[Ip-health] Lexmark: The Supreme Court's patent exhaustion case

Jamie Love james.love at keionline.org
Wed May 31 15:12:04 PDT 2017


Lexmark: The Supreme Court's patent exhaustion case

The Supreme Court's decision in IMPRESSION PRODUCTS, INC. v. LEXMARK
INTERNATIONAL, INC.  has clarified that the United States has world wide
exhaustion of patent rights.   According to Professor Fred Abbott, who
knows a lot about this issue, and has been one of the leading experts on
patent exhaustion for decades (for example, he represented South Africa on
the issue during the Pharma v Nelson Mandela/South Africa  trial in 2001),
the US had long recognized international exhaustion for patents, although
more recently, there has been more ambiguity on this issue, particularly in
the circuits, a topic that Fred and others can explain better than me.

Recent efforts by Senator Sanders and others to authorize parallel trade in
pharmaceuticals have been complicated over questions about exhaustion
issue. Sanders and others were willing to amend the US patent law if
needed, on this issue, something that is not necessary now.

PhRMA, Rachel Sachs and several others have seen the exhaustion case as one
that can undermine lower prices in lower income countries, a topic that is
important, and one that KEI has consistently addressed in various fora when
exhaustion is considered.  But for now, its sufficient to note that the FDA
effectively regulates commercial parallel trade, without relying upon
patents or other intellectual property rights.   The FDA already has the
authority authorize parallel trade, and has been urged to so since
President Bill Clinton's tenure, always finding a way to avoid setting up a
legitimate pathway for importing legitimate parallel imports.

The Sanders bill would effective force the FDA to liberalize parallel
trade, beginning with Canada and gradually expanding imports to other OECD
countries.  KEI has asked the Senate sponsors to limit parallel imports to
OECD countries that have per capita incomes of at least 50 percent of the
United States, in order to prevent the imports from OECD countries like
Poland, Greece or Mexico, where incomes are quite a bit lower than the US.

Countries that are the potential source of parallel traded drugs, like New
Zealand and Greece, often try to find ways to make it hard to source the
parallel exports the US would import, and the US has a huge market, much
larger than Canada, of course, but also big relative to the countries that
would likely be approved as suppliers by the FDA, even under the Sanders
bill without amendment.

It is worth noting that at the end of the day, you can get a more efficient
result by just using reference pricing, and an even better solution is just
to implement the delinkage of R&D incentives from drug prices, so drugs are
commodities regulated for quality, and moving in international trade.

Finally, some of my earliest experiences in IP and trade disputes involved
efforts by the United States to block international exhaustion in
Argentina, South Africa and New Zealand, and the U.S. has a long standing
policy of trying to block parallel trade in everything from pharmaceuticals
to used cars (on the grounds that the cars were protected by copyrighted).
The two recent US Supreme Court decisions on exhaustion, one for copyright
and now for patents, does contribute to a trend to recognize international

​One more thing.  Cases like this are one more reason for the US to avoid
signing trade agreements with ISDS clauses that extend to drug prices
and/or patents.  I doubt a drug company could win one, but why risk the
cost and exposure?


Opinion here:

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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