PARALLEL IMPORTS IN PHARMACEUTICALS:
INCREASE ACCESS TO HIV DRUGS*

By Dr. Krithpaka Boonfueng**

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)(1) incorporates strong patent protection, which leads to the high price in patented drugs. However, the TRIPs Agreement provides two possible solutions for increasing access to essential drugs: compulsory licensing and parallel imports. Under the current provision on compulsory licensing, developing countries cannot continually rely on compulsory licensing to solve the problems of low availability and high prices of essential drugs. A compulsory licensing solution is complicated and difficult for developing countries in part, because the present provision provides many conditions that must be satisfied before a compulsory licensing can be issued. It was not until after the Doha Conference in 2001 that developing countries began utilizing compulsory licensing and parallel import without fear of the U.S. trade sanction. The Doha Ministerial Declaration and Special Declaration on Public Health stated that in cases of a public health crisis, developing, countries can issue compulsory licensing or/and allow parallel imports.

Although after Doha the use of compulsory licensing became more possible, it is not a good solution for countries with low production technology because they do not have the infrastructure to actually make drugs. In such countries, parallel imports are considered a better scheme to fulfill the need of domestic patients. Developing countries may choose to allow parallel import under the international exhaustion doctrine and obtain low price drugs from outside sources. Drugs prices may be cheap in some countries as the result of a compulsory licensing or relaxing patent law. It must be stressed that compulsory licensing or parallel import standing alone would not be enough to address the problem, but the two schemes together provide a workable solution.

This article will first explain the strengthening of patent protection under the TRIPs Agreement and its affect on developing countries. Also addressed is how compulsory licensing and parallel imports can solve the problem of high prices and low availability of essential drugs. The article ends with enumerating issues that should be solved by the TRIPs council in the near future.

II. STRENGTHENING PATENT PROTECTION AND THE EFFECTS ON DEVELOPING COUNTRIES

The pharmaceutical industries require strong patent protection on global scale because these industries need to secure sufficient revenue from market to offset their research and development costs(2). The patent protection allows them to capture a royalty revenue from their innovation(3). The strong global patent protection enables pharmaceutical industries to maintain a profit. Seventy-five percent of the world's pharmaceutical market is dominated by the United States, the European Union, and Japan(4). Developing countries have balked at patent protection for drugs because the patent protection would increase drugs prices for consumers in their countries. The greater increase in price, the less access to drugs is. Consumers in low-income countries might not have enough income to afford the patent drugs. The issue of affordable access to drugs and treatment constitutes a matter of life or death(5). Developing countries take the position that increased drug prices from providing patent protection will have a considerable impact on the access to drugs, which will negatively affect public health.

Developed nations have attempted to encourage and force developing nations to provide sufficient patent protection for drugs. Before the emergence of the TRIPs Agreement, many developing nations had excluded drugs from patent protection(6). The United States have played a particularly important role in pushing many developing countries to strengthen their patent protection, through the U.S. threat and the use of trade sanctions(7). The Pharmaceutical Manufactures Association (PMA) brought the issue of inadequate patent protection for pharmaceutical products in developing countries to the USTR's attention in order to have trade sanction section 301 imposed(8). As the result of the strong pressure of developed nations, the TRIPS Agreement makes it clear that WTO members have to provide patent protection for any fields of invention, including pharmaceutical products under its domestic patent law in accordance with the TRIPs standard. Members cannot make exclusions or exceptions to the patent protection even for the "essential medicines" listed by the World Health Organization (WHO)(9).

The TRIPs Agreement essentially gives drug patent owner the exclusive rights on a worldwide scale. In particular, distribution and importation rights allows the patent owner to segregate market based on territory, and to ultimately control the availability of those patent goods in each market. Such control enables a monopoly in each national market segment to effectively increase the drug price(10). Without a shred of doubt, the TRIPs Agreement has resulted in increase drug price, limited access to essential drugs and monopolies in domestic market, which developing countries perceive as dangerous and unacceptable(11).

In the past, developing countries' government sometimes used a compulsory licensing method to control drug prices and encourage domestic market competition. A compulsory license was issued to local manufacturers to produce essential drug with affordable price and more availability for domestic patients(12). However after TRIPs, it appears to be more difficult for developing countries to rely on compulsory licensing because under Article 31 of TRIPs requires a number of conditions and restrictions that must be met before issuing a compulsory licensing. The following part discusses the restriction on compulsory licensing.

III. WTO/TRIPS SAFEGUARDS IN PUBLIC HEALTH

As a result of the concerns over affordable pricing and access of medicinal drugs, the TRIPs Agreement provides some safeguards to aid developing countries in dealing with public health concerns. The safeguards include the exclusion of patentability, a compulsory licensing and parallel imports.

1. The Exclusion of Patentability

There are two approaches under TRIPS, which pharmaceuticals might feasibly be excluded from patent protection within limited circumstances and justification. These exceptions allow developing countries to maintain their previous stances on pharmaceutical patents. The first exception is ordre public under TRIPS Article 27.2(13), which permits exclusion from patentability when necessary to protect human health. It is possible for WTO members, particularly developing countries, to deny a drug patent in order to produce and market the drug through a non-commercial entity. However, the developing country is required to demonstrate that its actions were "necessary" to protect public health(14). The second exception is Article 8.1, which potentially authorizes the exclusion of pharmaceuticals from patent protection for public health reasons. Nevertheless, any application of an exception to protect rights is subjected to a necessity technology and consistency test and must be consistent with other obligations under the TRIPs Agreement(15).

2. Compulsory Licensing and Parallel Imports

Besides the exclusion of patentability exception, there are other alternative approaches: compulsory licensing and parallel imports. In order to grant a compulsory licensing, Article 31 of the TRIPs Agreement provides some conditions that members have to meet before a compulsory licensing is issued(16). Even though the TRIPs Agreement allows developing countries to use a compulsory licensing, it limits the nation's power to issue a compulsory license(17). For example, the compulsory license should not unreasonably conflict with the normal exploitation and not unreasonably prejudice the interests of patentee. Additionally, a product made under compulsory licensing is supplied predominantly to domestic market under Article 31(f). In limited circumstance, members may issue a compulsory license to produce product without the patent holder's consent in some situations.

For pharmaceuticals, a compulsory license has been used to stimulate price-lowering competition and to ensure availability of needed medicines for developing countries(18). However, the conditions mentioned earlier must be met before issuing a compulsory license, which may impede a government's ability to stimulate or encourage affordable pharmaceutical production(19). Moreover, the subject matter in relation to a compulsory license can be brought to the WTO dispute settlement system in case that a nation issues a compulsory license without complying with requirements under Article 31 of the TRIPs Agreement.

In pharmaceuticals, there are two types of technology capacities: innovation of a new drug and manufacturing of drugs. A country's capacity to develop pharmaceuticals is directly related to its degree of economic development(20). In many cases, developing countries allowed to issue compulsory licensing to produce patent drugs do not have sufficient technology to produce the drugs. Technology for innovating and producing pharmaceutical products is almost exclusively available in developed countries, not developing countries(21). However, some particular developing countries such as India and Brazil who may have ability to produce pharmaceuticals, do not have enough capabilities to innovate a new drug. Thus, compulsory licensing that permits patent use does not adequately assist developing countries due to limited technology and the inability to obtain the necessary raw materials(22). Due to such circumstances, parallel imports may be a better alternative.

Parallel imports provide an alternative means for improving access to essential drugs because Article 6 of the TRIPs Agreement states that members are free to decide whether parallel imports are allowable(23). Although Article 28 grants the exclusive right of import to the patent owner, Article 6 enables member to limit the patent holder's right under the principles of the exhaustion doctrine(24). Therefore, the determination regarding whether an intellectual property owner can bar parallel imports is a matter of national discretion(25). The nation discretion ruling regarding parallel imports are valid because TRIPs members cannot submit a complaint to the WTO Dispute settlement system. Under Article 6, members are free to adopt either national or international exhaustion and the WTO Dispute Settlement system will not address exhaustion doctrine disputes(26).

In brief, based on article 6, members are free to legalize parallel imports without any conditions, which is in contrast to compulsory licensing. Compared to compulsory licensing, parallel imports may be a better solution for developing countries with low drug production technology in order to reduce drug prices and increase access to drugs in domestic market. Allowing parallel imports can effectively increase access to essential drugs for combating the HIV/AIDs epidemic and other essential diseases such as malaria, tuberculosis, and leishmaniasis. The example of AIDs will be used for further analysis and discussion. Certainly, the discussion and analysis in AIDs example can apply to the analysis on other essential drugs as well.

IV. HIV/AIDS

The devastation of the HIV/AIDS pandemic has become a serious health issue in many developing countries. Fortunately, HIV/AIDS drugs are available because of innovations by pharmaceutical companies in developed countries. Enforceable patent protection acts as an incentive for developing new medicines(27). People in both developed and developing countries have been infected this disease. However, unfortunately, a number of HIV infected patients in developing countries cannot afford the cost of drugs. Poor patients in developing countries should not be expected to pay the same price that people in developed countries could do. Hence, access to HIV/AIDS drugs has turned out to be a hottest issue regarding to the tensions between global health concerns and patent protection.

High HIV drug prices have resulted from strong patent protections, causing limited access to HIV drugs in many developing nations(28). The AIDS pandemic has challenge both developing countries' governments and international organizations. The governments have to help poor to get access to safe medicine at an affordable price by means public health management(29). International organizations also assist developing countries in treating HIV/AJS. At present, many people die, particularly in poor countries, because of a lack access to essential drugs. The World Health Organization (WHO) asserts that access to essential drugs is a human right and medicines are not simple commodities(30). The issue of insufficient access to HIV drugs has been a concern of developing counties and international organizations, particularly the WHO.

The WHO supports its members in the use of WTO/TRIPs-related safeguard such as a compulsory licensing-and parallel imports to enhance affordability and availability of existing medicines(31). By addressing many aspects, including public health, TRIPs attempts to balance on the conflicting interests of developed and developing countries(32). Thus, members are free to incorporate TRIPs obligations with their own nation law. This allows flexibility for developing nations to use compulsory licensing and parallel imports to respond to public health concerns(33).

Part  2

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* This paper is excerpts from some parts of a S.J.D. dissertation submitted to the Washington College of Law, American University. In partial fulfillment for the Degree of Doctoral of Juridicial Science. Academic year 2000-2003. Professor Peter A. Jaszi is the dissertation advisor.
** LL.B. (Hon.)(Thammasat University), LL.M. (Chulalongkom University), LL.M. (American University), LL.M. (University of Pennsylvania), and S.J.D.(American University). Dr.Krithpaka Boonfueng is an intellectual property specialist of the National Science and Tchnology Development Agency (NSTDA).
(1) See The Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex C, Legal Instruments-Results of the Uruguay Round, 33 I.L.M. 81(1994) [hereinafter TRIPs Agreement].
(2) See Gerald J. Mossinghoff, Endnote, Research-Based Pharmaceutical Companies: The Need for Improved Patent Protection Worldwide, 2 J.L. & TECH. 307, 308-10(1987).(explaming that pharmaceutical research is tremendously costly and time consuming. Inadequate patent protection not only affects the pharmaceutical industry's research efforts but also has a negative effect on the US. trade.)
(3) See Stuart R. Walker, Symposium, Global Responses: The Search for Cures in the Development of Pharmaceuticals, 5 IND. J. GLOBAL LEG. S uD. 65, 65-78 (1997).; see Rosemarie Kanusky, Symposium, Intellectual Property: Comment: Pharmaceutical Harmonization: Standardizing Regulations Among The United States, The European Economic Community, and Japan, 16 HOUS. J. INT'L L 665, 667 (1994); see William Davis, Comment, The Medicine Equity and Drug Safety Act of 2000: Releasing Gray Market Pharmaceuticals, 9 TUL. J. INT'L & COMP. L. 483, 506 (2001).; and also see KEm E. MASKus, IrrrELLECTuAL PROPERTY RIGHTS IN THE GLOBAL ECONOMY, 53-54 (2000).
(4) EC, U.S. and Japan Sign Commitment to Standardize Pharmaceutical Tests, 8 Int'l Trade Rep. (BNA) 1702, 1702 (Nov. 20, 1991).
(5) See Carlos M. Correa, Public Health and Patent Legislation in Developing Countries, 3 J. TECH. & INTELL. PROP.1,3 (2001). (hereinafter Correa, Public Health/; and also see Jayashree Watal, Pharmaceutical ents, Prices, and Welfare Losses: A Simulation Study of Policy Options for India under the WTO TRIPS Agreement, 23 WORLD ECONOMY, 733-52 (2000).
(6) For example, before 1992. drugs are not protected under the Thai Patent Act 1979. From 1969 to 1994, Brazil did not provide patent protection for drugs.; See Thomas N. O'Neill, Intellectual Property Protection in Thailand: Asia's Young Tiger and America's "Growing" Concern, 11 U.PA.J.INT'L BUS. L. 603, 616 (1990); and also see Christopher S. Mayer, Notes & Comments, The Brazilian Pharmaceutical Industry Goes Walling from Ipanema to Prosperity: Will the New Intellectual Property Law Spur Domestic Investment?, 12 TEMP. INT'L & COMP. L.J. 377, 378-79 (1998).
(7) See Robert Weissman, A Long Strange TRIPS : The Pharmaceutical Industry Drive to Harmonize Global Intellectual Property Rules, and the Remaining WTO Legal Alternatives Available to Third World Countries, 17 U. PA.J. INT'L EcON. L. 1069, 1083 (1996). [hereinafter Weissman, A Long Strange TRIPS]
(8) See PhRMA Special 301 Submission 2001, available at htto://www.ohrma.ora. (visited Aug. 12, 2002); and see Stefan Kirchanski, Protection of U.S. Patent Right in developing Countries : U.S. Efforts to Enforce Pharmaceutical Patents in Thailand, 16 Loy. L.A. IrrrL & COMP. L.J. 569(1994).
(9) See Correa, Public Health, supra note 5, at 1.
(10) See F. Michael Scherer & Jayashree Watal, Post Trips Options for Access to Patented Medicines in Developing Countries 11 (WHO Jan 2001), available at htto://www.cmhealth.org/docs/wg4_paper1.pdf. (visited Aug. 15, 2002) (pointing out that increased patent protection leads to higher drug prices); see The TRIPS Agreement and Pharmaceuticals: The Report of an ASEAN Workshop on the TRIPs Agreement and its Impact on Pharmaceuticals, Jakarta, 2-4 May 2000. (hereinafter ASEAN Workshop on TRIPS and Pharmaceuticals); and also see The United Nations, Report of the High Commissioner of the Human Rights Commission on Economic, Social and Cultural Rights, The Impact of the Agreement on Trade-Related Aspects of Intellectual Property Rights on Human Rights, UN Doc E/CN.4/Sub.2/2001/13 at 14, para 44 (2001). (The UN study reports that the HIV treatment so-called AZT costs 48 USD per month in India, where the drug does not protect under patent law, as compared to 239 USD in the United State, where provide the patent protection for drugs. In addition, the cost of 150 mg of the HIV drug fluconozole is 55 USD in India, as compared to 697 USD in Malaysia, 703 USD in Indonesia, and 817 USD in the Philippines.)
(11) See Willem A.Hoyng & Flonka Fink-Hooijer, The Patent Term of Pharmaceuticals and the Legal Possibilities of Its Extension, 21 IIC 161, 162 (1990); and also see Scherer & Watal, supra note 10.
(12) See JAYASHREE WATAL, INTELLECTUAL PROPERTY RIGHTS IN THE WTO AND DEVELOPING COUNTRIES 317 (2001).
(13) See TRIPS Agreement, supra note 1, art.27.2; see CARLOS M. CORREA, INTELLECTUAL PROPERTY RIGHTS, THE WTO AND DEVELOPING COUNTRIES: THE TRIPS AGREEMENT AND POLICY OPTION 62 (2000). (pointing out that the text of the TRIPS Agreement utilizes the concept of ordre public as one of the grounds for providing an exception to patent rights. This concept may be interpreted as being narrower than "public order" or "public interest.")
(14) See Weissman, A Long Strange TRIPS, supra note 7, at 1100-01.; and also see CORREA, supra note 13, at 9.(explaining that this concept is not limited to security reason but also relates to the protection of "human, animal or plant life or health" and expand to "serious prejudice to the environment.")
(15) See TRIPs Agreement, supra note 1, art. 8.1.; see Correa. Public Health, supra note 5, at 10-11(pointing out that the issue is whether an exception to patentability may be justified under the general GATT exception to trade disciplines, article XX(b), when the exception is necessary to protect public health. Currently the article XX(b) has been interpreted and applied rather narrowly in GATT/WTO case law and it is doubtful whether GATT article XX(b) would apply in the TRIPS context.); see ERNST-ULRICH PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM: INTERNATIONAL LAW, INTERNATIONAL ORGANIZATIONS AND DISPUTE SETTLEMENT (1997); and also see MICHAEL TREBILCOCK & ROBERT HOWSE, THE REGULATION OF INTERNATIONAL LAW 155-65 (2nd ed. 1999).
(16) Compulsory licensing is based on the balancing of conflicting interest between intellectual property owners and consumers. Consumers have to pay higher prices for patented goods due to patent royalty and it is illegal to access new technology without paying royalty. Compulsory licensing is the only legal way to access new patents with a reasonable patent royalty and without constituting a patent infringement.
(17) See TRIPs Agreement, supra note 1, art.31; see S.K. Verma, TRIPS-Development and Ttansfer of Tbchnology, 27 IIC 344-355 (1996). (mentioning that the exception should not unreasonably conflict with the normal exploitation and not unreasonably prejudice the interests of the patentee. The TRIPs exception is open to interpretation and is applied differently by each nation.); and also see Weissman, A Long Strange TRIPS, supra note 7, at 1114.
(18) For example, Zimbabwe could issue a license to a local company for an HIV/AIDS drug made by Bristol-Myers Squibb. The Zimbabwe manufacture would produce the drug for sale in Zimbabwe under a generic name and pay a reasonable royalty to Bristol-Squibb. See Robert Weissman, Aids and Developing Countries: Democratizing Access to Essential Medicines, Foreign Policy in Focus Vo1.4, No.23, Aug. 1999 at 1, available at http://www.foreignpolicy-infocus.org/briefs/vol14/v4n23aids.html(visited Oct. 7, 2002). (hereinafter Weissman, Aids and Developing Countries)
(19) In stances where parallel imports are not available, the government may not occur with a party's request for a compulsory license. Issuance of a license depends on the government's deliberation that local consumers need such drugs and evidence supporting the necessity for issuing a compulsory license. This may cause uncertain outcomes.
(20) See P. Challu, The consequences of Pharmaceutical Product Patenting, 15 WORLD COMPgrrON 77 (1991); see J. Davidson Frame, National Commitment to Intellectual Property Protection: An Empirical Investigation, 2 J.L. & TECH. 209, 219, 223 (1987) (clarifying that the industrial countries with a strong commitment to IPRs protection have the technological capacity to compete effectively in global market. Developing countries with a weak IPRs protection desire to develop the technological capacity, but must support IPRs protections in order receive technology transfers from developed countries.); and also see Howard A. Kwon, Article, Patent Protection and 7bchnology 71ansfer in The Developing World: The Thailand Experience, 28 GW J. INT'L L. & ECON. 567, 570 (1995).
(21) See ASEAN Workshop on TRIPS and Pharmaceuticals, supra note 10, at 20. (categorizing the world's pharmaceutical industrial into 5 group based on the degree of development of pharmaceutical technology and industrial production); and also see Robert Balance, Janos Pogany & Helmet Forsteiner, The World's Pharmaceutical Industries: An International Perspective on Innovation, Competition and Policy, UNIDO (1992).
(22) See Tina Rosenberg, Look at Brazil: Patent Laws are Malleable. Patients are Educable. Drug Companies are Vincible. The World's AIDS Crisis is Solvable, The New York Times Magazine, Jan. 28, 2001, available at http://www.nytimes.com/library/magazine/home/20010128mag-aids.html. (visited Oct.16, 2002).; In this case, compulsory license to import might be more useful for developing nations. TRIPS Agreement provides for non-discrimination between locally produced and imported products under article 27:1 and a compulsory license may be granted for importation to satisfy local needs under article 3.1 See World Health Organization, Globalization, TRIPS and Access to Pharmaceuticals 4 WHO Policy Perspective on Medicines No.3 (March 2001), available at http://www.who.int/mediciens/liberary/edm_ general/6pagers/PPM03%20ENG.pdf. [hereinafter TRIPS and Access to Pharmaceuticals]
(23) See CORREA, supra note 13, at 75-88. (mentioning that according to the interpretation of Article 6 with Article 30, parallel imports in patent drugs are obviously permitted under the TRIPS Agreement.)
(24) See WATAL, supra note 12, at 296. (explaining the relation between Articles 28 and 6. The right of importation under article 28, like all other rights of use, sale, importation or other distribution of goods conferred under TRIPS, is subject to the provisions of Article 6. However, Article 6 only removes the issue from arbitration under WTO dispute settlement rules and it does not take away from the absolute right of patent owners to prevent importation by third parties, whether of counterfeit or parallel import goods.)
(25) See TRIPS and Access to Pharmaceuticals, supra note 22, at 4.
(26) See World Health Organization, Globalization and Access to Drug, 24 (1999), available at htto://www.who.int/medicines/library/dap/who-dap-98-9-rev/who-dap-98-9rev.pdf. (visited Oct.7, 2002) [hereinafter Globalization and Access to Drug] (mentioning that to improve the accessibility though parallel importation, members may establish that the exclusive rights of the patentee may not be claimed in cases where products marketed with that patentee's consent in any other countries are imported.)
(27) See Keith E. Maskus, Proceedings of The 2002 Conference Access to Medicines in the Developing World: International Facilitation or Hindrance? : Panel #4: Access to Essential Medicines and Affordable Drugs: Ensuring Access to Essential Medicines: Some Economic Considerations, 20 WIS. INT'L. L.J. 563, 564 and 590 (2002). [hereinafter Maskus, Access to Essential Medicines]
(28) For example, in Thailand, there are more than 1 million people inflected with AIDS, and less than 5% of the Thai HIV/AIDS patients can afford double antiretroviral therapy. The U.S. pressure on Thailand to provide the patent protection for drugs has made it hard for HIV patients in access to AIDS drugs. See ASEN Workshop on TRIPS and Pharmaceutical, supra note 711, at 37; see Rosemary Sweeney, Comment, The U.S. Push for Worldwide Patent Protection for Drugs Meets the AIDS Crisis in Thailand: A Devastating Collision, 9 PAC. RIM L. & POLY 445, 447 (2000).; Africa has the highest explosion of AIDS and the Caribbean has the second-highest rate of AIDS infection. In Eastern Europe and the former Soviet Union, the number of AIDS inflected patients increase almost double. See Rosenberg, supra note 749, at 1.; and also see Margaret Duckett, Compulsory Licensing and Parallel Importing: What Do They Mean? Will They Improve Access to Essential Drugs for People Living With HIV/Aids?, International Council of Aids Serviced Organization (ICASCO) (July 1999), available at http://icaso.org/ compulsory_english.htm. (mentioning that eighty-nine percent of the world's HIV infected population lives in the poorest ten percent of countries.)
(29) See Maskus, Access to Essential Medicines, supra note 27, at 571-78. (mentioning that governments may either negotiate with drug companies or use bulk purchases for price discount. Governments may force drug companies to negotiate in terms of price by using both voluntary and compulsory license. Governments in poor countries should support appropriate research for their own needs and funding may come from donors such as developed country governments, multilateral organizations, foundations, and NGOs.)
(30) See ASEAN Workshop on TRIPS and Pharmaceuticals. supra note 10, at 9.; See TRIPS and Access to Pharmaceuticals, supra note 22, at 5. (explaining that in order to determine whether a nation has enough access to essential drugs, it relies on: (1) the rational selection and use of medicines (2) sustainable adequate financing (3) affordable prices, and (4) reliable health and supply systems.)
(31) Id. at 5; For example, Zimbabwe could issue a license to a local company for an HIV/AIDS drug made by Bristol-Myers Squibb. The Zimbabwe manufacturer would produce the drug for sale in Zimbabwe under a generic name and pay a reasonable royalty to Bristol-Squibb. See Weissman, Aids and Developing Countries, supra note 18, at 1.
(32) See TRIPs Agreement, supra note 1, art. 7 and 8.
(33) Id. art. 1.