Home > Topics > Monitoring, Enforcement, and Resolving Disputes > Parallel Trade: A User’s Guide > Editor's Summary, Implications and Best Practices

This chapter offers basic information about parallel trade that will be useful to developing country policy makers and other stakeholders. It defines parallel trade, explains in what situations it is most beneficial, offers some helpful guidance for its effective use, and explores its legal framework. The chapter focuses on how parallel trade can provide developing countries with greater access to medicines and to basic inputs for agricultural production (such as pesticides and fertilizers) at lower prices.

Engaging in parallel trade is an option provided by the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). Furthermore, the 2001 Doha Declaration on TRIPS and Public Health confirmed that developing countries could use parallel imports to support public health. Such countries can obtain access to lower priced patented and/or branded products, such as medicines and basic agricultural inputs, by incorporating legislation to allow for parallel imports. TRIPS permits WTO member states to design their own exhaustion of patent rights regimes. Hence, the legal framework for parallel trade is premised on how a state implements the exhaustion of patent rights doctrine:

• National exhaustion, whereby the exclusive rights of patent holders cease after the first sale of a product within the national borders (parallel imports can be blocked at the border)
• Regional exhaustion, whereby the exclusive rights of patent holders cease after the first sale in the regional market (parallel trade is permitted within the regional group)
• International exhaustion, whereby the exclusive rights of patent holders cease after the first sale in any market (parallel trade is permitted)

Thus, developing countries can incorporate into their national laws the principle of international exhaustion of rights, thus allowing for parallel imports on an international scale. In other words, developing countries can decide whether or not to allow parallel importation for all or particular IP rights.

Although parallel trade has obvious benefits for developing countries, there are also potential disadvantages. For example, the chapter notes that parallel trade might:

• Reduce incentives for investment in the pharmaceutical and agricultural sectors
• Reduce the incentives for rights holders to donate products at low cost or free of charge to developing countries due to fear of reimportation back to lucrative developed country markets
• Hinder the ability of governments in different countries to maintain price controls on pharmaceutical products within their territory
• Reduce the willingness of rights holders or licensed local owners to supply particular markets

When implementing measures to facilitate parallel trade, developing countries should ensure an effective system by adequately regulating the quality and safety of parallel imports. At the same time, they need to prevent low-priced patented products in developing countries from entering high-priced developed country markets. Otherwise, patent holders, particularly in the pharmaceutical industry, could be discouraged from pricing their products differently in different markets to benefit developing countries. The chapter offers model legislative provisions to enable parallel imports and concludes by urging policy makers in developing countries to promote access to medicines and to support poor farmers by fully utilizing the parallel trade options available under TRIPS.

Key Implications and Best Practices

Given that IP management is heavily context specific, these Key Implications and Best Practices are intended as starting points to be adapted to specific needs and circumstances.

For Government Policymakers

• Parallel trade occurs when products produced under the protection of a patent, trademark, or copyright in one market are subsequently exported to a second market and sold there without the authorization of the local owner of the IP right. These parallel imports (also called “grey-market” imports) are genuine products that do not violate an IP right. However, importation of products might not be authorized by the rights holder.
• Pursuant to the TRIPS Agreement and the 2001 Doha Declaration provisions on parallel trade, countries can implement patent rights exhaustion regimes that either permit or restrict parallel importation.
• Developing countries can consider the parallel importation of products protected by patents, copyrights, and/or trademarks. One benefit is the government’s ability to shop different markets for the lowest price of an IP protected product. However, there are also potential downsides to parallel importation: the lower prices of parallel imports may reduce R&D investments in the pharmaceutical and agrichemical sectors. Developing countries should carefully consider their options, and, for example, adopt such restrictions to parallel trade only if the R&D benefits outweigh the advantages of lower cost products.
• In order to allow parallel imports, developing countries should remove or lift restrictions (if they currently exist) and introduce legislation to facilitate parallel importation.
• Developing countries should also sufficiently regulate parallel imported products, particularly pharmaceutical products, to guarantee safety and quality.

For Senior Management (university president, R&D manager, etc)

• Where permitted by national legislation, parallel importation gives universities and public-sector research institutes cheaper access to legitimate imports produced in other markets.
• A university or research institute may benefit from parallel imports of copyright products: including books, computer software, periodicals, and related products. This offers better and cheaper access to overseas supplies of educational resources, which can greatly benefit research activity and learning in developing countries.
• University hospitals may benefit from parallel trade imports by access to cheaper, patented pharmaceutical products.
• Parallel importation could allow universities or public sector research institutes to import products in commercial quantities direct from an overseas supplier without the permission of the local rights holder.
• Universities or research institutes should ensure that appropriate planning and procurement procedures are in place before deciding to purchase a product that is sold locally at a higher price than can be purchased from abroad.
• Ensure that the final cost of the parallel import, including all the costs of the importation (that is, shipping, handling, processing and other fees), will not be equal or higher than the cost of the product sold locally.
• Checking product quality, conditions of purchase (for example, the warranty), etc. before making the decision to parallel import.

For Scientists

• Equipment, reagents, laboratory tools and other supplies might be available at a much lower cost via parallel importation. Check with your institution’s technology transfer office in order to know what your options are in purchasing such staples of research.

For Technology Transfer Officers

• Ensure that you are aware of both the current national legislation regarding parallel imports and the legislation of the foreign country governing the overseas source. There should be clear answers to the following questions: Does legislation allow for parallel imports of the product? Do exclusive licensing agreements exist between a local licensee and the overseas source of the product? Does that country allow for parallel exports?
• In order to fully understand and utilize your options in parallel importation, it will be necessary to know your countries laws and regulations with regard to the patent rights exhaustion doctrine, that is, whether the regime is national, regional or international.