Second Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of the Exhaustion of Intellectual Property Rights and Parallel Importation

Study of trade-related aspects of intellectual property rights (TRIPS) has formed an integral part of the work program of the Committee on International Trade Law of the International Law Association (ILA) since its inaugural meeting at the headquarters of the GATT in 1993. In June 1995 in Geneva, the Committee decided to undertake a specific work program regarding the exhaustion of rights and parallel importation. In August 1996 in Helsinki, the Committee considered a preliminary First Report on the Subject of Parallel Importation prepared and presented by this Rapporteur. At that meeting, the Committee authorized wide distribution of a final version of that First Report to interested parties for reaction and comment. This final version took into account comments of Committee members presented at or in connection with the Helsinki meeting. At its June 1997 meeting at the headquarters of the World Intellectual Property Organization (WIPO) in Geneva, the Committee considered the First Report (Final) and the preliminary comments of interested parties. At that meeting, the Committee decided to convene a special meeting on the subject of the First Report to further consider the views of interested parties. This meeting was held in Geneva on November 6-7, 1998, at the Graduate Institute of International Studies.At the conclusion of this meeting, Committee members agreed that this Rapporteur should prepare in preliminary form a Second Report on the Subject of the Exhaustion of Rights and Parallel Importation. This preliminary Second Report would incorporate the results of the November 1998 meeting, and would provide a basis for discussion at a meeting of the Committee to be held at WIPO on June 25, 1999. The objective of the June 1999 discussion would be to seek a common Committee position, and to consider a recommendation to the ILA for discussion at its bienniel meeting in London in 2000.This Rapporteur continues to support a rule of international exhaustion across the fields of IPRs. He believes that the multilateral adoption of such a rule would promote the efficient allocation of productive resources in the world trading system, and that it would advance the interests of developing countries in building globally competitive enterprises. This Rapporteur considers that the risk of anticompetitive behavior among producers remains high, and that rules permitting parallel trade discourage anticompetitive horizontal collusion that affects world markets. Opening markets to parallel trade would benefit consumers. Recent actions by competition authorities in the United States and the European Union involving integrated pharmaceutical manufacturers, among others, affirm the need for vigilance in the protection of competitive markets. This Rapporteur recognizes that there are special circumstances for which exceptions to a general rule of international exhaustion might be made in the interests of social welfare, but considers that existing WTO rules and principles provide adequate flexibility to implement such exceptions.This Second Report is divided into six parts. Following the introduction, the second part describes developments in the field of exhaustion of rights and parallel importation subsequent to completion of the First Report. The third part notes certain interested party reactions to the First Report, and presents this Rapporteur’s responses. The fourth part presents the results of the November 1998 meeting in Geneva, including a brief synopsis of each panelist’s presentation, followed by a brief Rapporteur’s analysis. The fifth part describes and analyzes the international exhaustion issue in the context of digital networks and electronic commerce, as well as in the context of the GATS. The sixth and final part presents the final draft recommendation by the Committee in this field.