The Conflicts between Parallel Trade and Product Access and Innovation : The Case of Pharmaceuticals

In this paper, the case is laid out for restricting parallel trade in products protected by intellectual property rights, and pharmaceuticals in particular. The paper responds to three arguments made in favor of open parallel trade by its proponents, focusing on F. Abbott`s First Report (Final) on the Subject of Parallel Importation, [Journal of International Economic Law 1, 607-636]. First, it is argued that in the case of patented products with high fixed costs (e.g., pharmaceuticals), parallel trade may decrease global economic welfare. Attention is drawn to price controls within the EU member states as a distortion which is inconsistent with open market principles, yet not adequately accounted for by EU regulatory organs in the context of its intra-Union exhaustion rules. It is also suggested that rules restricting parallel trade are a necessary corollary to pharmaceutical price discrimination in favor of developing countries, which practice discrimination is advocated by international institutions such as the World Health Organization. Finally, the paper indicates that restrictions on parallel trade in the pharmaceutical sector are necessary to protect the public against risks arising from inadequate supervision of the secondary market, such as risks from inappropriate repackaging and inadequate storage and handling procedures, and counterfeit products