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Course in European Law (Prof. L. Hancher and Prof. A. Van Der Brink) PhD Program in Political Systems and Institutional Change XXIII Cycle IMT Institute for Advanced Studies, Lucca “Parallel importation is a good policy and is market” Do you agree with this or not ? Parallel Imports in the EU: a Debated Issue “Parallel imports”- also called gray-market imports - are products produced genuinely under protection of a trademark, patent or copyright, placed into circulation in one market (an EU Member State’s market, in our case), and then imported by an intermediary into another Member State, outside the manufacturer's or its licensed Parallel imports tend to occur when price levels for similar products between two Member States are significantly different - either as a result of national regulations or of manufacturers' policy – which creates an incentive for traders to make profits by buying products in the Member State where they are priced lower and selling them in the Member State where they are priced higher, at a price comprised between the two. Within the EU, parallel importing is legal: the EU trademark regime, established by a Council Directive adopted in 1989 2, is based on a Community-exhaustion system, whereby a trademarked good may be sold in any Member State once it has been put on the market elsewhere within the Single Market, as opposed to International-exhaustion system, whereby a trademarked good could be sold in any Member State once it has been put on the market anywhere else in the world; thus the EU exhaustion system is such that 1 “Parallel Trade in Medicines” published on EurActiv.com (17 Aug 2004) (http://www.euractiv.com/en/health/parallel-trade-medicines/article-117528) 2 First Council Directive 89/104/EEC (21 Dec 1988) to approximate the laws of the Member States relating to trade marks (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989L0104:EN:HTML) (EN) trademark rights cannot be invoked to restrain the free movement of goods within the EU, but they can be used to restrain the entry of such goods into the EU. The opinion of the EU Commission - coinciding with those of parallel traders - is in general that parallel trade, based on the principle of free movement of goods, has contributed to the development of the EU Internal Market to the extent that more products at different prices move from one national market to the other and are thus available to the purchaser. A ruling of the EU Court states that "in completing the Internal Market as an area without internal frontiers in which free competition is to be ensured, parallel imports play an important role in preventing the compartmentalization For what concern the EU single market, the choice between preventing or admitting parallel trade is a well disputed issue, since it clearly constitutes an area of strong conflict between intellectual property and competition law, i.e. between the protection of trademark rights owners’ interests by the one side and of parallel traders’ interests by the Indeed, since benefits of parallel trade are far from being clear-cut, arguments exist in The owners of property and trademark rights oppose parallel trade affirming, firstly, that it causes significant losses in their profits, which in turn obliges them to invest less in Research & Development activities, thus decelerating innovation; and secondly, that the consumers benefit relatively little by parallel trade in terms of lower prices of products, while almost all benefits are gained by parallel traders. 3 European Court of Justice: Judgment of the Court (paragraph 63) in the Case C 44/01 (8 April 2003) (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62001J0044:EN:HTML) (EN) The parallel traders (and the EU Commission itself) supports parallel trade arguing that its protection is a fundamental principle of free competition and of EU competition law, which will encourage the completion of a single market by helping harmonizing The issue of parallel imports has become particularly relevant with respect to the industry of pharmaceutical products - where price differences among countries exists due to national price regulation - for its implications on the social and public sphere, other than Even though parallel trade in pharmaceuticals is generally increasing in the EU, the research-based pharmaceutical industry – through its various Federations and Associations 4 - is lobbying for its suppression, on the basis of the following arguments:5 Pharmaceutical industry undergoes revenue losses that force it to reduce investments Consumers benefit relatively little from parallel trade, as price differences are not Parallel importers frequently have to repackage medicines y (in order to translate instructions in the local language), thus interfering with the integrity of the product, potentially affecting its safety and quality, and increasing the risk of counterfeiting and piracy; other imported products carry printed instructions in a foreign language, 4 European Federation of Pharmaceutical Industries and Associations (EFPIA), European Association of Euro-Pharmaceutical Companies (EAEPC), European Generic Medicines Association (EGA), European Association of Pharmaceutical Full-line Wholesalers (GIRP) 5 “Parallel Trade in Medicines” (see note 1) On the other side, they also recognize some of the benefits that are told to be brought by It reduces costs of pharmaceutical spending for consumers, health providers and It brings value added in the form of several product controls, creation and insertion of information leaflets, etc. (if in accordance with national requirements). Especially in countries in which pharmaceutical prices are high, it may help contain health care costs by lowering pharma cost. Given the pharmaceutical companies’ very high profits, the EU parallel trade - with its market share of 2% - can only redistribute a small part of these industry profits towards the consumers in the member states. 6 By the way, stating at a recent report published by Datamonitor 7, the legal framework supporting parallel trade in the EU has restricted the actions that pharmaceutical companies' can take to restrict parallel trade. Nonetheless, the famous judgment of the EU Court of Justice in the Bayer vs Adalat case 8 in 2004 provided pharma companies with a means to restrict parallel trade without 6 “Parallel Trade of Pharmaceuticals” EU Commission, Directorate General for Enterprise and Industry (http://ec.europa.eu/enterprise/pharmaceuticals/smarket/pdf/eaepc-parallel-trade.pdf) 7 “Parallel Trade in Europe and the US: The Challenges Facing Pharma” (Datamonitor, 21 Apr 2006) 8 European Court of Justice: Judgment of the Court in the Case Bayer vs Adalat (6 Jan 2004) (http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang=en&num=79959893C19010002&doc=T&ouvert=T&seance=ARRET&where=() ) infringing EU law, by ruling that the imposition of a supply quota system – under which Bayer unilaterally limited supplies to exporting wholesalers – did not constitute an “agreement” to restrict parallel trade and could not, therefore, be prohibited under Art. 81 More recently however, the EU Court adopted an uncertain position towards pharma companies, with its judgment in the Parallel Traders vs GlaxoSmithKline case in 2008 9, where a dominant pharmaceutical company (GlaxoSmithKline) refused to supply in full the orders it receives from some of its wholesalers in an EU member state (Greece), in order to limit parallel trade in its products in the European Union. The company argued that, where price differences among Member States are caused by national price controls and in the absence of legislative measures to harmonize prices on a pan-European basis, manufacturers should remain free to take steps to prevent parallel The opinion of the Commission, on the contrary, was that even if pharmaceutical companies are simply reacting to price differences that are beyond their control, restrictions on parallel trade remain unacceptable, since they are inconsistent with the fundamental goal of market integration, and would violate a core tenet of EU competition law: this was clearly outlined in the amendment of the Directive 2001/83 (the so-called Human Use Directive) 10 introducing a new article 81, which imposes an obligation on pharmaceutical companies to ensure “appropriate and continued” supplies of 9 European Court of Justice: Judgment of the Court in the Joined Cases C - 468/06 to C - 478/06, Parallel Traders http://curia.europa.eu/jurisp/cgi-bin/gettext.pl?lang=en&num=79919083C19060469&doc=T&ouvert=T&seance=ARRET) 10 Parliament and Council Directive 2001/83/EC (6 Nov 2001) on the Community code relating to medicinal products for human use (OJ 2001 L311/44) (europa.eu.int/eur-lex/lex/LexUriServ/LexUriServ.do?uri=OJ:L:2001: pharmaceutical products in each Member State where they have placed the product on the market in order to ensure that patients’ needs in that Member State are met. Partly consistently with the Commission’s opinion, the EU Court adopted a mid-way solution: it recognized the right of a pharmaceutical company in a dominant position, in order to defend its own commercial interests, not to honor the whole of an order from a wholesaler who wished to export a substantial part of the quantities delivered, but left it to the national jurisdictions to determine in which cases a dominant undertaking abusively restricts parallel trade, indicating that it was for the court which referred the case to the ECJ, to determine whether GSK had abused its position in refusing to honor the whole of an order. “Article 82 EC must be interpreted as meaning that an undertaking occupying a dominant position on the relevant market for medicinal products which, in order to put a stop to parallel exports carried out by certain wholesalers from one Member State to other Member States, refuses to meet ordinary orders from those wholesalers, is abusing its dominant position. It is for the national court to ascertain whether the orders are ordinary in the light of both the size of those orders in relation to the requirements of the market in the first Member State and the previous business relations between that undertaking and In conclusion, given the ambiguity of parallel trade’s benefits for the EU consumers and traders, by the one side, and for the trade-mark rights owners, by the other side, it seems not possible to adopt a clear-cut position in its favor, especially with regard to the However, the position of the Commission – namely, that parallel trade could foster EU market integration and that restrictions on it are unacceptable, since they are inconsistent with the single market goal and would violate a core tenet of EU competition law - seems reasonable, mainly in reason of the small market share of parallel trade in the overall EU trade, and of the very high profits that pharmaceutical companies continue to gain despite Council of EU: First Directive to approximate the laws of the Member States relating to trade http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31989L0104:EN:HTML (EN) EU Commission: “Parallel Trade of Pharmaceuticals” (DG for Enterprise and Industry) http://ec.europa.eu/enterprise/pharmaceuticals/smarket/pdf/eaepc-parallel-trade.pdf EurActiv: “Parallel Trade in Medicines” (article published on euractiv.com, 17 Aug 2004) http://www.euractiv.com/en/health/parallel-trade-medicines/article-117528 European Court of Justice: Judgment of the Court in the Case C 44/01 (8 April 2003) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62001J0044:EN:HTML (EN) European Court of Justice: Judgment of the Court in the Case Bayer vs Adalat (6 Jan 2004) bin/gettext.pl?lang=en&num=79959893C19010002&doc=T&ouvert=T&seance=ARRET&where=() European Court of Justice: Judgment of the Court in the Joined Cases C - 468/06 to C - 478/06, Parallel Traders vs GlaxoSmithKline (16 Sept 2008) http://curia.europa.eu/jurisp/cgi- bin/gettext.pl?lang=en&num=79919083C19060469&doc=T&ouvert=T&seance=ARRET Parliament and Council: Directive 2001/83/EC (6 Nov 2001) on the Community code relating to medicinal products for human use (OJ 2001 L311/44) europa.eu.int/eur-lex/lex/LexUriServ/LexUriServ.do?uri=OJ:L:2001:311:0067:0128:EN:PDF

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