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Parallel Import of Pharmaceuticals Permissible but Unnecessary

October 17 2005 Introduction Parallel Import Comment

Introduction 'Parallel trade' or 'grey market trade' is trade without the authorization of the person holding patent rights in the goods. Parallel trade results when the price of a patented product varies between two different markets, thus allowing a trader in the comparatively more expensive market to import the product from cheaper sources. Pharmaceutical companies follow the practice of differential pricing of drugs according to the purchasing capacity of the prospective consumer in a target country. As a result, the same drug may be expensive in a developed country and relatively cheap in developing countries. This principle of differential pricing forms the basis of parallel trade and enables countries in which drugs are expensive to import them from cheaper markets. Parallel Import The Indian Patent Law as originally enacted provided for parallel importation, but was narrow and limited in scope. The law provided that the grant of a patent shall be subject, among other things, to the following: "In the case of a patent with respect to any medicine or drug, the medicine or drug may be imported by the government for the purposes merely of its own use or for distribution in any dispensary, hospital or other medical institution maintained by or on behalf of the government, or any other dispensary, hospital or other medical institution which the central government may, having regard to the public service that such dispensary, hospital or medical institution renders, specify on this behalf by notification in the notification." To complement this provision, such importation was not considered patent infringement. Thus, the law permitted importation of pharmaceutical products by the government for the very limited purpose of use by government medical agencies only. Importation by a private person for commercial purposes was not permissible. However, this limited scope did not give cause for concern, as pharmaceutical products patented abroad were freely copied in India through reverse engineering. The Patents (Amendment) Act (2002) introduced Section 107A and recognized parallel importation by individual and private entities for commercial purposes, and also for developing and submitting information required under any law in force. Section 107A(b) allowed importation by any person from "any person who is duly authorized by the patentee to sell or distribute the product". This phrase was replaced with "from a person who is duly

authorized under the law to produce and sell or distribute the product" by the Patent (Amendment) Act (2005). Therefore, Section 107A(b), as amended, provides: "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 does not constitute infringement of the patent." This implies that, in India, pharmaceutical products can be imported from any voluntary licensee as well as the compulsory licensee of the patent holder. In addition, it is clear that pharmaceutical products patented in India but not in an export country can be legally imported into India. Therefore, if the patent term of a drug has expired in a certain country but continues in India, the drug can be imported from any person who is duly authorized under the law of the other country to produce and sell or distribute the drug. Further, Section 92A, on compulsory licences, enabled India to be an exporting country, whereas now this section enables India to use the system set up by the World Trade Organization council decision on the implementation of Paragraph 6 of the Doha Declaration as an importing country. Comment The parallel trade mechanism will succeed only if the pharmaceutical companies maintain broad differences in the prices of their patented drugs across the globe. It is unlikely that great margins will persist, as this would facilitate parallel trade and erode profits. For a country such as India which has a robust generic pharmaceutical industry, parallel trade holds no attraction. India's technology base is so strong that, during the absence of a product patent regime, almost all patented drugs were being manufactured at half price. Internationally, Indian companies such as Cipla and Ranbaxy offered the lowest prices for antiretroviral drugs. Therefore, it is unlikely that India will import drugs from other countries to ensure affordable medicines for its population. For India to resort to parallel importation of pharmaceutical products, it would be necessary to identify a possible source in the global market where the patented drugs are cheaper than in India. The existence of a plausible source is unlikely. The Patent Law contains elaborate provisions on the use of compulsory licences to meet health crises and these will be invoked at the appropriate time to address the country's health needs. Therefore, parallel trade provisions have no practical utility for India.