Finland Finlande Finnland Report Q 156 in the name of the Finnish Group by Tuomas MYLLY, Bernt JUTHSTRÖM, Marja-Leena MANSALA, Juha-Pekka MUTANEN, Olli-Pekka MYLLYNEN, Kukka TOMMILA and Minna PULKKINEN International Exhaustion of Industrial Property Rights Introduction This report answers the questions concerning the exhaustion of industrial property rights and parallel importation as regards Finland. As Finland has been a Member State of the European Union (henceforth EU) since 1995, EC law and the rulings of the European Court of Justice (henceforth ECJ) affect to a great extent the legal situation in Finland concerning these questions. There is not much recent Finnish case law regarding the questions asked, although some IPR owners have tried cases in the Courts of First Instance, mostly concerning trade marks and consumer products. In the absence of domestic cases, the answers are largely based on the interpretations of the case law of the ECJ and the expected outcomes in Finnish courts. It is also perceived that many of the questions asked are ultimately determined by EC law and the interpretations of the ECJ and not the domestic laws and courts of Finland. Before the EU-membership, Finland applied the international exhaustion of trademarks, but nowadays Finland applies the regional, EEA-wide exhaustion of trademarks in accordance with the case law of the ECJ. Questions related to copyright fall outside the scope of this report. 1. Is There International Exhaustion of Industrial Property Rights in Finland? i) Patents According to Finnish Patent Act (Patenttilaki 550/1967) there is no international exhaustion of patents. On the other hand, exhaustion restricted to a national territory of Finland is not allowed. Section 3.3 of the Finnish Patent Act states: "The exclusive right shall not apply to...the use of a patented product that has been put on the market within the European Economic Area by the proprietor of the patent or with his consent...". As Finland is a Member State of the EU, the doctrine of Community-wide exhaustion, as developed in the case law of the ECJ, applies and defines the contents of the exhaustion rule in the Finnish Patent Act. Thus, the rules on free movement of goods (Articles 28 and 30 of the EC Treaty) and the competition rules (Articles 81 and 82 of the EC Treaty) limit the patent owner's rights to use IPRs against parallel imports from another Member State. The rules 1
on exhaustion of IPRs in the EEA-countries (Art. 5 II EEA Treaty, Art. 2 Protocol 28 to EEA Treaty) are the same as in the EU. On the basis of the ECJ's case law, the products protected by patents, which have been sold under a compulsory licence, do not exhaust the rights of the patent holder. In these cases, the patent right holder has not given his consent for the marketing. The rules concerning compulsory licensing are in the Patent Act, Chapter 6, Sections 43-50. In conclusion, a patent is exhausted after the products are first marketed within the EEA by or with the consent of the patent holder. This follows from the Finnish Patent Act and the case law of the ECJ. The Finnish Patent Act does not allow international exhaustion of patents. Selling the patented products outside the EEA does not, accordingly, exhaust the patent rights. ii) Trademarks Section 10a of the Finnish Trademark Act (Tavaramerkkilaki 7/1964) states that the proprietor of a trademark may not prevent the use of the trademark on goods that the proprietor, or another person with his consent, has placed on the market within the territory of the European Economic Area. The foregoing paragraph shall not apply if the proprietor has justified grounds for objecting to the goods being once again placed on the market, in particular if alterations have been made to the goods or if they have deteriorated after having been placed on the market. The rule is based on EC's Trade Mark Directive. The wording of Art. 7 of the Trade Mark Directive did not necessarily preclude international exhaustion of trademarks, but in the Silhouette-case the EJC held that Article 7 precludes international exhaustion. The situation was unclear in Finland until the Silhouette-ruling. Before the membership of the EU, the doctrine of international exhaustion of trademarks right applied in Finland. In conclusion, exhaustion of trademarks is currently EEA-wide, not international. This is based on EC rules and the case law of the ECJ. iii) Other Industrial Property Rights Design Rights A design right does not give its owner the right to prohibit the use of an article protected by it if the owner of the design right or someone with his consent has placed the article on the market within the European Economic Area. This is stated in the Design Right Act (Mallioikeuslaki 221/1997), Section 5. The design right is not exhausted internationally, only within the EEA. The EEA-wide exhaustion is based, in addition to the provision just quoted, on the case law of the ECJ. The EC Directive on Design Right (98/71/EC) is to be implemented by 28th of October 2001. After this, the Directive's rules on exhaustion apply in Finland and the ECJ may interpret the Directive's exhaustion provisions. Utility Models Section 3 of Utility Model Act (Laki hyödyllisyysmallioikeudesta 800/1991) states that the exclusive right conferred by registration of a utility model shall not apply to the use of a product protected by registration of a utility model right that has been put on the market within the European Economic Area by or with the consent of the owner of the utility model 2
right. As in the case of patents, there is no international exhaustion of utility models. Exhaustion is restricted to selling the products within the EEA by or with the consent of the right holder. This follows, in addition to the provision just quoted, from the exhaustion principles developed by the ECJ in its case law. Sections 46 to 50 of the Finnish Patent Act relating to compulsory licences apply mutatis mutandis to utility models. Integrated Circuits An integrated circuit, which has been distributed to the public with the consent of the holder of the exclusive right, or in accordance with the provisions of Section 11 of the Integrated Circuit Act (Laki yksinoikeudesta integroidun piirin piirimalliin 32/1991), can be redistributed and imported. It may be stipulated by decree that an integrated circuit may be distributed further and be imported only if the distribution referred to in the first paragraph took place in a State referred to in the decree. Since such decree has not been given, international exhaustion of an integrated circuit exists in Finland, in conformity with the Treaty on Intellectual Property in Respect of Integrated Circuits. Supplementary Protection Certificates Provisions on Supplementary Protection Certificates are given in the Council Regulation (EEC) No 1768/92 providing for the creation of a supplementary protection certificate for medicinal products and in the European Parliament and Council Regulation (EC) No 1610/96 concerning the adoption of a supplementary protection certificate for plant protection products. Provisions concerning infringement of patent rights apply to infringement of rights conferred by a supplementary protection certificate. The exhaustion rules concerning patents, apply mutatis mutandis to these protection forms. The rules of supplementary protection certificates are in the Finnish Patent Act, Section 9a (Patenttilaki). 2. Contractual Restrictions a) Can Contractual Restriction be Imposed and What Is Their Effect? An IPR owner is in principle free to impose conditions on the purchaser of the IPR - protected products. For example, a sales contract may stipulate that the goods are for personal use only or a distribution contract may provide that the distributor may not sell the goods outside the contract territory. This kind of obligation is valid between the contracting parties, subject to the application of domestic and EC competition law. The IPR owner may probably prevent direct imports of the distributor to the territories where the distributor is not allowed to sell the products, subject to the application of competition law. Thus, a distribution right or a license granted to one EEA member state does not exhaust the right in itself. There is, however, no well-established case law from the ECJ confirming this. However, contractual obligations imposed by an intellectual property right owner cannot be used to limit the rights of third parties to further distribute the goods sold within the EEA with the right holder's consent. These kinds of terms would often be contrary to competition rules. In any case, these kind of contractual restrictions do not have effect on the exhaustion of rights, which occurs after the goods are first marketed within the EEA with the right holder's consent. This applies also in situations where there are prohibitions 3
stamped in the products themselves. Within the EU, such markings are often contrary to EC competition law. Thus, the doctrine of Community-wide exhaustion cannot be limited by the use of contractual arrangements. These considerations apply to all IPRs. As industrial property rights are nor exhausted internationally, the use and effect of contractual restrictions is not considered in these relations. b) The Effect of Breach of Contractual Restrictions It is accepted in Finnish Law, in accordance with EC Law, that the exhaustion connotes absolute limits on the use of IPRs. Thus, even if the right owner has imposed restrictions on the further circulation of the goods and the buyer of the products breaches these restrictions, the owner cannot prohibit the exhaustion as far as the products have been sold within the EEA by him or with his consent. These principles apply to all IPRs. 3a) Express or Implied? Finland has adopted the exhaustion doctrine in accordance with German and EC Law, instead of the implied consent doctrine applied in some countries. As contractual restrictions cannot be used to limit the exhaustion of rights, the question of the express or implied nature of the restriction does not normally materialize. In the application of the consent doctrine, the ECJ has in practice accepted that the consent does not necessarily have to be express. This is also in line with older Finnish cases (e.g. the Jackpot-case of the Supreme Court of Finland in 1990). b) marking requirements? There are no marking requirements imposed in the Finnish or EC legislation or case law interpreting it. c) removal or loss of marking? There are not any consequences of removal or loss of markings, as these are not required in the first place. This answer applies to all IPRs. 4. Compulsory License And International Exhaustion In Pharmon v. Hoechst the EJC ruled that products made under a compulsory license do not exhaust the right of a patent holder, because the holder has not given his consent. The absence of consent is crucial in this situation. The same rule applies, if the right holder must, on the basis of some legal obligation, distribute products protected by patent to a specific country in the EEA. This kind of legal obligation can, for example, be based on national or Community competition rules. The patent holder has to prove the existence of this legal obligation. The compulsory licensing provisions of patents and utility models in Finland are quite detailed and similar to each other. It is not necessary to describe them in this context. The compulsory licensing provisions are rarely applied in practice and there are no recent cases interpreting the provisions. 4
5. Is Consent a Matter of Fact in Each Case? The interpretation of consent is more a question of fact in each case. This principle is based on the case law of the ECJ and is likely to apply to all IPRs. The consent has been interpreted to be a question of fact in each case in the Finnish cases as well. However, in relationships within groups of companies the consent is presumed to exist. Thus, if the company which distributes the protected products to open markets, is part of the same group of companies with the holder of the right, or is legally or economically dependent on it, no specific consent is needed. This principle is based on the case law of the ECJ. As industrial property rights are not exhausted internationally, this rule does not normally materialize in these situations. The right holder may be regarded as having given his consent by granting to a third, nonrelated company a right to sell the protected products somewhere in the EEA. This kind of right may be, for example, a part of an agreement with a licensee. However, if the licensee has manufactured products against the terms of the agreement, the right holder is not regarded as having given his consent for the manufacturing and the right is not exhausted. In Finland trademark licenses are valid and have legal effects even if they are not registered. At least in trademark cases the consent implicit in assignment does not exhaust the rights (ECJ in Ideal Standard -case). It is not entirely clear, whether some aspects of the consent-criteria can be defined on the basis of national law. The EJC will hopefully clarify this issue and the interpretation of the consent -criteria in the Davidoff -case pending before the Court. 6. Objection to Parallel Importation Where Goods or Their Packing Has Been Modified As an exception to Community-wide exhaustion, a trademark right holder has the right to oppose the further distribution of the protected goods, where the goods have been modified or deteriorated after they have been sold. The right holder can in these cases oppose further distribution of the goods to the other EEA-countries. This is expressed in Article 7(2) of the Trademark Directive as well as in the Finnish Trade Mark Act. If the packaging has been modified, the relevant issue is, whether the re-packaging is objectively necessary in order to market the products in the importing country. The parallel importer and re-packaging have to fulfill some additional conditions in order for the parallel imports to be legitimate. These principles are based on the ECJ's case law. For example, the covering of the re-packaged product must not damage the reputation of the trademark. As the basic function of a patent is different from that of a trademark, the ECJ has stated that a patent holder may not oppose the importation of products once sold within the EEA, even if the goods or their packaging has been modified. Because international exhaustion of most industrial property rights does not exist, these questions do not materialize when importing goods from outside the EEA. 7. Observations These general observations are intended to provide some viewpoints and topics to be further analyzed when considering possible international harmonization of exhaustion of industrial property rights. We do not take a firm stance whether international harmonization 5
in this area should be introduced and on what time-schedule. Thus, the observations below are not intended to be definite standpoints, but ideas and topics to be further analyzed and taken into consideration when discussing the harmonization of international exhaustion. a) The Appropriate Forum for Possible Harmonisation The WTO rules (especially the MFN-principle) may restrict the possibilities of the WTO member countries to conclude agreements on the issue of international exhaustion on other than multilateral level, covering all WTO Members. It may be difficult to achieve harmonisation in forum other than the WTO. This would seem to be an appropriate forum for the harmonisation of this topic also from the point of view of the trade-related nature of the exhaustion doctrine. Whatever the forum concerning international harmonization is going to be, the basic functions of IPRs should be a central ground for any considerations. b) The Nature of Possible Harmonisation It is essential that in the possible international harmonisation the interests of all countries are taken into consideration. The interests of the developing as well as the developed countries should be balanced in the search of a solution maximising welfare in worldwide level. A flexible rule allowing some local modifications and taking into consideration the different legal and economic environments existing in different countries would probably be desirable from this perspective. It is believed that a sector-based exhaustion doctrine would not be practicable as it may become too complex to agree upon. It would very likely be complex to apply in practice as well. The exhaustion doctrine should take into consideration the legal and economic environment prevailing in the country where the goods have been sold. Price controls and the level of IPR-protection, in particular, affect the conditions under which the goods are marketed and should be allowed to be taken into consideration when determining whether the rights are exhausted. Measures of governmental intervention affecting the prices substantially, such as price controls, may thus justify the blocking of parallel imports. It is logical to handle different IPRs distinctly in relation to exhaustion of rights, because of their different functions. Finland, for example, has prior to the trade mark Directive and the Silhouette-ruling applied international exhaustion of trademarks without extending the principle to other industrial property rights. No particular problems concerning this differentiation have occurred. It is believed that this kind of differentiation on the basis of different functions of industrial property rights should also take place in the international discussion. c) IPR and Competition Rules In addition to actual exhaustion rules, the competition rules have to be considered as well in relation to parallel import. The competition rules supplement and refine the principles concerning the exhaustion of IPRs. Economic considerations and case-by-case -approach can be better introduced in the parallel imports questions through the application of competition rules. The applicability of competition rules should be taken into consideration in the discussion surrounding the possible harmonisation of the international exhaustion principles. In the long run it may become necessary to harmonise the competition 6
principles regarding the exhaustion of rights as well. As a general consideration, the application of competition rules should not ignore the basic functions of IPRs. d) The Effects of Exhaustion Regime on Internet Trading The Internet and its technical applications are molding the world in many ways; especially in the ways business and trading are conducted. Private imports have increased due to the growth of Internet trading. It is expected that consumers buy increasingly items via the Internet in the near future as the Internet trading becomes user-friendlier and price competition increases. Internet trading can also substitute parallel importing. It is possible, as indicated in the study prepared by the Swedish Competition Authority on the effects of the Silhouette-ruling, that a restrictive approach towards international exhaustion could lead to more private imports through the Internet especially in high-price areas like Europe, as there would be less parallel imported items substituting them. The Swedish study demonstrates that this may have negative economic consequences for some countries and regions. There have also been doubts, whether a restrictive approach towards international exhaustion could also restrict the development of Internet trading in business transactions, as these are not classified as private imports. In conclusion, the economic effects of the exhaustion regime, including the effects on Internet trading, should be analysed carefully before possible harmonization of the exhaustion principles. Summary EC law and the case law of the European Court of Justice ('ECJ') determine most of the issues related to exhaustion of intellectual property rights in Finland. All industrial property rights are exhausted after the products have been marketed within the European Economic Area ('EEA') by or with the consent of the right holder. International exhaustion (outside the EEA) applies only with regard to integrated circuits. Finland applies the doctrine of exhaustion, not implied consent. Exhaustion cannot be limited with the use of contractual restrictions, although they can be used between the contract-parties. Contractual restrictions do not, however, affect the rights of third parties buying the goods from open markets. Products manufactured under a compulsory license do not exhaust the rights, as they are not covered by the right holder's consent. Consent is more a matter of fact in each case, although there are some general principles created by the ECJ, for example regarding relationships within a group of companies. Trademark owner can object to the importation of the trademarked products if the goods or their packaging has been modified. However, the parallel importer may have the right to change the packaging if this is objectively necessary for the marketing of the products in the importing country. Possible harmonization of the international exhaustion doctrine should take place on multilateral level, preferably within the framework of the WTO. The rules should be flexible and take into account the interests of countries in the different levels of development as well as differences in the legislations and economic environments. The different functions of intellectual property rights should also be taken into consideration. In any case, the 7
economic impact of international exhaustion doctrine, including the effects on Internet trading, should be carefully studied and analyzed. Résumé Le droit communautaire et la jurisprudence de la Cour de Justice des Communautés européennes («CJCE») définissent la plupart des questions relatives à l'épuisement des droits de propriété intellectuelle en Finlande. L'épuisement de tous les droits de propriété industrielle attachés aux produits intervient lorsque ceux-ci sont mis en circulation dans l'espace économique européen («EEE») par ou suite à l'autorisation du titulaire du droit. Un épuisement international (à l'extérieur de l'eee) ne s'applique qu'aux circuits intégrés. La Finlande applique la doctrine de l'épuisement, non celle du consentement implicite. L'épuisement ne peut être limité par le biais de restrictions contractuelles, bien qu'elles puissent être utilisées entre les parties contractantes. Les restrictions contractuelles n'affectent cependant pas les droits des tiers lorsqu'ils achètent les biens sur des marchés ouverts. Des produits fabriqués sous licence obligatoire n'entraînent pas l'épuisement des droits, car ils ne sont pas sujets à l'autorisation du titulaire du droit. L'autorisation est dans chaque cas plus une question de fait, bien qu'il existe des principes généraux édictés par la CJCE, par exemple en ce qui concerne les relations à l'intérieur d'un groupe de sociétés. Le titulaire d'un droit de marque est en droit de s'opposer à l'importation des produits sous droit de marque si les biens or si leur emballage ont fait l'objet de modifications. Toutefois, l'importateur parallèle peut être en droit de modifier l'emballage des produits si cette modification est objectivement nécessaire pour la commercialisation des produits dans le pays d'importation. Une harmonisation possible de la doctrine d'épuisement international devrait avoir lieu a un niveau multilatéral, de préférence dans le cadre de l'omc. Les règles devraient être flexibles et prendre en considération les intérêts des pays dans les différents niveaux de développement ainsi que les différences au niveau de la législation et du contexte économique. L'impact économique de la doctrine de l'épuisement international, ainsi que les effets sur le commerce par Internet devraient être étudiés et analysés soigneusement. Zusammenfassung Das EG-Recht und die Rechtsprechung des EuGH legen eine Mehrzahl der Fragen, die sich auf die Erschöpfung von Immaterialgüterrechte in Finnland beziehen, fest. Alle gewerbliche Schutzrechte werden, nachdem die Produkte vom Rechtsinhaber oder mit dessen Zustimmung auf den Markt des Europäischen Wirthschaftsraums (`EWR') gebracht worden sind, erschöpft. Die internationale Erschöpfung (ausserhalb des EWRs) gilt nur in Hinsicht auf integrierte Schaltungen. In Finnland ist der Erschöpfungsgrundsatz und nicht die konkludente Zustimmung anwendbar. Obwohl vertragsmässige Beschränkungen zwischen den Vertragspartnern möglich sind, ist es nicht möglich dadurch die Erschöpfung zu begrenzen. Vertragsmässige Beschränkungen haben keinen Einfluß auf die Rechte Dritter, die 8
Wahren auf dem offenen Markt kaufen. Wahren, die unter einer Zwangslizenz hergestellt werden, sind nicht von der Zustimmung des Inhabers abhängig und erschöpfen dadurch nicht die Schutzrechte. Obwohl der EuGH einige allgemeine Prinzipien ausgearbeitet hat, beispielsweise in Hinsicht auf Beziehungen innerhalb einer Gruppe von Unternehmen, ist die Zustimmung im Einzelfall eher eine Frage der Tatsache. Der Inhaber des Wahrenzeichens kann die Einfuhr der Wahrenzeichenprodukte widersprechen, wenn die Produkte oder die Verpackung bearbeitet worden sind. Der Parallelimporteur kann jedoch berechtigt sein, die Verpackung zu verändern, wenn dies für die Vermarktung der Wahren im Einfuhrland objektiv gesehen notwendig ist. Eine mögliche Harmonisierung des Erschöpfungsgrundsatzes sollte auf einem multilateralen Niveau durchgeführt werden, wo möglich im Rahmen der WTO. Die Regeln sollten flexibel sein, und sowohl das Interesse der Länder verschiedener Entwicklungsstufen als auch die Unterschiede der Gesetzgebung und der wirtschaftlichen Umgebung berücksichtigen. Die verschiedenen Aufgaben der Immaterialgüterrechte sollten auch beachtet werden. Der wirtschaftliche Einfluß der internationalen Erschöpfung, daunter der Effekt des Internet-Handels, sollte sorgfältig untersucht und analysiert werden. 9