Parallel trade: free movement of goods

Jul 8, 2020

The European economy is built and sustained by the creativity of entrepreneurs who operate by seizing the many opportunities generated by the internal market. These opportunities include the parallel import of medicines. Parallel trade in medicines is a lawful form of trade within the Internal Market, based on Article 28 of the EC Treaty and subject to derogations relating to the protection of health and life of humans and the protection of industrial and commercial property, as provided by Article 30 of the EC Treaty. In other terms, this form of trade is conducted pursuant to one of the four EU fundamental freedoms: free movement of goods. In fact, one of the various goals of the European Community is to safeguard free competition within the single market. This is achieved through a series of policy activities designed to ensure that businesses compete freely and do not restrict their commercial activities and, therefore, consumer choice. In particular, and with specific reference to the pharmaceutical sector, parallel trade benefits from price divergence as the Member States set or control the price of drugs sold within their respective markets. This is achieved through direct or indirect pricing through reimbursement policies that ensure equal access to drugs for all citizens and protect the financial stability of their social security services. In that perspective, the Court has recognized that, in the absence of harmonization, Member States have the power to fix the prices of pharmaceutical products in order to meet those legitimate requirements, provided that such intervention does not discriminate “de jure” or “de facto” between domestic or imported products and that the price charged is remunerative. In this sense, it should be noted that parallel importation is the only form of “intrabrand competition”. In fact, as has been observed by several parties, the contribution of parallel distributors to the European pharmaceutical market is an innovative distribution system which places the product distributed in parallel in competition with the same product distributed in the target market, generating savings for patients on the one hand and savings for the national healthcare system on the other.

 

Parallel import and trademarks.

Drugs, in general, are covered by industrial and commercial property rights. Therefore, while the protection of these rights can be invoked before national authorities and courts, at the same time, the exercise of these rights can be limited where it would be contrary to the essential objective of the European Community, namely to merge national markets into a single market. As the Court of Justice has made clear, the derogation from the free movement of goods is admissible only where it is justified by the purpose of safeguarding industrial and commercial property rights, since they constitute the specific object of ownership. In fact, the latter consists of guaranteeing the holder the exclusive right to use his creative endeavors through the production and first marketing of the industrial good, either directly or by granting licenses to third parties, and the right to oppose counterfeiting. This rule is known as the principle of exhaustion of industrial and commercial property rights. Specifically, the principle of Community exhaustion provided both at national and community level, is the general rule governing industrial property rights according to which, once an item is placed on the market in the Community or in the single European area by or with the holder’s consent, it loses the relevant rights with regard a specific good placed on the market. In other terms, the holder of industrial and commercial property rights protected by the rules of one Member State cannot invoke those rules to oppose the importation of a product put into free practice in another Member State. While the principle has been developed by the case-law of the Court of Justice of the European Union also to favor so-called “parallel imports”, i.e. imports of goods within a territorial area without or even against the consent of the holder of the right, where the price difference applied for different markets allows the purchase in one area and the resale in another area with the receipt of a profit margin, it should be pointed out that the principle does not apply where there are legitimate reasons for the holder to oppose the further commercialization of the products.

 

In particular, the exhaustion theory does not apply in the case of counterfeit products, products released for free practice outside the European Economic Area, and products whose state is altered or altered after they have been placed on the market. In fact, one of the main purposes of the trademark is to guarantee to the consumer both the identity of the origin of the product and that the product has not been modified by third parties in such a way as to alter its original status. Therefore, the proprietor’s right to oppose the use of the trademark, where the third party has repackaged it and affixed it without authorization, is recognized only where it is established that the exercise of the trademark right does not artificially isolate the markets, where the repackaging is liable to alter the original condition of the product, where the proprietor has not been informed in advance and where the author is not specified on the new packaging. This is also the case if the parallel importer wanted to repackage the product and replace the trademark solely for commercial profit. In this case, the trademark proprietor may legitimately use his right to prevent such actions. It follows that the proprietor of the trademark may not use his trademark in order to prevent repackaging when:

  1. the use of the trademark by the owner, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between the Member States;
  2. the repackaging cannot adversely affect the original condition of the product;
  3. it is stated on the new packaging by whom the product has been repackaged and manufactured;
  4. the presentation of the repackaged product is not as such as to damage the reputation of the trademark and of its owner; and
  5. the proprietor of the trademark receives prior notice before the repackaged product is put on sale.

 

Parallel import in Italy.

In Italy, the rules governing the authorization of parallel imports of medicinal products are set in the Ministerial Decree of 29 August 1997 on “Procedures for the authorization of parallel imports of medicinal products for human use”, adopted to interrupt Community infringement procedure A/94/4626. Article 1 of the decree makes it clear that, in order to proceed with the parallel import of a medicinal product, the ‘specialty’ must be medicinal product:

  1. already authorized in Italy (i.e. having a regular marketing authorization – AlC) by a holder other than the importer;
  2. imported from another Member State of the Union where it is authorized to be placed on the market.

This in order to mitigate the aspects of economic and commercial protection, common to any type of goods, with those of health protection, intrinsic to the type of goods in evidence, which implies the need not to disregard the regulatory aspect of approval. For this reason, it has been provided that the parallel import is subject to an authorization – the AIP, precisely – delivered for each medicinal product subject to the activity request by the appropriate office of AIFA (Italian Drug Agency), on the basis of a procedure proportionally “simplified” with regard to that necessary for the marketing of the product. This simplification follows precisely from the fact that the imported product already has marketing authorization in the Member State of origin and in the Member State of import. Therefore, the double examination of the application, carried out by both the country of origin and the country of import, justifies the lightening of the investigation procedure in so far as it does not affect the level of controls imposed in order to protect health and guaranteed by the higher rigor of the procedures for the granting of the requisite licenses. In this regard, it should be noted that AIFA, in the evaluation of the API application dossier, also takes into consideration some International Guidelines, in case a different name or composition in terms of excipients is found between the imported medicine and the one registered in Italy, and the “Good Manufacturing Practice (GMP)“, necessary to verify the compliance of the secondary packaging site with the national regulations in force. Furthermore, on the basis of the principle of cooperation between the Member States, AIFA acquires the dossier from the exporting country the so-called “technical specification” of the imported medicine in order to verify the identity or overlap of the product marketed abroad with that registered in Italy also in order to follow the post-authorization phase which includes both that of the API and that of the actual marketing of the imported medicine. In this phase, who plays a considerable role is the owner of the AIC or trademark, to which the importer must necessarily notify and send a sample of the product as repackaged or relabelled for marketing. This is in order to allow the AIC or trademark proprietor to carry out a further check on the repackaging or relabeling of the product and to protect the reputation of the trademark.

 

Conclusion.

Today the European single market is the largest barrier-free area in the world in which the players involved pursue their interests also through arbitrage between international markets for the marketing of identical goods at different prices. In this climate of opportunity, parallel trade is developing, and today it is looking with increasing interest at other sectors dedicated to human health, such as medical devices and food supplements. The latter, unlike drugs, in addition to representing an increasingly expanding and free-market compared to the drug market, consists of a procedure and regulation that is less stringent than that of the drug itself. In this sense, we need only think of the parallel trade procedure for food supplements. This, in fact, except for the obligation for the importer to notify the label of the imported product to the Ministry of Health pursuant to Article 7 of Legislative Decree no. 111 of 27 January 1992, does not provide for other procedures and controls. So much to generate reasonable doubt on several sides that judicial protection is not actually particularly effective in combating such imports. Therefore, even though the trademark owner has been granted the right to oppose parallel imports detrimental to its right, there would, however, be no appropriate means of protection against them. Finally, it should be noted that not all aspects concerning parallel imports have been examined. While some of the old questions require further clarification, as the internal market continues to develop, new issues arise to which the courts and the Member States will necessarily have to provide answers.

 

References :

  1. Commission Communication on parallel imports of proprietary medicinal products for which marketing authorizations have already been granted, COM (2003) 839 final, Brussels, 30.12.2003.
  2. Commission Communication on parallel imports of proprietary medicinal products for which marketing authorizations have already been granted, COM (2003) 839 final, Brussels, 30.12.2003.
  3. Case 181/82 Roussel Laboratoria (1983), ECR 3849
  4. Regulations Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices
  5. Cfr Case 78/70 Deutsche Grammophon v Metro (1971) ECR 487 and Case 102/77 Hoffmann-La Roche (1978) ECR 1139.
  6. Cfr. art. 5 of Legislative Decree no. 30 of 10 February 2005 and art. 15 of Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trademark.
  7. Regional Administrative Court for Lombardy, Section IV, no. 500/2018.
  8. https://www.europarl.europa.eu/factsheets/it/sheet/36/la-proprieta-intellettuale-industriale-e-commerciale.
  9. Court of Justice of the European Communities, Section II, the decision of 26 April 2007, no. 348/04, in “Il Sole 24 Ore, Guida al Diritto, 2007, 20, pg. 106, annotated by P. D. Pasquale”.
  10. Commission Communication on parallel imports of proprietary medicinal products for which marketing authorizations have already been granted, COM (2003) 839 final, Brussels, 30.12.2003.
  11. Council of State, Section III, the decision of 27 February 2019 no. 1392.
  12. Cfr Guideline on the acceptability of names for human medicinal products processed through the centralized procedure; Excipients in the labeling and package leaflet of medicinal products for human use.