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“Grey-Market Goods”, as intriguing as the name may seem, has a meaning which is equally interesting. They refer to the goods that may be genuine but enter into the market through unauthorized trade channels, hence “grey” (not “black” because the goods are genuine). The product may be legal, not a counterfeit, and genuine, but may have been imported from a country without proper permission of the Intellectual Property owner for that country. There’s another term used to describe this sort of trade practice, namely “Parallel Importation”. In this practice a produced good is legitimately sold in one place, and then exported to another place, without the IP holder’s authority for importation and sale in that particular region, wherein it is ultimately sold further till it reaches the consumer.
The Principle of Exhaustion plays an important role in giving way to the continuance of this practice. According to this principle once a good has been sold through a valid transaction by the owner, he ceases to have control over its further sale. The exclusive right of the owner for selling the intellectual property is “exhausted” after the first sale and cannot be exercised twice with respect to the same property. The rationale behind this theory is that once the copyright holder has been adequately rewarded after the first sale of his goods, he should not be allowed to repeatedly profit by controlling the distribution and resale of those goods. However, this principle is subject to limitations of law which are followed in a particular place. While Indian Patent Law and Trademark Law expressly endorse the principle of International exhaustion, there still prevails confusion over its applicability in case of copyrighted products.
Interpretation of Exhaustion as per the Copyright Act, 1957
We must understand that the rule of exhaustion would vary based on the kindof intellectual property in question. For example, under Indian Copyright law, a purchaser of a literary work is free to resale her copy but a purchaser of computer software cannot do so. The reading of S.14, that embodies the meaning of the word “copyright”, S.14(a)(ii) states that, “in case of literary, dramatic or musical work, not being a computer programme, – to issue copies of work to the public not being copies already in circulation.” Whether India follows National or international exhaustion depends on the interpretation of the term “already in circulation”. If it was supposed to mean national exhaustion then the legislators could have written it as “already in circulation in India”. The Explanation to this section reads, “..a copy which has been sold once shall be deemed to be a copy already in circulation”. This mentions nothing about the place of occurrence of first sale. So, it will be wrong on our part to infer that it strictly refers to National Exhaustion. Also, according to a very well-known common law maxim “Everything that is not forbidden is allowed” we can say that since international exhaustion is not specifically forbidden anywhere in the Indian Copyright Act,1957, the legislators intended to permit it.
Interpretation by the Courts
Warner Brothers Entertainment Inc. v. Santosh V.G.
In this case the plaintiffs were film producers. After their film was released in theaters and had run its course it was to be released through other forms of media such as DVDs, rental cables and satellite televisions. The plaintiffs also followed a practice of releasing a film first in certain number of countries and then in other countries. The defendant legally purchased these films stored in phonograms and imported them to India. He operated a sort of video shop through which he was giving these films on hire basis.
The Court was faced with the issue that, whether giving these imported films, which are particularly authorized to be sold or rented outside the territory of India, on hire/rent/sale in India amount to infringement u/s 51 (a) (i) of the Copyright Act, 1957. The court held that the doctrine of exhaustion was not applicable in this case as S.14 (a)(ii) of the Copyright Act allows the doctrine of exhaustion to be applied in case of literary, dramatic and musical works and not to cinematographic films. However, the court reserved itself and did not comment on whether such exhaustion was national or international. Also, the conclusion of the court that the defendant’s act of importation and distribution amounted to infringement was not reasoned properly.
John Wiley & Sons v. Prabhat Chander Kumar Jain
A New York Based company, John Wiley & Sons Inc., exclusively granted license to Wiley India Pvt Ltd. to exercise rights over the distribution of certain books. In India and certain South Asian countries these books were sold as low-priced editions. A label on the book read: “The book for sale only in the country to which first consigned by Wiley India Pvt. Ltd and may not be re-exported. For sale only in: Bangladesh, Myanmar, India, Indonesia, Nepal, Pakistan, Philippines, Sri Lanka and Vietnam.” It can be said that only by this label they intended to prevent all the purchasers from exporting the books to others countries except than those mentioned in the label. The court held this to be an infringement u/s 51 of the Copyright Act, 1957 and rejected the application of international exhaustion saying that, since the act has no clear provision stating so, it could be concluded that it allows only national exhaustion.
After a book has been sold, all the proprietary rights are vested on the purchaser of the book. In this transaction the licensee is not sub-licensing the right to circulate the book to the purchaser because the licensee does not have the right to sub-license on its own. A purchaser will have valid property rights on the book and not any copyright on the book; these two things must be differentiated. And hence, the right of a purchaser to re-sale comes from the doctrine of first sale (as supported under the statute) and not from the passing on of such right from the licensee. Also, the Indian Copyright law talks about imports under S.14 and says nothing about exports. Indian Law cannot prohibit the sale of books in the streets of US. It is only possible if any specific provision is laid so as to address exports.
The courts haven’t put much effort into understand the complexity underlying in various cases of parallel importation with regards to the minute differences in facts that actually make the cases distinct from one another. In the mentioned cases they seem to have put straight jacket formulas to determine as to what amounted to infringement under S.51 of the copyright act and have rejected the applicability of international exhaustion by irresponsible interpretation of the statute. The benefits that would flow from greater competition resulting from the allowing of parallel imports (national and international) greatly outweigh any benefit that is expected from this practice of protectionism. If the harms of parallel imports in form of reduced incentives are negligible before the benefits of free market competition resulting out of such imports, then the laws need to be interpreted in that manner for the greater public good.
Author: Geeti Pragyan Mohapatra, 3rd year, B.A.LL.B., National Law University Odsiha , Intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at firstname.lastname@example.org
Shamnad Basheer and others, ‘Exahausting Copyrights and Promoting Access to Education: An Empirical Take’  WBNUJS JIPR 335
 Indian Patent Act, 1970, §107A(b)
 Kapil Wadhwa &Ors. v. Samsung Electronics Co. Ltd &Anr., FAO (O S) 93/2012
 Indian Copyright Act, 1957, § 14
Shamnad (n 2) 338