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

Bryan Mercurio (LAW) b.mercurio at cuhk.edu.hk
Thu Jun 1 21:00:17 PDT 2017

Jamie, most countries with a clear regime of international exhaustion still do not allow parallel imported pharmaceuticals on health and safety grounds, and owing to product packaging laws. Once the parallel imported drugs are repackaged in accordance with local laws, the price doesn't look so cheap anymore. But these laws are, for the most part, sensible consumer protection (ie - health warnings/indications) that should not be disregarded. While I don't mind walking into a dollar store and buying soap with Indonesian packaging (and no English), there's more than a slight difference when we're talking about pharmaceuticals. 

Moreover, and importantly, the territoriality of IPRs is long recognized in international law and more recently in all the ISDS cases involving IPRs. In addition, you will find that a good number of FTAs specifically contain a clause which states that the IP chapter does not affect exhaustion/first sale doctrine. I understand ISDS is not popular among all, but the " why risk the cost and exposure" argument could be used for almost any regulation.


Message: 1
Date: Thu, 1 Jun 2017 00:12:04 +0200
From: Jamie Love <james.love at keionline.org>
To: Ip-health <ip-health at lists.keionline.org>
Subject: [Ip-health] Lexmark: The Supreme Court's patent exhaustion
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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 exhaustion.

?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 http://www.keionline.org/donate.html
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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