IMPORTATION OF PATENTED DRUGS

Context. This discussion supplements the pages on this web site dealing with drug patents, patent infringement opinions and infringement damages.

COUNTERFEIT DRUGS

Drug Importation – Counterfeits.  Pharmaceutical importation into the United States from a foreign supplier is both illegal and dangerous. See FDA’s publication “COUNTERFEIT MEDICINES: FILLED WITH EMPTY PROMISES”.  Being dangerous is perhaps more important, but counterfeits can be items of patent infringement and are often accompanied by significant financial losses to the patent owner.

As an aside to the infringement discussion, one reason why counterfeit drugs are dangerous is that they are often manufactured by unscrupulous people seeking to make a fast buck from unsuspecting consumers. The drugs can look just like the U.S. purchased pills, right down to the trademark. However, the U.S. Food and Drug Administration and U.S. Customs found that 88% of imported pharmaceuticals they examined contained contaminants deemed potentially harmful. Additionally, they may lack the active ingredients in the desired drug.

However, the consumer never may find out that the reason their health declined is that the drug they took wasn’t actually the drug they were prescribed. Often, by the time something happens, the pills are gone along with the bottle they came in.

GRAY MARKET DRUGS

Drug Importation – Gray Market.  Gray market drugs are not counterfeit drugs, but rather are drugs manufactured by the patent owner and sold to a foreign market.  When these are re-sold into the United States, they are referred to as “gray market” goods.

Drug Importation – Price Controls.  Canada and Great Britain have price controls on drugs.  Drugs are commonly sold in Canada at 2/3 of the U.S. price and in Britain at 2/5 of the U.S. price.

The United States has the drugs it has because it has an innovation system that rewards the near billion dollar private investment required for each new drug that is brought to market.  The other countries exploit U.S. drug company investments in a system that refuses to permit a reward for that research and development investment.

When the manufacturer sells to these countries at reduced prices, it is often regarded as helpful to cover manufacturing costs.  So it is seen as beneficial to U.S. drug companies and ultimately to consumers.  However, if U.S. consumers are able to buy from Canada or Britain, they effectively circumvent cost and profit recovery to the patent holder.

Pursuing individual purchasers for infringement, however, would be highly unpopular in an image conscious industry and economically prohibitive.  The tactics of the Recording Industry Association of America in suing more than 10,000 people for downloading music, might not be the most endearing example for an industry where a government response to protect the elderly and infirm might be orders of magnitude worse than the original harm and could ultimately destroy the engine of new drug development.

DOCTRINE OF EXHAUSTION

Patent Infringement – Doctrine of Patent Exhaustion.  Normally, when a patent holder sells or authorizes the sale of a patented product, the patent holder is said to exhaust all rights to further control the buyer with respect to the use or resale of the patented product.  The doctrine of exhaustion, or the first sale doctrine, applies to any patent holder, including pharmaceutical companies.  However, when a foreign sale is the first sale, the doctrine of exhaustion does not apply to the importation into the United States of the item sold.

The Federal Circuit clarified this rule in a 2001 in regard to the importation of refurbished disposable cameras.  The case was Jazz Photo Corp. v. Int’l Trade Commission, 264 F.3rd 1094, 59 USPQ2d (BNA) 1907 (Fed. Cir. 2001) and the court explained, “Our decision applies only to LFFPs [cameras] for which the United States patent right has been exhausted by first sale in the United States”  (emphasis added).  In the Jazz  case, the first sale was by the patent holder mostly selling in a non-U.S. market at less than full compensation.  The holding was affirmed in a related action Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005), in which the “court expressly limited first sales under the exhaustion doctrine to those occurring within the United States.” Thus, U.S. patent rights are not exhausted by a first sale that occurs abroad and importation by another after a foreign sale by the patent owner is very likely an infringement that can be stopped and damages assessed.

STATES AND LOCAL GOVERNMENTS POTENTIALLY LIABLE

Patent Infringement – States and Local Governments. A number of State and local governments in the United States have laws or policies that encourage the importation of drugs from Canada and this may unwittingly subject them to patent infringement liability. Also, the U.S. Food and Drug Administration advises states that it is risky from a health perspective and llegal to import drugs in violation of the Federal Food, Drug, and Cosmetic Act.

Patent Infringement – Statutory Applicability. Patent infringement is prohibited by United States Code (35 U.S.C 271) and it includes, the unauthorized importation of patented goods and the active inducement thereof.  There is no immunity for State government.  The law specifically includes “any State, any instrumentality of a State, and any officer or employee of a State or instrumentality of a State acting in his official capacity.”

In addition, the United States Code (35 U.S.C. 296) specifically waives state immunity from a lawsuit for infringement and provides that “all the remedies (including remedies both at law and in equity) are available for the violation to the same extent as such remedies are available for such a violation in a suit against any private entity.  Such remedies include damages, interest, costs, and treble damages under section 284, attorney fees under section 285, and the additional remedy for infringement of design patents under section 289.”  While not specifically mentioned in section 296, injunction under section 283 may also apply because section 271 subjects the states “to the provisions of this title in the same manner and to the same extent as any nongovernmental entity.”

Judicial Evisceration of 35 U.S.C. 296.  The United States Code section on waiver of states’ sovereign immunity may not be enforceable to recover monetary damages.  In 1999, the U.S. Supreme Court explained, “[w]hile this immunity from suit is not absolute, we have recognized only two circumstances in which an individual may sue a state.”  Those circumstances occur where Congress validly authorizes such a suit “in the exercise of its power to enforce the Fourteenth Amendment,” or where a State has waived its sovereign immunity by consenting to suit. Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 670-5 (1999).

In the patent context, the United States Court of Appeals for the Federal Circuit eviscerated the waiver of state immunity in the United States Code, ruling that the states’ Eleventh Amendment sovereign immunity for patent infringement may only be waived by Congress if, pursuant to Section 5 of the Fourteenth Amendment, there is a showing that state remedies were insufficient and violated due process.  “Thus, continuing prospective violations of a federal patent right by state officials may be enjoined by federal courts under the Ex parte Young doctrine; however, the Eleventh Amendment precludes the plaintiff from obtaining monetary damages from individual defendants in their official capacities.“ Pennington Seed, Inc., et al. v. Produce Exchange No. 299, et al., (August 9, 2006).  To get injunctive relief, the court held that one must sue the specific state employee that is violating the federal law.

See this web site’s infringement damages page for more information.

TRADEMARK LAW NOTABLY DIFFERENT

Stopping Gray Market Goods with Trademark Infringement. If a trademark owner has not authorized use of its mark on its foreign-destined goods that are imported into the United States by another, it is possible that trademark infringement law might be used to stop the re-importation.  The United States Code (19 U.S.C. § 1337(c)) prohibits the importation of goods, including gray-market goods, that violate a valid trademark.

However, the requirements for stopping importation of gray market goods are significantly different than under patent law.  Trademark law is based on preventing consumer confusion and this area of the law is based on confusion with respect to the qualities or characteristics of goods.  So, generally, to be successful, a trademark infringement violation would have to involve foreign-destined goods that are materially different from those authorized to be sold in the United States.  Two sets of goods (foreign and domestic) must be materially different from each other if consumers are likely to consider the differences between them significant when making purchasing decisions.  A manufacturer would have to establish that all or substantially all of its foreign sales are accompanied by the asserted material difference in order to show that its domestic sale goods are materially different.  See Bourdeau Bros. Inc. v. International Trade Commission, No. 04-1588 (Fed. Cir, 2006).

For the above situation involving legitimate gray market drugs, this is clearly not the case. The drugs sold in both domestic and foreign locations are essentially identical, having no material difference.  Trademark law is therefore inapplicable in this situation.