Doctrine of exhaustion of rights and conditional sale

Ownership of intellectual property gives its owner certain rights that enable them to use it profitably. As regards copyright protected products, this includes the right to sell or “issue” copies of the work. The issue of how far this right, i.e. the right to control the sale of a copyright protected work, extends is determined by the doctrine of first sale and exhaustion of rights.

According to this doctrine, when a copyright owner sells a product with a copyright protected work he loses or “exhausts” his right to control the re-sale of the work. This right is transferred to the new owner of the product, who is free to dispose of the same in whatever manner he sees fit, provided there is no reproduction of the copyrighted work.

This doctrine was first put forward by the US Supreme Court in 1908 in Bobbs-Merrill Co. v Straus. In that case, the publisher was selling a certain copyrighted book with the following notice: “The price of this book at retail is $1 net. No dealer is licensed to sell it at a lower price, and a sale at a lower price will be treated as an infringement of the copyright”. The defendant purchased multiple copies of the book at wholesale rates and sold the same at less than $1. The publisher contended that this sale had infringed its copyright in the work and brought the action. The US Supreme Court stated that the right of copyright did not extend to limiting the re-sale of the product, which the defendant was free to do.

Neha Kochhar is an associate with Lall Lahiri & Salhotra, an IP boutique based in Gurgaon.