MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF LAW ---***--- EXECUTIVE BOARD OF ADVANCED PROGRAMS QUÁCH YẾN NHI INTERNATIONAL LAW ON PARALLEL IMPORT AND COMPULSORY
OVERVIEW OF PARALLEL IMPORTS AND COMPULSORY
Parallel imports and the exhaustion doctrine
Parallel imports refer to genuine goods that have been released in the export market with the consent of the intellectual property rights owner and are subsequently imported into another country without the owner's permission These goods are not counterfeit or pirated, as they are produced by or with the approval of the intellectual property owner For a product to qualify as a parallel import, three essential elements must be present.
(i) It must be foreign manufactured goods;
The article must be a "genuine" product, meaning it is produced overseas in compliance with intellectual property laws This distinguishes it from "black market" or "pirate" goods, which are illegally manufactured outside of their designated countries.
(iii)The importation and sale is without the consent the the holders of intellectual property rights 13
The "iPhone" is a trademark of smartphones manufactured by Apple Inc in the USA, and its use is legal in Thailand, where the price is $1000 In Vietnam, "iPhone" products are sold at an official store with Apple Inc.'s permission for $1200 However, Vietnamese importers have been purchasing "iPhones" from Thailand and reselling them in Vietnam for $1100 without Apple Inc.'s authorization.
12 Warwick A Rothnie (2005), Parallel Imports and Copy Right, Business Law International, Vol 06 No 03
W Weldon Wilson (1985), Parallel Importation - Legitimate Goods Or Trademark Infringement?, Vanderbilt
Journal Of Transnational Law, Vol 18: 543, p 03
13 Kirsten Scholes (1997), Parallel Importing, Canterbury Law Review, Vol 0 6/ 1997, p 02
Parallel import is a business model that capitalizes on price differences between exporting and importing markets The term "parallel" refers to the distribution of products in countries A and B by intellectual property (IP) owners or authorized third parties, while parallel importers operate without permission from IP owners when importing goods from country A to sell in country B There are two main types of parallel imports: passive and active Passive parallel imports involve purchasing goods in a foreign market and reselling them domestically, while active parallel imports occur when a foreign licensee competes directly in the domestic market after exploiting the patent For example, if X, the IP holder of product X1, sells it in country B at a lower price, importer Y can buy it there and resell it in country A, exemplifying passive parallel imports In contrast, active parallel imports arise when Y, having obtained a license from X, manufactures and exports X1 back to country A, thus entering the market as a direct competitor.
Trademark owners and exclusive distributors of foreign goods argue that parallel importation undermines their markets by depriving manufacturers of distribution control, allowing parallel importers to unfairly benefit from promotional investments, and misleading consumers regarding warranty coverage Conversely, proponents of parallel importation maintain that restrictions on the importation of genuine goods are incompatible with the principles of a free trade society.
14 Christopher B Conley (2007), Parallel Imports:The Tired Debate of the Exhaustion of Intellectual Property Rights and Why the WTO Should Harmonize the Haphazard Laws of the International Community,Tulane
Protecting exclusive distributors enables them to establish minimum retail prices, which can lead to higher costs for consumers However, parallel imports align with trade liberalization, globalization, and the free movement of goods By allowing parallel importers to distribute products outside the official distribution channels, this practice helps prevent monopolistic distributors from engaging in international price discrimination, ensuring that consumers can access goods at comparable prices regardless of their location.
In the USA, parallel imports, often referred to as the "gray market," involve genuine trademarked goods purchased legally abroad and resold without the trademark owner's consent While licensed distributors sell these goods at premium prices, gray market items can be significantly cheaper, sometimes up to 40% less, providing consumers with more affordable options This gray market not only benefits consumers but also the trademark owners, as importers must purchase goods from them or their affiliates, generating profit for the owners Additionally, increased competition from parallel imports enhances market efficiency, ultimately supporting the US government's interests in free trade.
15 W Weldon Wilson (1985), Parallel Importation - Legitimate Goods Or Trademark Infringement?, Vanderbilt
Journal Of Transnational Law, Vol 18: 543, p 03
16 Tommaso V Valletti and Stefan Szymanski (2006), Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis, 54(4), The Journal of Industrial Economics 499 – 526
17 Nguyen Thanh Tam (2006), Industrial property rights in commercial activities, Pub Hanoi Justice, p 56
1.1.2 The exhaustion doctrine and relationship between the exhaustion doctrine and parallel imports
The doctrine of exhaustion is a complex aspect of intellectual property (IP) rights that delineates the territorial rights of IP owners following the initial sale of their protected products Once a trademarked product is sold for the first time, the trademark owner loses the right to exert future control over the goods based on the trademark.
The doctrine of "exhaustion" states that once a product leaves the trademark owner's possession, they can no longer impose conditions on its future sale or importation This principle balances the protection of intellectual property (IP) rights with the need for market circulation and the prevention of anti-competitive practices, ensuring that both IP holders and consumers' interests are considered For example, after Vinh Hao sells a bottle of its mineral water, it loses control over how that product is used, meaning customers can drink, donate, or resell it However, consumers cannot use the Vinh Hao label for products they create or transfer the right to use the label to others.
The doctrine of exhaustion of intellectual property rights is categorized into three types: (i) International exhaustion, where the sale of goods embodying intellectual property in one country eliminates the right to control their distribution globally; (ii) Regional exhaustion, which restricts this exhaustion to a specific geographical area.
18 Christopher B Conley (2007), Parallel Imports:The Tired Debate of the Exhaustion of Intellectual Property Rights and Why the WTO Should Harmonize the Haphazard Laws of the International Community,Tulane
1919 W Weldon Wilson (1985), Parallel Importation - Legitimate Goods Or Trademark Infringement?, Vanderbilt
Journal Of Transnational Law, Vol 18: 543, p 05
20 Nguyen Nhu Quynh, “Law On Exhaution Of Intellectual Property Rights And Parallel Import In Some Countries
I don't know!
The international exhaustion doctrine stipulates that a patent holder loses exclusive rights after the first sale of a product globally, permitting parallel imports This means that once a product is sold by the IP owner or an authorized third party, they cannot control its importation and distribution in the domestic market, making parallel importing legal However, exceptions exist, such as when a product is subject to compulsory licensing, which disconnects the IP owner from those goods The rationale behind this doctrine is to prevent the IP owner from receiving double benefits in both the importing and exporting countries, as this could negatively impact consumer interests For instance, if X is the IP owner of product X1, they cannot restrict its resale after the initial sale.
X sold X1 at the first time in country A After that, X sold that product for country B
Under the international exhaustion, X exhausted his rights of preventing distribution of
X1 all over the world Thereupon, importers can import X1 from country B, then export this product to country A without X‟s permission
The USA acknowledges the international exhaustion principle under the Lanham Act and the Tariff Act, which prohibits the importation of goods that "copy or simulate" registered trademarks However, U.S Congress has clarified that laws against trademark counterfeiting do not apply to parallel imports Consequently, imported goods with trademarks that infringe upon the registered marks of independent U.S companies are denied entry.
21 Warwick A Rothnie (2005), Parallel Imports and Copyright, Business Law International, Vol 06, No 03/
Nguyen Thanh Tu, Le Thi Thu Hien (2014), Parallel Import From The Perspective Of Intellectual Property, Contract And Competition Law, Pub National Politics, p 24 – 27
In their 2014 publication, Nguyen Thanh Tu and Le Thi Thu Hien discuss the implications of parallel importation from the perspectives of intellectual property, contract, and competition law They highlight that if a trademark is applied to imported goods by a U.S registrant or its authorized affiliates, it is considered authentic and not a copy Historically, American courts, as seen in the case of Apollinaris Co v Scherer, initially did not protect trademark holders from parallel imports, allowing competitors to sell identical goods with the same trademark if they were legitimately acquired abroad Consequently, the U.S adopts a policy of international exhaustion for trademarked goods, meaning that once sold globally, the intellectual property owner loses control over the distribution of those goods.
The regional exhaustion doctrine restricts the exhaustion of intellectual property (IP) rights to a specific geographical area, allowing title-holders to prevent parallel imports only from outside this region This approach, adopted by member states of a regional economic community, aims to foster free trade and the movement of goods within the area While the "first sale" principle applies to sales within this region, IP owners retain the right to block parallel imports from external markets, rendering such imports illegal Conversely, parallel imports among member states of the regional economic area are considered lawful.
23 Nathan Lewin (1986), The Ten Commandments Of Parallel Importation, Law & Policy In International Business, Vol 18: 217, p 07 – 08
25 Kaoru Takamatsu (1982), Parallel Importation Of Trademarked Goods: A Comparative Analysis, Washington
W Weldon Wilson (1985), Parallel Importation - Legitimate Goods Or Trademark Infringement?, Vanderbilt
Journal Of Transnational Law, Vol 18: 543, p 05 -06
26 Warwick A Rothnie (2005), Parallel Imports and Copy Right, Business Law International, Vol 0 6 No 03
27 It is may be in a free trade area (FTA), Custom Union (CU) or a high – level like European Union (EU)
28 Le Thi Bich Tho, Nguyen Thanh Tu (2004), Parallel Import Of Pharmaceutical products: Some Legal Issues,
Compulsory licenses
1.2.1 The concept of compulsory licenses for patent
The first appearance of the concept of compulsory licenses was introduced by the
The UK Statute of Monopolies of 1623 laid the groundwork for patent laws recognized globally in the 19th century, allowing for the local use of patented inventions Today, compulsory licensing is governed by both international treaties and the domestic laws of various countries However, a unified definition of compulsory licenses remains absent.
A compulsory license, as defined by Black's Law Dictionary 9th Edition, is a statutorily created license permitting certain parties to utilize copyrighted material without the copyright owner's explicit permission, in exchange for a specified royalty or equitable remuneration Scholar Carlos M Correa describes it as an authorization granted by a national authority to exploit a subject matter protected by patents or other intellectual property rights, regardless of the title-holder's consent The World Trade Organization (WTO) further clarifies that compulsory licensing occurs when a government permits another entity to produce a patented product or process.
37 Carlos M Correa (1999), Intellectual Property Rights And The Use Of Compulsory Licenses: Option For Developing Countries, South Center, p.11
[https://www.iatp.org/files/Intellectual_Property_Rights_and_the_Use_of_Co.pdf] (accessed on 15/5/2017)
38 Bryan A Garner (2009), Black‟s Law Dictionary, 9 th Edition, West – A Thomson Reuters Business, p.1031
39 Carlos M Correa (1999), Intellectual Property Rights And The Use Of Compulsory Licenses: Option For Developing Countries, South Center, p.11
Compulsory licenses are government-granted authorizations that allow individuals or organizations to use a patented invention without the consent of the patent holder, as outlined in the TRIPS Agreement of the WTO Various countries, including the United States, have incorporated regulations regarding compulsory licenses into their domestic laws, enabling certain parties to pay royalties and utilize inventions without the patentee's approval For instance, Indonesia's Patent Law No 14 defines a compulsory license as one granted by the Director General of Intellectual Property upon request Despite differing definitions, the core characteristic of a compulsory license remains the same: it is an authorization from a national authority to exploit a patent or intellectual property without the consent of the patent owner.
1.2.2 Characteristics of the compulsory licenses
A compulsory license is a legal permission granted by a national authority to individuals or organizations, allowing them to use a patented invention without the consent of the patent holder This authorization enables the exploitation of intellectual property while ensuring access to essential innovations.
40 WTO, “Compulsory licensing of pharmaceuticals and TRIPS”
[https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm] (accessed on 15/05/2017)
41 UNCTAD/ICTSD Capacity Buiding Project on IPRs, “Resource Book on TRIPS and Development:
An authoritative and practical guide to the TRIPS Agreement”
[http://www.iprsonline.org/unctadictsd/docs/RB2.5_Patents_2.5.8_update.pdf] (accessed on 15/05/2017)
42 US Legal, “Compulsory License Law and Definition”
I don't know!
Third parties or governments can utilize a patent without the title holder's consent only if they obtain permission from a national authority This differs from exceptions and restrictions on rights, which can be applied automatically without government authorization, as long as all legal conditions are met.
Compulsory licenses must ensure payment to patent holders, reflecting the principle of balancing interests While these licenses serve the public interest, they can conflict with the financial goals of patent holders, who seek maximum profit from their inventions This tension is particularly evident when patents address critical issues like diseases and natural disasters Authorities may invoke compulsory licensing to prioritize public welfare, but failing to compensate patent holders can jeopardize funding for research and development Reasonable compensation can mitigate losses for patent holders, although it is not granted in cases where compulsory licensing is used to combat anti-competitive practices.
In situations where a party seeks to utilize a patent but is met with refusal to negotiate a contract for voluntary patent transfer under reasonable commercial terms, governments have the authority to intervene during national emergencies For instance, in the case of medical equipment needed urgently following an outbreak of diseases, if the patent holder does not agree to import or license the patent under fair conditions, the government may take necessary actions to ensure access.
43 Le Thi Nam Giang (2013), Compulsory licenses and the problem of protecting public health, Pub National
A university may choose to either collaborate with another legal entity for the importation of equipment or opt for self-importation Once disease control is achieved, the necessity for these measures ceases, allowing the patent owner to regain their rights.
Compulsory licensing must adhere to legal procedures and presents both advantages and disadvantages Its benefits include curbing patent monopolies and serving public interests in specific situations However, systematic abuse of compulsory licenses can deter investment in research and development, as the pricing of these licenses significantly impacts innovation Setting a compulsory license price too low can deprive patent holders of their monopoly profits, potentially discouraging foreign investment In the pharmaceutical industry, where the costs and risks of drug development are substantial, reliance on patents is particularly critical The issuance of compulsory licenses can influence the investment climate and international economic relations For instance, Thailand's issuance of compulsory licenses for HIV/AIDS medications, justified by claims of "national emergency" and "public health crisis," faced criticism for allegedly misusing TRIPS Agreement flexibilities, especially since it did not seek voluntary consent from patent holders This led to Abbott's withdrawal of registration for several medicines in Thailand, including the heat-stable AIDS drug Aluvia.
44 Colleen Chien (2003), Cheap Pharmaceutical products At What Price To Innovation: Does The Compulsory Licensing Of Pharmaceuticals Hurt Innovation?, Berkeley Technology Law Journal, Vol 18:853, p 22 – 25
In 2007, Abbott stated that it would only sell Aluvia to Thailand if the country ceased issuing compulsory licenses Consequently, the implementation of compulsory licenses must adhere to both domestic legal procedures and international treaties Each request for compulsory licensing must be thoroughly examined based on its specific circumstances.
1.2.3 Purposes of compulsory licenses (non – voluntary licenses)
Compulsory licensing serves as a mechanism to ensure that licensors utilize their patents in countries where their intellectual property rights are protected Originating from the UK Monopoly Law of 1623, this concept addresses the obligation of patentees to actively use their patents Historically, many nations deemed unused or minimally used patents as monopolistic abuses, leading to their deprivation or withdrawal However, this approach proved too stringent and impractical, as some patents, while not aligned with the title holders' demands, held significant value for industries or countries Consequently, compulsory licensing has gradually supplanted the harsh measures of deprivation and withdrawal, facilitating the practical application of patents and offering numerous benefits to nations and entities in need As a result, compulsory licensing is recognized as an effective solution to mitigate patent holder monopolies and promote technology transfer between developed and developing countries.
Second, compulsory licensing is a punishment for action violating Competition Law The USA is one of the prior countries applied compulsory licensing for this action
45 Mingchanok Tej avanija (2011), New Kind Of Drug War: Thailand's Taking On The Pharmaceutical Industry To
Improve Access To HIV/AIDS Pharmaceutical products Through The Use Of Compulsory Licensing, Arizona
Journal of International and Comparative Law, Vol 28, No 3, p 16 – 17
46 Le Thi Nam Giang (2013), Compulsory licenses and the problem of protecting public health, Pub National
Muhammad Zaheer Abbas (2013), Pros and Cons of Compulsory Licensing: An Analysis of Arguments,
International Journal of Social Science and Humanity, Vol 3, No 3, May 2013, p 02 - 03
In 1790, the Senate protested against the application of compulsory licenses in Patent Law to address violations of competition law However, in 1952, the U.S Federal Supreme Court upheld the use of compulsory licenses in the cases of United States v Besser Mfg Co and United States v General Electric Co This application of compulsory licenses temporarily disrupts the monopoly held by patentees, leading to an increase in market competition, a rise in product quantities, and a decrease in prices.
Non-voluntary licensing serves as an effective mechanism for facilitating international technology transfer, particularly when a party seeking to use a patent is denied a voluntary agreement by the patent holder While compulsory licenses require compensation to patent holders, the remuneration is often lower than what would be negotiated in voluntary agreements For example, in 2004, the Malaysian Government proposed a royalty rate of 4% on the value of delivered stocks, specifically for the compulsory licensing of ARV medicines, highlighting the disparity in compensation compared to voluntary technology transfer contracts.
In 2004, the Zambian Government implemented compulsory licensing for antiretroviral (ARV) medicines, allowing for royalty payments to patent holders not exceeding 2.5% of total product turnover, which is higher than the 2% required under Mozambique's licensing agreement This approach serves as an effective strategy in the pharmaceutical sector to foster the growth of the domestic industry Canada exemplifies the flexible application of compulsory licensing, having received 1,030 applications and granted 613 licenses, compared to only forty-nine applications in other contexts.
47 United State v Besser Mfg Co, 343 U.S
48 United State v General Electric Co, 115 F Supp 835, 843-46 (1953)
49 Le Thi Nam Giang (2013), Compulsory licenses and the problem of protecting public health, Pub National
50 Cecilia Oh (2006), Compulsory Licenses: Recent Experiences In Developing Countries, Int J Intellectual
INTERNATIONAL LAW ON PARALLEL IMPORTS AND
International treaties on parallel importations and compulsory licenses of
2.1.1 International treaties on parallel imports of pharmaceutical products to ensure access to medicines
Before TRIPS Agreement, parallel importation was not ruled apparently in any international treaties Under Article XX (d) GATT 1947, parallel importation was regulated indirectly like that:
To ensure adherence to applicable laws and regulations that align with this Agreement, it is essential to focus on customs enforcement, the enforcement of monopolies as outlined in paragraph 4 of Article II and Article XVII, the safeguarding of patents, trademarks, and copyrights, as well as the prevention of deceptive practices.
The GATT 1947 established a general exception allowing Member States to implement necessary solutions that align with its principles while protecting intellectual property (IP) rights under domestic laws This acknowledgment indicated that the decision to permit or prohibit parallel imports was contingent upon the IP laws of each country During this time, Member States interpreted the exhaustion doctrine in various ways The topics of parallel importation and the exhaustion mechanism were frequently debated throughout the TRIPS Agreement negotiation process, leading to diverse perspectives Ultimately, the exhaustion mechanism was explicitly defined in Article 6 of the TRIPS Agreement.
This Agreement stipulates that, for dispute resolution, the provisions outlined in Articles 3 and 4 will apply, and it clarifies that the issue of intellectual property rights exhaustion will not be addressed within this framework.
56 UNCTAD – ICTSD: Resourse Book on TRIPS and Development, Cambridge University Press, Cambridge, 2005, p 97 – 194;
Daniel Gevais, TRIPS Agreement: Drafting History and Analysis, Sweet & Maxwell, London, p 111 – 115
The exhaustion doctrine is not prohibited for Member States, allowing them to permit parallel imports under the TRIPS Agreement and WTO decisions, provided they adhere to the National Treatment (NT) and Most-Favored-Nation (MFN) principles National governments have the autonomy to decide on parallel imports without fear of WTO Dispute Settlement Mechanism (DSM) repercussions This approach ensures no discrimination based on nationality, as outlined in Articles 3 and 4 of the TRIPS Agreement The NT principle mandates that WTO Members treat foreign individuals equitably in terms of intellectual property (IP) rights protection when applying the exhaustion doctrine Consequently, a Member cannot apply international exhaustion for foreign imports while enforcing national exhaustion to restrict domestic imports The MFN principle further requires that all IP rights be treated uniformly, meaning if a country applies international exhaustion for trademarks from one WTO Member, it must do so for trademarks from all other Members.
Article 28 of TRIPS grants patentees the authority to prohibit third parties from making, using, offering for sale, selling, or importing a patented product without the owner's consent However, the enforcement of these rights is subject to the exhaustion mechanism established by each country, as outlined in Article 6 of TRIPS.
Article 51 of the TRIPS Agreement permits Member States to submit a written application to competent authorities for the customs authorities to suspend the release of goods suspected of being counterfeit trademark or pirated copyright items It is unreasonable to claim that Article 28 of the TRIPS Agreement mandates Member States to implement a national approach based on this treaty.
The TRIPS Agreement addresses the exhaustion mechanism for inventions and the prevention of parallel imports, as discussed by Xiao Peng (2009) in the US-China Law Review Article 28 of the TRIPS Agreement, along with its footnote 6, indicates that the rights of the invention owner may be restricted under certain circumstances related to the exhaustion mechanism This relationship is crucial for understanding the implications of intellectual property rights in the context of public health crises in developing countries.
The TRIPS Agreement grants Member States the flexibility to adopt one of three types of exhaustion mechanisms, while recognizing international exhaustion through Article 6 Additionally, Article 28 empowers patent owners to restrict the import of protected goods without their consent However, the Agreement lacks specific guidelines on the geographic scope for determining consent, allowing each Member State to select the exhaustion mechanism that best fits its national context.
The Doha Declaration on TRIPS and Public Health, approved during the Doha WTO Ministerial Meeting in November 2001, emphasized the necessity for 59 WTO member governments to interpret and implement the TRIPS Agreement in a manner that enhances public health by improving access to pharmaceutical products Notably, Paragraph 4 of the Declaration highlights the ministers' consensus on the implications of the TRIPS Agreement for public health.
The TRIPS Agreement should not hinder Members from implementing measures to safeguard public health We reaffirm our commitment to the Agreement while emphasizing that it can and should be interpreted to support WTO Members' rights to protect public health and enhance access to medicines for everyone.
58 Nguyen Nhu Quynh (2012),” Exhaustion mechanism of intellectual property rights in the TRIPS Agreement and some suggestions for WTO Member States”
[http://vnclp.gov.vn/ct/cms/tintuc/Lists/ThucTienPhapLuat/View_Detail.aspx?ItemID1] (accessed on 17/06/2016)
59 World Trade Organiztion (2001), “Declaration On The TRIPS Agreement And Public Health”
I don't know!
The Doha Declaration, adopted as a "decision" of WTO Members under Article IX (1) of the WTO Agreement, addresses the exhaustion doctrine in paragraph 5 (d) This paragraph should be understood in conjunction with paragraph 4, which emphasizes the protection of public health While paragraph 5 (d) significantly impacts Article 6 of the TRIPS Agreement, its implications extend beyond the pharmaceutical sector to include areas such as medical equipment manufacturing, hospital management, and health insurance It applies to all articles of the TRIPS Agreement related to the exhaustion doctrine, effectively concluding debates on this mechanism The Doha Declaration empowers WTO Members to make decisions regarding the exhaustion mechanism, stating that, aside from Articles 3 and 4, their laws on this matter are not constrained by other TRIPS provisions Consequently, arguments against the exhaustion mechanism under TRIPS are rendered obsolete, allowing parallel importation decisions to be governed by the domestic laws of WTO Member States, showcasing the flexibility of the WTO in harmonization.
60 Frederick M Abbott, The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO, Journal of International Economic Law, Volume 5, 2002, p 493
The TRIPS regime highlights the tension between developing countries seeking affordable access to medicines and developed nations that hold a significant number of patents.
Gaining better access to affordable pharmaceutical products through parallel importation is essential for everyone The threat of diseases, from SARS to bird flu, affects individuals in developed countries as well, who can also benefit from parallel imports instead of being subjected to varying pricing strategies by pharmaceutical companies Additionally, this practice can aid pharmaceutical companies by alleviating product oversaturation and stimulating product flow.
2.1.2 International treaties on compulsory licenses of pharmaceutical products to ensure access to medicines
2.1.2.1 Compulsory licenses under Paris Convention for the Protection of Industrial Property to ensure access to medicines
The Paris Convention for the Protection of Industrial Property, approved on March 20, 1883, and amended on September 28, 1979, is a crucial legal framework for industrial property rights Additionally, the TRIPS Agreement mandates that all WTO Member States comply with the provisions of the Paris Convention, starting from its initial articles.
Concretization international treaties into domestic legislations on parallel import and
2.2.1 The concretization international treaties into Malaysian domestic law in parallel import of pharmaceutical products
Parallel importation of goods sold in Malaysia is legal if the production is authorized by the patent owner Goods produced and sold in Malaysia, then exported and re-imported, cannot be blocked by the patent owner However, the situation becomes unclear when a licensee of a foreign patent owner manufactures the goods in Malaysia, as Malaysian Patent Law does not specify if a foreign patent owner is included under Section 36 (2) or if a licensee can be considered a patent owner If the licensee's production is deemed to occur "without the consent of the owner of the patent," then such parallel importation would be unlawful.
103 Anthony P Valach, Jr (2005), TRIPS: Protecting the Rights of Patent Holders and Addressing Public Health Issues in Developing Countries, Chicago-Kent Journal of Intellectual Property, p 13 – 18
Carlos M Correa (2005), TRIPS Agreement And Access To Drugs In Developing Countries, International Journal
On Human Rights, Number 3 - Year 2 – 2005, p 02 – 11
In the article by Rojina Thapa (2011), published in the Journal of Intellectual Property Rights, the discussion revolves around the waiver solution in the public health and pharmaceutical sectors under the TRIPS Agreement It raises critical questions about whether the licensee or the foreign patent owner is responsible for blocking parallel importation The article clarifies that the production of goods in Malaysia by a licensee of a foreign patent owner is lawful, and consequently, the unauthorized re-importation of these goods into Malaysia is deemed legitimate under Article 58A of the Malaysian Patent Act.
The Malaysian Patent Act 1983 (Act 291), effective from October 1, 1983, aims to protect patent holders by granting them exclusive rights, including the exploitation, assignment, and licensing of patents The latest revision, the Malaysian Patent Act (Revision) 2006, took effect on August 16, 2006 Malaysia follows the international exhaustion doctrine for intellectual property rights, allowing parallel imports under specific conditions outlined in Section 37 (2) of the Patent Act 1983 (Revision 2006) These conditions permit parallel importation only when the product is marketed by the patent owner, a person with rights from prior manufacture or use, a licensee, or a beneficiary of a compulsory license Additionally, Section 43.1 allows patent owners to restrict the transferee from exporting the product back to Malaysia through license agreements The Malaysian Court has reviewed parallel importation in several cases, notably in Smith Kline & French Laboratories Ltd v Salim (M) Sdn Bhd., which upheld the principle of "free movement of goods."
Prior to 2001 (before the incorporation of Section 58A into the Patents Act 1983), in Smith Kline French Laboratories v Salim (Malaysia) Sdn Bhd., the High Court in
105 M Hawin (2004), Parallel Importation of Copyright Material: A Comparative Analysis of the Position in Several Asian Countries, Asia Law Review, Vol 1: 69 – 122/2004, p 107 – 116
106 Rodziah Ahmad (2002), Parallel Importation and Compulsory Licensing – Impact On Drug Prices In Malaysia, p 23
107 MYIPO, “Law of Malaysia – Patent Act 1983 (Incorporation all amendments up to 16 August 2006)”
[http://www.myipo.gov.my/wp-content/uploads/2016/09/PATENT-ACT-1983-ACT-291.pdf] (accessed on 30/6/2017)
108 Nguyen Nhu Quynh, “Law On Exhaution Of Intellectual Property Rights And Parallel Import In Some Countries
[http://thanhtra.most.gov.vn/vi/news-article/phap-lu-t-v-h-t-quy-n-s-h-u-tri-tu-va-nh-p-kh-u-song-song-m-t-s-n-c- thu-c-hi-p-h-i-cac-n-c-dong-nam-a] (accessed on 19/05/2017)
Kuala Lumpur faced the issue of parallel imports of the drug Cimetidine, which was patented in the United Kingdom The plaintiffs, English patentees holding exclusive rights under Malaysian patent law, manufactured the drug in the UK, Belgium, and Australia The defendants, parallel importers in Malaysia, acquired Cimetidine produced in the UK and Belgium, unaware of any trade restrictions The plaintiffs argued that importing the drug into Malaysia violated their trade policy, but the packaging contained no indications of export embargoes or geographical limitations In the case of Smith Kline & French Laboratories Ltd, the defendants claimed an implied license for importing the patented drug without knowledge of resale restrictions The plaintiffs contended that such importation infringed their patent rights However, the judge, VC George J, ruled that the defendants could not be held liable for patent infringement due to the absence of notice regarding any conditions on the imported drugs.
In the case LR 6 Ch 238 (1891), it was noted that the plaintiffs failed to clearly indicate on their product packaging and labeling any conditions related to resale While the plaintiffs are entitled to establish their own trade policies and segment the market according to their preferences, this lack of clarity raises significant concerns.
109 “Smith Kline French Laboratories v Salim (Malaysia) Sdn Bhd”, Case No C 1181 (High Court (Kuala Lumpur)
1989), as reported in 21 “Int‟l Rev of Indus Prop & Copyright L.”720 (1990)
In the cases of Incandescent Gas Light Co Ltd v Cantelo and National Phonograph Co of Australia Ltd v Menck, it is emphasized that companies cannot assume that the public is aware of their policies or restrictions Clear communication of these restrictions is essential, not only to direct partners but also to indirect stakeholders such as retailers and wholesalers Clarity in notices is a matter of common sense.
However, in view of incorporation of the new Section 58A into the Patents Act
In 1983, Section 58A established that the rights of patent owners are considered exhausted when genuine patented products are lawfully imported and sold in Malaysia, rendering parallel imports no longer an infringement of the patent.
In conclusion, the Malaysian Government implements an international exhaustion mechanism and allows parallel importation, particularly for pharmaceutical products This approach aligns with international treaties, specifically the Paris Convention and the TRIPS Agreement, as they do not mandate Member States to adopt a specific exhaustion mechanism Consequently, each Member State can choose among international, regional, or national exhaustion mechanisms based on their economic strategies and national objectives.
2.2.2 The concretization international treaties into Indian domestic law in the compulsory license of pharmaceutical products
Chapter XVI of the 2005 Indian Patent (Amendment) Act (2005 IPA) discusses compulsory licenses Section 84 of the 2005 IPA provides for compulsory licenses to be able for access to pharmaceutical products Under both the 1970 and 2005 IPAs, any person can make an application for a grant of a compulsory license for a patent after three
In their 1990 article, "Parallel Imports and the Intellectual Property Rights in Singapore," George Wei discusses the implications of parallel imports on intellectual property rights within the Singaporean legal framework Published in the Singapore Academy of Law Journal, this work highlights the challenges and considerations surrounding the enforcement of intellectual property laws in the context of parallel imports, emphasizing the need for a balanced approach to protect both consumers and rights holders.
Nguyen Thanh Tu, Le Thi Thu Hien (2014), Parallel Import From The Perspective Of Intellectual Property, Contract And Competition Law, Pub National Politics, p 240 – 248
112 Shie YING, Liew and Alan NG, Exhaustion of IPRs in cases of recycling and repair of goods, Report Q205 in the name of the Malaysian Group (AIPPI), p 02 – 03
Compulsory licenses can be applied for under specific conditions, such as public dissatisfaction with a patented invention, lack of reasonable access to it, or if the invention is not utilized within India The Controller, appointed by the Ministry of Commerce, evaluates these applications based on various factors and has the authority to set terms for the licenses The process for obtaining a compulsory license is complex and administratively challenging According to Section 84 of the Patent Act, individuals can only apply for a compulsory license three years after the patent grant, particularly if public expectations for access to affordable medication are not met.
The Natco v Bayer case highlights a significant legal precedent regarding compulsory licensing under Section 84 of the Indian Patent Act On March 14, 2013, the Intellectual Property Appellate Board (IPAB) upheld India's first compulsory license, allowing Natco Pharma Ltd to produce and sell Bayer's patented cancer medication, Sorafenib (Nexavar), at a 7% quarterly royalty on net sales This decision followed the Controller of Patents' initial grant of the compulsory license on March 9, 2012, based on three key justifications: the unmet reasonable requirements of patients, the unaffordability of the drug, and the lack of patent utilization in India.
113 Jodie Liu (2015), Compulsory Licensing and Anti-Evergreening: Interpreting the TRIPS Flexibilities in Sections
84 and 3(d) of the Indian Patents Act, Volume 56, Number 1, Winter 2015, p 08 – 14
114 Mansi Sood (2013), Natco Pharma Ltd v Bayer - Corporation And The Compulsory Licensing Regime In India, NUJS Law Review 6 NUJS L rev 99 (2013), p 104 – 117
Section 84 (1) IPA The IPAB held that Bayer had not “worked” the invention on a commercial scale even if “import” alone would satisfy the working condition
(1) The reasonable requirements of patients who needed the drug were not being met under Section 84 (1) (a) IPA;
The IPAB addressed whether a compulsory license could be granted under Section 84 (1) (a) due to unmet "reasonable requirements of the public." Section 84 (7) outlines circumstances indicating that these requirements are not satisfied, particularly when a patented invention is not commercially worked in India Bayer argued that its patient assistance program, which provided Nexavar at minimal cost to low-income cancer patients, fulfilled these requirements However, Natco contended that Nexavar was not commercially worked in India since Bayer lacked local manufacturing facilities and relied solely on imports The IPAB ultimately determined that Bayer's importation through the patient assistance program did not constitute sufficient commercial working of the drug, leading to the conclusion that a compulsory license could be granted.
"commercial" in the deeming provision, Section 84 (7) (d) Whether the drug had been worked on a "commercial" scale had to do with the "market price" of the drug, the IPAB
[https://indiankanoon.org/doc/28519340/] (accessed on 02/7/2017)
Anu Singhai, Manu Singhai (2016), A Study Of Natco v Bayer Case: Its Effect And Current Situation, MIT
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Le Tan Phat, Le Thi Ngoc Ha (2013), Applying Flexibly Article 31 TRIPS Agreement On Compulsory Licensing
To ensure access to pharmaceutical products, the experience from India and Thailand highlights that prohibitively expensive drugs lack commercial viability This raises questions about the relevance of whether importing qualifies as "working" under Section 84 (1) (a) and the timing of Bayer's patient assistance program in relation to Natco's compulsory license application For Bayer's program to address the "reasonable requirements of the public," it must involve imports on a commercial scale at affordable prices If the drug remains too costly, it triggers Section 84 (7) (d), indicating that Section 84 (1) (a) has been activated.
(2) The drug was not affordable under Section 84 (1) (b) IPA;
Bayer's Nexavar cost Rs 2.8 lakhs ($ 5,160) per month compared to Natco's which cost Rs 8,800 ($162) per month To put that in perspective, India's per capita income is
The cost of the drug is set at Rs 5,729 per month, significantly lower than Nexavar, which is nearly 50 times more expensive The IPAB examined whether a compulsory license could be issued based on the drug's unavailability to the public at a reasonable price Bayer justified its pricing strategy by highlighting the substantial investments in research and development, arguing that these costs should be factored into the drug's pricing in India.