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India – Exhaustion In Copyrights

The doctrine of exhaustion or the first sale rule affirms the exhaustion of an asset’s intellectual property rights vested with its owner after its first use or sale. As a result, no further control can be exercised by the owner vis-à-vis distribution or resale of the product. Applying the principle more specifically to the realm of copyrights, it allows the purchaser to sell or give away a legally made copy of a copyrighted work without permission once it has been obtained. The copyright holder’s right to control any further change in ownership of a particular copy ends once that copy is sold, as long as no additional copies are made. Thus, the rule of exhaustion has the power to interfere with the copyright owner’s exclusive market position, reducing any leeway for price differentiation and exposing the product to intensified price competition.

Recently, this principle was brought to centre stage by two cases that came up at the Delhi High Court – John Wiley & Sons Inc. & Ors v Prabhat Chander Kumar Jain & Ors [CS (OS) No1960 / 2008] and John Wiley & Sons Inc. & Ors v International Book Store & Anr  [CS (OS) 2488 / 2008]. The cases pertained to the sale and distribution of low price edition (LPE) books, which were restricted by the publisher for sale in a few Asian Countries only, to other countries across the globe. The publisher and plaintiff, John Wiley & Sons, moved the Court to seek an order of injunction restraining the defendants in both cases, from infringing their copyright in the books. They alleged involvement of the defendants, in both cases, in re-selling the LPEs to other countries through websites providing delivery services all over the world. Potential buyers were being lured in through advertisements describing the reprint editions as having a soft cover and a black and white print, but maintaining the same content.

The defendants contended that since the LPEs were legally purchased in India and subsequently exported, no act of infringement had been committed within the territory and hence, the provisions of the Copyright Act could not be invoked (the Indian Copyright Act 1957 only prohibits import of infringing articles, and is silent with regards to exports). Basing their defense on the rule of exhaustion and an earlier judgment (Warner Bros v. Santosh VG), the defendants urged that once the plaintiffs had sold a particular copy of the LPEs, they could not control its further re-sale. They further argued that since India follows the principle of international exhaustion, the plaintiffs exhausted their rights in the LPEs worldwide when they first sold their publications in India.

After careful analysis of the relevant acts and legal precedents, the Court observed that the doctrine of exhaustion did not curtail the rights of the copyright owner. It noted that the same was affected by way of licenses where the exclusive licensees were granted limited rights subject to the conditions and limitations imposed by the agreement. The applicability of first sale doctrine would partially exhaust the rights of the licensee, but it cannot defeat those of the copyright owner. Furthermore, noting that no express provision for international exhaustion of rights was present in the Indian law, the Court held that it would be appropriate to confine the applicability of the same to regional exhaustion only. The Court finally passed an order of injunction, restraining the defendants from indulging in any kind of distribution or circulation of the LPEs outside the designated territory.

Delhi High Court’s landmark decision will go a long way in not only discouraging parallel trading of copyrighted articles but also in recognizing and protecting rightful owners in their efforts to control the distribution of their copyrighted works and maximize royalties therein.