The Danish Group observes that Danish law due to the membership of EU follows the development of EU law. In order to avoid repetitions the observations related to EU law are referred to, but not developed.

The Danish Group further notes that the term "international exhaustion" in the Guidelines is defined as a legal principle adopted unilaterally by one national country as opposed to treaty based "regional exhaustion" such as EU and EEA.

1

The status of Danish law as regards exhaustion

(i)

Patents

Danish law does not accept international exhaustion of patents, except to the extent where such exhaustion is a consequence of EU law or national law harmonised under the EU regime. This implies that a Danish patent, including a European patent valid for Denmark cannot be invoked against import from member states of the EU or EEA, while it can be invoked against import from third countries.

(ii)

Trademarks

The traditional Danish view has been that international exhaustion applies to trademarks. However, as the consequence of the development of EU law (ECJ's decision of 16 July 1998 in case 355/96, Silhouette) this situation has been reversed. In view of the traditional position the official position of the Danish government has been that EU law should be changed in order to provide for international exhaustion for trademarks. However, with the decision of the Council of May 2000 not to pursue the matter it remains firmly established that there is no international exhaustion.

(iii)

Other industrial property rights

The exhaustion principle, as set forth above with regard to patents and trademarks, applies also to design rights and in principle also to other industrial property rights and also to copyright.⁽¹⁾

2

Contractual restrictions

Contractual restrictions imposed upon an industrial property right owner cannot directly limit the effect of international exhaustion in so far as exhaustion takes place. Exhaustion is a matter of law, not a matter of contract. Thereby Danish law distinguishes itself from legal systems that consider the principle of exhaustion as an expression of implied consent.

Nevertheless, a contractual restriction has a practical importance in relation to establishing a "consent". It must be remembered that the exhaustion principle implies that a product that has been put on the market in Denmark or EU/EEA with the "cosent" of the trademark/patent owner can circulate freely within the EU/EEA. This allows a purchaser of a product to assert that the trademark owner has granted a consent, possibly an implicit consent, in so far the goods has as a matter of fact reached the European shore. In order to rebut such assertion a contractual prohibition put on the purchaser in e.g. the US has proved to be important in invoking the trademark right against the import of goods from the US.

The effect of breach of contractual restrictions by a purchaser does not affect the exhaustion as such. Sale of goods in excess of a limited license constitutes infringement, see trademark act, sec. 40. However, the ultimate acquirer of the goods may successfully attempt to argue that the trademark owner by tolerating the breach has consented implicitly. In one case, decided in 1997, U.1997.462 (Carli Gry) the fact that a subcontractor was granted a limited right to sell certain products as own branding and thereby in excess of the otherwise limited license, in combination with lack of control as to how that permission was used, was held to imply that the trademark owner had to bear the risk of breach of contract. By analogy a breach of contract may lead to exhaustion if breach of contract is not reasonably monitored.

3

Contractual restrictions - express/implied

As Danish law does not condition the transborder sale of goods on a contractual prohibition to this effect there is likewise no requirement of express restriction or marking on the goods. By way of example can be mentioned that a product that has been put on the market in the US would not be subject to exhaustion only because an export prohibition is not placed on the product. Nevertheless, marking on the product may have a certain value in excluding arguments of implicit consent and/or lack of monitoring. Furthermore the marking would be of importance in connection with possible retroactive sanctions such as punishment for violation of trademark rights, which requires intent on the part of the acquirer.

4

Compulsory license

International exhaustion does not apply in respect of products that have been marketed under a compulsory license.

5

Specific Arrangements

Consent giving raise to exhaustion is not limited to specific arrangements.

6

Modified goods

(ii)

Trademarks

Exhaustion does not apply if the product has been changed or modified after having been put on the market, cf. the trademarks act, sec. 7.

Although "the product" as such is not considered to comprise the packaging, not even the original sales packaging, it is, however, established that the IPR owner can always object to exhaustion (1) if the goods or its packaging have been modified in such a manner that the original conditions of the goods have been directly or indirectly affected, and (2) subject to the possible limitation on free flow of goods guaranteed under the EU Treaty, art 30, see below, also where only the sales packagings have been modified.

The issue of modified goods has in recent years been subject to extensive litigation before the European Court of Justice, and the leading cases are the joint cases C 427, 429 and 436/93, Bristol-Myers Squibb v. Paranova et al, decided in 1996. These cases have been followed by three judgments from the Danish Supreme Court, all given in 1999. Put in general words an IPR owner can object to parallel import from within the EU, if (i) the product inside the packaging has been reconditioned or otherwise modified in such a manner that the original condition is changed (a matter the control of which, however, needs not be with the trademark owner, but could be left to public authorities), or (ii) the trademark reaffixed on a new packaging provided by a parallel importer.

However, the latter objection may be set aside in order to secure the free movement of goods within the EU, if the modification is "necessary" to secure the parallel imported product access to the market. This aspect is a peculiar aspect of EU law, as it is not based on IPR considerations, but rather on the principles of free movement of goods. Hence as regards import from third countries, the IPR owner is allowed to object to any modifications and any reaffixing of trademarks after repacking in so far as the matter were to become of importance, e.g. because the principle of regional exhaustion were not applicable or not invoked.

7

Observations

The Danish Group observes

The principle of exhaustion and the principle of implied license can be seen as two alternative conceptual responses to a social/economical need that is bound to arise in all jurisdictions. In so far as a market is unified, economically and legally, the further circulation of a product put on the market presents itself as an obvious practical consequence of the market as such and in the joint interests of the IP owner as well as his customers in order to allow normal free trading. It is in a closed homogenous market of no consequence whether the principle is seen as a legal principle inherent in the right or a quasi-contractual measure (and there are likewise no compelling reasons to prevent the IP owner from extending or limiting the further circulation by contract, id exceptionally this would serve a reasonable purpose).

In so far as there is a political desire to create a single market, a mandatory exhaustion principle is, however, a logical political consequence, such as established within the EU.

Global exhaustion is on the other hand not economically well founded (as several studies have shown) and furthermore not justified as a legal principle, as IP rights so far are inherently national.

The Danish Group therefore opposes a mandatory global exhaustion and supports a principle where trans-regional exhaustion is not extended beyond the region, except if explicitly consented to.

Use of marking may to a certain extent be used as a tool to secure proof and avoid inadvertent mistakes. However, realistically marking may be removed and proof of marking should not be mandatory to avoid international exhaustion.

In so far as regional or international exhaustion do apply the parallel importer shall be prevented from modifying the product or its packaging. This prohibition is necessary to protect the interest of the IP owner and minimise the risk of fraud.

The Danish Group supports the resolution of 1991 in respect of Q 101, emphasising however, that not only a legal analysis of a conceptual nature, but also economical analyses speak against international exhaustion.

(1)With respect to copyright the analysis is more complex because a copyright is not territorial in nature and because a possible exhaustion does not apply to all rights belonging to a copyright owner. In particular an owner of a copyright who has put the copyrighted work on the market in one country may have exhausted the right to protest against the further circulation of that specific bearer of the copyright through sale, but not the right to control of the forms of distribution, e.g. lending out of copyrighted items. Furthermore, since there has been no complete harmonisation within the EU of the copyright act, the principles of international exhaustion of copyright probably still apply towards third countries with the possibility of limiting that effect through contractual provisions.