The exhaustion of Intellectual Property rights and parallel imports in Nicaragua.

The exhaustion of intellectual property rights is a legal principle that provides that the owner of goods protected by an IP right is inhibited from exercising control over the distribution or resale of said goods, after the first sale of the goods made by the IP owner of with his authorization.

The increase of trade between different countries and trade blocs has heighten the importance of the exhaustion of intellectual property rights, since it is an effective means for companies to compartmentalize their goods for different markets, with variations of the goods themselves, their packaging, number of units included, weight, price, etc.

The exhaustion of rights may be national, regional or international. National exhaustion, which is the most restrictive, prescribes that the rights of the owner are exhausted only after the IP protected goods are sold in the domestic market, by said owner or with his consent. Regional exhaustion is similar to national exhaustion, but it operates within a region or trade bloc. That is, the exhaustion of the right occurs only when the goods have been sold by the owner or with his consent in any of the countries that make up the region. Finally, international exhaustion is the broadest, since the owner’s IP rights are exhausted when the goods are sold anywhere in the world by such owner or with his consent.

Both, regional and international exhaustion can lead to parallel imports. Parallel importation involves importing legitimate (non-counterfeit) goods from abroad without the IP owner’s authorization. Parallel imports originate the so-called “gray market” which consists in the trade of goods through distribution channels that, although legal, are not expressly authorized by the IP owner. Goods sold on the gray market are often called “gray products”. Gray products are goods originally sold by an owner or his authorized distributor, which are intended for a market not anticipated by the owner. Thus, for example, owner A sells his goods to distributor B according to a distribution agreement that defines a territory X for the sale of the goods; however, B, without knowledge that the goods are destined for another market (or knowingly to increase sales) sells the goods to C. Subsequently, C exports the goods to market Y, in which A already has one or more authorized distributors. This results in a parallel import to the one made by the authorized distributor in Y. For parallel imports to occur, there must be a price difference between one country and another for the parallel importer to obtain a profit after paying for the cost of freight and insurance, customs duties, as well as other marketing expenses.

In Nicaragua, while international exhaustion of rights is followed by the Laws of Trademarks and Patents, national exhaustion is followed by the Copyright Law.

Article 29 of Law No. 380 of Trademarks and Other Distinctive Signs states the following: “Exhaustion of exclusivity right. The registration of a trademark does not confer on its owner the right to prohibit a third party from engaging in trade in relation to legitimately marked goods that have been introduced in commerce in any country, by the same owner or by another person with his consent or economically related to him, provided that the goods, and the containers or packaging that were in immediate contact with said goods did not undergo any modification, alteration or deterioration”.

Article 47 of Law No. 354 on Patents of Invention, Utility Models and Industrial Designs provides the following: “Exhaustion of the Patent. The patent does not grant the right to prevent a third party from carrying out acts of trade in respect of a good protected by the patent after that good has been commercially introduced in any country by the patent owner or by another person with the consent of the patent holder or economically related to him”.

As mentioned before, Nicaraguan Copyright Law follows the principle of national exhaustion of rights. Subsection 8 of article 23 of Law No. 312, on Copyright and Related Rights, as amended by Law No. 577, includes the right to import among the author’s economic rights. In addition to expressly granting the right of importation to copyright holders, subsection 6 of the same article grants authors the right of distribution to the public. Article 2.6 provides that the right of distribution consists in the making available to the public of original or copies of the work or phonogram, through its sale, rental, import, loan or any other form of transfer of ownership or possession.

Holders of Related Rights also enjoy the right of importation, as Article 87.2 establishes that performers enjoy the right of distribution, which, as we have seen, includes the right to import. Producers of phonograms are expressly granted the right to import by Article 92.4, in addition to the right of distribution.

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