Parallel Imports of Pharmaceuticals – A Good Idea If Foreign IPRs Were Stronger

Intellectual Property
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The practice of parallel importation of patented goods refers to the importation of legally produced, non-infringing goods without permission from the patent owner. It is based on the first-sale doctrine, which holds that the purchaser of a patented product may subsequently resell it. Producing and importing infringing goods is still illegal; parallel importation concerns only those goods that are lawfully produced and subsequently resold.

The TRIPS agreement leaves the issue of parallel imports to each country to decide. In the United States, parallel importation is legal, something the Supreme Court affirmed in 1998 and 2013. For this reason, international editions of textbooks may be imported into the United States at prices steeply discounted from the corresponding American editions.

Parallel importation of pharmaceuticals into the United States is very restricted; individuals may purchase from foreign countries in small quantities for their own use. This is a matter of drug regulation, not patent law. Pharmaceutical companies, much like the book publishers who lost at the Supreme Court, like to segment the market and charge higher prices in wealthier countries. This can only be done if parallel imports are not permitted. The costs of developing drugs are astronomical, so it is reasonable to protect them with strong patents and permit high prices to be charged.

If parallel imports of pharmaceuticals were more widely permitted, prices would intuitively fall in the United States and rise in foreign countries, including poor developing countries. This may not happen in practice, though, because many countries regulate drug prices under the threat of compulsory licensing.

Parallel imports do not undercut intellectual property rights (IPRs), but price controls and compulsory licensing do. By mandating prices, poorer countries cause wealthier countries to subsidize their products. In answer to the concern that poor countries would not have needed medicines if parallel imports were permitted, this would only happen if price control laws do not change. Drug companies can still practice price discrimination by giving rebates directly to consumers who nominally pay the high prices, something that already happens within the United States.

The potential problems of parallel imports are not because of excessively strong IPRs, but because these rights are too weak in some countries. Prohibitions on parallel imports, which are in excess of needed patent rights, are only a necessary reaction to weak foreign IPRs.