Name of Lead Author: Patrick Juvet Lowe Gnintedem
Organization: University of Dschang
Intellectual property rights (IPR) grant a monopoly of use to the rights holder. With the adoption of the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), the legal regulations of IPR have been undergoing a major change. By virtue of this legislation, all WTO member countries that wish to open up to world trade must harmonize their legislation with the minimum standards set forth in the Agreement. Consistently noted discrepancies in legislation can be measured in terms of conflicting principles: on the one hand, the holder of an IPR can contest importing and selling protected merchandise, if this business is conducted without his/her consent; on the other hand, one of the WTO’s core principles is free trade. Consequently, there is incompatibility between a form of protection of IPR and the principle of free movement of goods. However, parallel imports are one of the small mitigating measures permitted that foster access to health care. Recognition of parallel imports is of paramount importance to the majority of countries, whether developed or developing, as everyone must continuously meet the challenge of ever rising health care costs. This contribution is based on the principle that if IPR were to be exhausted internationally, this would not only promote access to drugs and health care technologies, but would also be in keeping with the position the WTO advocates regarding free trade. However, the issue around worldwide policy harmonization is economic, yet the decision is mainly political. In addition, the unintended consequences of such a measure on capacities for innovation for certain countries must be taken into consideration. Therefore, these concerns should be borne in mind when building a new global mechanism for exhausting IPR.
Parallel imports and international exhaustion of rights: harmonizing the system to provide access to health care
Access to health care is one of the major challenges facing today’s world. The cost of old diseases and new ones decimating populations is enormous, particularly in developing countries. Against this background, the necessity of finding appropriate and innovative solutions is widely considered an emergency. One of the solutions on the table is Intellectual Property Rights (IPR), since it is a driver of drug and health care technology research and innovation. At the same time, the system raises the suspicions of many of society’s stakeholders, who consider IPR a barrier to access to health care. To take into account these risks, the global trading system added a mechanism that slightly lessens the impact of IPR—the parallel imports mechanism.
Parallel imports refer to an import made without the authorization of the IPR holder of a protected product sold abroad by an IPR holder himself/herself, or by a duly authorized person. The rights holder has the exclusive right to use and to sell his/her product. The parallel imports mechanism refers to the importing of products outside the distribution networks duly negotiated by the IPR holder, or whomever s/he has authorized. This mechanism is considered crucial, particularly for developing countries where affordable access to health care remains an obstacle to the right to health care for patients. Unfortunately, there are great disparities in the current organization of the global trading system in this capacity.
1. The need to challenge the current discrepancies in the current global mechanism of parallel imports
To assess the discrepancies the current global system, one must first take a look at its context. Intellectual property rights (IPR) grant a monopoly of use to its rights holder. With the adoption of the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), IPR legal regulations have been undergoing a major change, which has been affecting Trade (TRIPS Agreement). This legislation covers and extends the core obligations contained in the main international treaties with regard to intellectual property to all World Trade Organization (WTO) member countries. Currently, all WTO member countries that wish to open up to world trade must harmonize their legislation with the minimum standards set forth in the Agreement. Consistently noted discrepancies in legislation can be measured in terms of conflicting principles: on the one hand, the holder of an IPR can contest importing and selling protected merchandise, if this business is conducted without his/her consent; on the other hand, one of the WTO’s core principles is free trade. Consequently, there is incompatibility between a form of protection of IPR and the principle of free movement of goods.
The WTO laws do not allow it to come up with a clear-cut solution regarding this point. The following is stated in Article 6 of the TRIPS Agreement: “For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.” In other words, the question of exhaustion is ineligible for any recourse before the Dispute Settlement Body (DSB) of the WTO, if it violates the TRIPS Agreement. The only reservations relate to violations of Article 3 on the principle of non-discrimination between nationals and foreigners with regard to protecting intellectual property rights, and to Article 4 on the treatment of the Most Favored Nation (MFN). The recognition that each country is free to choose its regime of rights of exhaustion was clearly recalled in Paragraph 5 d) of the 2001 Doha Declaration on the TRIPS agreement and public health: “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.”
The WTO’s passive position concerning the issue of exhaustion of rights poses a risk: it creates a power relationship between the parties that can influence the choices of WTO member States. And the weaker States do not have any possibility to go through legal channels to defend themselves. In these power relationships, developing countries (DCs) have woefully little negotiating power, and DCs continue to trample them (Botoy Ituku, 2007: Drahos, 2003). Consequently, one member State can use trade sanctions against another to punish them for their choice of exhaustion, the weaker States being unable to defend themselves before the DBS (Kraus, 2004).
In fact, the scope of parallel imports depends in large part on the regime of exhaustion that different Sates establish. According to the theory of exhaustion of rights, still called “ the first sale doctrine,” the first sale of a patented product exhausts the monopoly of the IPR holder with regard to the product being sold. As a result, the IPR holder cannot claim any additional right to his/her product once it is put on the market. S/he cannot prohibit its resale, or control its subsequent circulation for that matter. Three regimes are based on the theory of exhaustion of IPR—i.e. the regimes of national, regional and international exhaustion of rights. As things stand presently, various States around the world apply these regimes in different ways.
With regard to national exhaustion, the IPR holder does not have the right to control the commercial use of the products s/he puts on the market, or with his/her consent. However, s/he may oppose the import of original products sold abroad based on his/her exclusive right to import granted the IPR holder. In reality, adopting a regime of national exhaustion is tantamount to prohibiting parallel imports. Countries that have adopted this regime have in fact opted to isolate their market from foreign competition since they focus on protected products sold in both their national territory and abroad. For example, this is what United States and Switzerland have chosen.
When a country opts for regional exhaustion of patents, the right is exhausted after the first time a product is introduced on the market of one of the countries in the region. In this case, parallel imports are allowed between countries of the same region, but not when they come from countries outside this region. This regime is used in the European Union (EU) and in the member countries of the African Regional Intellectual Property Organization (ARIPO).
The principle of international exhaustion means that the patent right is exhausted as soon as the patent holder sells the product, or gives his/her consent, anywhere in the world. Third parties can therefore import, if the price charged in the foreign country turns out to be better than that charged in the national or regional space. International exhaustion is the most lax form of parallel imports. Several developed countries recognize the principle of international patent exhaustion. This is the case for Great Britain, Japan, Israel and New Zealand. A large number of developing countries too have adopted this model. In Africa, this is the case for South Africa, Kenya and Tunisia. In Latin America, countries in the Andean Group implementing this regime include: Argentina, Brazil, Nicaragua and Panama. In Asia, for example, India, Malaysia and Thailand are proponents of it.
We can therefore note that many countries with great industrial capacity have adopted the international regime of exhaustion of rights. Based on this, we can deduce that such a regime is not suited to developing countries.
It is possible, and indeed desirable, that within the WTO an amendment to be adopted is put forward to expand the mechanism of exhaustion of international rights. At the very least, adopting such a general principle would be in line with the WTO’s rules, which are based on the idea of eliminating all barriers to the free flow of goods and services across and within the borders of national territories for the benefit of global economic well-being (Abbott, 1998; Heath, 1999). And the net effect would be noticeable from the viewpoint of access to health care.
2. Impact on public health
Intellectual property poses risks by restricting access to public health care. This issue caused an unprecedented row in the international community in 1997, after pressure was put on the South African government to change an act (The “Medicines and Related Substances Control Amendment Act”, no. 90 of 1997), intended to improve the conditions of access to antiretroviral drugs. The provisions of this act notably empowered the Minister of Health to authorize and prescribe the terms for the parallel import of drugs patented in South Africa as well as the measure to be taken to provide affordable drugs to the greatest number of people. Before the Act went into effect, multinational pharmaceutical companies took the South African government to court to prevent its implementation (High Court of Pretoria, Case 4183/9: Pharmaceutical company lawsuit (forty-two applicants) against the government of South Africa (ten respondents)), on the ground that it violated the TRIPS agreement. The hearing focused on, among other things, the legitimacy of the use of parallel imports. It should be noted that the case had mainly a political outcome, and it was not brought before the WTO for South Africa’s violation of the TRIPS agreement. At the very least, this conflict again put the spotlight on the impact IPR can have on the rising price of health products (Lowé Gnintedem, 2014).
The possibility of allowing parallel imports is of paramount importance for the majority of countries, developed and developing alike, which must face the challenges of continuously spiking health care costs. It presumes that medications can be bought in countries where the prices are lower with a view to meeting patient needs. Furthermore, the particularly weak pharmaceutical industrial base in most developing countries warrants this position inasmuch as, due to the lack of imports, the availability of health care products on the market is often scarce, given the low incomes of these populations. Simultaneously, it can be argued that such a position could reinforce healthy competition between the existing local industries. Actually, these local industries might be jeopardized if they are required to buy their production inputs exclusively from a local distributor, who would impose higher prices than on the foreign markets (Correa, 2007).
Worldwide harmonizing of global parallel imports by adopting international exhaustion of IPRs would create the possibility for all States to have regular access to the available health care that their populations need.
3. Impact on human rights
By facilitating access to health care, global harmonization of the regime of international exhaustion of IPRs would have an immediate impact on compliance with the right to health for these populations. In general comment no. 14 (2000), on the right to health, the Committee on Economic, Social and Cultural Rights (CESCR), which monitors the application of the International Covenant on Economic, Social and Cultural Rights (ICESCR), it is indicated that the right to health stands on four pillars: availability, accessibility, acceptability and quality. Unquestionably, parallel imports facilitate accessibility and availability of health products.
At the same time, it must be stressed that respecting the right to health must also take into account the right of everyone to benefit from the protection of the moral and material interests resulting from his/her inventions, which is also enshrined in international instruments, and is the subject of the CESCR’s General Comment no. 17 (2005). Does this suggest that there is a single source of conflict in exercising these distinct rights?
In the preamble of the UN General Assembly resolution on International Covenants on Human Rights (Resolution A/RES/62/147, March 4, 2008), it is recalled that “all human rights and fundamental freedoms are universal, indivisible, interdependent and interrelated, that they should be treated in a fair and equal manner, on the same footing and with the same emphasis, and that the promotion and protection of one category of rights should never exempt or excuse States from the promotion and protection of the other rights.” At the same time, intellectual property rights mainly protect corporate interests and investments. This is why the CESCR emphasizes that the scope of protection of moral and material interests of authors provided for in Article 15, § 1 c) of the ICESCR “does not necessarily coincide with what is referred to as intellectual property rights under national legislation or international agreements” (General Comment no. 17 (2005), § 2 et 3). The right to health reflects the protection of the condition of a person, which is not of the realm of worldly possessions, or trade, but rather of human existence. This is why that while protecting interests of IPR holders it is crucial to give priority to respecting the right to health of human beings.
4. Implementing international exhaustion of intellectual property rights
From a technical standpoint, harmonizing the parallel imports regime is a legal issue. However, it must be acknowledged that while the issue is economic, the decision is mainly political. The WTO is the most appropriate body to enact change in the current system, in particular by revising the TRIPS Agreement.
Another difficulty also must be pointed out. This is that expanding parallel imports may carry the seeds of untoward consequences for innovation in developing countries. It is widely acknowledged that the most sustainable solution for access to health care remains developing local production capacities—notably, the existence of pharmaceutical industries. However, in the context of developing countries, many diseases are still ignored, and even totally neglected. Because these populations are poor, and because this market is not very lucrative, there is little financial incentive for the pharmaceutical industries of mainly industrialized countries to invest in research and development for diseases affecting developing nations. This means that as there are no drugs and other related medical infrastructure, the parallel import mechanism becomes less effective, and the right to health suffers a major setback.
This is why, global harmonizing of the international exhaustion regime remains crucial. If we consider this to be a central principle, we can also easily imagine exceptions, which are quite common in international trade. Moreover, we could devise protective measures as it is necessary to develop a productive branch of the pharmaceutical sector in the developing world. Negotiations with a view to revising the TRIPS Agreement must therefore include and frame limited exceptions to the unified regime of parallel imports.