DR.

RAM MANOHAR LOHIYA NATIONAL LAW

2019-2020
Final draft of:
IPR in Pharma Industry-
Parallel trade in Pharmaceutical Industry: Comparison
between India and US

Submitted to:- Submitted by:-

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 1- Introduction

2- What is Parallel Import?

3- Impact of Parallel Import

4- Trips and Parallel Import

5- US and Parallel Import

6- Parallel Import in India

7- Conclusion

INTRODUCTION:

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We live in the era where the concept of property is not restricted to real property. Locke
widened the theory of property stating that “Every person has property of his own”1. He
defined “Property Rights” relating to mixing of one’s labor with commonly owned nature”.
The concept of Intellectual Property came from Locke’s theory that one has a fundamental
right to control the production and distribution of his own property. The real property, i.e.
tangible property can be protected with the security mechanisms such as Security Alarms,
fences, etc. But Intellectual Property, intangible property cannot be protected with such
security mechanism. Therefore, the laws were made by State to protect one own creations,
inventions to be known as Laws Relating to Intellectual Property Rights which governed
Trademarks, Copyright, Patents, Integrated Circuits, Geographical Indications, etc. Intellectual
Property Rights granted exclusive right to the intellectual property owner to use, produce and
sell his own property and stop others to make, use, offer to sell and sell the property2.

Patent is a bundle of exclusive rights given to the inventor whose invention satisfies the three
most important conditions i.e. novelty, non-obviousness and utility3. The patent holder thus,
has a monopolistic right over his property and has a right to control the production and
distribution of his goods. In the Patent there is wide area of Pharmaceuticals, which are the life
savers for many of the people. With the new inventions and technology the mortality rate
raised highly. This is Pharmacy is told to be the life line for any individual. But the problem
arises when Patent holders of the Pharmaceutical drugs sell the drugs at higher cost, and also
does limited supplies. In most of the developing countries especially, where more that 50% of
people do not have high income in order to purchase such high medicines are affected at large.
The TRIPS and Doha Declaration time and again stated and directed the State Parties to make
such rules and laws, so that Patent Holder does not take or infringe the basic liberties of the
people. One of such practice developed by various countries is Parallel Trade.

1
Gewertz Nevin M., Intellectual Property and the Pharmaceutical Industry: A Moral Crossroads Between Health
and Property, http://www.jstor.org
2
Article 28 of the TRIPS Agreement
3
Article 27 of the TRIPS Agreement

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The market develops when there is competition, when the competitor’s tries to sell their
products/goods at the minimum rate possible and of good quality. In order to adopt such
practice a person purchase the goods from the place where he gets and lower price and sell it to
the other place at higher rate. This concept is basically known as Parallel Trade. The most
common practice in Parallel Trade is Parallel Import.

WHAT IS PARALLEL IMPORT?

Before dealing with the exact meaning of the parallel import, one should first understand about
‘exhaustion of rights’. “Exhaustion of Rights” is one of the synonyms of Parallel Import.
Exhaustion of Rights means taking away the monopolistic power of the patent holder. It states
that when patent holder sells his goods in the market without imposing any conditions on the
sale, his right over the product get exhausted. In general, it means giving up all the rights on
the sale of the goods to third party to whom sell is made. The third party after sell gets the title
over the property and right to further re-sale or distribute or use it in whatever manner he feels
suitable.

The Exhaustion of Rights can be in three forms, national exhaustion, regional exhaustion, and
international exhaustion. National Exhaustion restricts the patent holder to control the
commercial exploitation of goods domestically but he has a right to object export of those
goods abroad. In Regional Exhaustion, the patent holder exhausts the right over the product
after sale with his consent not only domestically but at entire region. International Exhaustion
takes away the rights once the product is sold by himself or through his consent in any part of
the world4.

In parallel import what happens is distributor obtains a product in low price country and
transport in the low price country and transport it to unauthorized distributor of the high price
country, who will then compete directly with the patent holder in that country. In general it
means that importing the goods to the distributor in the low priced country, who then further

4
International Exhaustion and Parallel Importation,
http://www.wipo.int/sme/en/ip_business/export/international_exhaustion.htm

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re-sale it to the distributor of the high price country, where the patent holder himself is selling
the product which means the third party will directly compete with the patent holder of the
product. For example, Patent holder sells the product to distributor in India which is low price
country, the Indian distributor then re-sales the product in high price country where the patent
holder is itself selling.

Parallel import (also called grey market imports) is not unauthorized, unofficial or illegal sale,
nor it the sale of pirated and counterfeited products rather parallel imports are genuine, often
branded, products that do not violate an IP right and legal in most of the nations.

IMPACT OF PARALLEL IMPORT

Though Parallel Import have exhausted the rights of Patent Holder but it has highly benefited
the society at large. The major impact of the parallel import was on the Prices of drugs, which
got lowered which have benefited many. Firstly, it has benefited the consumers mostly, as
because of Parallel import they are able to get the medicines especially the consumers in the
developing and under developed country where 50% of people are below poverty line and not
able to purchase the medicines. Secondly, it has raised the competition and allowed the Free
Trade but putting out all the barriers relating to trade and opening the market widely. It is also
a major part in the growth of domestic economy which gave employment to large number of
people and also increased the sale. Lastly manufactures have also gained from it, as when sale
increased, the demand also increased, hence lead to more production, more profit5.

It was said that parallel import will somewhat diminish the research and development but it has
rather pressurized for more research and development as to produce a product which has more

bioavailability and which can cure more diseases. Parallel import had the adverse effect on the
counterfeited drugs, that it has pressurized the manufactures to produce the goods with the best

5
Amarnath Avinash B., A Study of Parallel Trade through the lens of Competition Law-Lessons for India,
http://www.cci.gov.in/images/media/ResearchReports/AvinashBAmarnath.pdf

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quality. Moreover, the trade relations also widened and grown as there are most of the
countries which do not produce medicines and is dependent on other nations6.

TRIPS AND PARALLEL IMPORT

TRIPS and Doha Declaration have time and again tried to provide flexibilities to member
countries in order to carry out trade properly and to secure the rights of the patentee holder as
well as securing the basic rights of society at large. The TRIPS here have given flexibility to
the member countries to determine the scope and extent of ‘exhaustion’.

Article 28 of the TRIPS, where on one hand provides exclusive right to patentee to make, use,
offer to sale, sale or import the patented product or process7 but on other hand footnote (6)
provided the restriction to the exclusive rights to import by stating that “This right [i.e. the
right to importation], like all other rights conferred under this Agreement in respect of use,
sale, importation or other distribution of goods is subject to provisions of Article 68.”
Article 6 states that ‘nothing in this Agreement shall be used to address the issue of the
exhaustion of intellectual property rights.’

The meaning of Article 6 was cleared by Article 5(d) of the Doha Declaration which 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…..”

US AND PARALLEL IMPORT

In US, prior to 2001, parallel imports were allowed but were restricted to domestic exhaustion.
In the renowned case of Sylvania, first sale doctrine made great emphasis in the mind set of

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Quynh Dr. Nguyen Nhu, Parallel Trade of Patented Pharmaceuticals: A Discussion from
Developing Country Perspective, http://iprenforcement.most.gov.vn/cac-bai-nghien-cuu-shtt/parallel-trade-of-
patented-pharmaceuticals-a-discussion-from-developing-country-perspective
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Article 28 of TRIPS Agreement
8
Footnote (6) of Article 28 of TRIPS Agreement

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Judges Under the first sale doctrine, in the domestic market the patent holder cannot control or
dictate the terms of distribution of a patented product once ownership has been transferred and
accordingly international exhaustion was allowed but to the contractual restrictions entered into
by the patentee enforceable against the importer9. But after 2001 situation reversed and parallel
import was allowed completely.

In the case of Curtiss Aeroplane & Motor Corporation v. United Aircraft Engineering
Corporation10, the Court held that as soon as Patentee sells the product, he exhausts all the
rights from the patented product. The court reasoned its judgment by stating that patentee had
right to put condition on sell but when he itself did not exercise the right ab initio and sold the
product, thereby giving all the rights to the purchaser who further has a right to re-sale the
product.

But after the case of Jazz Photo Corporation v. International Trade11, the situation again
reversed and the scope of Parallel Import got restricted to the national exhaustion. Hence, at
present in US Parallel import is allowed but restricted to the national exhaustion.

PARALLEL IMPORT IN INDIA

In India Parallel import is allowed to its fullest and the same has been inserted as a law in
Indian Patents Act, 1970. Till the Amendment Act of 2005, through the Indian Patent
(Amendment) Act, 2003, parallel import was allowed with the consent of the patent holder12.
Section 107A(b) provided that the importer is ‘duly authorized by the patentee to sell and
distribute the product.’
This section was in consonance with the European law according to which Parallel Import was
allowed but prior condition was there that consent of Patent Holder for importation to be taken.

9
Sengutpa Arghya, Parallel Imports in Pharmaceutical Sector: Must India be more liberal,
http://nopr.niscair.res.in/handle/123456789/269.pdf.
10
266 F 271 (2d Cir 1920)
11
264 F 3d 1094 (Fed Cir 2001)
12
Section 107A(b) of the Indian Patent Act, 1970, according to Indian Patent(Amendment) Act, 2002.

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But the situation changed drastically with the amendment of 2005. Despite of taking consent of
the patent holder, the law was amended to allow parallel imports when the person from whom
the imports acquires is one ‘who is duly authorized under the law to produce and sell or
distribute the product’.

Now, after the amendment of 2005, Section 107A(b) provides that there would be no
infringement if there has been an ‘importation of patented products by any person from a
person who is duly authorized under the law to produce and sell or distribute the product’.

CONCLUSION

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From the above discussion we can state that Parallel Import is beneficial in the developing
countries such as India as more than 50% people are not able to afford the high prices of
medicines and by this many people can get the medicine at the lower rate. On the other side
countries such as US which are developed majority of the people don’t have problem with the
high rates of medicines. So on the one hand Parallel import is required to limit the monopoly of
the Patentee to some extent.

But, on the other hand parallel import can affect the Research and Development as when party
takes away their interest and directly compete with the Patentee, the Patentee will be
discouraged and will not try to develop more effective drugs and also engage in such
marketing. Patentee will also limit their research as research and development needs huge
amount which they take from the money generated as profit from sell of earlier products.

Hence, at last I would like to conclude by saying that Parallel Import is important and
necessary for developing countries but its scope should be regularized and limited by the
Government and rights of the Patentee should also be taken into consideration.

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