Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by the Association of Pharmaceutical Importers

1.  BACKGROUND

1.1  Introduction to the API

  The API is the professional association representing almost all those companies engaged in the parallel pharmaceutical distribution industry (PPDI) within the United Kingdom. The Association is also a founder member of the European Association of Euro-Phamaceutical Companies (EAEPC), the European federation of the national associations of companies within the PPDI of certain EU member states.

  To be eligible for membership of the API, companies must be in possession of a Manufacturer's (Assembly Only) Licence and a Wholesalers Dealers Licence, both of which are issued by the Medicines Control Agency (MCA), the regulatory authority within the Department of Health.

  It is the possession of the Manufacturer's (Assembly Only) Licence which differentiates members of the PPDI from full line wholesalers such as Unichem Alliance, AAH (a unit within Gebe of Germany) and selected regional wholesalers, all of whom are likely to be members of the British Association of Pharmaceutical Wholesalers (BAPW) as well as from companies known as short line wholesalers). The difference between BAPW members and short liners when compared with those companies who are part of the PPDI is the fact that the former stock over 15,000 product lines, short liners around 4,000 items whereas the latter hold in the region of 7,000 to 8,500 comprising imported branded prescription drugs, generic drugs, a limited range of domestic branded products and a few selected non-prescription items.

1.2  The nature of the pharmaceutical market

  A considerable proportion of the total volume and value of the pharmaceutical drug bill is accounted for by imports made by members of the research based industry themselves. Estimates suggest that over 50 per cent in value terms is probably near the mark: as an example, Bayer of Germany has no manufacturing facilities in the United Kingdom so that its total product range has to be imported.

  The prime reason for the PPDI lies in the absence of price harmonisation of pharmaceutical products within the European Union. Such harmonisation seems unlikely for the foreseeable future.

  (It is frequently contended that member countries in the northern part of Europe subsidise those in the south: it is difficult to argue that this achieves the social objective of wealth distribution as French and Belgium prices, when compared to those of the Netherlands and Germany, are proportionately much lower than any variances in relative national GDP.)

1.3  The value of the market comprising the PPDI

  Collectively member companies of the API account for almost 95 per cent of the value of imported licensed pharmaceuticals sourced solely from within the EU. Various estimates of the value of the trade circulate within the market, but there is no definitive figure available even from such independent statistical compilers as Intercontinental Medical Statistics (IMS), Taylor Nelson Sofres (TNS) or PI Monitor. One of the reasons is that the Pharmaceutical Industry is unable to agree the point within the supply chain at which the valuation should be made: another reason is the wide variety of discounts given by members of the innovative industry, as part of their marketing strategies—such discounts affecting the calculations applicable to individual products. The API only issues a value figure calculated as an aggregate of the landed total cost of imported products made up of the price from the wholesaler in the source country plus carriage, insurance and freight.

1.4  The logistics of the market comprising the PPDI

  It is important to remember that there are a number of key differences which distinguish the pharmaceutical marekt place from any other. These include:

    Pricing: In all member states within the EU, it is the national government which controls or substantially influences the pricing of pharmaceutical products; only in the United Kingdom now is there some considerable control retained by the Manufacturer as the degree of government involvement by countries such as Germany and the Netherlands, which traditionally also enjoyed an element of free pricing, has significantly increased in recent years.

    Product Identicalness: Licensed pharmaceutical products which are imported by members of the PPDI are identical in all respects to the branded version marketed by the Originator in the country into which it is imported. All such products require a Product Licence (PI) which is a "piggy-back" authorisation granted by the competent regulatory authority, the MCA, after extensive checks to ensure that the imported drug is therapeutically the same as the domestic version.

    Consumers: The market place for prescription medicines is different to that which subsists for other products. The factor of choice is exercised by the prescriber (normally a General Practitioner), not by the consumer. The source of supply is restricted in that medicinal products for human consumption can only be obtained through a registered pharmacy. The product provider has to be a qualified dispenser, ie a pharmacist.

    Legality: The foundation stone of the PPDI lies in the enshrined principle of Articles 30 & 36 of the Treaty of Rome, namely the free movement of goods. The subsequent framework of the industry has been built by the innovative industry in its attempts to have the trade banned through the decisions of the European Court of Justice in Luxembourg. The PPDI is supported by the EC Directorates—General IV, XV and XXIV: the position of DGIII is more ambivalent.

    The United Kingdom government has traditionally claimed to maintain neutrality on the issue: however, the political clout of the ABPI has undoubtedly had an impact on its thinking.

    Thus the pharmaceutical market has major differences in its characteristics when compared with other consumer sectors into which the existence of parallel trade products may subsist: the imported medicinal product is not a copy; does not vary in any respect from the original; and is manufactured normally by the Originator himself or by their licensee to the approved product specification.

    Regulation: Members of the PPDI operate within a heavily regulated environment: to some extent the scope of the regulations governing their activities is understandable in that their products are destined for entry into the pharmaceutical product supply chain with the consequent implications for public health, an area which governments have traditionally seen as being one for their involvement.

    The regulations presently in force for the non-Original licence holder (Marketing Authorisation) are far stricter and all embracing than those which exist for the Originator. Thus, for example, Bayer may import ADALAT Retard from Germany, which it can then immediately place in the market whereas a PPDI member importing the therapeutically identical product from Germany has to comply with a complete set of procedural rules before he can allow the product to enter the supply chain.

2.  THE HISTORY OF THE PPDI

2.1  The beginnings (1970's/1980's)

  The Industry can trace its history back to the 1970's when a number of entrepreneurial pharmacists ascertained that drug prices varied significantly between member states of the EEC. They established small wholesale businesses from their dispensaries, supplying other pharmacies within the local area.

  The DHSS became concerned that without rules, regulations or even guidelines there was a possibility that counterfeit or low quality products might find their way onto the British market.

  It was under Dutch jurisdiction, where the trade was also established in the Netherlands, that the first legal cases such as de Peijper (determined in 1975) went to the ECJ to determine issues questioning the apparent conflict between intellectual property (IP) ownership and free movement of goods.

  The UK importers worked closely with the DHSS to produce and develop rules and regulations governing the trade, thereby ensuring the maintenance of public health standards and guaranteeing that the imported form of any pharmaceutical product was the same as the domestic version. Many of the agreed procedures in the late 1970's/early 1980's were the consequence of a non-binding Communication issued by the Commission in 1982 on parallel imports of proprietary medicinal products for which marketing authorisations had already been granted. This Communication ([1982] OJ no. L 115/5) effectively codified the principles of the de Peijper case which outlined the obligations upon parallel importers, including the particulars to be submitted to the national competent authority and obligations in respect of batch control.

2.2  The Licensing, Inspection and Monitoring System (The early 1980's)

  The resultant licensing system which is operated and enforced by the Medicines Control Agency (MCA) on behalf of the Department of Health may be summarised as follows:

    1.  Only approved importers meeting the necessary standards as laid down by law are licensed to import and distribute prescription medicines.

    2.  Before importing any pharmaceutical product, an approved importer must obtain a PL(PI) which is effectively a "piggy-back" marketing authorisation granted by the MCA: such an authorisation is only issued once the competent regulatory authority is satisfied, through a process of due diligence, that the proposed imported preparation is therapeutically identical to the domestic version.

    3.  Each product must be checked against predetermined and agreed quality standards as well as being subject to documentation establishing an audit trail back to the manufacturer.

    4.  The Inspection & Enforcement Division of the MCA undertake regular visits to the premises of all the licensed importers within the PPDI to ensure compliance not only with the terms of each and every PL(PI) licence issued but also to undertake random checks on: quality assurance standards; the audit trail for specific products; and health and safety aspects. This ensures full compliance not only with the Medicines Act 1968 (as amended) but also with the various labelling, patient information leaflets and other regulations pertinent to the industry.

    5.  The MCA undertakes the monitoring of medicinal products once they have been placed upon the market, maintaining the necessary records which include the reports of side effects and, where appropriate, any subsequent action.

    6.  The parallel importer must also comply inter alia, with:

    —  pharmcovigilance and product recall obligations;

    —  obligations to monitor variations in and issues relating to the validity of product licences/marketing authorisations informing the MCA when necessary.

  The Inspection & Enforcement Division's role is supported by the legal requirement under Article 22 of Directive 75/319/EEC, which requires that medicinal products moving from one member state into another must be accompanied by batch control documents, complying with the laws of the member state of manufacture, or for such controls to be completed by a qualified person in the importing country. (A "qualified person" means a person who has appropriate qualifications and experience of the pharmaceutical industry. The "qualified person" is independent and responsible to the national competent authority not to the product licence holder: all product licence holders must retain the services of at least one such qualified person.)

  NB:  Further information can be obtained through a publication available from the MCA, "Notes on Applications for Product Licences to cover the parallel importation from EU member states of medicinal products for human use".

2.3  The Period of Consolidation (1985-1998)

  Over this period, the PPDI has developed from a trade into a mature industry, employing several thousand people and increasingly embracing all countries within the EU, notwithstanding the policies followed by the innovative sector companies in their attempts to have the trade banned or at least severely restricted.

  Their antipathy has meant constant attendance at the ECJ with considerable expenditure of resource, both human and financial, by not only the innovative industry but also by the PPDI. Some of the legal actions embarked upon have involved the competent regulatory authority (the MCA): such a combative approach have cost the authority considerable resource in terms of both money and manpower. There has been little attempt by the innovative pharmaceutical sector companies to justify their actions as being for the public good, and equally, no shareholders seem to have questioned the strategies either. On occasions, some companies have suggested that their research budgets have or will continue to suffer due to the existence of the PPDI but never once has this been either substantiated or qualified in the public domain. Indeed a study of their published results would indicate the contrary.

STRATEGIES USED TO TRY TO HINDER OR KILL THE PPDI:

2.3.1  Exhaustion of Rights

  The apparent conflict between Intellectual Property rights, particularly Patent Rights and the Free Movement of goods, was settled by the ECJ through the development of the principle of exhaustion of rights. The pivotal point in the establishment of a common market had to be the freedom of the movement of goods, services and people throughout the EEA; as such the concept of the free movement of goods must be at odds with the intellectual property rights preventing importation. Since the protection of innovative (and improved?) molecules or drugs is crucial for recovery of research costs incurred, the battle ground was clearly in place from inception, unless the market adopted price harmonisation from the outset. Since this latter policy would have involved government relinquishing its control of pharmaceutical pricing such an objective was hardly attainable at least in the early days: indeed it is still as elusive nowadays as it was then (see the failure of the three Bangemann Round Tables on the "creation of a single market in pharmaceuticals").

  The doctrine of exhaustion of rights provides that IP rights may only be enforced to prevent importation of goods into member states of the EEA when those goods have not previously been marketed within the EEA if the owner has consented to the goods being marketed in the member state. If the owner has consented to the particular goods being placed into one member state he cannot use those rights to prevent the goods being exported from that member state to another. Thus, national boundaries cannot be used to segment the market and have effectively disappeared.

    (The principal case law can be found in:

    Deutsche Grammophon GmbH v Metro—SB Grossmarkte GmbH (Case 78/70) [1971] CMLR 631 Centrafarm BV v Sterling Drug: outcome—win for PPDI (Case 15/74) [1974] 2 CMLR at 503 Centrapharm BV v Winthrop BV outcome—win for PPDI (Case 16/74) [1974] CMLR 480 at 508 Merck v Stephar: outcome—win for PPDI (Case 187/80) [1981] 3 CMLR 463 Merck v Primecrown: outcome—win for PPDI (Joined cases C—267/95 and 268/95) [1997] FRS 237)

2.3.2  Exhaustion of Rights (Trade Marks)

  One method that has been employed by manufacturers of pharmaceuticals to contain or prevent the parallel trade has been the registration and use of trade marks: different brand names registered as trade marks in different member states. This practice was followed with scant if any regard to the interests of the ultimate consumer who, as international travel increased in frequency often found themselves confused when confronted with the need for a repeat prescription medicinal product; it made a mockery of the claim made by the Innovative Industry to be solely concerned with public health).

  If an importer, in order to market a product in the member state of importation, has to repackage the medicine with the brand name of that country (such a brand name being different to that used in the source state), then the manufacturer would rely upon his trade mark rights in the country of import to prevent the sale of the product onto the market. This was on the basis that the use of the trade mark as registered in the import country is done without consent and is therefore an infringement of the owner's rights.

  However, recent legal actions brought before the ECJ by the innovative industry on this matter indicate that the exhaustion of rights applies to the use of trade marks particularly in instances where different marks can be deemed to segment or partition the market. A recent Opinion by the Advocate General would appear to take the boundaries still further apart by suggesting that if rebranding is necessary to market the goods from the country of export in the country of import then such rebranding should always be permissible provided that:

    —  it does not damage the Original Trade Mark;

    —  the importer gives notice of his intention to rebrand;

    —  the importer provided a sample upon request.

2.3.3  Manipulation of the Regulations

  As previously noted, in order to obtain a PL(PI) an importer has to "piggy-back" the mother licence of the Originator. To do this the importer has to show the regulatory authority in the country of import that the product to be imported has the same therapeutic effect as the domestic version. There are occasions when the authority will seek information from its sister organisation in the exporting country: this may result in enquiries being made direct of the manufacturer. Responses may take a long time to obtain; meanwhile the market opportunity is slipping away from the importer.

  Sometimes the manufacturer may attempt to have different formulations in different countries: if this is the case, a piggy-back licence may not be allowed. The importer has to prove that the product is the same, as minor formulation differences such as these might have a therapeutic effect. However, the manufacturer has to be careful that such a policy does not run foul of the competition provisions as they could be open to a charge of attempting to partition the market.

  Small batch sizes have long been a weapon employed by the multinationals. Under the terms of a PL (PI) details of batch lots must be recorded. There have been many examples of products which have only been available in lots of 10 or 20 pieces: given that one of each lot has to be retained as a sample in case of a problem in the future and the cost of processing and larger batches is the same, such a practice can render the parallel trade activity uneconomic.

  These practices are likely to continue and there is little that the PPDI can do except seek the support of the European Commission (possibly in conjunction with selected consumer groups) to bring pressure to bear upon those member states in particular where delays are frequent. Ironically, the longest delays are usually found in the regulatory authorities of the exporting, lower priced countries rather than those in the importing, higher priced countries. However, as some of those countries are now importers as well as exporters, albeit only on a small scale, this may change over the medium term.

2.3.4  Commercial Tactics

  Direct supply: To avoid parallel imports, manufacturers will often supply direct to pharmacy outlets with supplies at greatly reduced prices. This commercial ploy is particularly attractive in the hospital sector as it guarantees supply of a preparation to the hospital, which the importer can never do. It overcomes the prejudice often found in hospital pharmacists who have no profit saving incentive against repackaged parallel imported goods and it has the pay-back that the product is likely to be continued to be prescribed after the patient leaves hosptial by the general practitioner. This practice will continue to the benefit of the cost containment programme in the NHS and private hospitals. Thus, it is an indirect benefit brought by the parallel trade.

  Agents: By employing agents who act soley for the producer, to implement a policy of direct supply, a pharmaceutical manufacturer can avoid the potential problems of the competition rules (under Articles 85/86 of the Treaty of Rome).

  The principal reason why this option has had only limited use is the existence of regulations relating to commercial agents generally, particularly those covering the payment of compensation if the agency has to be terminated. Thus the practice is unlikely to be employed by the industry.

  Limitation of Supply: This is an avenue presently being explored by the larger pharmaceutical companies. In essence the policy is to restrict the quantity of supplies made available to wholesalers known to export product to other member states. There is no law which requires a manufacturer to produce adequate quantities to satisfy demand, particularly in a highly regulated market place where the normal principles of free pricing have little application. However, it should be noted that DGIV have brought a case against Bayer of Germany for withholding supplies of their best seller ADALAT, a hypertension medication, in France and Spain, where the price of the product is significantly lower than in the United Kingdom, Germany, Holland and Denmark. We would expect that DGIV should win their case.

  Dual Pricing: Glaxo Wellcome in Spain is pioneering a strategy of two tier pricing: a low price for their products which are distributed within the Spanish market, and a much higher price for products which are to be exported from Spain. This is presently being investigated by DGIV as it would appear to be an infringement of Articles 85/86. The evidence available would indicate that this policy will be declared to be against the competition rules of the internal market.

  Appearance Differences: These are a traditional method to hinder the PPDI. The effect is greater in some member states than in others as much depends upon the dispensing practices. Where the differences relate to the outer carton only, the impact may be small in countries where the pharmacist discards the outer carton and uses his own, or where the pack is broken to comply with the prescribed amount only. However, shape and size variations are more effective as these will necessitate the pharmacist explaining to the patient that the tablet/capsule is the same medication even though the colour or shape is different. There is real prejudice against medicines originating from other countries where differences from the domestic version are manifestly obvious (notwithstanding that the patient may have consumed French cheese the previous evening with a glass of German wine and driven to the pharmacy to collect the prescription wearing Italian apparel in a Swedish motor car!) As a result some pharmacists, particularly those who prefer not to explain the peculiarities of pharmaceutical marketing strategies of the multinational research based companies to the consumer, still do not stock the parallel imported version.

  Drug Dosage: Another means to prevent imports is for companies to apply for product licences for a formulation in, for example, 10mg strength in Spain but 20mg in Germany. The patient in Germany, the country of import, will have to take two tablets of the Spanish version as against one of the domestic preparation—this creates customer resistance. This practice will be curtailed as centralised approval becomes the normal route to obtain the required marketing authorisations for new or modified New Chemical Entities (NECs) resulting in a single licence valid throughout the EU.

  Pack Sizes: There are, of course, cultural as well as prescribing differences throughout member states. These will take more than one generation to eliminate if indeed it ever happens. Once again, the United Kingdom is at variance with other European countries in that traditionally, pack sizes in this country have been in multiples of seven whereas on the continent, the norm is in multiples of five or 10. The EC are discussing pack size harmonisation although the innovative industry is lobbying against this despite the obvious cost savings the measure would bring in its wake. We anticipate this will happen in the medium term.

  Litigation: Ever since the inception of the parallel trade in pharmaceuticals, members of the research based industry have litigated against the small parallel importer who they claim is a threat to their very existence. They have expended millions of dollars, countless man hours and generated reams of paper at the expense of the environment to little effect.

  They attempt to justify this wasteful expenditure of resource on the unsubstantiated grounds that the parallel trade places their research programmes at risk. A cynic might feel that a reallocation of this resource into research might yield a more significant benefit or return in terms of public health. The industry, however, in an attempt to protect the high margins it enjoys in many of the major world economies, contends that the advantages of litigating outweigh the obvious and costly disadvantages: why, because the very process of going to court offers significant benefits:

    —  During the action, an injunction may be obtained preventing the importer from dealing in the subject product; by the time the case is determined the window of opportunity may have passed;

    —  The cost of defending an action may be unsustainable by the small parallel importer unless he can do so through his industry association.

  For the record, in Annex 3[2] we list the significant cases which have been brought by one or another member of the innovative industry against one or another member of PPDI: all have been determined in favour of PPDI.

3.  THE PRESENT SCENARIO

  Notwithstanding the confrontational attitude and approach adopted by the research based industry, a trade which started as a small entrepreneurial activity from the back of a few pharmacies has grown into a mature industry employing several thousand people operating throughout the European Union.

  Despite continued and repeated overtures from the PPDI, there are few signs of any change of direction in policy or attitude by the innovative companies towards the parallel importer. The occasional smaller multinational may send out a positive signal but the larger companies appear determined to try to curtail the growth of the PPDI as much as they can. Further legal cases appear inevitable. These will simply sustain the income of lawyers and do nothing for either the promotion of public health or the quality of life for the citizens of the EU.

  It is therefore against this background that we turn now to address the specific questions outlined in the brief issued by the Trade and Industry Committee.

  It will of course be appreciated that our responses to the questions relate only to the pharmaceutical industry from the perspective of the API.

4.  RESPONSES TO THE NOMINATED QUESTIONS

4.1  Why does "grey" and parallel trading occur?

  The reason parallel trade occurs in the pharmaceutical sector is simply that this market is not subject to the principles of free pricing and competition is limited. In most member states within the EU, pharmaceutical prices are determined by Governments, increasingly through a system of reference pricing, in an effort to contain the ever increasing cost of medication to the public purse as a consequence of improved medical care and an aging population.

  In general terms, identical medicines are priced cheaper the further south you travel within the EU member states. Thus the cheapest countries in ascending order are Portugal, Spain, Greece and Italy. These are closely followed by France and Belgium. The average price graph would then show a measurable gap before Austria, Finland and the United Kingdom.

  In descending order from the member state where drug prices tend to be the highest, we have Denmark, Germany, the Netherlands, Sweden, and perhaps surprisingly, Ireland.

  Although the total value of the PPDI trade expressed in absolute terms is the highest in the United Kingdom, when expressed the values as a percentage of the relevant national drug bill, the country which benefits the most remains the Netherlands.

  It is important to bear in mind that the United Kingdom is one of the major sources of supply for parallel exports of medicinal products: the exact figure is not readily quantifiable but it is thought to be greater than the value of the imported parallel trade. This fact is seldom acknowledged by the research based industry.

  Parallel trading in pharmaceuticals is simply the means by which market forces respond to the different prices of identical products in EU member states.

4.2  Costs and benefits accruing to the producers and to the consumers

  The principal customer in the United Kingdom is the UK Government. The Government benefits in two principal ways as a consequence of the existence of a healthy PPDI in this country:

    1.  Through the "claw-back". It is estimated that this mechanism yields a saving of some 2 per cent of the total drug bill to the Treasury each year.

    2.  Perhaps more importantly but unfortunately unquantifiable, the PPDI acts through the addition of a competitive element into the marketplace. There is no doubt that the existence of the parallel imported product helps to contain the price of specific drugs: there are many examples of both where the original manufacturer has been unable to seek a price increase and where prices have been reduced as a direct consequence of the share of the total market being obtained by the imported version. In addition, increasingly there is evidence of the multinational company offering the import quantities of the domestic product at or near the cost of the imported version: effectively this is a price reduction which feeds back into the system. (Mention has already been made of the bulk discounts offered to hospitals and other large buying groups on selected products by the original manufacturers.)

  The Research based industry claims that the financial impact of the parallel trade in pharmaceuticals "costs" it several million pounds per year. This claim has never been really substantiated and has certainly never been produced in the public domain for open discussion: the best we have seen to date has been the occasional study funded by the research based industry and undertaken by economic analysis firms which purport to quantify the revenue loss sustained by individual companies.

  The research based industry overestimates the volume and value of the trade using unreliable data from sources which admit that the figures used are, at best, extrapolated estimates. To our knowledge, no major multinational pharmaceutical company has ever quantified the reduction in its research & development (R&D) as a direct consequence of the parallel trade in its products. Also, to our knowledge no major pharmaceutical company has ever explained why it has chosen to locate a signifcant proportion of its manufacturing capacity in low cost countries, for example Ireland and Spain, other than because of its desire to contain its manufacturing costs. When, for instance, Boots was in the industry sector, some of its product portfolio was only manufactured in Spain simply because at the time that was a more cost effective location and by using the benefits of an intra-group transfer pricing mechanism, margins were maximised despite the pricing regimen subsisting in that country for the domestic product.

4.3  Where does the public interest lie in respect of such trading?

  For many years now, consumer groups throughout northern Europe have been supportive of the PPDI. The API has been championed by, for example, Consumers in the European Community Group (CECG) which is the umbrella body for some 31 professional and voluntary organisations in the United Kingdom which have an interest in the effect of EU policies on UK consumers. Similarly, the Association has been supported by both BEUC and COGACE. The Association has made presentations to Intergroupe pour la politique des consommeteurs whose president at the time was Pauline Green MEP.

  These groups recognise the positive role played by the PPDI in the cost containment programme of the NHS in the United Kingdom and the appropriate sister bodies in other member states

  Given the special and peculiar characteristics of the pharmaceutical market place as outlined in the previous sections of this submission, consumer groups have recognised the valuable pressure points applied by the PPDI. Price differentials vary upwards from some 10 per cent and are on average some 20 per cent of the UK drug tariff price, a not insignficant contribution towards the costs saving elements within the supply chain.

4.4  Should more or less protection be given to brands and are trade marks insufficiently or excessively protected?

  Brands and/or trade marks are presently afforded adequate protection as far as their application in the pharmaceutical industry is concerned. Given that consumer choice is exercised by a person two steps removed from the ultimate consumer whilst the pharmacist chooses exactly what to supply, it is arguable that brand names are almost an irrelevance. Industry observers have noted however, that the generic or chemical names of drugs are often unpronounceable for even the trained professional, hence the use of brand names.

  The recent Silhouette decision by the ECJ provides for the strengthening of trade mark rights [1998] CEC 676; [1998] FSR 729. The Judgement indicated that Article 7(1) of the Trade Mark directive did not provide for the international exhaustion of rights and, more significantly, did not leave it open for national courts to provide for international exhaustion of rights.

  It would appear that the doctrine of exhaustion of rights as applied to IP rights is limited to the EEA alone. The IP rights, therefore, remain protected if the product is marketed without consent outside the EEA. Given this effective monopoly, it is difficult to see a justifiable case for any further extension of rights.

4.5  What are the main problems with existing measures to detect and prevent counterfeiting and piracy? How can such measures be made more effective? Are there problems with definitions?

  The Medicines Control Agency, the UK regulatory authority, is on public record that counterfeiting and piracy within the pharmaceutical sector is not an issue. As a direct consequence of the standards which are followed by all parts of the pharmaceutical industry (manufacturers, importers, distributors, wholesalers, pharmacies and dispensing doctors plus the various regulatory and professional bodies), all of whom maintain a watching brief to ensure compliance with the regulations governing the storage, distribution and dispensing of medicinal products for human consumption, cases of counterfeit product entering the UK supply chain are almost unknown.

  The quality assurance programmes which are in place ensure that the highest possible standards are maintained. Public confidence in the quality of medications available on the market appears to remain consistently high and justifiably so.

  There is an arguable case for pressure being brought to bear upon the manufacturers to ensure that, within the bounds of commercial reasonableness, supply was always marginally in excess of demand thereby reducing, if not eliminating, the appeal of counterfeit product. Secondly, the industry, in the event of a counterfeit product being detected, should be legally obliged to make the findings of the mandatory subsequent investigation available, thereby facilitating open and transparent debate. There can be no legitimate foundation for maintaining a shroud of secrecy in such circumstances.

4.6  How can IP rights be more effectively agreed and enforced internationally?

  There is little evidence to support any view that within the United Kingdom IP rights need to be tightened or enhanced. There is likewise no requirement within the EU—indeed it is to the contrary. As this submission has noted, the pharmaceutical sector has repeatedly used its IP rights to attempt to prevent the operation of the cardinal tenet of the common market, the free movement of goods. The position that may exist outside the EU is beyond the competence of the API to address in this submission as the scope of our activity is presently restricted to trading within the member states of the European Union.

5.  CONCLUSION

  The Communication issued by the Commission immediately before the Third Bangemann Round Table Conference in Paris in December 1998 entitled a "Single Market in Pharmaceuticals" Com (98) 588 recognised the importance of the parallel trade in pharmaceuticals. It states that the PPDI is an important "driving force for market integration where there are significant differences in prices and consequently, for achieving the single market."

  There appears to be a growing consensus that the remaining price restrictions should be lifted in the non-prescription (OTC) product area as well as the out-of-patent product area. This would increase competition, allowing prices to converge with the market becoming effectively integrated. However, it would appear that market integration is a long way off so far as the in-patent product sector is concerned. The innovative industry is determined to maintain the healthy profit ratios it enjoys in the northern European countries. With governments unlikely to relinquish control of pharmaceutical pricing, and with generic substitution resisted by vested interests, the future of the parallel trader would appear strong, allowing the benefits flowing from the existence of the PPDI to continue to support drug cost containment objectives.

23 May 1999


2   Not printed. Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 8 July 1999