Parallel Trade in Pharmaceuticals
by Jacob Arfwedson on 07/15/2004
30 Pages
Re-importation (or parallel trade as it is known in Europe) occurs when products protected by patent, trademark or copyright are first placed into circulation on one market, then (re-) imported into a second market without the authorization of the original owner of the intellectual property rights (IPRs). Myriad products are re-imported, including automobiles, clothing, perfume and other consumer goods.
This paper focuses on re-importation of pharmaceuticals, with a special focus on Europe. However, the paper could not be timelier in the United States, where the House of Representatives voted in late July 2003 on re-importing Canadian prescription drugs into the US. This paper assesses whether parallel trade is generally valid, concluding that the net economic effects cannot be established empirically but that there may be significant long-run harms to innovation if parallel trade grows indefinitely.
IPRs are limited rights conferred by governments over certain products of the intellect (e.g. patents which protect inventions, copyrights which protect expressions of ideas and trademarks which protect brands). IPRs are bound by the geographical boundaries of each state: the principle of “national exhaustion” means that the IPR holders’ rights are extinct upon first sale within national borders (i.e. anyone who buys a product can do what he likes with it afterwards, within that country). By contrast, international exhaustion terminates rights upon first sale anywhere. This would mean that someone who buys the product in a country could export it and have it re-imported elsewhere.
Supporters of parallel trade argue that it lowers prices, which is especially popular with consumers and cash-strapped governments looking for ways of reducing health expenditure. Others object that parallel trade in fact adds nothing, except substantial profits to the traders themselves, and that it also lowers safety. (Parallel importers are in many cases not subject to the same regulations as the original manufacturers). More importantly, re-importation undermines intellectual property protection and hence the incentives to invest in research, development and marketing of IP-based products; this would hurt the consumer in the long run.
Various ways of circumventing IP legislation also appeal to the developing world, especially African countries that urgently need affordable AIDS drugs. However, on examination it seems that there is no link between the presence of patents and poor access to antiretroviral drugs. The AIDS crisis could therefore not be resolved by simply disregarding patents or by using compulsory licensing.
The enforcement of intellectual property rights is increasingly challenged on a number of levels around the world. The future of IPRs will largely depend on political decisions governing the tradeoffs between the need to foster innovation by granting just compensation to R&D industries, and the demands for greater access to affordable medicines, both in advanced and developing countries. Parallel trade is an important component in this policy debate.
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