The use and circulation of a product which has been put on the market by the patentee or a third party acting with the consent of the patentee (e.g. a licensee) cannot be prohibited by the patentee anymore. This concept of exhaustion is not only applicable to the territory of Germany, but to the entire territory of the EU and EEA, i.e. the common European market. This Europe wide exhaustion of patent rights is the basis for parallel imports, in particular for parallel imports of pharmaceuticals and plant protection products.
Being a defense, the burden of prove showing that the product has been put onto the market by the patentee or a licensee lies with the defendant. However, applying this general rule in practice is not always easy. For instance, how detailed must defendants explain the whereabouts of the products? Is it necessary to disclose the entire distribution chain and all suppliers involved, possibly allowing patentee to “plug the holes”? How to deal with confidential information and trade secrets in this respect? What if defendant does not know for sure? Is it necessary for defendant to examine and/or analyze the product to exclude liability for damages?
The District Court of Düsseldorf provided some clear answers to these questions in a decision involving a parallel import of a plant protection product (District Court of Düsseldorf 4 C O 3/13).
Defendant, specialized in parallel importation of plant protection products, sold a fun-gicide which was covered by a patent of plaintiff. Defendant sold the product under a marketability certificate necessary for parallel imports of plant protection products and referred to the fungicide of the patentee (by naming the brand) as reference product.
Plaintiff sued defendant for patent infringement alleging that according to the results of an in-house analysis it could be excluded that the product came from its own pro-duction site. Plaintiff did not provide a full analytical report but only referred to part of the results without disclosing the composition of the reference product.
Defendant alleged that the fungicide with a marketing authorization for Latvia has been bought from a Belgian wholesaler. After inspection, this product had been re-packaged and sold in Germany. It would be unreasonable to require further disclosure about the supply chain because this would jeopardize future supply. Defendant con-sidered the in-house analysis of plaintiff to be inconclusive since the composition of the original product had not been disclosed. Any differences between its products and the reference product analyzed may result from lot to lot variations.
Referring to a recent case of the Federal Supreme court in a competition law case also involving parallel imports, the “Delan-case” (Federal Supreme Court GRUR 2012, 407) defendant furthermore argued that it had no obligation to analyze the product and thus was not liable for damages.
The District court found in favor of plaintiff. It clearly stated that the burden of proof for the exhaustion fully lies with the defendant. To meet this burden of proof, defendant must provide all facts and circumstances evidencing the exhaustion of rights in detail. An interest to keep part of the supply chain or other information confidential cannot excuse an incomplete statement of facts.
Criticizing the analysis of plaintiff also does not help. Plaintiff has no obligation to disclose the composition of the original product. It is sufficient to refer to certain characteristics which allow identifying the origin of the product.
It is defendant’s obligation to analyze the product initially and random samples from time to time to confirm that the product sold is originating from the patentee, so that defendant was found to be liable for damages. In this respect the court distinguished the case from the “Delan-ruling” of the Federal Supreme Court (Federal Supreme Court GRUR 2012, 407) referred to by defendant. In this competition law case the Fed-eral Supreme Court denied an obligation to analyze the product and a liability for damages. This case was based on unfair competition law. The attacked embodiment was not covered by the marketing authorization because the amount of contaminants exceeded the threshold values of the marketing authorization of the reference product which were kept confidential. The court ruled that even if defendant would have analyzed the product it would not have been able to identify the deficiencies of its product.
In contrast thereto the District Court considered the defendant to be able to compare the products with respect to characteristic patterns even if the composition is not fully known. Whenever there is a meaningful analysis available, it must be done.
The decision of the District Court is not surprising in that it again emphasizes that it is the defendant which has the burden of proof if he wants to rely on exhaustion of rights. The decision however is important because of it is crystal clear in that this rule will be strictly applied. There is no mercy with a defendant who is not able to fully explain and prove in detail the whereabouts of the product.
Although the decision relates to parallel imports of plant protection products, it is of general practical relevance since it confirms the principle in all its stringency.
Any company which wants to rely on the exhaustion of rights should assure that it will be able to fully prove that the products sold are coming from a licensed source. Whereas this may be rather easy in most cases of a product as such covered by a pa-tent, this may be difficult in case of complex products with a multitude of components from different sources. If sued by the patentee, defendant ultimately will have the burden of proof for each single component that it comes from a licensed source. This may even necessitate to proof the existence (and validity) of license agreements.
Even confidential information must be revealed to meet the burden of proof. Where necessary, part of the information may be subject to a protective order issued by the court upon request.