Evaluation of the Concept of Exhaustion of Rights and Deterioration in Vehicle Spare Parts

The principle of exhaustion is regulated under Article 152 of the Industrial Property Law No. 6769 ("IPL"). Pursuant to this provision, once a product covered by intellectual property rights is placed on the market by, or with the permission of, the rights holder, relevant IP rights are exhausted and can no longer be exercised by the rights owner. In other words, when the product enters the market under such circumstances, the resale or otherwise commercialization of the product does not constitute an infringement of the IP rights. Although the exhaustion principle seemingly limits the owner’s rights, it is in line with the economic purpose of intellectual property law and encourages economic development and competition.

On the other hand, the exhaustion rule is not definitive and has its exceptions. Namely, the trademark right holder may oppose the further consented sale of the goods where they have been "altered" or "deteriorated" by the authorized third parties before reaching the ultimate consumers. In this context, the concept of "alteration" means changing the original nature of the goods by external interference, and the concept of "deterioration" refers to a decline in the goods’ distinctive traits, rendering them of poor quality and unusable.

Recently, foreign automotive companies have noticed a spike in the trade of airbag covers alone. Airbags, like seat belts, are used to reduce the risk of severe head and upper body injuries in collisions of a certain severity. The control unit to which airbags are connected detects and evaluates the collision. It then activates all relevant safety systems in accordance with the type and severity of the accident. The smart system can distinguish between the strong concussion caused by a crash and the shocks from hitting a stone or a deep pothole, and thus prevent the airbags from being deployed unnecessarily.

In the event of a real collision, the airbag control unit ignites a gas generator when a collision equivalent to the trigger value is registered by the collision sensors. The deployed airbags envelop both the head and the upper body and distribute the loads over as large an area as possible. At the end of the collision, the gas is completely discharged, and the airbag deflates in just 120 milliseconds.

In this respect, since the airbag system functions with all its parts together, automotive companies always offer such products as a set, i.e. as a whole. This set includes various parts including the airbag covers, the cushion, the chemicals that enable the cushion to deploy in case of an accident, the cables that enable the installation, and the digital parts (i.e. the electronic assembly that communicates with other parts in order to ensure the proper functioning of the airbag in case of a possible risk). By doing this, companies hope to eliminate any and all risks that could endanger the users’ lives. Examples of such risks include replacing the cover alone without changing the cushion in post-accident repairs or installing the cover incorrectly, which could result in the airbag malfunctioning in the event of a serious collision. Companies are aware thatthe failure of one part of the airbag system can have a detrimental impact on public health.

In technical terms, the airbags can only be removed from the vehicle by a trained and qualified technician; otherwise, the clip and the cover may be damaged, and the airbags cannot be folded back into place after they have deployed. In addition, when the airbags have deployed, it is acknowledged that 1) the airbag cover will have stretched fabric and ripped seams, preventing a safe reuse, 2) replacing any part of the airbag will cause the system to stop working as intended, 3) repair and replacement are governed by extremely strict rules and 4) even the slightest problem could seriously endanger public safety and health.

In order to prevent the sale of the airbag covers separately, automotive companies always supply the airbag components to their distributors as a whole, as a set, and do not even assign separate part numbers to the individual components of the airbag system. Even if the airbag system parts are supplied individually by first or second tier suppliers, separate quality control processes are conducted at each stage, leading to the destruction of those that fail to meet the criteria. After the individual products that meet the quality control criteria are supplied, the entire airbag system is assembled by a certain first tier supplier and supplied to the automotive company AS A WHOLE AIRBAG SYSTEM WITH ALL ITS ELEMENTS.

Subsequently, the entire airbag system, including all its components, receives a product code and serial number as a single unit, and is either installed in a vehicle or supplied as spare parts. As is evident, airbag systems are treated differently from any spare part and are subject to maximum control due to their close relationship with safety.

In 2023, two major automotive companies were forced to take legal action when they came across airbag covers bearing their brands. The covers had initially been seized under customs procedures.

The companies filed criminal complaints before the Public Prosecutor's Offices and requested a preliminary injunction before the intellectual and industrial law courts. The seized products remained in the customs during the criminal procedures. However, they were released following expert reports prepared in the file, and a non-prosecution decision upon a narrow examination into whether the products were genuine. Despite these, the car companies managed to obtain a preliminary injunction on the products and the civil litigation process started.

The backbone of the plaintiffs’ arguments at two different IP courts was the fact that the airbag covers were put on the market without their consent or the sub-producers’ permission and even if they were original, the principle of exhaustion could not be applied within the scope of Article 152/1 of the IPL. The plaintiffs also contended that the products had been offered for sale in a different form than they should have been, and had thus been deteriorated, leading to a decline in their quality. They further argued that they did not have any commercial link with the defendants or the companies that had imported the products and claimed infringement.

The defendant, on the other hand, stated that they had bought the original products from a supplier abroad and had a purchase invoice. They argued that the trademark rights of the plaintiffs had been exhausted since the products were subject to parallel import, and that there were many sellers who sold "airbag covers" separately in a similar manner. Furthermore, they claimed that the expert reports prepared during the investigation stage before the Public Prosecutor’s Offices for the same products had verified that the products were genuine, and that Public Prosecutor’s Offices had already dropped the case.

During the ongoing proceedings, on-site examinations were conducted by the judge and the expert committee on the products and at the authorized service centers of the plaintiff’s automotive companies and genuine airbag units were compared with the "airbag covers" claimed to be original.

In the expert report prepared following these examinations, it was stated that the defendant, unlike the plaintiffs, offered only airbag covers for sale, and that there were no commercial links between the supplier of the products and the plaintiffs. The report required the products should be examined in terms of imitation in an equipped laboratory because of explosive materials in the airbag system. In terms of public safety and health, the report stated that only the cover could be replaced in cases requiring simple repair, adding, however, that replacing the entire airbag unit in case of an accident could pose a risk.

The report concluded that if the products in question are manufactured by the plaintiffs or their authorized producers, they should be genuine; otherwise, they are not genuine and may constitute infringement of the plaintiffs' rights. The report did not reach a conclusion in favor or against any party and left the final discretion to the courts.

After evaluating the parties’ arguments and the expert committee’s assessment, the courts ruled that the defendants’ actions constituted infringement of trademark right. The judges held that the defendant had failed to provide any evidence showing it had supplied the products from the plaintiffs or their sub-producers, and therefore failed to prove that these products had been produced by these companies. Therefore, the defendant’s arguments claiming parallel import or exhaustion of the trademark rights were rejected. At the same time, by stating that the individual replacement of the airbag cover may endanger public safety, it was concluded that the separate sale of "airbag cover" was different from the airbag’s original form and, pursuant to Article 152/2 of the IPL, amounted to "alteration".

When the decisions in question are analyzed, it is seen that both courts made a detailed assessment in the triangle of infringement of the trademark rights, exhaustion of the trademark rights and technical risks, including public health, too. The courts did not adhere to the incomplete assessments made within the scope of the criminal proceedings and analyzed the issue in a more comprehensive manner through experts. In addition, the courts concluded the matter within the scope of Article 152 of the IPL by arguing that the authenticity of the products at hand did not make any difference in terms of the concrete dispute. Although the court decisions have not yet been finalized, the position to be taken by the Regional Courts of Appeal will also be decisive at this point. In any case, these judgements are important as they will set a precedent in terms of Turkish law.