domestic market and the same cannot be
said to be relating or introducing any such concept of international exhaustion of rights on the
basis of the putting of the goods on the market.19

But these defendants were not happy with the decision of single bench so decided to appeal.

18 Para 68, Samsung Electronics company ltd v Kapil Wadhwa

19 Para 69, Samsung Electronics company ltd v Kapil Wadhwa

Division bench of Delhi High Court held that Indian trademark Act, 1999 has embodied
principle of international exhaustion in Kapil wadhwa v Samsung Electronics company
ltd.20 and reasoning given by Judges is that the clause-3021 (section 30) of statement of
objects and Reason to the trademark bill 1999 clearly mentioned any geographical area
which envisages that the legislative intent was to recognise the principle of international
exhaustion of rights to control further sale of goods since they were put on the market by the
registered proprietor of the trademark. Also when the Copyright Amendment Bill 2010 was
introduced, to amend the Copyright Act 1957, in the report presented by the Rajya Sabha
Standing Committee the department informed that the section 30(3) of the trademark act,
1999 provided for international exhaustion.22

Also Judges said that the reasoning given by single bench judge for domestic market that
goods can be lawfully acquired within the country of registered trademark, division bench
said that lawfully acquisition means that lawful acquisition as per the laws of that country
pertaining to sale and purchase of goods.23 So there is no necessity of acquisition in the same
country and importation can be done so international exhaustion is applied.

Finally the court decided that section 30 (3) of the Trade Mark Act, 1999 is the international
market i.e. that the legislation in India adopts the principle of International exhaustion of
Rights.24

20 2012 SCC Online Del 5172

21 Sub-clauses (3) and (4) recognize the principle of exhaustion of rights by

preventing the trade mark owner from prohibiting on ground of trademark rights,
the marketing of goods in any geographical area, once the goods under the
registered trademark are lawfully acquired by a person. However, when the
conditions of goods are changed or impaired after they have been put on the
market, the provisions will not apply.

22 Para 62, Kapil Wadhwa v Samsung Electronics Co. Ltd.,

23 Para 42, , Kapil Wadhwa v Samsung Electronics Co. Ltd.,

24 Para 71, , Kapil Wadhwa v Samsung Electronics Co. Ltd.,

There is confusion as to the limit of exhaustion principle, whether Indian law has adopted
international exhaustion or national exhaustion. Courts were also not at parity whether Indian
law follows which type of exhaustion principle. In recent case of Kapil wadhwa v Samsung
Electronics company ltd., court has decided that India follows international exhaustion but
still today this is not the law of the land as the matter is still pending in Supreme Court
because INTA (IP association) has applied for leave to intervene in this case.25

CONCLUSION

International exhaustion can be disadvantageous to the owner of trademark if buyer of goods

buys it from any other market at international level at cheaper rates and then sells it in Indian
market at cheaper rates than its original. With the help of international exhaustion buyer of
product can sell the product at cheaper price in the same market in which it was first sold and
can get benefit. But principle of national exhaustion prohibits the import of goods in which he
is the owner of registered trademark. National exhaustion favours brand protection (means to
the benefit of owner) whereas international exhaustion is in the favour of lower price (which
favours consumers) and pay no attention to maintain trademarks value. If trademark owner
does not prohibits import of goods or not favour national exhaustion , then it would be
harmful for his brand value because if same product is available at lower price in the same
market then consumers will tend to buy product at low price.26
But national exhaustion encourages the competition of trademarked goods in foreign market.
For example if a good has been sold in India then it cannot be further sold or dealt with in
foreign country whereas owner can start his business in that country and get benefit. The
prices at which products are sold can vary from country to country for a great variety of
legitimate reasons, among them differences in regulatory requirements, environmental
standards, labour and material costs, and government subsidies and taxes. So in case of
national exhaustion, owner can adjust the price of product according to the condition of
country and get can economic advantages.

25 https://spicyip.com/2013/08/intavening-in-supreme-court-parallel.html

26
http://www.inta.org/Advocacy/Pages/ExhaustionofTrademarkRightsandParallelImp
ortation.aspx
I also come to know that exhaustion principle in trademark law does not take away rights of
trademark proprietor absolutely. Proprietor has rights to the goods if there is some change or
impaired in the condition of the goods after they have been put on the market.27
This exhaustion principle is very necessary for the free flow of market. If there is no
exhaustion principle then we would not be able to deal with the goods of others and that
would be bad for economy, also there will be no benefit arising from the goods. Trademarks
rights are there to protect the creativity of owner of those rights but this creativity would be
of no use if it wont be available to general public.

BIBLIOGRAPHY

Primary sources

1. Cases:
Xerox Corporation v Puneet Suri
Samsung Electronics Company Limited v Kapil Wadhwa,
Kapil Wadhwa v Samsung Electronics Company Limited

2. Acts:
Indian Trademark Act, 1999

Secondary sources

Books:

1. IPR Infringement and Remedy, Ananth Padmanabhan.

2. Intellectual property, Law and Practise, Elizabeth Verkey
3. Intellectual Property: Patents, Copyrights, TM and Allied rights, W. Cornish
4. Trademark and passing off, Venkateshwaran, volume 1, 5th ed.
5. Trade mark and passing off, P. Narayanan, 6th ed.
6. Intellectual property law, L. Bently and B. Sherman, 3rd edition

Articles:

1. Kaoru Takamastu, Parallel importation of trademarked good: A comparative Analysis.

2. Shamnad Basheer and Mrinalini Kochupillai, Exhausting Patent Rights in India:
Parallel Import and TRIPS compliance, Journal of IPR, vol 13,

27 Section 30 (4) of the trade marks act, 1999.