Parallel trade puts different impacts on different groups: it limits rights of intellectual property owners, while offers diverse prices for customers. Parallel trade happens in all fields of consumption – including pharmacy, a field with special nature.
I. DEFINITION AND REASON OF PARALLEL TRADE
Parallel trade, a phenomenon well known internationally, is what happens when a non-counterfeit product, legally manufactured by an intellectual property owner or a party authorized by the owner, is imported from one country to another without permission of the intellectual property owner.
Example 1: A company owns patent Y (pharmaceutical product), which is protected in country A1 and country B1. Said company grants license to use patent Y to other companies, according to which company A has the right to use patent Y in A1, company B has the right to use it in B1. The products, manufactured by A, are then imported to B1 without the permission of B.
Example 2: Company X is the owner of trademark M (pharmaceutical product), which is protected in country A and country B. The retail price of M in country A is USD 2.00, in country B is USD 5.00. Company Y realizes that if it buys M in country A at the price of USD 2.00, plus fee for delivery and disbursements, it can sell M in country B at the price of USD 4.00, which still can bring benefit. Meanwhile, with the price of only USD 4.00, it can compete with company X who sells the product at a higher price in country B, and who is also the owner of trademark M.
Parallel trade does not include the trading of counterfeit or copycat products, which is an illegal action. Parallel trade is not smuggling, either. One thing for sure is the products under parallel trade all are genuine ones.
2. Reasons of parallel trade
The core reason of parallel import comes from price differentiation (what happens when identical or largely similar goods are distributed by the same provider in different markets at different prices). When an identical or largely similar goods are distributed at the country of origin at lower price than that of the destinated country, the importing of said product will bring more benefit even after necessary costs (such as transaction costs) are taken into account. Therefore, providers can collect more benefit by parallelly importing or exporting these products through official channels. Please see below example:
Table 1. Retail price of “Herceptin” – a monoclonal antibody used to treat breast cancer – at different countries[i].
The above table shows that the retail price of “Herceptin” in US (country with highest price) is 3,6 times higher than that in Russia (country with lowest price). In Vietnam, trademark “Herceptin” is currently under the name of Genetech, Inc. It covers class 05 and is protected under Registration No. 55773 dated July 20, 2004. Its retail price in Vietnam is about 46 million Vietnam dongs, equal to about USD 2,000[i].
3. Impact of pharmaceutical parallel trade:
3.1. On patients: Price differentiation gives patients, especially those live in underdeveloped countries or developed countries, a chance to access more kinds of pharmaceutical products. It also helps governments to reduce expenses spent on national healthcare programs (mostly through medical insurance, investment on national healthcare etc.), improving the quality of healthcare and dealing with pandemic etc.
3.2. On pharmaceutical firms: Parallel trade create several disadvantages, such as:
– Hurting competitiveness. Without parallel trade, pharmaceutical firms would not have to face price competition and could be able to control their price, through which they maximine their income. At regional and international levels, pharmaceutical firms can create other strategic advantages, while at the same time take the initiative to control many factors such as the distribution of goods, prices etc.
– Lowering the ability of investment and R&D. Pharmaceutical firms usually argue that income loss (which happens because of parallel trade) cuts their return on investment and the amount they can plow back into drugs R&D. In the pharmaceutical industry, R&D for new drugs plays an important role as the world is always in need of new/ alternative pharmaceutical products. As a reference: The Tufts Center for the Study of Drug Development – an academic nonprofit think tank at Tufts University in Boston, US – estimated that the necessary budget in order to successfully develop and bring a drug to market had been USD 1 billion in 2001 and a whopping of USD 2,6 billion in 2014[ii].
– The drug assistance issue. In some cases when pharmaceutical firms (usually big companies and corporations) provide drug assistance to underdeveloped and developing countries to jointly deal with the disease problems in said countries. When the drugs under assistance are not fully used, the remaining portion might be parallel exported back to the country of origin, hurting pharmaceutical firms’ benefit.
Therefore, basically, parallel trade has always been opposed by pharmaceutical firms, who argue that it should be limited or even totally banned.
II. VIETNAMESE LAW & INTERNATIONAL TREATIES ON PARALLEL TRADE
1. Regulations of Vietnam
In Vietnam, the rule of parallel trade can be found at Article 125.2(b) Law on Intellectual Property 2005 amended in 2009, which states that: “Owners of industrial property objects as well as organizations and individuals granted the right to use or the right to manage geographical indications shall not have the right to prevent others from performing the following acts:… Circulating, importing, exploiting utilities of products having been lawfully put on the market, including overseas markets, except for products put on the overseas markets not by the mark owners or their licensees;”
With this regulation, Vietnam confirms the legitimate of parallel trade of objects under industrial property right. Detailing the parallel trade of pharmaceutical products, Law on Pharmacy 2016 which takes effect since January 01, 2017 states in Article 60.2(dd) that: “A drug that does not have a certificate of free sale in Vietnam shall be licensed for import with a quantity not exceeding that written on the import license in the following cases: … It has the same trade name, active ingredients, concentrations, dosage form as a original brand name drug which is granted a certificate of free sale in Vietnam, manufactured by the same manufacturer of the original brand name drug or an authorized manufacturer, and its price is lower than that of the original brand name drug being sold in Vietnam at the request of the Minister of Health;”
Detailing this regulation, Decree No. 54/2017/ND-CP of the Government providing guidelines for implementation of the Law on Pharmacy, which takes effect since July 01, 2017 – states in Article 70 that: The import of such a drug shall only be licensed when the following requirements are satisfied:
– Requirements in Clause 2dd Article 60 of the Law on Pharmacy are satisfied;
– The intended wholesale price is lower by at least 20% than the successful bid for the proprietary drug having the certificate of registration in Vietnam;
– The drug is licensed and exported to Vietnam from the manufacturing country, a reference country that is a member state of the ICH or Australia;
– The drug is not a radiopharmaceutical, vaccine or biological.
Reviewing the above regulation, it can be seen that:
– First, Vietnam laws basically allows parallel trade of pharmaceutical products, but with limitation where drug is not a radiopharmaceutical, vaccine or biological. Therefore, this can be viewed as partial permission, not fully permission.
– Second, the pharmaceutical products under parallel trade is the combination of nearly all industrial property objects. Accordingly, the product must has the same trade name (which can mean trademark or even industrial design), active ingredients, concentrations, dosage form as a original brand name drug (which can mean a patent).
– Third, prices are intervened (The intended wholesale price is lower by at least 20% than the successful bid for the proprietary drug having the certificate of registration in Vietnam).
– Fourth, the products must meet certaint technology requirements. Particularly, it must come from a reference country that is a member state of the ICH or Australia – which are developed countries and have high standards on drugs.
2. International treaties of which Vietnam is a member
2.1. TRIPs Agreement:
Before TRIPs, due to several reasons and based on different positions and perspectives, each country chose its own policy regarding parallel trade. Under developing and developing countries were often in favor of parallel trade as it could boost trade, allow customers to buy products – especially pharamaceutical products – at competitive prices. Meanwhile, developed countries – home to many intellectual property owners – decided to ban parallel trade as they wished to protect their intellectual properties well. As a result, during the negotiation of the TRIPs Agreement, there was a debate on parallel trade with profound disagreements. The TRIPs Agreement, eventually, could not provide any specific regulation on whether parallel trade should be banned or not. In fact, it is stated in Article 6 that:
“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.”
Accordingly, members of the TRIPs Agreement are free to decide whether parallel trade will be banned in its territory. They also have the right to build its regulation on parallel trade whatever they want, with only one condition that it will not violate the National treatment rule under Article 3 and the Most-Favoured-Nation Treatment under Article 4.
CPTPP (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is viewed as a replacement to the Trans-Pacific Partnership (TPP) after the United States left the latter on January 21, 2017. The remaining state members agreed that the negotiation would be continued, but under a new name of CPTPP. The draft of CPTPP includes a chapter for Intellectual Property, in which the regulation of parallel trade is stated in Article 18.11:
“Nothing in this Agreement prevents a Party from determining whether or under what conditions the exhaustion of intellectual property rights applies under its legal system.”
Explaining this Article, footnote (8) states that: “For greater certainty, this Article is without prejudice to any provisions addressing the exhaustion of intellectual property rights in international agreements to which a Party is a party.”
Article 18.11 and Footnote (8) above are precisely Article 18.11 and Footnote (8) of the TPP agreement. This means that, similar to the case of TRIPs agreement, members of both TPP and CPTTP, while negotiating these partnerships, gave their state members the right to choose how to regulate parallel trade.
III. CONCLUSION AND RECOMMENDATION
Decree No. 54/2017/ND-CP of the Government has only taken effect since July 01, 2017, therefore it might be too soon to have a conclusion on its effective. Thus, this article only gives some opinions and recommendations in term of legal study as below:
– As to the regulation where the intended wholesale price is lower by at least 20% than the successful bid for the proprietary drug having the certificate of registration in Vietnam: This might be an obstacle for importers because there are several elements that can effect drug prices, such as labor costs, tax and expenses – many of which are sometimes unpredictable. As a result: in theory, prices might be able to meet the above requirements but in fact, it fails to do so. Therefore, this regulation has indirectly limited the ability of parallel trade.
– What will be the legal consequences for drugs that are not allowed for parallel trade but still somehow appear in the market of Vietnam? What will be the mechanisms and sanctions applied for such cases, because Vietnam basically allows parallel trade, which means there has been no regulation or sanction against parallel trade? In a recent case, drugs were parallelly imported from Turkey into Vietnam. Since the weather condition of Turkey is different from that of Vietnam, the requirements for drug preservation in Turkey is different from those of Vietnam, too. This makes the drugs, though being genuine, could not properly used in Vietnam and therefore, the authority of Vietnam refused the importing, while applying sanction in term of labelling[iii].
The below table shows the number of trademark applications, which cover class 05, directly filed in Vietnam from 2013 to the end of 2017. (The database source is the public database of the National Office of Intellectual Property of Vietnam.) It can be seen that the total number of applications remain stability through the years, which means the newly protected trademark will also remain stability, adding to those already protected and creating a progressive acceleration of intellectual property right of pharmaceutical firms.
In 2017, the total pharmaceutical revenue of Vietnam came to some 5.2 billion U.S. dollars and is estimated to reach USD 10.0 billion in 2020. This proves that this is a promising market with so many developing opportunities in the coming years. All the above facts raised two concerns:
– First, intellectual property rights of pharmaceutical companies must be properly and well protected. By doing so we can create a legal basis to remain the sustainable development of the pharmaceutical market and protect customers’ right.
– Second, the more protected trademarks there are, the more drugs parallelly imported there will be.
This means we should raise more concern and attention on this matter of parallel trade, through which we can create a balance that can properly protect the rights of both drugs companies and customers.
Trương Văn Toàn
Vice Director of Litigation & Enforcement Department