sábado, 2 de julio de 2011

First sale/exhaustion doctrine, RPM and european antitrust law

Ariel Katz  explains here that the doctrine of exhaustion of intellectual property rights is pro-competitive. It does it by destabilizing cartels that are enforced through vertical restrictions. As contracts do not bind third parties, the manufacturer (copyright holder) can not take any action against subsequent acquirers of his product. He can only set limits to the first purchaser. If we were to get away with the first sale doctrine and allow the intellectual property right holder to enforce his right against subsequent acquirers, cartels (or tacit collusion) among manufacturers would be more easily enforced. On the contrary, RPM clauses allows the manufacturers to control the behaviour of their distributors. Any third party who can purchase copies of the product will not be bound by those agreements and therefore, the cartel enforcement is weakened. It is a question of remedies available to the right holder: a contractual party has only enforcement claims against its counterparty in the contract. A property right holder has a claim enforceable erga omnes.
But this same argument explains why it is wrong to consider as illegal vertical agreements which contain RPM clauses or clauses giving the dealer an absolute territorial protection as it is the case in Europe. Precisely because regional exhaustion in Europe applies (ie, the owner of a trademark may not prohibit the resale in Spain of a product put into circulation by him or with his authorization in Denmark), it is not necessary to prohibit agreements between manufacturers and distributors that seek to limit parallel trade.
Those who think otherwise - the European courts and the Commission - incur in the fallacy of composition: if the doctrine of exhaustion is good for the integration of markets and banning RPM clauses also helps to avoid geographically segmented markets, why not to apply both rules instead of the first one only ? And the answer is, as always, that there is no such a thing as a free lunch. By prohibiting contractual agreements, efficiencies created by these agreements are lost and almost everyone agrees that RPM clauses and absolute territorial protection clauses can generate significant efficiencies that end up moving to the consumer as lower prices if there is competition among manufacturers. If the doctrine of exhaustion renders ineffective the most damaging restrictions on parallel imports - the ones created through a cartel – and does it in a presumably efficient way (“The first sale doctrine is one of those internal IP rules that mitigate the social cost resulting from the IP exclusivity”) we are leaving euro bills on the sidewalk by forbidding contract clauses that generate efficiency gains. And what's worse, we are restricting freedom without justification

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