These price disparities in some instances have encouraged individuals and firms, as well as state and local governments, to attempt to import comparable medications from abroad in order to realize cost savings. The practice of importing patented prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation." This practice may also raise significant intellectual property concerns, however. Many prescription drugs are subject to patent rights in the United States. As a result, even if a foreign drug is judged safe and effective for domestic use, brand-name firms may nonetheless be able to block the unauthorized importation of prescription drugs through use of their patent rights. In particular, this bill would amend the Patent Act of 1952 to provide that it is not an act of patent infringement to import into the United States a drug that was first sold abroad by or under authority of the owner or licensee of such patent. In this context, the term "parallel imports" refers to patented products that are legitimately distributed abroad, and then sold to consumers in the United States without the permission of the authorized U.S. dealer. Under this view, because the importer lawfully purchased authentic goods from the patent holder or its representative, the U.S. patent right is subject to "international exhaustion" due to the sale, despite the fact that the sale technically took place under a foreign patent. In its 2001 decision in Jazz Photo Corp. v. United States International Trade Commission , the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") rejected the "international exhaustion" position and instead limited the exhaustion doctrine to sales that occur within the United States. As a result, brand-name drug companies may potentially block imports of patented medications into the United States even if the imported good is the patent owner's own product, legitimately sold to a customer in a foreign jurisdiction. This report next considers three of these issues: the status of state and local governments that have either themselves imported, or have encouraged others to import, patented medications from foreign jurisdictions; the potential use of label licenses on patented drugs; and the implications of international trade rules established by World Trade Organization (WTO). The Eleventh Amendment provides that a federal court is without power to entertain a suit by a private person against a state, except under certain limited circumstances. In addition, Congress may in some cases overcome state Eleventh Amendment immunity through legislation pursuant to another constitutional authority, such as the Fourteenth Amendment. If the possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed sound, then no action need be taken. Legislation introduced before the 110 th Congress, S. 1082 , takes this approach with respect to patented pharmaceuticals, specifying that:
It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent. In addition, the issue of drug importation may provide an impetus for clarification of the patent infringement liability of state governments.
Prescription drugs often cost far more in the United States than in other countries. Some consumers have attempted to import medications from abroad in order to realize cost savings. The practice of importing prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation." Parallel imports are authentic products that are legitimately distributed abroad and then sold to consumers in the United States, without the permission of the authorized U.S. dealer.
Parallel importation may raise significant intellectual property issues. Many prescription drugs are subject to patent rights in the United States. In the Jazz Photo decision, the U.S. Court of Appeals for the Federal Circuit confirmed that the owner of a U.S. patent may prevent imports of patented goods, even in circumstances where the patent holder itself sold those goods outside the United States. The Jazz Photo opinion squarely declined to extend the "exhaustion" doctrine—under which patent rights in a product are spent upon the patent owner's first sale of the patented product—to sales that occurred in foreign countries. The court's ruling will in some cases allow brand-name pharmaceutical firms to block the unauthorized parallel importation of prescription drugs through use of their patent rights.
Several state and local governments are either themselves importing, or encouraging others to import, patented medications from foreign jurisdictions. The Eleventh Amendment of the U.S. Constitution provides that a federal court may not adjudicate a lawsuit by a private person against a state, except under certain limited circumstances. The ability of a private party to obtain a remedy for patent infringement against a state government is therefore uncertain. Eleventh Amendment immunity may in some cases extend to political subdivisions of a state as well.
In addition to any patent rights they possess, brand-name drug companies may place label licenses on their medications. It is possible to draft a label license restricting use of a drug to the jurisdiction in which it was sold. As a result, in addition to a charge of patent infringement, an unauthorized parallel importer may potentially face liability for breach of contract.
Legislation introduced before the 110th Congress, S. 1082, addresses the importation of prescription drugs. Titled the Food and Drug Administration Revitalization Act, this bill would amend the Patent Act of 1952 to provide that importation into the United States of a regulated pharmaceutical sold abroad by a patent proprietor or its representative is not a patent infringement. Introduction of an "international exhaustion" rule restricted to pharmaceuticals does not appear to be prohibited by the provisions of the so-called TRIPS Agreement, which is the component of the World Trade Organization (WTO) agreements concerning intellectual property. Another possible legislative response is the immunization of specific individuals, such as pharmacies or importers, from patent infringement liability. Alternatively, no legislative action need be taken if the current possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed satisfactory.