In order to counterbalance the practice of differential pricing by originator pharmaceutical companies,244 the TRIPS Agreement enables WTO Members to parallel import medicines from countries where an originator company may have chosen to market the product at a more competitive price. Parallel importation as a concept relies on the principle of exhaustion of rights, or the point at which the patent holder’s control over an invention placed on the market ceases. This termination of control is critical to the functioning of any market economy because it permits the free transfer of goods and services. Without an exhaustion doctrine, the original right holder could exercise control over the sale, transfer or use of a good or service for the duration of the patent term.245 The TRIPS Agreement affords WTO Members the discretion to elect a system that recognises national, regional or international exhaustion of rights.246 If a country recognizes a doctrine of “national” exhaustion, a patent holder’s right to control movement of a good or service is only extinguished by the first sale or marketing of a good or service within the territory of that country. If a country recognizes a doctrine of “regional” exhaustion, a patent holder’s right to control movement is extinguished when a good or service is first sold or marketed in any country of the region, thus allowing importation from the most affordable regional source. If a country recognizes a doctrine of “international exhaustion”, a patent holder’s right to control movement is extinguished when a good or service is first sold or marketed anywhere in the world,247 thus
243 Ibid Osewe et al at 44 where a graph indicates that in the case of Ghana, the cost differential between ARVs locally
manufactured by Ghanaian generic manufacturer Danadams, and those imported by the IDA Foundation was negligible for lamivudine. There were however, significant cost savings for nevirapine.
244 See Moon et al (2011) ‘A win-win solution?: A critical analysis of tiered pricing to improve access to medicines
in developing countries’ Globalization and Health, 7:39 [Online] Available: http://www.globalizationandhealth.com/content/7/1/39
245 UNCTAD-ICTSD, (2005) at 93.
246 See Matthews D, and Munoz-Tellez, V (2007) ‘Parallel Trade: A User’s Guide’ In “Intellectual Property
Management in Health and Agricultural Innovation: A Handbook of Best Practices” (eds). Krattiger A, Mahoney R, Nelsen L, et al.). MIHR: Oxford, UK for An extensive discussion of the concept of parallel importation and the three doctrines of exhaustion. The authors conclude that developing countries should retain as much policy space as afforded by the TRIPS Agreement by incorporating the principle of international exhaustion of rights into national legislation.
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allowing importation from the most affordable global source where the patented product is being sold.
3.3.1 The Dispute over Parallel Importation in South Africa
The international impact of the South African government’s decision to pass the Medicines and Related Substances Act248 has been discussed above in Chapter two. The purportedly broad phrasing of Section 15 (C) authorized a minister of state to “prescribe conditions for the supply of more affordable medicines in certain circumstances” was interpreted by several originator pharmaceutical companies as an enabling clause for the Minister of Health to issue compulsory licenses and to authorize parallel importation where necessary. Because the South African government had, through existing common law, recognized the international exhaustion of rights and since there was no indication that the parliament intended to change this rule when it amended the Patent Act to implement TRIPS, it is unlikely that Section 15C of the Medicines Amendment Act broke new ground, except perhaps to provide regulatory authority to the Health Minister.249 Initially, the USTR threatened to impose unilateral trade sanctions in retaliation against the South African government, a threat which was withdrawn once the full impact of the public relations implications of the Court case became clear.250
For reasons noted above in chapter two, The US government elected to not initiate WTO Dispute Settlement proceedings and eventually withdrew support for the Court case in South Africa. Nonetheless, the US had placed South Africa on its 301 Special Watch List and employed persistent diplomatic pressure to urge repeal of the Act. Because of growing criticism, the US
“For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.”
248 Act 90 of 1997. This Act outlines mechanisms for the Medicines Control Council to regulate the quality, safety,
and efficacy of medicines in the country. The amendments that took place included the an acceptance of the WHO’s Essential Drugs List
249 Ibid UNCTAD-ICTSD (2005) at 111. See also Wilson K, (2009) ‘A Manufactured Solution? The Technology
Transfer to Developing countries for the Local Production of Affordable Antiretrovirals: Case Studies From Tanzania and South Africa’ Doctoral Thesis, Faculty of Pharmacy, University of Toronto from 174-179 for a detailed discussion of the Medicines and Related Substance Act as well and the Court case [Online] Available:
https://tspace.library.utoronto.ca/bitstream/1807/17841/1/Wilson_Kinsley_R_200906_PhD_Thesis.pdf
250 Wilson at 176. Several international NGOs including Act Up, MSF, Oxfam, Health Gap as well as political leaders
like Nelson Mandela heavily criticized the pharmaceutical industry for charging excessive prices for medicines. MSF also launched a campaign entitled “drop the case which led to more than 300 000 people signing a global petition.
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recanted this pressure, and President Clinton adopted an Executive Order preventing the USTR from interfering with African countries TRIPS-compliant efforts to ensure access to AIDS medicines.251 The South African government maintained during the course of the Court case that Section 15(C) was only ever going to be used for parallel importation, and claimed victory once the case was dropped. Some question whether the South African government could claim victory given its narrow interpretation of the Act and the fact that to date, Section 15(C) has not been used to parallel import medicines.252As will be elaborated upon in chapter five, the South African Department of Health has negotiated some of the lowest ARV prices in the world and if follows from this that the need has not arisen for the government to use Section 15(C). However, as will also be discussed in chapter five, the cost of new and emerging health technologies required to treat HIV and co-infections such as TB and hepatitis as well as NCDs like cancer may eventually require the South African government to make use of Section 15(C) and other flexibilities present in patent, medicines and competition legislation.
3.3.2 Kenya’s interpretation of Parallel Importation
As noted earlier, the passing of an Industrial Property Act in 2001 afforded the Kenyan government the opportunity to provide for parallel importation, a flexibility that was not available under its previous intellectual property legislation with the result that Kenya had become a segmented market controlled by patent holders.253 In addition to Section 58 of the 2001 Industrial Property Act254 which provides for the international exhaustion of rights, Clause 37 of Kenya’s Intellectual Property Regulations255 elaborates on Section 58 by noting that it applies to:
251 Executive Order 13155.
252 Hassim A, Heywood M, and Berger J, (2007) “Health and democracy: A guide to human rights, health law and
policy in post-apartheid South Africa.” Siber Ink, Cape Town.
253 Nyaga J, (2009) ‘Implementing Parallel Importation and Licensing Mechanisms to Increase Access to Medicines
in Kenya’, Master’s Thesis, Stanford Law School at 41,[Online] Available:
http://www.law.stanford.edu/publications/dissertations_theses/diss/JacklineNyaga-tft2009.pdf
See also Lettington R, and Munyi P, (2004) ‘The Willingness and Ability to use TRIPS Flexibilities: Kenya Case Study’ Access to Medicines Issues Paper, DFID Health Systems and Resource Centre [Online] Available: http://www.dfidhealthrc.org/publications/atm/Lettington2.pdf
254 Section 58(2) notes that:
“The rights under the patent shall not extend to acts in respect of articles which have been put on the market in Kenya or in any other country or imported into Kenya.”
255 The Minister of Trade, is authorized under Section 119 of the Industrial Property Act, to create regulations as
necessary to further implement the Act. In 2002, the Minister passed drafted regulations to complement Section 58 of the Industrial Property Act.
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“…articles that are imported from a country where the articles were legitimately put on the market”.
The wording of the regulation subsequently permits the importation of a medicine placed on the market by a generic company in the event that no domestic patent protection existed. It has therefore been argued that the provision also applies to medicines produced, for example, under a compulsory license, as the recipient of the compulsory license would have been authorized by government authorities to use the invention. Since Kenya’s change of legislation, the provision has been used to import a range of generics that were still under patent protection in the country.256 Until now, there has not been an incident to prompt the challenging of this interpretation of international exhaustion of rights. The High Court of Kenya, in a recent ruling chose not to address the issue of parallel importation in a case that was largely concerned with trademark infringement although one of the parties had alleged a right to import generic medicines manufactured in India on the basis of Section 58 of the Industrial Property Act.257