The issue of exhaustion shows how patents and free trade can become in contradiction. While patents provide incentives for innovation, they stifle competition. Competition, in turn, improves affordability, but may stifle innovation. In the case of exhaustion, competition between official and parallel products may lower prices and increase users’ access but, at the same time, could deter firms from targeting innovation.
The WTO Agreements are the most comprehensive attempt to deal with both intellectual property rights’ protection and free trade. However, the issue of exhaustion was left unsettled. Currently, Members have plenty of flexibility, but some common disciplines might become necessary in the long run, and will have to be agreed upon.
Present flexibility leaves room for different possible approaches to exhaustion, with respect to both territorial scope and substantial disciplines. While the mere lawfulness of the first sale and the right holders’ intervention fail to provide the most appropriate solution in some special cases, the approach to exhaustion based on the right holders’ reward may deliver more accurate and balanced solutions.Legal Issues of Economic Integration