Intellectual property, competition rules, and the emerging internal market: some thoughts on the European exhaustion doctrine.

INTRODUCTION I. THE EMERGENCE OF THE EXHAUSTION RULE A. Territorial Restrictions and Competition Law B. Technology Transfer and Vertical Restraints II. BLOCK EXEMPTIONS AND EXHAUSTION A. Scope of Application for Intellectual Property Rights B. The Twofold Meaning of Consent C. Territorial Restrictions as Sector-Specific Exemptions on Exhaustion? 1. Market Freedom and Differentiation of Market Levels 2. Potential Disparities Between Block Exemptions III. THE MYTH OF EUROPEAN EXHAUSTION: THE DOCTRINAL STATUS OF ARTICLE 30 EC IN COMPETITION LAW A. Construction of Intellectual Property Under Article 30 EC: A Matter of Intellectual Property Regulation? B. Implemented European Intellectual Property Regulation: The Applicability of Article 28 EC and Permissible Restraints IV. THE EFFECTS OF HARMONIZING TERRITORIAL RESTRAINTS: THE BLIND SPOTS A. Partial Inapplicability of Article 30 EC? B. Territorial Restraints and National Exhaustion Rules C. Non-Territorial Restraints and European Exhaustion CONCLUSION INTRODUCTION

The doctrine of exhaustion plays an important role in European intellectual property law to preserve the free movement of products protected by intellectual property rights. However, despite the seemingly uncomplicated principles of this doctrine, a high degree of uncertainty as to its proper doctrinal foundations persists as it is applied in a variety of different legal contexts. This Article traces the application of the doctrine of exhaustion through the different legal contexts in which it is applied, assesses the status of the doctrine, evaluates the interpretation and scope of the doctrine within European Community law, (1) and aims to highlight pertinent issues regarding the doctrine in relation to both domestic and cross-border issues. The history of the treatment of the doctrine of exhaustion evidences a remarkably complex structure: the formulation of the exhaustion rule under Article 30 EC (2) was subsequently incorporated into secondary intellectual property legislation, and the European exhaustion rule was implemented into national laws. This has made it difficult to formulate more refined rules governing licensing provisions restricting the free circulation of goods. This has also resulted in uncertainty as to the proper definition of the exhaustion rule and its guiding principles. As discussed in this Article, it has also resulted in an unintelligible equation between the basic freedoms to provide, on the one hand, trade and services under European Community law and, on the other hand, to provide classification of economic rights in intellectual property.

I. THE EMERGENCE OF THE EXHAUSTION RULE

Article 28 EC incorporates the principle of free movement of goods, and it prohibits quantitative restrictions on imports between Member States and all other measures of equivalent effect. (3) Under Article 30 EC, however, national law may derogate from the principle of free movement of goods if the measure in question is justified and proportional in relation to the impact of the prima facie contravention of Articles 28 and 29 EC and the specific objective the national rule seeks to accomplish. (4) In relation to intellectual property cases, the European Court of Justice (ECJ) has established that a violation of Article 28 EC may be justified only if the existence of the right is concerned, (5) which was later specified so as to relate to the specific subject matter. (6) The doctrine of exhaustion has been employed as to underpin these distinctions. (7)

Intellectual property lawyers often deem the jurisprudence regarding the interface of intellectual property and the principle of free movement of goods as an unswerving interpretation of the proprietary scope of territorial intellectual property rights within a European context. Thereby, this perception has created a notion that precludes any derogation from the principle of free movement of goods. One reason for such a result is the lowest common denominator solution, as formulated by the ECJ in relation to territorial restrictions. The free circulation of goods is consistently favored.

These various issues share common ground: most of the uncertainties concerning the application of the exhaustion rule stem from the ambiguities that exist regarding the status and treatment of intellectual property rights under European law. Under national laws, intellectual property rights remain territorial, theoretically allowing for restrictions in relation to preventing parallel and reimports and, to a certain degree, allowing for restrictions on the product market in which protection may be offered. (8) The ECJ has applied the provisions on contractual restrictions on European Community trade (9) as well as the free movement of goods principle (10) in order to curtail the control of owners of intellectual property. (11) This jurisprudence has inadvertently created a notion of exhaustion as a fundamental principle of a distinct "European intelle...

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