The act of reselling or transferring genuine products (including patented products and copyrighted works) that have been legitimately purchased with modifications, retrofittings, processing or replaced parts (“Modifications”) may be an infringement of the intellectual property rights included in the genuine products. We will provide an outline on this below, focusing on patent law, trademark law, and copyright law.
- Patent law
According to the provisions of the Patent Act, an unauthorized person transferring patented products as a business without a license constitutes an infringement of patent rights (Article 68.2 (3) (i) and (iii) of the Patent Act). According to this, the patentee’s permission is required every time patented products are transferred, but this would seriously hinder the distribution of the product.
Therefore, in court practice, some measures have been taken to settle on denying the exercise of rights for repeated transfers.
In other words, the court adopted the idea that the patent rights for the patented products transferred by the patentee or a person who obtained a license were thought to have been exhausted, denying the exercise of rights after the transfer (exhaustion theory). In addition, it is understood that exhaustion theory is not adopted for parallel imports, but in principle the exercise of rights under Japanese patents is denied (however, this does not apply where the patentee has agreed with the transferee to exclude Japan from the place of sale or area of use when transferring the patented products, and this is clearly indicated on the patented products).
However, if any Modifications are made, it may be necessary to allow the patentee to exercise their rights depending on the content and degree of the Modifications, such as when they are substantially no different from reproduction, and in that case, it is customary to rationalize them as lacking integrity with the patented product. However, there is no uniform standard for whether or not they lack integrity.
In this regard, the Supreme Court ruling states that not only the attributes of the patented product (the product’s functions, structure and materials, use, product lifetime and usage mode), content of the patented invention, processing and replacement of parts (the state of the patented product at the time of processing, the content and degree of processing, the product lifetime of replaced parts, the technical functions and economic value of the parts in the patented product), but also the actual circumstances of the transaction should be comprehensively considered (see the decision of the first petty bench of the Supreme Court on November 8, 2007).
- Trademark law
According to the provisions of the Trademark Act, it is an infringement of trademark rights for an unauthorized person to transfer a designated product with a registered trademark without a license (Article 25 and Article 2.3 (ii) of the Trademark Act). According to this, the permission of the trademark owner is required each time a genuine product is transferred, but this would seriously hinder the distribution of products.
Not only that, there is no substantive reason to make the mere resale of genuine products an infringement for the purposes of trademark law.
That is, the purpose of the Trademark Act is to maintain the function of the trademark, such as making it possible for the consumer/trader to recognize the source (specifically, the manufacturer, seller, processor or importer) from the trademark on the product, and making it possible to have certain expectations regarding the quality of the product according to the recognized source, so there is no reason to make it an infringement even if there is no possibility that the above function will be impaired by misidentification of the source.
The resale of genuine products is usually just such a case, and therefore lacks substantial illegality and is considered non-infringement. Regarding parallel imports, it is considered lacking substantial illegality and is non-infringing if, in addition to the fact that the trademark has been lawfully granted by the rights holder, the rights holder of the foreign trademark and the rights holder of the domestic trademark are in a relationship such that they can be treated as the same person, or as the same person legally or economically (integrity of source), and the domestic trademark owner is in a position to control the quality of parallel imports (substantially indiscriminate guaranteed quality).
However, if any Modifications are made, it may be necessary to allow the trademark owner to exercise their rights by recognizing the inhibition of the trademark function, depending on the content and degree of the Modifications. In that case, it may be rationalized as lacking integrity with the genuine product. There is no uniform standard for whether the trademark function is being inhibited.
In this regard, according to past judicial precedents, it seems that the content and magnitude of the impact on quality, including function, design, form and use, due to the Modifications are taken into consideration. In addition, there is a tendency to affirm the inhibition of the trademark function for opening and repackaging, refilling, and subdividing the products.
After making the Modifications, it may be possible to avoid inhibiting trademark function and infringement by displaying on the product the fact that the Modifications were made and the name of the company that made the Modifications, but since the complete elimination of the possibility of misidentifying the source is required, it is quite rare to reach a non-infringement judgment by that alone.
- Copyright law
Under the Copyright Act, distribution rights for the transfer of reproductions related to movie works (which is not limited to movies for the big screen, but also includes video software and game software), and the transfer of original works and reproductions related to other works may be an infringement of transfer rights, but it is expressly provided that exhaustion for transfer rights only is recognized (Paragraphs 1 and 2 of Article 26-2 of the Copyright Act).
However, in court practice, it is considered that exhaustion is permitted in principle when transferring a copyrighted work or reproduction thereof, and the right to transfer a reproduction to the public is understood to exhaust from a lawful transfer even when transferring game software or video software.
If any Modifications are made to a copyrighted work (“Original Work”), it seems that they often can be regarded as an infringement of adaptation rights or the right to maintain integrity without affirming infringement of transfer rights or distribution rights by denying exhaustion.
In other words, if the essential characteristics in the depiction of the Original Work can be directly perceived even after the Modifications are made, and the integrity with the Original Work is maintained, it constitutes an infringement of adaptation rights.
In addition, if the copyrighted work or its title is changed, excised, or otherwise modified against the will of the author, it may constitute an infringement of the right to maintain integrity (see the decision of the third petty bench of the Supreme Court on February 13, 2001 regarding the right to maintain the integrity of game software).
In modern society, it can be said that there are situations in which it is easy to make Modifications to program works in particular, but program works have limited room for creative expression compared to novels, music and paintings, and therefore the scope of copyright protection tends to be interpreted stringently. In addition, the right to maintain integrity does not extend to modifications (replacements and version upgrades) to make the program works available or to use them more effectively (Article 20.2 (iii) of the same). However, it should be noted that the act of modifying programs that produce videos causes problems of infringement of adaptation rights or the right to maintain integrity for the copyrighted works related to the videos. Moreover, according to the provisions, the right to maintain integrity is also infringed by acts in the private sphere (Article 50 of the same). Modifications for domestic use can also be infringing in theory.