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    Intellectual Property

    Parallel Import of Pharmaceuticals

    Parallel Imports are trademarked or patented goods that are sold by the right owner in one country for export to a second country but are purchased in the second country and exported into a third country without the consent of the patent or trademark owner. In the case of pharmaceutical products, import by the non-right holder into a third country may violate patent rights even if the product was originally purchased from a right holder. The imports are called parallel imports because traditionally the right holder was held to have the right to control importation of the product.

    The practice of parallel importation is driven by the disparity between prices for goods, including pharmaceutical products, between markets. In many countries the prices at which medicines can be sold or are reimbursed are fixed by the government. Parallel imports are generally exported from a low-price market and exported for resale at a higher price in the importing country. Although parallel importation is frequently considered by governments as a cost containment mechanism to reduce overall pharmaceutical costs, recent studies indicate that market intervention by governments is not effective in reducing pharmaceutical costs as a share of the total health care budget in the long term. Thus parallel imports benefit neither medical consumers nor governments; only the importer is financially enriched.

    Public Health Concerns

    Law enforcement agencies believe that parallel import regimes result in increased smuggling of tainted or counterfeit goods. As evidence that black market goods are easier to conceal with increased gray market importation in the trademark area, the Department of Justice cites as examples shipment of defective automobile or airplane parts, tainted baby formula, etc. While parallel importation raises general public health and safety concerns, parallel imports of pharmaceutical products create definite risks for the general public, particularly with regard to shipment and storage, given extreme climate conditions in many markets where parallel imports take place. Parallel trade in pharmaceuticals, which by definition involves the importation and sale of medicines from sellers and, often, production sites not approved by national regulatory authorities, poses inherent risks of importing counterfeit and/or substandard medicines. The right holder cannot control the conditions under which the product is shipped or stored once the product is sold, and the safety and efficacy of the product may be adversely affected by inappropriate shipment or storage conditions. There is no way of ensuring that a third party that is attempting to benefit from price arbitrage between markets will take adequate precautions to handle pharmaceutical products appro-priately. A third significant area of concern is that informational materials included in the packaging of pharmaceutical products may be inadequate or inappropriate for medical consumers in a third country, and may lead to adverse health outcomes.

    Given these public health and safety concerns, neither the U.S. nor the EU permits parallel import of pharmaceutical products. The EU does, however, allow for the free movement of goods among its 15 member states. Thus, pharmaceuticals do move from, for example, Greece to Finland or Germany, as parallel traders purchase lower-priced pharmaceuticals in Greece and sell them for a higher price in the more affluent EU members. Such trade is strictly limited to trade among within the EU. Nonetheless, grey market trade has led to reports of shortages of some medicines in Greece, as parallel trade has actually depleted national supplies.

    Violation of Intellectual Property Rights

    Parallel importation violates intellectual property rights when the exclusive right to the use (including import and export) of the patented and/or trademarked good, provided to the owner of the intellectual property in the country of registration, is infringed. The WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) includes the right of a patent holder to control importation of a product into third markets (barring parallel import practices). Specifically, TRIPS Article 28 states that "[a] patent shall confer on its owner the following exclusive rights:... to prevent third parties not having his consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product ...". TRIPS Article 27.1 states that "... patent rights (shall be) enjoyable without discrimination as to the place of invention, the field of technology and whether the product imported or locally produced." (emphasis added).

    Although the agreement specifically does not address the issue of national or international exhaustion (see TRIPS Article 6), it is generally not possible for a government to permit parallel import of a product under patent protection in that country without recourse to confidential test data or other information protected under TRIPS Article 39(3), or without violating TRIPS enforcement provisions designed to permit a right owner to fast and effective relief for IP infringements. In order for a pharmaceutical product to be proven to be bio-equivalent to a registered product in a given country, for example, the data relating to the second product would have to be compared to confidential information for the patented product that should be protected under Article 39(3). Accordingly, although developing countries rightly note that a WTO dispute cannot be initiated on the basis of parallel importation itself, there are other TRIPS-related protections that may be violated by the operation of a parallel import regime that permits importation of pharmaceutical products currently under patent in that country.

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