DOCTRINE

OF EXHAUSTION IN RELATION TO COPYRIGHT LAW IN INDIA

AND PARALLEL IMPORTS

SANKALP JAIN*

INTRODUCTION

Outshone during much of its days of inception by the greater economic worth of patents
and trademark, law of copyright, by the end of the twentieth century could overtake
both in economic importance. The surging pace of technological innovation got
reverberated in the copyright law widening its spectrum to embrace literary works to
musical, artistic, dramatic works, computer programmes, sound recordings and films.
Common law notion of copyright protection initially had nothing to do with the
protection of authors.1 Author came upon as a subsequent development and even then
he appeared only as an instrument used by the stationers (publishers) to protect their
interests. 2 Accordingly, the traditional perception of copyright was restricted to the
monopoly in excluding others from making unauthorized copies of works of authorship.

Through the global consensus on the standardization of the intellectual property laws by
way of the Trade Related Aspects of Intellectual Property Rights (TRIPS), the
contemporary understanding of copyright has been widened to encompass many other
rights in addition to the right of reproduction, namely right of translation, right of
distribution, adaptation rights, broadcasting and related rights, right to communicate to
the public etc.3 The law having envisioned of conferring the owner (author) with the
exclusive right to authorize or prohibit certain uses of his work is central to provide the

*
sankalp_jain11@yahoo.com.
1
While in the Civil Law countries, copyright was recognized as author’s right or droit d’auteur’ wherein the
idea was to protect the moral rights of the author rather than the economic value attached to the work.
2
In 1557, the King issued royal prerogatives in the form of a grant to the Company of Stationers of London
to print copies of certain books, and the company had the responsibility of ensuring that every book
published in England was authorized by the crown’s censors. It is from this that the modern concept of
copyright developed.
3
TRIPs under Article 9 provide that the members shall comply with Articles 1 through 21 of the Berne
Convention (1971) and the Appendix thereto, excluding Article 6bis.

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right owners with some element of control over the exploitation of their works in the
global networks of this information age.4

DOCTRINE OF EXHAUSTION

In intellectual property law, “exhaustion” refers to the extinction of the entitlement to
prevent the further sale of a product once the product has been put on the market.5
Developing such a limitation becomes necessary in order to reconcile the exclusivity
granted under intellectual property laws and the requirement of modern commerce and
trade.6 Copyright law aims to protect the expression of an idea in the form of a literary,
artistic, dramatic, musical work etc. only when it has been fixed in any tangible medium
i.e. literary work may in the form of hard copies as books or soft copies in electronic
form, or in case of cinematograph films in the form of CDs/DVDs. Incontrovertibly the
copyright of the owner would continue to subsist in the work even after the sale of a
copy of his work and endure for a term of sixty years beyond after his death,7 but
whether or not the owner could have a hold over the subsequent sales also is an issue
dealt with differently by different legal regimes. There had been a sufficient amount of
controversy concerning the legal status of the copyright of the work that has been sold.8

Conceptually, the copyright owner’s monopolistic right of distribution is limited to sell
the copy of the copyrighted work only once and the subsequent sales performed even
without his consent or authorization would not amount to an infringement of the
copyright subsisting in the work itself. It is because the owner’s distribution right is
deemed to have got exhausted by the first sale, such a scenario gives rise to the Doctrine
of Exhaustion. Principle of Exhaustion or the ‘First Sale Doctrine’9 in copyright regime

4
Kevin Garnett, Jonathan Rayner James et. al. (eds.), Copinger and Skone James on Copyright, 1 (Sweet &
th
Maxwell, London, 14 edn. 1999).
5
Raul Iturralde Gonzalez, “Parallel Imports: A Copyright Problem with No Copyright Solution.” Graduate
Department of the Faculty of Law University of Toronto 2 (2009)
6
Namrata Sharma, “Parallel Imports,” available at: http://jurisonline.in/2008/09/parallel-imports/ (last
visited on April 12, 2015).
7
S. 22, Indian Copyright Act, 1957.
8
Aishwarya Padmanabhan, “Doctrine of Exhaustion in Copyright Laws and its Compliance with TRIPs,” 160
Company Cases 22 (2010).
9
17 USC S. 109(a) has codified the common law doctrine of exhaustion as ‘First Sale Doctrine.’

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consequently means that once a copy of the copyrighted work is sold, the exclusive right
of the owner to sell or distribute a copy of the work is exhausted by the first sale of such
copy, and that the owner of the copyright loses the right to control any subsequent sales
of that particular copy of the work.

The Agreement on TRIPS though mentioned the doctrine,10 was unmindful of addressing
the scope of its application in the municipal laws, so as to set a standard. It permits each
country to establish its own rules on exhaustion, so long as the policy meets basic non-
discrimination principles. In the USA11 and European Union,12 the distribution right of
the owner gets terminated after putting into circulation the first copy of the work, while
in some other jurisdictions there are no specific provisions in the governing statutes to
take care of the concern. Yet another problem with the doctrine is that it can apply
territorially in different extends, resulting in ‘regional,’ ‘domestic’ or ‘international’
exhaustion, unless specified explicitly.13 As a result of these, the doctrine of exhaustion
in its theoretical form is not inevitably applicable to all kinds of copyrighted works
uniformly across the globe and that each country decides what is best for its internal
market.

10
Article 6, TRIPs provides 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.”
11
S. 109(a) of 17 USC provides that “Notwithstanding the provisions of section 106(3), the owner of a
particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is
entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of
that copy or phonorecord….”
12 nd
Directive 2001/29/EC of the European Parliament and Council of 22 May 2001, Art. 4(2) says that “the
distribution right shall not be exhausted within the Community in respect of the original or copies of the
work, except where the first sale or other transfer of ownership in the Community of that object is made
by the right holder or with his consent.”
13
According to ‘regional’ exhaustion the right of distribution would be exhausted only within a specified
territory in which the copyright owner intends that the particular copy of the work be sold, and the right
beyond the territory would remain intact. ‘National’ exhaustion means that the right of distribution would
get exhausted by the first sale only within the national territorial limits. The copyright owner would lose all
his rights regarding the resale of the copy of his work throughout the world, once put in circulation
anywhere in the world, in ‘international’ exhaustion.

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DOCTRINE OF EXHAUSTION AND INDIAN COPYRIGHT LAW

Under the Indian Copyright Act, 1957 the range of economic rights available to the
owner of a copyrighted work are detailed in Section 14, with several provisions that deal
with various kinds of works, which can broadly be categorized as right of reproduction,
distribution, adaptation, and communication to the public. The application of principle
of exhaustion needs to be gathered from the spirit of the provision as there is no express
recognition of the same in words. The distribution right with regard to different
copyrighted works is dealt, with certain significant disparity under the Section, as:

(a) In case of literary, dramatic or musical work, not bring a computer programme,
to issue copies of the work to the public not being copies already in circulation14

(b) In case of a computer programme, to issue copies of a computer programme to
the public not being copies already in circulation and to sell or give on
commercial rental or offer for sale or for commercial rental any copy of the
computer programme where the programme itself is the essential object of
rental15

(c) In case of an artistic work, to issue copies of the work to the public not being
copies already in circulation16

(d) In case of a cinematograph film, to sell or give on hire or offer for sale or hire any
copy of the film regardless of whether such copy has been sold or given on hire on
earlier occasions17

(e) In case of a sound recording, to sell or give on hire or offer for sale or hire any
copy of the sound recording regardless of whether such copy has been sold or
given on hire on earlier occasions18

14
Supra note 7, S. 14 (a)(ii).
15
S. 14(b)(i) & (ii).
16
S. 14(c)(iii).
17
S. 14(d)(ii).
18
S. 14(e)(ii).

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An explanation to the Section says that “for the purposes of this section, a copy which
has been sold once shall be considered to be a copy already in circulation.” But the Act
does not elucidate where it is deemed to be in circulation, and thus, it has been left
open to be decided as to whether the principle of exhaustion that can be inferred from
Section 14 would have regional, national or international application. Defining the scope
of exhaustion is essential for the publishing industry as their internationally-accepted
business models predominantly thrive on the territorial division of rights which
facilitates their publishing country-specific editions.19

If one appreciates the language used in Section 51 which defines infringement, copyright
infringement would occur in case of imports, only when a person imports into India any
infringing copies of a work.20 Section 53 prevents importation of infringing copies made
outside India, which if made in India by the same person who made them outside India,
would infringe copyright. By implication if the imported copies are made by the
copyright holder in India exported and then re-imported, the copyright holder’s right to
block such copies from entering the country may be deemed to be exhausted and such
copies may not be deemed to be “infringing copies.” These can be together interpreted
to mean that the import of authorized copies of the copyrighted work would not
amount to an infringement, and additionally since there is no express bar in exportation
of works it should be probable to deduce that Indian law would allow such exportation,
and if that were the case we could be considered to follow a tenet of international
exhaustion with respect to copyright law.21 Berne Convention, 1886 to which India is a
signatory declares the law of the country of import applicable to decide whether the
imported copy infringes a copyright.22

19
“The Exhaustion of Rights and the Possible Effect of the Copyright (Amendment) Bill, 2010,” The
Practical Lawyer (April 10, 2012) available at: http://www.ebc-india.com/practicallawyer. (last visited on
April 12, 2015).
20
S. 51(b)(iv): Copyright in a work shall be deemed to be infringed when a person imports into India any
infringing copies of the work.
21
Supra note 8 at 25.
22
Art. 5(2), Berne Convention for the Protection of Literary and Artistic Works, 1886: “The enjoyment and
the exercise of these rights shall not be subject to any formality; such enjoyment and such exercise shall
be independent of the existence of protection in the country of origin of the work. Consequently, apart
from the provisions of this Convention, the extent of protection, as well as the means of redress afforded

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Initially, our judiciary was not willing to endorse this view conclusively, rather was
inclined to hold that as far as literary works are concerned, the exhaustion of rights
happen on the first legal sale of a copy of a work, only within the territory in which the
copyright owner proposed the work to be sold.23 The rationale adopted by the court was
that the importer was publishing the work through such importation which was the
exclusive right granted to the owner of the copyright. The decision was severely
appraised, since recognizing ‘right of importation’ was more of a policy matter and not
for the courts to decide.24

Subsequently, S. Ravindra Bhat, J. in Warner Bros. Entertainment Inc. v. V.G. Santosh,25
for the first time explicitly recognised that in the context of copyright law, while the
principle of international exhaustion may apply to literary, musical, dramatic or artistic
works; it does not apply to cinematographic film and to sound recordings as well. The
case involved the import of legally purchased DVDs of films produced by Warner
Brothers from USA to India, which were not yet released for public viewing in India. In
his opinion, the Copyright Act has differently worded Section 14(d)(ii) and (e)(ii) and
14(a)(ii)/(b)(i)/(c)(iii), to mean that while under the former, the copyright owner
continues to exercise his right to sell or give on hire a particular copy “regardless of
whether such copy has been sold or given on hire on earlier occasions”; under the latter,
he ceases to exercise these rights over copies which are “already in circulation.” This
interpretation flowed also on the ground that since owners of copyright in
cinematograph films/sound recordings can exercise their right to distribute the work
through licences which can be limited geographically, accepting international exhaustion
would permit a licensee, who acquires a copy, to exploit the copies beyond his
contractually imposed geographical limit and thus nullify the object of geographically

to the author to protect his rights, shall be governed exclusively by the laws of the country where
protection is claimed.”
23
Penguin Books Ltd. London v. India Book Distributors, AIR 1985 Delhi 29- Plaintiffs had the exclusive right
and licence to print, publics and market 23 copyrighted works in India. Defendant imported lawful copies
of these books from America and sold it in India. On the question whether the copies imported were
infringing copies, it was held that “if any person without the licence of the copyright owner imports into
India any literary work for the purpose of trade the copyright over the same is infringed.”
24
Arathi Ashok, “Economic Rights of Authors under Copyright Law: Some Emerging Judicial Trends,” 15 (1)
JIPR 46 (2010).
25
MIPR 2009 (2) 175.

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limited licences. This would essentially mean that the buyer of a cinematographic film or
a sound recording cannot sell or give on hire, his copy of the film or recording without
the previous permission of the copyright owner. However, the buyer of a literary,
musical, dramatic or artistic work does not require any such permission.

As regards literary works, the position of law in India as in force now, holds the view that
“the applicability of first sale doctrine qua the sales effected by the exclusive licencee to
the defendants will at best exhaust the rights of the exclusive licencees to complain of
infringement and not the rights of the owner. The right of the owner to complain for
remaining infringement in unauthorised territories for violation of the permission
granted and violation of rights will remain intact.” 26 The dictum was reiterated
subsequently that “market segmentation- either vertically, or horizontally, in terms of
geographical areas, or in terms of copies authorized to be made, or sold or rented, is an
integral part of a copyright proprietor's legitimate strategy to exploit his exclusive rights.
The sale, and offer for sale, of such low priced editions, meant for exclusive use in India,
by the defendant, who is clearly targeting overseas buyers, to whom such products
cannot be sold at Indian prices, constitutes acts of infringement under Section 51.”27
Thus, the interesting outcome of the decisions would be that the applicability of first
sale doctrine in literary works would partially exhaust the rights of the licencee and not
of the owner of the copyright.

Under the Act, since there is no pre-requisite that the pertinent copy not already in
distribution for the copyright owner of a film/sound recording to have the exclusive right
to issue it to the public, the owners may wholly circumvent the necessities of Sections 14
(a)(ii), 14(b)(i) or 14(c)(iii) regarding copies not being already in circulation. 28 These
provisions are henceforth, said to have prevented the development of a legitimate

26
John Wiley and Sons Inc. v. Prabhat Chandra Kumar Jain, 170 (2010) DLT 701- Plaintiffs were pioneers in
the field of publishing books which were circulated worldwide, and the books were available globally at
prices as settled by them. They decided to expand their operations in India, and so introduced Low Price
Editions (LPE). The books thus published were subjected to territorial restrictions. Defendant offered
online sale and delivery of the Low Price Editions of the plaintiffs’ publications to western countries (for
which they were not meant) without the permission of the plaintiffs.
27
John Wiley and Sons Inc. v. International Book Store, 2010 (43) PTC 496 (Del).
28
Supra note 8 at 27.

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second hand market in films and sound recordings, without the consent of the copyright
owners. But in this age where mushrooming piracy and related activities are ruining the
entertainment sector, the spirit of the provision can be thoroughly appreciated too,
since such illicit acts would not only reduce sales but also would detrimentally affect the
motivation of creators to produce new works as the income on the investments would
not be assured.

The result has been that Indian Copyright Act does not recognize the doctrine of
exhaustion on either films or sound recordings. While Sections 14(d)(ii) and 14(e)(ii)
would definitely give a leverage to the production houses and the music companies, to
recoup their investments, it is uncertain as to what extent they would in fact be able to
do so, and whether it would in turn enhance the money payable to the authors of the
underlying works contained in films/ sound recordings.

RENTAL RIGHTS AND PRINCIPLE OF EXHAUSTION

Rental Rights are considerably new addition to the copyright jurisprudence. Article 1129
of TRIPS necessitates that the rental rights be made available in respect of computer
programmes and films. Even prior to this mandate, USA had introduced the Computer
Software Rental Amendments Act, 1990 30 and the Record Rental Amendment Act,
198431 thereby amending the relevant provisions in 17 USC Section 109 so as to prevent
the rental, lease or lending of a ‘computer program’ or ‘phonorecord,’ respectively, for
direct or indirect commercial gain unless authorized by the owner of copyright in the
program. In India, along with the right to issue copies of software to the public which are
copies not already in circulation, the owners of computer programmes have the
supplementary right to sell or give on commercial rental any copy of the relevant

29
Art. 11, TRIPs states that “In respect of at least computer programs and cinematographic works, a
Member shall provide authors and their successors in title the right to authorize or to prohibit the
commercial rental to the public of originals or copies of their copyright works. A Member shall be
excepted from this obligation in respect of cinematographic works unless such rental has led to
widespread copying of such works which is materially impairing the exclusive right of reproduction
conferred in that Member on authors and their successors in title. In respect of computer programs, this
obligation does not apply to rentals where the program itself is not the essential object of the rental.”
30
Available at: http://old.cni.org/docs/infopols/US.Comp.Software.Rental.html.
31
Available at: http://law.copyrightdata.com/public_laws.php.

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computer programme as long as the programme itself is the essential object of the
rental.32

The provision was intended ‘to facilitate the flow of remuneration to copyright owners
which may be assisted by appropriate collection administration through copyright
societies, theses rights will also provide an added safeguard against distribution of
infringing copies.’33 Nonetheless, it is argued that the right of resale under Section
14(b)(ii) overlaps with the right of resale in Section 14(b)(i) and the contradiction could
dilute or even negate the objectives envisaged.34 The scope of interpretation can be
widened to mean that the principle of exhaustion would apply to computer programmes
in the same way that it applies to the literary, dramatic, musical or artistic works under
Section 14(a)(ii) or Section 14(c)(iii); or that Section 14 (b)(ii) shall take precedence over
Section 14(b)(i) which would give an unequivocal exception to the doctrine of
exhaustion, to computer programmes, under our copyright law.

INTERNATIONAL EXHAUSTION AND PARALLEL IMPORTS

In cases of domestic or regional exhaustion, the owner retains the right to restrict
import of copies made abroad into the domestic market or the region respectively. But
with international exhaustion this right is lost on the first sale making the holders
unsuitable to halt the importation of original products. This in turn would lead to the
phenomenon known as ‘parallel imports’ whereby an unauthorized third party imports
cheaper but legitimate copies from one country to another, to sell them in parallel with
the same yet more expensive legitimate copies which are imported with the consent of
the copyright owner, thereby bypassing the authorized supply channels in the importing
country. Principle of International exhaustion which triggers the practice of parallel
imports, thus, have varied ramifications on the economics of intellectual property
protection “because of price differences in the global marketplace.”35

32
S. 14(b)(ii) inserted by Copyright (Amendment) Act, 1999.
33
Statement of Objects and Reasons, Copyright (Amendment) Bill, 1992.
34
Supra note 8 at 27.
35
Lawrence M. Friedman, “Business and Legal Strategies for Combating Grey-Market Imports,” 32 Int´l
Law 27, 28 (1998).

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The first case in USA that discussed the principle of international exhaustion was Bobbs-
Merrill Co. v. Strauss,36 a case which dealt with sales of books below the price cover,
despite there being a notice on the book that prohibited this. The US Supreme Court
found that this notice was not enough to prevent the future sale of the books and held
that copyright holders did not have the statutory right to control the price of subsequent
resale of copies of their work purchased lawfully.

Parallel imports refer to the legal importation of products which has some form of
intellectual property right attached to them. The imported product can come in direct
competition with the similar product available at the local market surpassing the latter’s
significance, with cheaper prices, adversely affecting the interests of the IPR holder. The
scope of protection available to the holder in such cases has to be ascertained weighing
the provisions of the municipal law in force. This is not an issue restricted to the realm of
copyright law, but its impact is felt prominently in other areas of commercial interests
like patent and trademark also.37

ECONOMICS OF PARALLEL IMPORTS

It is purely a policy matter for each national jurisdiction to choose or not to choose on
adopting parallel imports into their domestic market. There are always impatient buyers
who are willing to pay higher prices for quicker delivery or product versions with higher
quality and there are always patient consumers who would prefer to save money by
waiting or accepting less quality. Parallel import or ‘grey-market trade’ as it is popularly
known, can exploit either a retail price differential between two markets or a mark-up

36
210 U.S. 339 (1908).
37
As per the Indian law, in the context of Patents Act, 1970 though Section 48 confers upon the Patentee
an exclusive right to prevent third parties, from the act of making, using, offering for sale, selling or
importing for those purposes the patented product or the product directly obtained by the patented
process in India, without his consent; Section 107A(b) provides that, importation of patented products by
any person from a person who is duly authorized by the patentee to sell or distribute the product shall not
be considered as an infringement of patent right. Trademarks Act, 1999 under Section 30(3) provides that
where the goods bearing a registered trade mark are lawfully acquired, the further sale or other dealings
in such goods by the purchaser or by a person claiming to represent him is not considered as an
infringement if the goods have been put on the market under such mark by the proprietor or with his
consent. But as per section 30(4), such goods should not be altered or impaired materially after they were
put on the market.

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between the wholesale price in one country and the retail price in another sufficient to
cover the costs of procuring and shipping goods.38 The economic ramifications that it can
raise can be twofold: creation of a parallel rival market to the importer and leverage to
the domestic consumers with availability of affordable goods at price-sensitive markets,
while deprivation of the copyright owner’s monopoly to enjoy his rights and lessening
their incentive to innovate. Some economists opine that market segmentation and price
differentiation may generate greater welfare gains than is available under a uniform
price, because as additional markets are established, both consumer surplus and
producer surplus rise. 39 But parallel imports would in any case be too blunt an
instrument to deal with the piracy problem.40 And the likelihood of unrestricted parallel
imports effecting in ‘dumping’41 of goods cannot also be overlooked.

INDIAN COPYRIGHT (AMENDMENT) ACT, 2012

The Indian Copyright Amendment Bill, 2010 envisioned to incorporate the principle of
international exhaustion to all classes of works through amendments to section 2(m)
that defines infringing copies42 and to Sections 14(d)(ii) and Section 14(e)(ii) that affect
the films and sound recordings,43 thereby giving a green signal to parallel imports in the
copyright regime too. The Parliamentary Standing Committee for Review is said to have
hailed the provision Section 2(m) for “the interests of students will be best protected if
they have access to latest editions of the books.”44 ‘Hire’ as used in Sections 14(d)(ii) and
14(e)(iii) was proposed to be replaced with ‘commercial rental’ based on a clear

Keith E. Maskus, “The Curious Economics of Parallel Imports,” 2 (1) W.I.P.O.J 123 (2010).
38

39
Id. at 126.
40
Christopher Heath, “Exhaustion and parallel imports in Asia,” 33(5) IIC 622 (2003).
41
Dumping is any kind of predatory pricing, especially in the context of international trade which occurs
when manufacturers export a product to another country at a price either below the price charged in its
home market, or in quantities that cannot be explained through normal market competition. Available at:
http://en.wikipedia.org/wiki/Dumping_(pricing_policy) (last visited on April 11, 2015).
42
“Provided that a copy of a work published in any country outside India with the permission of the
author of the work and imported from that country into India shall not be deemed to be an infringing
copy.”
43
The words “regardless of whether such copy has been sold or given on hire on earlier occasions” in S.
14(d)(ii) and 14(e)(ii) are proposed to be deleted.
44
Shamnad Bhasheer, “Parallel Imports: The Unexpected Dumping of Section 2(m)” available at:
http://spicyipindia.blogspot.in/2011/09/parallel-imports-unexpected-dumping-of.html (last visited on
April 11, 2015).

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definition that would act as an exception to the applicability of international
exhaustion. 45 “Commercial rental” as proposed, would apply not only to sound
recordings and computer programmes but also to cinematographic films, thereby falling
squarely within under Article 11 of the TRIPS whereby Members are obligated to enable
owners of cinematographic films to prohibit or authorise sale or commercial rental of
originals or copies only if such rental has led to widespread copying which materially
impairs the reproduction right of the owner.

Even though the suggested amendments were found to be throwing open a certain
amount of ambiguity as regards the applicability of principle of international exhaustion
over cinematograph films and sound recordings which would restrict the application of
doctrine of international exhaustion over the copyright regime in India, but still it was
believed that the proposed amendments by way of the copyright Amendment Bill, 2010
would bring symmetry in the application of the principle of international exhaustion
across the three genres of IP – Trademark, Patent and Copyright.

The proposed amendments finally saw the light of the day with the passing of Copyright
(Amendment) Act, 2012. The relevant provisions of TRIPS Agreement,46 WIPO Copyright
47 48
Treaty and WIPO Performances and Phonogram Treaty which provide for
‘commercial rental’ got incorporated into the Amendment Act. The Amendment Act
replaces the word ‘hire’ with ‘commercial rental’ in Sections 14(d) and (e) with regard to
cinematograph film and sound recording respectively. The primary reason behind the
replacement is to curtail the possibility of interpreting the term ‘hire’ to include non-
commercial hire and also to keep in sync with the 1999 amendment of the term ‘hire’ to
‘commercial rental’ with respect to computer programme in section 14(b).

45
Proposed Section 2(fa) defines that “commercial rental” does not include the rental, lease or lending of
a lawfully acquired copy of a computer programme, sound recording, visual recording or cinematographic
film for non-profit purposes by a non-profit library or non-profit educational institution.
46
Art. 11, TRIPS Agreement.
47
Art. 7, WCT, 1996.
48
Art.9, WPPT, 1996.

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The Amendment has deleted the words ‘regardless of whether such copy has been sold
or given on hire on earlier occasions’. This deletion in the case of both cinematograph
films and sound recordings brings in the doctrine of first sale exhaustion to these works.
It may be recalled that the doctrine of first sale exhaustion was applicable only to the
literary, dramatic and artistic works before the Amendment. The Amendment Act of
2012 has also introduced a definition of the term ‘commercial rental’ in Section 2(fa)
with the objective of expressly clarifying that the right is not applicable to non-
commercial activities of giving on ‘hire’ including the activities of libraries and
educational institutions.

CONCLUSION

The doctrine of international exhaustion has always seemed to be difficult to reconcile
with the underlying systems of national IP rights but avoids the practical problems and
trade barriers of the territorial principle.49 Accordingly, many developing countries are
lobbying for the adoption of a policy of “international exhaustion” to be adopted at the
WTO.50

Late back in 1998 itself, the US Supreme Court had ruled on the legitimacy of parallel
imports with the view that “a copyright holder could not restrict redistribution of
material containing copyrighted content (authorized by him) which is imported into the
United States as so-called ‘grey market’ goods.” 51 The importation of goods first
manufactured outside the United States under the copyright laws of other countries was
specifically excluded from that decision, leaving unclear whether goods ‘lawfully made’

49
Nandita Saikia, “What is International Exhaustion,” available at:
http://copyright.lawmatters.in/2011/02/what-is-international-exhaustion.html (last visited on April 6,
2015).
50
Tommaso M. Valletti & Stefan Szymanski, “Parallel Trade, International Exhaustion and Intellectual
Property Rights: A Welfare Analysis” (October 2003).
51
Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135- The case involved the
distribution of hair care products bearing a copyrighted label. Respondent, L’anza sold his hair care
products to distributors in USA. One of the distributors sold the goods to petitioner who imported them
back into the country without L’anza’s permission and then resold them at discounted prices to
unauthorized retailers.

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under the Copyright Act ‘outside the United States’ also could benefit from the first sale
doctrine.52

Recently, in Omega v. Costco Wholesale Corp.53 the circuit court granted a certiorari and
the American Supreme Court on review of the issue ‘whether the principle of
international exhaustion applies to copyrighted works that are manufactured abroad?’
held that “because the Omega watches at issue were made outside of the United States,
the first sale doctrine could not act as a defense and that Costco was liable for infringing
Omega’s importation rights.”54

The need for some kind of uniformity in the application of the principle of exhaustion
globally would be a welcome step to curb the creeping of unfair trade practices in cross-
border trade. At the same time, we shall not turn oblivious to the fact that the possible
impact of introducing the principle in the fields like cinematograph films, sound
recording where the possibility of abuse is blatant, is critically apprehensive.
Expectantly, the Supreme Court or a State High Court would come out with some ruling
that may set a benchmark in this area in accordance with the latest amendments
pertaining to ‘commercial rental’ inserted by the Copyright Amendment Act, 2012.

Both copyrights and author’s rights are based on the idea of protecting the effort of
authors, that is put into the development and construction of works by allowing them to
obtain a reward for the sale of their works and avoiding their unauthorized
reproduction. Nonetheless, this protection falls short in cases where no unauthorized
reproduction has been made and where authors have already obtained a reward for the
sale of their works as in the case of parallel imports. Many view this mostly as a trade
issue rather than an issue under intellectual property rights. Being a trade matter, the

52
Timm Neu, “Bollywood is Coming! Copyright and Film Industry Issues Regarding International Film Co-
productions Involving India,” 8 San Diego Int'l L.J. 123 (2006).
53
541 F. 3d 982 (9th Cir. 2008).
54
Costa Wholesale Corp. v. Omega S.A., 562 U. S. (2010) – Omega, the Switzerland based corporation
manufactured high-end watches, and sold it worldwide through authorized network of distributors and
dealers. A third party bought the watches and sold them to a New York company called ENE Limited,
which in turn sold them to Costco. Costco ultimately sold the watches to its customers in California which
allowed them to sell the watches at a lower cost than other U.S. distributors. Omega had not expressly
permitted Costco to sell the particular watches within United States.

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solution for parallel imports must be found in the economic policies of each country
which have to decide the best exhaustion policy for their market. Accordingly, it is
suggested that the competition law shall be more apt to deal with the issue rather than
intellectual property laws.

It is not wise to make a categorization of parallel imports either as beneficial or harmful;
rather one has to look into the circumstances of a particular geographical area, mindset
of folk and state of economy before giving a definitive answer to the question. That is
the reason why TRIPS has not provided for any mandatory provision in this aspect,
leaving it open for the member countries to tackle it in tune with their economic
interests. It is a matter of balancing the protection required for fostering innovation,
technology transfer and long-term economic growth, with the risk of undue market
power as a result of over protection. In the absence of a true single global market, a
balanced regime of international exhaustion and parallel import would be more harmful
than beneficial to international trade, investment and innovation.

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 BIBLIOGRAPHY


PRIMARY SOURCES: STATUTES, DIRECTIVES, CONVENTIONS & TREATES

1) Berne Convention for the Protection of Literary and Artistic Works, 1886

2) Copyright Act, 1957 (India)

3) Copyright Act, 1976 (US)

4) Copyright (Amendment) Act, 2012 (India)

5) Computer Software Rental Amendments Act, 1990 (US)

6) Directive 2001/29/EC of the European Parliament and Council

7) Patents Act, 1970 (India)

8) Record Rental Amendment Act, 1984 (US)

9) Trademarks Act, 1999 (India)

10) Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement), 1995

11) WIPO Copyright Treaty, 1996

12) WIPO Performances and Phonogram Treaty, 1996

SECONDARY SOURCES: BOOKS & ARTICLES

1) Aishwarya Padmanabhan, “Doctrine of Exhaustion in Copyright Laws and its
Compliance with TRIPs,” 160 Company Cases 22 (2010)
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2) Arathi Ashok, “Economic Rights of Authors under Copyright Law: Some Emerging
Judicial Trends,” 15 (1) JIPR 46 (2010).

3) Christopher Heath, “Exhaustion and parallel imports in Asia,” 33(5) IIC 622
(2003).
4) Keith E. Maskus, “The Curious Economics of Parallel Imports,” 2 (1) W.I.P.O.J 123
(2010).

5) Kevin Garnett, Jonathan Rayner James et. al. (eds.), Copinger and Skone James on
Copyright, 1 (Sweet & Maxwell, London, 14th edn. 1999).

6) Lawrence M. Friedman, “Business and Legal Strategies for Combating Grey-
Market Imports,” 32 Int´l Law 27 (1998).

7) Raul Iturralde Gonzalez, “Parallel Imports: A Copyright Problem with No
Copyright Solution.” Graduate Department of the Faculty of Law University of
Toronto 2 (2009)

8) Timm Neu, “Bollywood is Coming! Copyright and Film Industry Issues Regarding
International Film Co-productions Involving India,” 8 San Diego Int'l L.J. 123
(2006)

9) Tommaso M. Valletti & Stefan Szymanski, “Parallel Trade, International
Exhaustion and Intellectual Property Rights: A Welfare Analysis” (October 2003)

WEB SOURCES

1) Namrata Sharma, “Parallel Imports,” available at:
http://jurisonline.in/2008/09/parallel-imports/ (last visited on April 12, 2015).

2) Nandita Saikia, “What is International Exhaustion,” available at:
http://copyright.lawmatters.in/2011/02/what-is-international-exhaustion.html
(last visited on April 6, 2015).

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3) Shamnad Bhasheer, “Parallel Imports: The Unexpected Dumping of Section 2(m)”
available at: http://spicyipindia.blogspot.in/2011/09/parallel-imports-
unexpected-dumping-of.html (last visited on April 11, 2015).

4) The Exhaustion of Rights and the Possible Effect of the Copyright (Amendment)
Bill, 2010,” The Practical Lawyer (April 10, 2012) available at: http://www.ebc-
india.com/practicallawyer (last visited on April 12, 2015)

CASE LAWS

1) Bobbs-Merrill Co. v. Strauss [210 US 339 (1908)]

2) Costa Wholesale Corp. v. Omega S.A. [562 US (2010)]

3) John Wiley and Sons Inc. v. International Book Store [2010 (43) PTC 496 (Del)]

4) John Wiley and Sons Inc. v. Prabhat Chandra Kumar Jain [170 (2010) DLT 701]

5) Omega v. Costa Wholesale Corp. [541 F. 3d 982 (9th Cir. 2008)]

6) Penguin Books Ltd. London v. India Book Distributors [AIR 1985 Delhi 29]

7) Quality King Distributors, Inc. v. L’anza Research International, Inc. [523 US 135]

8) Warner Bros. Entertainment Inc. v. V.G. Santosh [MIPR 2009 (2) 175]

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