The Lexmark Litigation: Why Does Big Pharma Care So Much About Ink Cartridges? 17/09/2015 by Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) The views expressed in this article are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors. By Burcu Kilic & Peter Maybarduk, Public Citizen’s Global Access to Medicines Program The Federal Circuit will soon hear Lexmark v. Impression Products, a case about ink cartridges. Impression, a foreign buyer, refills spent Lexmark cartridges and resells them in the United States. Impression claims that Lexmark, having sold the cartridges, has exhausted its patent rights, and cannot hold Impression liable for patent infringement. The Federal Circuit will address whether the US patent is exhausted with the sale of the patented product outside the US. The case is forecasted to be heard in the Supreme Court by 2017. The Pharmaceutical Research and Manufacturers of America (PhRMA), Biotechnology Industry Organization (BIO) and medical device manufacturers have each filed amicus briefs in the case. But why? Why does Big Pharma care about ink cartridges? To explain, let’s go back to 1998, a time when South Africa had one of the fastest expanding HIV/AIDS epidemics in the world. The vast majority of South African patients had no or very limited access to lifesaving antiretrovirals (ARTs). High drug prices posed a serious challenge for the country. In order to benefit from lower prices abroad for the same patented drugs, the South African government, led by Nelson Mandela, amended the patent law to permit parallel importation of pharmaceuticals. This essentially meant that South Africa could shop for the lowest price for patented brand-name pharmaceuticals on the world market. Under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), each member of the World Trade Organization (WTO) has the freedom to design its own regime concerning exhaustion of patents. A member can decide that a patent would be considered exhausted, and the patent owner would be presumed to have received its full benefit, with the first sale of any single copy of a product covered by its patents, whether that took place in its domestic market (national exhaustion), within a regional bloc (regional exhaustion, a la the European Union) or elsewhere abroad (international exhaustion). This freedom, widely considered a “TRIPS flexibility”, has allowed countries to permit parallel trade of goods like branded pharmaceuticals from countries where the same drug is sold at a much lower price, thus enabling access to affordable medicines. It didn’t take long for multinational (mainly American) pharmaceutical companies to bring a suit against the South African government. The companies claimed that South Africa, in amending its laws, violated the TRIPS agreement. This case turned into a public relations disaster for the pharmaceutical companies and all legal action was dropped in 2001. The United States Trade Representative (USTR), which had also criticized South Africa’s amended patent law, reinstated trade preferences and pledged not to pressure South Africa further. Almost 15 years later the US Supreme Court decided, in Kirtsaeng v. John Wiley & Sons, Inc. that international exhaustion applied to copyright law, meaning books purchased abroad can be imported into the United States and resold without infringing copyright. The Supreme Court has never addressed patent exhaustion’s geographic scope, but it did explicitly address copyright exhaustion in Kirtsaeng, holding that “the first sale doctrine, as codified in the Copyright Act, applies to copies of copyrighted works lawfully made abroad.” It was unclear whether the opinion applied to patent law as well. The Supreme Court denied certiorari for a patent exhaustion case, Ninestar Tech. Co. v. ITC, leaving the concept of patent exhaustion hazy at best. Now Lexmark will potentially determine whether international exhaustion applies to patents. In an amicus curiae brief, PhRMA lawyers argue that the differences between patent and copyright law warrant a different outcome. According to PhRMA, international exhaustion for patents could discourage US pharmaceutical companies from selling life-saving drugs abroad. Americans pay the highest prices for prescription drugs in the world. PhRMA claims that, if patent rights were exhausted by sales abroad, the “artificially lowered prices” of foreign markets would encourage the resale of medicines from those markets in the US. That is why PhRMA is suddenly interested in ink cartridges. But what is really happening is that medicine prices are artificially high everywhere, and even higher in the United States, because pharmaceutical companies maintain monopoly power through government-granted patents and other exclusivities. Parallel importation is a modest consumer check on the monopoly power of the industry. Countries should be able to restrict parallel trade for public policy reasons, which may include quality control or price discrimination in limited beneficial circumstances. But rules against international restrictive exhaustion regimes put patent holders in control everywhere and encourage price gouging. Another amici submitted by the American Intellectual Property Law Association (AIPLA) claims that international exhaustion undermines product quality because it permits reimportation. But exhaustion permits resale of goods first sold by the patent holder – not counterfeits. Quality control, especially of pharmaceuticals, should be managed by regulatory rules and authorities. Patent law is no proxy. And indeed, the Food and Drug Administration places strict rules on imports, which would at least initially prevent the importation into the US which Big Pharma fears. International patent exhaustion will not prevent appropriate drug regulation any more than national patent exhaustion promotes it. PhRMA and AIPLA’s arguments are the same worn-out arguments proffered in the failed attempt to prevent international exhaustion in South Africa. They are similarly flawed when it comes to American patent law; “protectionist remnants of long-abandoned pre-Industrial Age economic theories.” Adopting an international patent exhaustion doctrine in the United States would not, on its own, allow medicine imports from abroad. But it would place that set of decisions in their proper place: pharmaceutical regulation. The global patent policy landscape favors drug companies. Only a handful of countries recognize international exhaustion. Many are afraid to exercise their rights. Thus, the policy calibration in the U.S. is important. The US opposed a provision encouraging international exhaustion in the Trans-Pacific Partnership negotiations. A change in US policy would reduce pressure against the use of TRIPS flexibilities abroad. And that could make a difference in people’s access to affordable medicines.  Special thanks to Courtney Pine for her research and contributions.  Mark Wilson, Fed. Cir. Will Rehear Lexmark Ink Cartridge Case En Banc, FindLaw (April 15, 2015), available at http://blogs.findlaw.com/federal_circuit/2015/04/fed-cir-will-rehear-lexmark-ink-cartridge-case-en-banc.html.  William Fisher III and Cyrill Rigamonti, The South Africa AIDS Controversy, A Case Study in Patent Law and Policy, The Law and Business of Patents (Feb. 10, 2005), available at http://cyber.law.harvard.edu/people/tfisher/South%20Africa.pdf.  See Article 6, TRIPS.  Fisher supra note 3.  Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1355-56 (2013).  Ninestar Tech. Co. v. ITC, 667 F.3d 1373, 2012 U.S. App. LEXIS 2435, 101 U.S.P.Q.2D (BNA) 1603, 33 Int’l Trade Rep. (BNA) 1945, 2012 WL 386351 (Fed. Cir. 2012) Duncan Matthews and Viviana Munoz-Tellez, Ch. 15.4, Parallel Trade: A User’s Guide, ipHandbook for Best Practices (2007), available at http://www.iphandbook.org/handbook/ch15/p04/  Sarah R. Wasserman Rajec, Free Trade in Patented Goods: International Exhaustion for Patents, 29 Berkeley Tech. L.J. (2014)  See, Article QQ.A.12 of 2013 Wikileaks text International Exhaustion of Rights [CL/MY/NZ/VN/SG/BN/PE propose; US/AU/JP/MX oppose: The Parties are encouraged to establish international exhaustion of rights.] Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related "The Lexmark Litigation: Why Does Big Pharma Care So Much About Ink Cartridges?" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.