I received a email recently from Danish cats Tono and Scala, who were surprised by a rather thought-provoking email from Pakistan.
(right: one of Pakistan's most famous exports, Nusrat Fateh Ali Khan, has a fit about the price of medicines)
In the email, Miss Naeema Sadaf, the Head of Patent & Trademark Division at PakPat World Intellectual Property Protection Services (email@example.com), writes [with some added Kat comments]:
"Exclusive right to sell the patented product or at least the direct product of a patented process is one of the important rights given to the holder of a patent (product or process) in Pakistan [Section 30]. To define the boundaries of such rights section 30(5)(a) of the 2000 Ordinance provides that where the patented product is first put on the market anywhere in the world- i) by the owner of the patent itself; or ii) someone else with his consent; or iii) by an authorized person; or iv) in any other legitimate manner such as compulsory licenses, he has no control over the subsequent sale, import and/or export of the product (second sale). This is the so-called principle of the "International Exhaustion of Patent Rights (IEPRs)" which was set forth in place of the national exhaustion in 2000 in Pakistan.I don't know very much about getting patents in Pakistan, but if all this is correct it doesn't look like Pakistan is a particularly friendly place in which to enforce patent rights. The law on exhaustion seems to be a bit poorly thought-through and unlikely to achieve its aims, if these are about getting lower prices for patent-protected medicines. Can any readers shed further light? Is it even worth bothering to file a patent application in the country?
According to the principle of national exhaustion of rights, exclusive right to sell the patented product ends upon first sale, within the country. This means that a patentee may not enforce the patent against Parallel Imports (PI) whereas under the principle of IEPRs upon first sale, anywhere in the world, of the patented product (or other article embodying the invention such as intermediate of a final product), the exclusive right to sale ends and the patentee may not place further reliance on the patent to prevent PI.
For the sake of clarity, if a patentee or his licensee has first placed a patented product onto the market outside Pakistan, he may not be able to enforce the national patent rights against importer of the patented product into Pakistan as the right to prevent importation is limited by the principle of IEPRs. If, however, there were no principle of IEPRs, then import into Pakistan of the product sold outside may well be ranked as infringement.
IEPRs, Implied License and the Community-wide Doctrine of Exhaustion of Rights
The principle of IEPRs in Pakistan differs from the common-law doctrine of implied license as applied in UK, but generally corresponds to the doctrine of exhaustion of rights created under the [European] community law. [The last time this Kat checked, Pakistan was not a member of the EU or EEA]
According to the common-law doctrine of implied license, in the absence of any limitation to the contrary, where the patented product is sold by the patentee, he may not place further reliance on the patent to prevent subsequent sale of the product [within the EEA] as the presumption that the first sale carries with it an implied license to keep, use and resale the product comes into play. However, where there is an express limitation - this will bind the receivers of the goods with the notice of that limitation. On the other hand, under the community-wide doctrine of exhaustion of rights, where the patented product is put on the market in the European Economic Area (EEA) with the patentee´s consent, further disposal of the product is beyond the patentee´s control and any express limitation in this regard (say importation into or resale in another member state) being in contravention to the provision of Article 28 EC is considered as void.
In contrast with the community-wide exhaustion of right, section 30(5)(a) of the 2000 Ordinance is world-wide in scope as it operates against marketing of the patented product anywhere in the world. However, in line with the EC doctrine of exhaustion of rights, an express limitation on further disposal of a patented product may contravene the provisions of section 37 of the 2000 Ordinance and thus be void if it is meant to require the patentee´s license to subsequent uses and sale.
Principle of Exhaustion Extends to Sales under Compulsory Licenses
To apply the principle of exhaustion, it is well-recognized that voluntary and free marketing of the patented product by the holder of the patent, or his voluntary consent when sold by others, is essential. If it is lacking, the principle may not apply. This is why, under the UK, USA, EP etc. laws, patented products which are first sold under the compulsory licenses, the principle of exhaustion has been held inapplicable as the voluntary consent of the patentee is lacking. In contrast to this, under the provisions of the 2000 Ordinance, the principle of exhaustion may extend to patented products sold under the compulsory licenses in Pakistan and also to cases where the patentee is legally bound under the national law to sell its product (say where public interest, health, safety etc. so require). This suggests that the patentee may not be able to enforce the patent rights against export and/or resale of the patented product sold under the compulsory licenses in Pakistan; or in any other legitimate manner to some other country except where the law of the importing country prohibits the import and marketing of a product which has been manufactured and sold under a compulsory license in another country. The patent law of Pakistan is thus quite stringent in this respect.
Impact of IEPRs on National Economies and Consumers
The principle of IEPRs in Pakistan may be regarded as an extension of the community-wide exhaustion of rights, which is the result of the desire to establish a single European market with no national barriers to trade [It isn't really, though, is it, if it applies to first sales anywhere in the world?]. This is reflected in Articles 28 and 30 EC. Whilst Article 28 EC prohibits "quantitative restrictions" on trade and any provisions that have "equivalent effect", it allows such restrictions where they are necessary to protect industrial property, in particular, to protect the rights that constitute the "specific subject matter" of the industrial property. To this end, the principle of exhaustion was devised to facilitate parallel imports so as to reduce price differentials of identical goods, especially pharmaceuticals, between countries in the community through arbitration process, yet it does not appear to work for all. For instance, in Centrafam v Sterling case [(1976) F.S.R. 164], the real beneficiary was the parallel importer who sold the drug nalidixic acid (Negram) twice the price in England, not the final consumer or the patent holder. Again, in Merck v Stephar [(1982) F.S.R. 57], the parallel importer (Stephar) was benefitted by the importation of the drug ("Moduretic") from Italy into Holland. The same appears to be true in the case of Merck v PrimeCrown case [(1997) F.S.R. 237].
Given this, a world-wide regime of International Exhaustion allowing parallel imports with hope that it could result in reduction of prices for identical goods in various markets thus benefitting the final consumers so far seems to be a far fetched [Not half.]. On the other hand, the principle of IEPRs seems to be favoring parallel importers permitting them to take a free ride on the marketing expense of the patent owners or their licensees, which may result in unfair competition. Parallel importing in its present form appears to operate against the final consumers and economies with small markets in that-
- parallel imports may result in reduction of the profit margins of the research-based companies thereby reducing their return for investments in research and development programs and ultimately in the new drug developments;
- increase the risk of diversion of foreign investments from countries accepting parallel imports;
- force the patent owners to refuse supply products to countries with small markets.
As is well-appreciated by economists that "economies with large markets and inelastic demand face higher prices than economies with small markets and elastic demand", a uniform price regime set by parallel importing may result in an even greater increase in prices for consumers from developing countries (say Pakistan) than under price differentials."