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Patents and Drug Importation

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Publication Date: May 2004

Publisher(s): Library of Congress. Congressional Research Service

Series: RL32400

Topic: Manufacturing and industry (Pharmaceutical industry)

Abstract:

Prescription drugs often cost far more in the United States than in other countries. Some consumers have attempted to import medications from abroad in order to realize cost savings. The practice of importing prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation." Parallel imports are authentic products that are legitimately distributed abroad and then sold to consumers in the United States, without the permission of the authorized U.S. dealer.

Parallel importation may raise significant intellectual property issues. Many prescription drugs are subject to patent rights in the United States. In the Jazz Photo decision, the U.S. Court of Appeals for the Federal Circuit confirmed that the owner of a U.S. patent may prevent imports of patented goods, even in circumstances where the patent holder itself sold those goods outside the United States. The Jazz Photo opinion squarely declined to extend the "exhaustion" doctrine -- under which patent rights in a product are spent upon the patent owner's first sale of the patented product -- to sales that occurred in foreign countries. The court's ruling will in some cases allow brand-name pharmaceutical firms to block the unauthorized parallel importation of prescription drugs through use of their patent rights.

Several state and local governments are either themselves importing, or encouraging others to import, patented medications from foreign jurisdictions. The Eleventh Amendment of the U.S. Constitution provides that a federal court may not adjudicate a lawsuit by a private person against a state, except under certain limited circumstances. The ability of a private party to obtain a remedy for patent infringement against a state government is therefore uncertain. Eleventh Amendment immunity may in some cases extend to political subdivisions of a state as well.

In addition to any patent rights they possess, brand-name drug companies may place label licenses on their medications. It is possible to draft a label license restricting use of a drug to the jurisdiction in which it was sold. As a result, in addition to a charge of patent infringement, an unauthorized parallel importer may potentially face liability for breach of contract.

Several bills have been introduced in the 108th Congress addressing the importation of prescription drugs. One of them, S. 2328, the Pharmaceutical Market Access and Drug Safety Act of 2004, would amend the Patent Act of 1952 to provide that importation into the United States of a regulated pharmaceutical sold abroad by a patent proprietor or its representative is not a patent infringement. Introduction of an "international exhaustion" rule restricted to pharmaceuticals does not appear to be restricted by the provisions of the so-called TRIPS Agreement, which is the component of the World Trade Organization (WTO) agreements concerning intellectual property. Another possible legislative response is the immunization of specific individuals, such as pharmacies or importers, from patent infringement liability. Alternatively, no legislative action need be taken if the current possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed satisfactory.