Pharmacy lawyer Richard Hough examines the possible ramifications of Brexit on the parallel import of pharmaceutical products into the UK
The United Kingdom’s vote to leave the EU last June and Theresa May’s recent decision to trigger Article 50 will, to put it mildly, create one or two legal issues for the UK, or to put it more accurately, will create the mother of all legal messes.
Good news, at least, for the lawyers, you might say. However, one such legal issue, which pharmacy proprietors might need to consider, is the potential impact that Brexit will have on the parallel import of pharmaceutical products.
The dispensary shelves of community pharmacies up and down the country contain numerous parallel import products. The business of buying and selling parallel imports, insofar as it relates to community pharmacy, encompasses the trading of genuine pharmaceutical products at the different prices that can be obtained in the different Member States of the EU.
A manufacturer of a particular pharmaceutical product will be prepared, for economic, commercial, business or other considerations, to put its product on the market of one Member State at a materially lower price than it is prepared to do so in another. The price differential, together with the fundamental principle of free movement of goods within EU Member States, creates a demand from purchasers within territories where the prices are set high, which can be met by sellers located in territories where prices are set low.
Trade mark law
European trade mark law is central to the business of parallel imports. Parallel imported products of the type that are commonly found in community pharmacy dispensaries are all protected in some way or another by trade mark rights.
Trade mark rights are territorial in nature, affording the trade mark owner the exclusive right to commercially exploit its products under that brand within a particular territory. So, if another trader attempts to commercially exploit a trade mark owner’s product (using it in the course of business) by trading it under the owner’s brand, it would, but for the doctrine of “exhaustion”, as provided for in Article 13.1 of the European Trademark Regulation, be in breach of the trade mark owner’s rights. Article 13.1 states: “A Community trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.”
Therefore, once a product labelled with a trade mark has been sold by the trade mark owner or with its consent, the trade mark right is said to be “exhausted” and can no longer be enforced by the owner.
However, the effect of exhaustion of trade mark rights is limited to such goods that were first distributed to the market within the EU and also Iceland, Liechtenstein and Norway, together the EEA. Therefore, any imported pharmaceutical product from outside the EEA, which is put on the market within the EEA without the consent of the trade mark owning pharmaceutical company immediately constitutes trade mark infringement.
So, the future availability of parallel imports of pharmaceutical products will depend on the post-Brexit trade model with the EU adopted by the UK, the three main contenders being:
• “Norwegian model”. Norway has full access to the European Single Market. In return, it is obliged to make a financial contribution and accept a whole range of EU regulations. If the UK adopts a similar model, it will stay closely connected to the EU with the advantage of full accessibility to the European Single Market. Choosing the “Norwegian model” would imply that the doctrine of exhaustion would continue to apply to the distribution of parallel imports in the UK.
• “Swiss model”. Switzerland’s relationship with the EU is governed by numerous bilateral treaties, under which Switzerland has achieved broad access to the European Single Market and is able to trade in most goods. In the event that the UK re-joins the European Free Trade Association (EFTA), it would still have partial access to some elements of the Single Market but also have the freedom to independently reposition its own free trade policy to focus on non-EU countries. Therefore, in order to allow parallel imports from the UK, it would also have to negotiate separate bilateral agreements with the EU on the treatment of trade mark rights, including the scope of the exhaustion of such rights for cross-border trades.
• “Hard Brexit”. The current Tory government favours a “hard” Brexit – leaving the Single Market and trading with the EU as if the UK were any other non-EU country. If the UK leaves the EU without joining (or re-joining) associations such as EFTA, the doctrine of exhaustion will cease to apply, as would therefore the legal basis for both parallel imports into and out of the UK. Brexit negotiations will no doubt begin in earnest after the outcome of next month’s general election, pursuant to which, depending on which model we end up adopting, legal parallel imports may no longer be found on UK pharmacies’ dispensary shelves and further impacting contractors’ profit margins.