The First Sale Doctrine and the Economics of Post-Sale Restraints

Ariel Katz

University of Toronto - Faculty of Law

June 17, 2014

2014(1) Brigham Young University Law Review, 55 (2014)

The first sale doctrine limits the exclusive rights that survive the initial authorized sale of an item protected by intellectual property (IP) rights, and therefore limits the ability of IP owners to impose post-sale restraints on the distribution or use of items embodying their IP. While the doctrine has deep common law and statutory roots, its exact rationale and scope have never been fully explored and articulated. As a result, the law remains somewhat unsettled, in particular with respect to the ability of IP owners to opt-out of the doctrine and with respect to the applicability of the doctrine to situations of parallel importation.

This Article provides answers to these unsettled issues. By applying insights from the economics of post-sale restraints, the Article shows that the main benefits of post-sale restraints involve situations of imperfect vertical integration between coproducing or collaborating firms, which occur during the production and distribution phases or shortly thereafter. In such situations, opting out of the first sale doctrine should be permitted. Beyond such limited circumstances, however, the first sale doctrine promotes important social and economic goals: it promotes efficient long-term use and preservation of goods embodying IP and facilitates user-innovation. Therefore, contrary to some other views, I conclude that the economics of post-sale restraints confirm the validity and support the continued vitality of the first sale doctrine.

Number of Pages in PDF File: 89

Keywords: first sale doctrine, exhaustion, parallel imports, parallel trade, gray market, copyright, patant, trademark, intellectual property, antitrust, competition, vertical restraints

JEL Classification: K21, L41, L42, O34

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Date posted: May 9, 2014 ; Last revised: June 18, 2014

Suggested Citation

Katz, Ariel, The First Sale Doctrine and the Economics of Post-Sale Restraints (June 17, 2014). 2014(1) Brigham Young University Law Review, 55 (2014). Available at SSRN: https://ssrn.com/abstract=2434044

Contact Information

Ariel Katz (Contact Author)
University of Toronto - Faculty of Law ( email )
78 Queen's Park
Toronto, Ontario M5S 2C5
416-978-8892 (Phone)
416-978-2648 (Fax)
HOME PAGE: http://www.law.utoronto.ca/faculty/katz

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