Parallel Importation and Competition Policy

Intellectual property and competition law are two interdependent fields with seemingly conflicting roles.155 While IP protects creativity, innovative progress, business reputation and information or ideas capable of industrial application with utility value so as to reward creativity and inventive activities, competition law seeks to safeguard the healthy operation of markets by putting a check on any anti-competitive use of IP monopoly rights.156 A strong competition policy is needed to get the lowest possible price for pharmaceuticals, as competition will encourage trade liberalization and foreign direct investment (FDI) whilst

151_{J J Darrow, (Column) ‘Recent Developments in Health Law: Why International Price Discrimination May}

Increasingly Be the Wrong Solution to a Global Drug Problem’ (2011) 39 Journal of Law, Medicine and Ethics

291.

152

Ibid.

153

E Siew-Kwan Ng ‘The Impact of the Bilateral US – Singapore Free Trade Agreement on the Singapore’s Post –TRIPS Patent Regime in the Pharmaceutical Context’ (2010) 16 (5) International Trade Law and Regulation

121, 125.

154

The WTO Agreement on Safeguards Article 2 allows countries to take measures against the importation of foreign products where such importation is injurious to the local industry.

155

Avgoustis above n 12, 108.

156

135 creating a regulatory framework to prevent monopolization and the exploitation of market power.157

There is an argument that without a strong competition policy, the exhaustion doctrine would have negative effects, as domestic brands may be part of a single alliance that would conspire to maintain high prices through exclusive distributorship agreements.158 On the other hand, parallel trade may equally promote free trade by removing potential anti-competitive practices. An example of anti-competitive practices is manufacturers’ vertical restraint through exclusive distribution channels which may enable the control of the availability of products both nationally and internationally.159 National exhaustion is seen as permissible, as is regional exhaustion (as in the case of the European Union which operates a single European Market).160 The argument is that regional exhaustion should not cover free trade areas or countries where market conditions differ substantially.161Another argument is that parallel trading is anti-competitive because it would ultimately erode all IPRs whereas IPRsare not only tolerated by competition law but also encouraged by it.162 Again, however, the problem with this line of argument is that it seems to undermine the fact that parallel imports are not the same as trade in counterfeit or illegal goods and to that extent IPRs are still very much at large and enforceable to the extent that the parallel trade has not gone beyond the confines of sale or re-sale of legitimate goods. As succinctly stated by Carlos Correa:

‘…it is important to emphasize that the issue of parallel imports is completely distinct from the issue of counterfeit pharmaceutical products. Parallel imports, by definition, relate to products which have been legitimately put on the market, not to imitations of original products. Parallel imports would be subject, in principle, to the same import and other regulations applicable to any other imported medicine.’163

The TRIPS Agreement does recognise that the use of IPRs should not have anti-competitive 157 Singham, above n 113, 408. 158 Singham above n 113, 409. 159 Avgoustis above n 12, 117. 160 Ibid 410. 161 Ibid. 162 Ibid.

163_{C Correa ‘Public Health and Patent Legislation in Developing Countries’ (2001) 3}

Tulane Journal of Technology & Intellectual Property 1, 41.

136 effects. The objectives and principles of the TRIPS Agreement, as stated in Articles 7 and 8 accentuate the need to balance IP law with competition policies. Thus Article 7 of TRIPS provides:

The protection and enforcement of intellectual property should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.

Article 8(2) further provides

Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

The foregoing provisions, it is submitted, are wide enough to empower countries to adopt a strong competition law framework to ensure a balance of rights and obligations. The interpretation of these provisions has not been without some controversy.164InCanada – Patent Protection of Pharmaceutical Products,165 the EC contended that the regulatory review and stockpiling exceptions in the patent law in Canada run afoul of the TRIPS Agreement.166In response, Canada maintained that governments are sufficiently empowered by Articles 7 and 8 of TRIPS to adjust patent rights to strike a convenient balance with other essential national policies.167 The EC in response to Canada’s reliance on Articles 7 and 8 argued that the provisions merely describe the balancing of goals that had already been concluded in negotiating the TRIPS Agreement and that to view the flexibility allowed by TRIPS Article 30 (dealing with the right to provide limited exceptions to patents) as an opportunity to ‘renegotiate’ the overall balance of the Agreement would not be in line with its

164_{See P K Yu, ‘The Objectives and Principles of the TRIPS Agreement’ (2009) 46}

Houston Law Review 979, 992.

165

Panel Report, Canada - Patent Protection of Pharmaceutical Products, WTO Doc WT/DS114/R (Mar. 17, 2000).

166

Ibid.

167

137 spirit and purport.168 The Panel observed that whilst ‘basic balance’ had indeed been achieved in the Agreement, patent rights might require certain adjustments without renegotiating the balance achieved in the Agreement.169 According to the Panel:

Article 30's very existence amounts to a recognition that the definition of patent rights contained in Article 28 would need certain adjustments. On the other hand, the three limiting conditions attached to Article 30 testify strongly that the negotiators of the Agreement did not intend Article 30 to bring about what would be equivalent to a renegotiation of the basic balance of the Agreement. Obviously, the exact scope of Article 30's authority will depend on the specific meaning given to its limiting conditions. The words of those conditions must be examined with particular care on this point. Both the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind when doing so as well as those of other provisions of the TRIPS Agreement which indicate its object and purposes.170

Daniel Gervais posits that Article 8 is ‘essentially a policy statement that explains the rationale for measures taken under arts 30, 31 and 40’.171Nevertheless, he concedes that it may serve an interpretative function. Article 8.2 has particularly been described as a redundant provision as all the public policy objectives mentioned therein have already been addressed in other parts of the Agreement.172Peter Yu has further described both Articles 7 and 8 as not only providing a balance that makes the TRIPS Agreement a legitimate bargain between developed and less developed countries but as also sowing the seeds for the development of new international norms within and without the TRIPS Agreement.173 It is therefore relatively well-settled that Articles 7 and 8 of the TRIPS Agreement are largely hortatory provisions.Despite this, it is contended that they still provide some leeway for giving some force to local exigencies in the interpretation of TRIPS.

Whilst competition laws and policies are generally acknowledged as desirable for the well- being of an economy and the protection of consumer interests, the plethora of socio- economic problems in many developing countries may make it difficult to view the 168 Ibid, 7.25. 169 Ibid, 7.26. 170 Ibid. 171

D Gervais, The TRIPS Agreement: Drafting History and Analysis (Sweet & Maxwell 3rd ed. 2008) 209

172

See Yu above n 164, 1017.

173

138 development of competition rules as a priority.174The potential for anti-competitive practices on the part ofpharmaceutical companiescan be well addressed by utilising the existing flexibilities in the TRIPS Agreement. Although it is correct that the myriad economic problems in developing countries may make it difficult to view the implementation of effective competition policy structures as a matter of much significance in a number of such countries, competition policies remain very important to the developmental goals of many developing countries175 especially in the African continent. It is submitted that rather than refusing to adopt a competition regime, the option should be to devise effective means of adopting competition strategies that would take account of the peculiar needs of the country concerned and fashioning the competition law regime to serve their national interests. A detailed discussion of the competition law dimension to the discussion is, however, not within the scope of this thesis.

4.4.4. Parallel Importation of Goods Made under Compulsory Licensing