Parallel importations. New perspectives. *
Parallel import means that patented or marked goods are purchased in a foreign market and resold in the domestic market. These are known as passive parallel imports.
Instead, active parallel imports occur when foreign licensees enter the market in competition with the holder of the patent or of the trade mark[1].
There are three kinds of principles that can hypothetically regulate the parallel importations (known also as gray market).
First, there is the principle of national exhaustion. It means that the patent or the trade mark holder can prevent the importation of the product in the market where he is owner of the intellectual property right.
Diametrically contrary is the international exhaustion principle. In this theory the intellectual property right is consumed as soon as goods are placed in the market, so that they can freely circulate. In Japan Tokyo High Court (in 1995) applyed the international exhaustion rule (BBS Kraftfahrzeug Technik AG v. Kabushiki Kaisha Racimex Japan and Kabushiki Kaisha JapAuto Prods)[2]. The sentence turned over the leading case Brunswick (1969, Osaka District Court). According to the Brunswick case parallel importation was unlawful if goods were already patented in Japan[3]. Finally, in 1997, the Japanese Supreme Court didn’t use the international exhaustion principle, and decided that holder of a patent in Japan and in another country can’t oppose to importation in Japan of the same product, except demonstrating that the gray market was contractually prohibited (and there was evidence on the product)[4].
It’s possible to note that in Australia is in force the international exhaustion principle for trade marks and for patents, but for patents this principle can be contractually restricted by the patent holder[5].
The third solution is the European Union one. In the E.U. is in force the European Union exhaustion principle. Goods patented (or marked) traded for the first time in the European Union or in the European Economic Area can be freely traded inside European Union (or European Economic Area). The patent or trade mark holder can, instead, opposite to parallel importations inside E.U. or E.E.A. if good was traded for the first time only outside E.U. or E.E.A.
In U.S.A. the doctrine of exhaustion is accepted by jurisprudence. U.S. Government, instead, has been always adverse international exhaustion. During the negotiations of TRIPS agreement U.S. Government expressed his contrary view (with reference to patents and specially drugs). The U.S. Government opinion is founded on the need to defend the research’ possibility of enterprises that want to patent their inventions[6].
In this way of thinking parallel importations can harm the research capability of the enterprises, because this kind of capability needs a suitable exploitation of the patent and this utilization can be damaged by parallel importations from countries where the price’ product is lower.
The only exception in the U.S. legislation is the common control exception for trade marks, that allows gray market if the national trade mark holder coincide with the foreign trade mark holder or if both the holders are affiliated corporations or are submitted to common ownership or control[7]. It’s possible to explain this exception because in case of trade marks it’s really difficult to feel that need for protection of the research system that it’s possible to find in the patent field.
The U.S. Government’ position has a kind of confirmation in a study of the E.U. (NERA 1999). This study states that European Union exhaustion principle didn’t remove prices’ differences among European Union Countries[8]. This study seems to think that parallel importations coming from U.S.A. and Japan could only reduce enterprises’ profits more than curtail consumers’ prices[9].
In theory it seems to be preferable a system based on international exhaustion principle, because seems a good means to avoid market segmentations, favouring consumers by lowering prices.
But it’s also true that studies about parallel importations are based on little empirical evidence. A lot of studies about gray market are anecdotic[10].
From a little while we can see some attempts to justify prohibition of parallel importations, specially for drugs. The most important justification is that parallel importations can destroy research.
Probably this changing is linked to the recent economic crisis. Like in almost every difficult period for economy it’s possible to see withdrawals of antitrust needs in favour of protectionist mechanisms aimed at defending enterprises and dynamic efficiency.
Parallel importations face the problem of moderating two kinds of economic efficiency: static (in which parallel importations produce a price reduction for consumers) and dynamic efficiency (that concerns the optimal capability of a system to produce innovations). It’s clear that these kinds of efficiency are not always matchable. The only way to have a correct balance is to ensure a suitable remuneration to the intellectual property holder in the market of first admission of the product for research and development activity[11]. At the same time this doesn’t involve an excessive possibility of exploitation of the market by the patent holder[12].
In the famous case Syfait[13] the European Court of Justice found a solution by not prohibiting parallel importations of drugs, but also allowing the manufacturer to refuse furnishing medicines to wholesalers when their orders are abnormal, that is excessive in respect to the normal amounts previously ordered.
I think that in this brief analysis it’s necessary to take into account that preventing gray market (to make sure enterprises can reach the maximum level of research) is not a good solution if you don’t value that patent premium and the curve of the innovation are not always parallel, because often appropriation of economic advantages coming out from an innovation doesn’t always stimulate research in a constant way[14].
If you consider what said about equilibrium between static and dynamic efficiency in economy and about re-emergence of protectionist tendencies in a economic crisis period, seems possible to face the problem in a different way. I think, indeed, it’s possible to consider parallel importations dangerous for market not only appraising the difficulties that gray market cause to the single patent holder in his research activity, but also evaluating if restrictions to the parallel trading are useful to reach the target of stimulating innovation in a comprehensive dimension[15].
Finally, the subject of parallel trading, specially in pharmaceutical field, meets with necessities of the countries less rich. And it’s not sure that parallel trading is an advantage for consumers of this countries. Indeed, pharmaceutical manufacturer could reduce the price differential between markets. Paradoxically this could lower the price in the richer country and raise price in the poorer country[16].
Enrico Macrì
Faculty of Law
University of Messina
[1](*) Paper carried out in PRIN research 2007, MIUR, “Enforcement ed effettività delle tutele nel diritto commerciale” (coord. Prof. V. Di Cataldo).
Lavoro realizzato nell’ambito della ricerca PRIN 2007, cofinanziata dal MIUR, “Enforcement ed effettività delle tutele nel diritto commerciale” (coord. Prof. V. Di Cataldo).
Conley, Parallel imports: the tired debate of the exhaustion of intellectual property rights and why the WTO should harmonize the haphazard laws of the international community, in Tulane Journal of International and Comparative Law, 2007, 189, 190 s.
See Mueller, Janice M., An introduction to patent law, New York, 2006, 441. See also Correa, Carlos M., Trade related aspects of intellectual property rights. A commentary on the TRIPS Agreement, Oxford-New York, 2007, 81, mark 10; Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 174 and 185, mark 8.
Matsushita, Mitsuo, Issues regarding parallel importation of trademarked and patented products and competition policy in Japan , in Intellectual property: trade, competition, and sustainable development, ed. Cottier e Mavroidis, Ann Arbor, 2003, 192.
Matsushita, Mitsuo, Issues regarding parallel importation of trademarked and patented products and competition policy in Japan , in Intellectual property: trade, competition, and sustainable development, ed. Cottier e Mavroidis, Ann Arbor, 2003, 193.
Maskus, Keith E. e Chen, Yongmin, Parallel imports in a model of vertical distribution: theory, evidence, and policy, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 189, 193 s.
Trips, sec. 6, set countries free to choose international exhaustion principle, with the only limit of not discriminating (see Correa, Carlos M., Trade related aspects of intellectual property rights. A commentary on the TRIPS Agreement, Oxford-New York, 2007, 78; Watal, Jayashree, Parallel imports and IPR-based dominant positiuons: where do India’s interest lie?, in Intellectual property: trade, competition, and sustainable development, ed. Cottier e Mavroidis, Ann Arbor, 2003, 201; Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 173). Same reasoning is possible to find in NAFTA (North American Free Trade Agreement) and MERCOSUR (Mercado Común del Sur): Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 173.
[7] Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 185.
See Watal, Jayashree, Parallel imports and IPR-based dominant positiuons: where do India ’s interest lie?, in Intellectual property: trade, competition, and sustainable development, ed. Cottier e Mavroidis, Ann Arbor, 2003, 206.
Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005,182 s. See also Maskus, Keith E. e Chen, Yongmin, Parallel imports in a model of vertical distribution: theory, evidence, and policy, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005,189, 199.
Conley, Parallel imports: the tired debate of the exhaustion of intellectual property rights and why the WTO should harmonize the haphazard laws of the international community, in Tulane Journal of International and Comparative Law, 2007, 189, 210.
V. Correa, Carlos M., Trade related aspects of intellectual property rights. A commentary on the TRIPS Agreement, Oxford-New York, 2007, 89.
Desogus, Il commercio parallelo disincentiva la ricerca farmaceutica?, in Diritto ind ustriale, 2008, 341
Court of Justice of the European Communities, may 31, 2005, C-53/03.
Lemley, Property, intellectual property and free riding, in Texas Law Review, 2005, 1057.
Desogus, Il commercio parallelo disincentive la ricerca farmaceutica?, in Diritto ind ustriale, 2008, 345.
[16] V. Fink, Carsten, Entering the jungle of intellectual property rights exhaustion and parallel importation, in Intellectual property and development. Lessons from recent economic research, ed. by Fink e Maskus, Washington, 2005, 184. See also Watal, Jayashree, Parallel imports and IPR-based dominant positiuons: where do India ’s interest lie?, in Intellectual property: trade, competition, and sustainable development, ed. Cottier e Mavroidis, Ann Arbor, 2003, 206.