Do you understand what the term “exhaustion” of intellectual property rights refers to? Or that the legislation in this area regulates whether or not the importation of genuine IP-protected products is legal?
If your company is involved in or interested in the flow of items covered by an intellectual property right into Canada, you must grasp the legislation on ‘exhaustion’ of the applicable right in Canada. In truth, the rule on exhaustion differs depending on whatever intellectual property right is at issue.
The law determining whether an intellectual property right (including a registered trademark or a patent) could be enforced through an infringement proceeding against the sale of real products first placed on the market in some other country and then concurrently imported into Canada is referred to as exhaustion.
In contrast to many other nations, Canada’s patent and trademark law does not provide a legislative defense known as “exhaustion.” Rather, when we talk to exhaustion in Canada, we use the word broadly, with the legal issues at hand is slightly different: generally speaking, the rules controlling the evaluation of infringement apply regardless of the geographical origin of the products. This is a ‘common law’ approach, with ideas very similar to those used historically in the UK (and, to some extent, even today) and in Australia. The method is transnational in character, although it may be susceptible to factual limitations.
Patents
There is no law provision in Canada that addresses the issue of “patent exhaustion.” Nonetheless, the essential premise that a purchaser of a patented property receives an implied right to use the product without limitation is supported by Canadian common law. Indeed, Canadian courts have linked a purchaser’s rights to a patented property with an implicit license. However, there are certain exceptions.
When a patent owner transfers a patented product, ownership of that product is passed to the buyer. As a result, subject to any agreed-upon restrictions, the purchaser has the exclusive right to do anything it wants with the product without risk of breaching the patent, and the patentee no longer has any rights to that product. If a patentee imposes restrictive terms on a purchaser or licensee, such limitations may run with the products if they are conveyed to the purchaser’s notice at the time the product is purchased.
As a result, the essential question is whether the product was offered with or without limitations. If no limits are placed, the purchaser gains general property rights in the product, and the patentee’s rights in that product are essentially exhausted. When a patentee fails to express to consumers any restrictions on the use of its products that would override the implied right or license to use, the buyer is free to use the property without limitation.
Practically speaking, a patent owner can now allege patent infringement if a purchaser of the patentee’s products breached any applicable restrictions. This patent infringement claim would be in addition to any contractual claims that the patent owner may have.
Another somewhat similar problem under Canadian law is the difference between “repair” of a patented product and “reconstruction” or “remanufacture” of a patented product. An authorized purchaser of a copyrighted product may repair it; but, such a purchaser will violate the patent if the “repair” amounts to a reconstruction. Thus, even if a purchaser legitimately purchases a product from a patent owner without any restrictions, further activities by the purchaser may establish patent infringement if the subsequent activities are of the remanufacturing type.
Trademarks
The Trademarks Act of Canada does not clearly provide for exhaustion, but courts in Canada apply it as a general concept in their decisions.
Furthermore, the idea of international exhaustion is frequently followed by Canadian courts. This implies that even if the brand owner sells a pair of hiking boots outside of Canada (for example, in the United States), exhaustion normally applies when that same pair of boots are imported into and resold in Canada. As a result, it might be difficult to prohibit third parties from purchasing legitimate / branded items from a brand owner in other countries and reselling them in Canada without authorization. Because the items involved are genuine, the courts do not consider these “grey market” goods / “parallel imports” to be intrinsically obnoxious to trademark rights. However, even reselling genuine items might result in liability or injunctive remedy if done in a fraudulent manner to customers.
Another type of misrepresentation that can result in liability is when a reseller fraudulently represents to consumers that it has a relationship with the brand owner, such as being its approved or exclusive distributor. In a recent decision, the Federal Court of Canada determined that falsely claiming to be a brand owner’s exclusive distributor can constitute passing off (even if the goods were authentic); in that case, the Court determined that the defendant’s misrepresentation had deceived consumers and harmed the brand owner’s reputation.
There are additional resale circumstances in which trademark exhaustion may not apply, such as when the reseller integrates the brand owner’s goods into an entirely new good or service but the brand owner’s trademark stays active; this can result in a discovery of infringement if customers consider the new product (which does not originate from the brand owner) as being branded by the mark, causing confusion as to the source of the new goods. As a result, while Canadian courts generally apply the principle of exhaustion, it does not provide unauthorized resellers with protection against trademark claims in all circumstances.
The list of Canada IP Firms can be found here.