In my professional practice, there are recurrent consultations generated as a result of the collision between the exhaustion of trademark rights and the legality of parallel imports, mainly for trademark holders. In Costa Rica, as in many other jurisdictions, freedom of trade is enshrined in the Magna Carta, and is considered a fundamental guarantee. In turn, trademark owners have exclusive rights over their intangible assets, and seek to protect them at all costs. Where does the conflict or impact originate, primarily for trademark owners? The following is an overview of the reality of these two figures under the Costa Rican regulatory framework.
- Let us first define
In order to understand the scope of the coexistence of the figures we are dealing with in this article, it is necessary to begin by understanding the concepts as such.
As far as trademark owners are concerned, the Law of Trademarks and Other Distinctive Signs (Law 7978) in its art. 27, establishes the following as exhaustion of trademark rights :
The registration of the trademark does not confer to its owner the right to prohibit a third party from using the trademark, on legitimately marked products that have been introduced in commerce, in the country or abroad, by said owner or another person who has the owner’s consent, provided that such products and the containers or packaging that are in immediate contact with them have not suffered any modification, alteration or deterioration and that they do not cause damage to the owner or successor in title.
This principle of exhaustion of the trademark right is also embodied in an international instrument through the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), where it was established that each country will respect the exhaustion regime, which contemplates the possibility that the exclusive right of the holder to control the distribution of a protected good expires after the first act of distribution.
For its part, and concerning free trade, parallel imports are defined by the Commission to Promote Competition (“COPROCOMâ€) as follows:
“Parallel importation is the purchase and importation of products outside the distribution channels contractually negotiated by the manufacturer.â€
Additionally, the glossary of the Costa Rican National Registry complements the definition by stating:
“Parallel Imports: when a product legally manufactured abroad (i.e., not a pirated product) is imported without permission of the holder of the intellectual property right (e.g., the holder of a trademark or patent).â€
From the definitions pointed out above we understand that, the conflict arises for a trademark holder when its exclusive right is exhausted, and by the freedom of trade, it is possible for third parties to market products or services with its trademark, without necessarily infringing an Industrial Property right.
- There are exceptions
However, such freedom of trade is not absolute. At the level of protection of trademark rights, the implementation of parallel importation of products implies the particularity of the exhaustion of the trademark right, understood as the loss of the right of the trademark holder to prevent the commercialization of its product under its trademark within the trade by a third party but provided that it has been lawfully placed on the market.
Based on the above, it must be understood that, although every holder of a registered trademark has the exclusive right to prevent third parties from using its trademark without its consent, there is an exception referred to the above-mentioned special law, and that is that this right of the trademark holder will be exhausted with the first commercialization of the products and trademark made by the holder or duly authorized third parties, that is, from this first commercialization, the products become of free trade and the trademark holder cannot prevent its commercialization.
It is important to point out that, both the national regulations through the Law of Trademarks and Other Distinctive Signs, as well as internationally through the TRIPS, it is clear and established that the products commercialized thanks to parallel imports, must be considered licit only if they are not counterfeit or pirated goods, that is, they must be original and authentic products that have been previously sold with the consent of their trademark holder, this in order not to infringe the Intellectual Property Rights. By the foregoing, there is an exception to this exhaustion of the right of the owner to claim the use of its trademark and product, precisely when such use is causing damage to its owner or the product has suffered some modification or alteration. The above is a search by the legislator to protect both the right holder and the consumer, so that the exhaustion of the right will not be absolute.
- Trademark registration: Fundamental
From the foregoing, it can be deduced that having the legal protection of the trademark and knowing about its due registration before the Intellectual Property Registry, is of utmost relevance to be able to enforce the rights granted by such registration. It is thanks to this granted right that legal tools will be available to combat both the commercialization and importation of counterfeit products, leveraged in turn, in the provisions of the Law on Procedures for the Enforcement of Intellectual Property Rights. This law provides civil and criminal penalties for anyone who violates any intellectual property right within the national territory or at the border when attempting to enter the product.
- Coping with reality
The reality reflects, in some scenarios, a vulnerability for trademark owners in the face of parallel imports, which not only impacts them at an economic level but also at a competition and reputational level. However, it is also important to understand and consider the existing regulations that seek both to promote free trade and to safeguard intellectual property. No legal system is perfect and, while there is no magic formula to control some circumstances, alternative measures developed with legal counsel can mitigate potential intellectual property abuses.
