Memorandum submitted by the Association
of Pharmaceutical Importers |
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
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 strategiessuch 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
1.4 The logistics of the market comprising
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 DirectoratesGeneral 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
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
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
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 ( 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
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.
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 MetroSB Grossmarkte
GmbH (Case 78/70)  CMLR 631 Centrafarm BV v Sterling Drug:
outcomewin for PPDI (Case 15/74)  2 CMLR at 503 Centrapharm
BV v Winthrop BV outcomewin for PPDI (Case 16/74) 
CMLR 480 at 508 Merck v Stephar: outcomewin for PPDI (Case
187/80)  3 CMLR 463 Merck v Primecrown: outcomewin
for PPDI (Joined cases C267/95 and 268/95)  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
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
the importer gives notice of his
intention to rebrand;
the importer provided a sample upon
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
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
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
preparationthis 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
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
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
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
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.
4.1 Why does "grey" and parallel
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
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
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
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
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 
CEC 676;  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
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
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
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 EUindeed
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.
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
23 May 1999
2 Not printed. Back