Bipartisan drug import bill fixes exhaustion and contract barriers, runs afoul of FTAs and Hague Convention

Thirukumaran Balasubramaniam, CPTech
April 23, 2004

CPTech has spent some time talking with congressional staffers and legal experts in discussing S.2328, entitled, the “Pharmaceutical Market Access and Drug Safety Act of 2004” introduced in the United States Senate on April 21st, 2004. This bipartisan bill is sponsored by Sen Dorgan (D-ND), Sen Snowe (R-ME), Sen Kennedy (D-MA), Sen McCain (R-AZ), Sen Daschle (D-SD), Sen Lott (R-MS), Sen Stabenow (D-MI), Sen Johnson (D-SD), Sen Pryor (D-AR), Sen Feingold (D-WI) and Sen Chafee (R-RI).

With respect to the question of exhaustion, the bill unequivocally declares on page 63, subparagraph (h), that,

“It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent."

It is the view of CPTech that this language would afford the United States a regime of international exhaustion for prescription pharmaceutical drugs thus solving the limitations posed by the Jazz Camera Photo decision. We note that Article 5(d) of the Doha Declaration on the TRIPS Agreement states that:

“The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.”

Bill S. 2328 implements Article 5(d) of the Doha Declaration in establishing a regime of international exhaustion for prescription pharmaceutical drugs in the United States.

In addition, this bill appears to amend the Clayton Act (15 U.S.C. 12 et seq) by making it illegal to contractually prohibit parallel importation. We note that this is in direct conflict with bilateral free trade agreements (FTAs) that the U.S. has negotiated with Australia (Article 17(9)(4) of the U.S.-Australia FTA), Morocco (Article 15.9(4) of the U.S.-Morocco FTA) and Singapore (Article 16(7)(2) of the U.S.-Singapore FTA). The U.S.-Australia FTA does not permit parallel imports if the patent holder has placed restriction on parallel imports through a contract or “other means” (Article 17(9)(4). The U.S.-Morocco FTA permits the patent holder to prevent the importation of an invention, regardless of whether it has already been sold abroad. Parties can limit this to cases where the patent owner has forbidden parallel imports by contract (Article 15(9)(4). The U.S.-Singapore FTA permits patent holders to block parallel imports by mandating cross-border enforcement of contracts (Article 16(7)(2).

We intend to ask the U.S. Department of State, the U.S. Patent and Trademark Office and the USTR to comment on the relationship between this bill and the position of the U.S. government at the current negotiations at the Hague Jurisdiction and Enforcement of Judgments Convention and with respect to the aforementioned FTAs with Australia, Morocco and Singapore.

Thirukumaran Balasubramaniam
Consumer Project on Technology

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