Exhaustion Theory: IP issues faced by distributors

Recently one of our clients faced an interesting dilemma. Having been involved with a dispute with their head distributor, they found themselves facing a claim for a breach of intellectual property rights after having on-sold the stock in question to a buyer.

The question then arose, were they in any form of breach? Or did the right, title and interest in the intellectual property and trademarks over those items already pass? Enter common sense, and a surprisingly useful legal concept in intellectual property law, the exhaustion theory of intellectual property rights.

The concept is simple, once a given product has been sold under the authorisation of the IP owner, the reselling, rental, lending and other third party commercial uses of IP-protected goods in domestic and international markets is governed by that principle going forward.

Once a product covered by an IP right, such as by a patent right, has been sold by the IP right owner or by others with the consent of the owner, the IP right is said to be exhausted. It can no longer be exercised by the owner.

Whilst this seems easy enough to grasp there are a number of concerns that arise when interpreting such an exhaustion has occurred, particularly for products sourced internationally, as this problem eventually becomes one of international law.

If you have had a dispute regarding the intellectual property rights, title and interest in products you have sourced internationally and are unsure of your rights, please contact us at Priority Business Law to discuss.



Authored by

Raea Khan

Director Lawyer

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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

  • Strata Law
  • Construction & Major Projects
  • Commercial and Business Law
  • Planning & Environment Law