Patent Protection of Pharmaceuticals in the Context of - EFPIA

oculoplaniaballtownBiotechnology

Dec 1, 2012 (4 years and 11 months ago)

387 views


Academic Year 2002
-
2003

Seminar: Community Law and Intellectual Property Rights

S
UPERVISOR
:

M
ARIO
S
IRAGUSA












Bruges Campus








P
ATENT
P
ROTECTION OF
P
HARMACEUTICALS IN
THE
C
ONTEXT OF
E
NLARGEMENT


Retrospective Analysis of the Community Approa
ch towards
Central and Eastern European Countries











Thesis presented by

N
óra Tosics

For the Degree of Master of European Legal Studies



Bruges, April 2003



2

S
TATUTORY
D
ECLARATION










I hereby declare that the thesis has been written by myself
without any external
unauthorised help, that it has been neither presented to any institution for evaluation
nor previously published in its entirety or in parts. Any parts, words or ideas, of the
thesis, however limited, and including tables, graphs, maps

etc., which are quoted
from or based on other sources have been acknowledged as such without exception.





3

K
EYWORDS



Intellectual Property Rights
-

Patent


Pharmaceuticals


Enlargement


Negotiation
-

Accession Treaty
-

Central and Eastern European Co
untries


Organics


Generics
-

Parallel Trade


Exhaustion
-

Specific Mechanism
-

Supplementary Protection
Certificate


Bolar Provision


4


A
BSTRACT


The protracted negotiations on the patent protection of pharmaceuticals constituted
one of the major legal

challenges of the accession process. The combination of the
pharmaceutical industry as a strategic sector for Europe, the increasing concerns
about its global competitiveness and the perceived disadvantages of the Central and
Eastern European countries ha
d a cumulative effect, and created a formidable
challenge for the negotiators. The Community position itself was based on diverging
internal economic and political considerations, which had to be properly
accommodated by both sides. This joint effort of th
e current Member States and the
acceding countries finally will result in an enlarged pharmaceutical market for 25
Member States by 1 May 2004. However, the reconciliation of the various conflicting
interests was not achieved smoothly. The organic pharmace
utical industry's
competitiveness and the just reward for its investment and innovation had to be
ensured on the one hand, while a better consumer welfare by reduced prices had to be
achieved on the other, which obviously raised many disputes both within t
he EU
industry and between the EU and the acceding countries.


This study focuses primarily on the three main issues of the negotiating process: the
restriction to parallel trade, the introduction of supplementary protection certificates
into the national
legislations of the new Member States and the debate over pre
-
patent
expiry development work for medicines. It provides a general overview of the
Community approach towards the Central and Eastern European countries, while
highlighting the main features of

the EU pharmaceutical market. Separate sections
deal with the adequate level of patent protection in the current and new Member
States, as well as with the impact of the opposing interests of organic and generic
manufacturers.



My analysis is based on a
comprehensive review of the evolution in the underlying
legal concepts within the Community legal order. Concerning the
“specific

5

mechanism”

derogating from the principle of free movement of goods between
Member States, I follow the gradual development of
the community
-
wide exhaustion
principle throughout the relevant case law of the Court of Justice, with a special
emphasis on the legal disputes arising in the wake of the transitional restriction to
parallel trade inserted to the Spanish and Portuguese Acc
ession Treaties. As to the
implementation of the
supplementary protection certificates
, the thesis presents the
contrasting interests involved to the negotiating process and assesses, to what extent
the different cut
-
off dates are likely to affect the prop
er functioning of the Single
Market. Finally, it addresses the compatibility of the so
-
called
“Bolar exemptions”

for Hungary, Poland and Slovenia with the TRIPS Agreement, and with the system
among the current Member States on the basis of a comparative an
alysis of the
national patent acts and recent jurisprudential developments.



6

L
IST OF
A
BBREVIATIONS


BGHZ



Bundesgerichtshof
-

Zivilsachen


CPC



Community Patent Convention

EC



European Community

ECT



Treaty Establishing the European Community

EEA



E
uropean Economic Area

ECLR



European Competition Law Review

ECR



European Court Reports

EGA



European Generic medicines Association

EFPIA

European Federation of Pharmaceutical Industries and
Associations


EIPR



E
uropean Intellectual Property Law Review

EPC



European Patent Convention

EU



European Union

GRUR



Gewerblicher Rechtsschutz und Urheberrecht, Internationaler


Teil

IIC



International Review of Industrial Property and Copyright Law

IPQ



Intellectual Proper
ty Quarterly

JIEL



Journal of International Economic Law

SPC



Supplementary Protection Certificate

TRIPS



Trade Related Issues of Intellectual Property Rights

WC



World Competition

WIP



The Journal of World Intellectual Property




7


T
ABLE OF
C
ONTENTS


Table of Contents

................................
................................
................................
................

7

I.

Introduction

................................
................................
................................
.................

9

II.

The Background of the Negotiations

................................
................................
........

11

1. Main Characteristics of the Community Pharmaceutical Market

.............................

11

a) The Pharmaceutical I
ndustry


“a Key Asset to the European Economy”

...........

11

b) The Structure of the Market
-

Organics, Generics and Enlargement

...................

12

c) The Reg
ulative Framework


a Single Market in Pharmaceuticals?

....................

14

2. Patent Protection of Pharmaceuticals within the Community and in the Acceding
States

................................
................................
................................
.............................

17

a) Patent Protection of Pharmaceuticals within the Community

..............................

18

The Patent Protection System of the Community

................................
.................

18

R
ecognition of Product Patent Protection for Pharmaceuticals

............................

19

Patent
-
term Restoration


the Introduction of Supplementary Protection
Certificates

................................
................................
................................
............

20

b) Patent Protection of Pharmaceuticals in the Acceding States

..............................

21

c) Comparison of the Level of Protection


the “Cornerstone” of the
Negotiations

................................
................................
................................
..............

22

III.

The Main Issues of the Negotiations

................................
................................
....

24

1. The Restriction of Parallel Trade

................................
................................
..............

24

a) Parallel
Trade of Patented Pharmaceuticals Within the Community


the
Elaboration of the Theory of Community
-
wide Exhaustion
................................
.....

26


8

b) The Accession of Spain and Portugal to the European Community


Legal
Pr
oblems in Relation to the Patent Protection of Pharmaceuticals

...........................

32

c) The Concerns in the Case of the Present Enlargement and the Result: the
“Specific Mechanism” Inserted Into the Accession Trea
ties

................................
....

39

2. The Implementation of Supplementary Protection Certificates
................................

42

3. Pre
-
patent Expiry Development Work for Commercial Purpo
ses

............................

44

a) Compatibility of the Bolar Provision with the TRIPS Agreement

.......................

46

b) Experimental Use Exceptions on the Community Level
................................
......

47

IV.

Conclusion

................................
................................
................................
............

50

Bibliography

................................
................................
................................
.....................

52

Legislation
................................
................................
................................
.........................

59


















9


I.

I
NTRODUCTION



“Thus the Community as an integral part of a new industrial policy is committed to
promote the protection of industrial property rights, the most important of which in
relation to the pharmaceutical sector is paten
t protection.”
1




Patent protection in the field of pharmaceuticals is of vital importance as the main
means of encouraging and protecting investment in the research and development of
new products. Given the importance of the pharmaceutical sector

in the European
economy, and the increasing concerns about its competitive disadvantage in relation
to the United States, it is by no means surprising that it was one of the mostly debated
legal fields during the negotiations by the newly acceding states
2

to the European
Union.



Many arguments and counter
-
arguments, a vast complexity of economic and political
considerations are hidden behind the final wording of the Accession Treaties, signed
on the 16
th

of April 2003 in Athens by the representatives of

the ten new Member
States.


This study aims to tackle the three main issues of the negotiating process relating to
the patent protection of pharmaceuticals


the restriction to parallel trade, the
introduction of supplementary protection certificates and
the debate over pre
-
patent
expiry development work for medicines. Why was there a need to restrict the free
flow of parallel trade, notwithstanding the fact that the accession countries all
introduced product patent protection into their national legislati
ons? How can the
differences with respect to the clause pursuing the same aim in the Accession Treaties



1

Opinion of Advocate General Fennelly in Joined cases C
-
267/95 and C
-
268/95,
Merck & Co. Inc.
and Primecrown Ltd,
[1996] ECR I
-
6285, para 87.

2
2

The Czech Republic, Esto
nia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and
Slovakia.


10

of Portugal and Spain be explained? Why was the Hungarian request for derogation
to the introduction of supplementary protection certificates deemed to
be
unacceptable? What was the objection against explicitly allowing the pre
-
expiry
development work for commercial purposes in the legislation of the new Member
States? Was the EU right to claim that the level of intellectual property protection in
the Cen
tral and Eastern European countries is unlikely to be comparable with the
European Union some time after accession? My aim is to answer all these questions
and to provide an overview of the legal situation of the pharmaceutical market after
enlargement.



To fully appreciate the debate concerning patent protection of pharmaceutical
products and the questions that have been addressed, it is first necessary to highlight
the background to the accession negotiations: the main characteristics of the
Commun
ity pharmaceutical market as well as the level of patent protection both
within the EU and the new Member States
-

in order to acknowledge the underlying
policy tensions, which may have influenced the Community approach towards the
candidate countries. As
recognised by Articles 7 and 8 of the TRIPS Agreement,
intellectual property rights are neither conferred, nor exercised in a social or political
vacuum. Their regulation aims to achieve an appropriate equilibrium between the
various interests of society a
nd economy
3
, “a balance of rights and obligations”
4
??³LQ?
D?PDQQHU?FRQGXFLYH?WR?VRFLDO?DQG?HFRQRPLF?ZHOIDUH´
5

which is particularly true for
the pharmaceutical sector, “strategic” both “to the attainment of a high level of health
protection”
6
, and to ensure

the competitiveness of the European industry as a whole.




3

M.

F
ICSOR
,

“M
ain Industrial Property Issues Related to Pharmaceutical Products in the Process of
Hungary’s Accession to the European Union”, Presentation at the International
Conference on
Pharmaceutical Patents and Intellectual Property in EU Accession Countries

4

TRIPS Agreement, Article 7.

5

TRIPS Agreement, Article 7.

6

ECT, Article 3(p).


11



II.

T
HE
B
ACKGROUND OF THE
N
EGOTIATIONS



1. Main Characteristics of the Community Pharmaceutical Market


a) The Pharmaceutical Industry


“a Key Asset to the European Economy”


Pharmaceuticals
have always been a key asset to the European economy
7
: the strong,
globalised, innovation
-
intensive industrial sector for medicines is traditionally
considered as making a significant contribution to Europe’s industrial base.
8

However, despite the fact tha
t pharmaceuticals still provide by far the largest
contribution to the European trade balance among the high
-
technological industries,
9

nowadays, there are increasing concerns about the competitiveness of the Community
market.
10



Growth rates in terms of p
harmaceutical production are at a much lower level than
those achieved in the 1980’s
11

and Europe seems to lag behind the United States in its
ability to generate, organise and sustain innovation processes that are increasingly
expensive and organisatory co
mplex.
12

The United States now represents 47% of the
global market having grown from 31% in the last ten years, whilst during the same
period Europe’s global market share has decreased from 3
7
% to 24%.
13


It is in this general context that the Community posi
tion towards the accession
countries has to be interpreted. In the fear of a further weakening of the European



7

E
FPIA
:

The Pharmaceutical Industry in Figures, 1998, quoted by
L.

F
INLAYSON
,

Impac
t, in:
P
harmaceutical Parallel Trade,
London, Financial Times Business, 1999, p.79.

8

Commission, Pharmaceuticals in the European Union, Office for Official Publications of the
European Communities, Luxembourg, 2000, p.27.

9

H.

P
RANGE
, New Mechanism of E
uropeanisation in the Process of EU Enlargement: the Example of
Pharmaceutical Regulation, [2002] 8
Queen’s Papers on Europeanisation

3.

10

Commission, supra note 8, p.27.

11

Commission
Communication on the Single Market in Pharmaceuticals, COM (98) 588

12

C
ommission, Global Competitiveness in Pharmaceuticals


A European Perspective, Office for
Official Publications of the European Communities, Luxembourg, 2001, p.4.

13

S
IR
T.

M
C
K
ILLOP
,

President of EFPIA, Industry and Health, a Balance of Interests


the Ch
allenge
for Europe, EFPIA Press Release


12

competitiveness, many objections have been raised, how the new economies of the
Central and Eastern European States, without a traditional relian
ce on market
-
based
competitive mechanisms and operating with relatively low market prices can be
integrated into the homologous regulatory and competitive environment which the
Community seeks to achieve, without amplifying the already existing disparities
.
14

Finding the right solution constituted a major challenge for the EU, in particular
because the position of the representatives of the Community industry have been
fairly divergent according to their place occupied within the market structure.


b) The S
tructure of the Market
-

Organics, Generics and Enlargement


One of the main characteristics of the pharmaceutical market is its highly diversified
nature, both in terms of products and manufacturers. Above all, it is more accurate to
describe the product
market for pharmaceuticals as a number of sub
-
markets, some of
which are interrelated or overlapping, than as a composite whole.
15

Besides the large
number of already existing medicines, there is always a constant need for innovation,
and given the relative
ly low market share of even the most successful drugs, the
entering of new or improved quality products to the market is primarily a function of
the patent protection granted.


The main dividing line lies between patented and so
-
called off
-
patent medicin
es.
While the proportion of the latter is steadily increasing, and thus, it is becoming
increasingly expensive to find and market new drugs, competition to make and sell
off
-
patent drugs involves a far greater number of companies. This leads to a
diversifi
cation of the pharmaceutical industry itself and creates a two
-
tiered structure:
large, transnational firms are engaging in research and development with the view of
producing new, original medicines
-
“organics”
-

while generally smaller, national
companie
s are competing on the off
-
patent segment of the market


in “generics”. In
fact, generic medicines are equivalent to the original brand products: they contain the



14

Commission, supra note 12, p.91.

15

W.

A.

R
OTHNIE
,
Parallel Imports
, Sweet & Maxwell, London 1993, p.479.


13

same active substance, comply with the same rules of production and
pharmacovigilance and sh
ow the same quality, safety and efficacy as the original
brand product


with the exception that they are sold in average at prices of 30
-
80%
of the original price on the market.
16


The interests of the two competing groups of companies, the organic and the

generic
manufacturers’ are of course sharply contrasting with regard to the aims patent
legislation for pharmaceuticals should promote: competitiveness of the industry and
the necessary reward for investment and innovative new medicines on the one hand,
o
r the achievement of a better consumer welfare by reduced prices on the other.
17

The
biggest challenge for every piece of pharmaceutical legislation is to reconcile these
conflicting interests. Thus, the outcome of the accession negotiations can also be
vie
wed as an attempt to reestablish the adequate balance of these contrary, but equally
justified claims, especially because both the generic and the organic manufacturers
were intensively seeking to influence the negotiating process towards their respective
stakeholders at the European level.


On the one hand, the European Federation of Pharmaceutical Industries and
Associations (EFPIA) consequently argued, that in light of the “dramatic differences
in economic and social conditions”
18

between the current Mem
ber States and
accession countries as well as of the “historically inadequate intellectual property
protection or low mandated prices”
19
, supplementary protection certificates should be
introduced in all accession countries as soon as possible
20
; despite the

outcome of the
TRIPS action against Canada, the EC should resist the Bolar provision in accession
candidates; and an “economic derogation” with sufficient length so as to overcome all



16

E
GA
, Generic Medicines / The Key to Affordability, [2002] 1
Making Medicines Affordable

p.1.

17

However, Jo
ined

cases C
-
414/99 to C
-
416/99,
Zino Davidoff SA v. A&G Imports Ltd

[2001] ECR I
-
8694 demonstrate that this tension is not solely limited to the pharmaceutical industry.

18

E
FPIA
, EU Enlargement and Pharmaceuticals: Key Issues,
Position Paper
, June 2000

19

B.

A
GER
, Director General of EFPIA, in: EFPIA Press Release

20

E
FPIA
,

EU Enlargement


Intellectual Property Issues,
Position Paper
, October 2000


14

discrepancies should be inserted into the accession treaties to prevent

free flow of
parallel trade from new member states.
21



The European Generic medicines Association (EGA), on the other hand, put forward
that “product patents have existed in CEE countries… even before some EU Member
States had such provisions in the natio
nal law”;
22

that the
retroactive application of
Supplementary Protection Certificates is beyond the legal requirements of accession
while no harmonised approach exists at Community level either; and in the fear that
“the abolition of pre
-
patent expiry testi
ng provisions will force the generic industry
not only out of the EU, but also out of the CEE countries”,
23

it
concentrated its efforts
on the Bolar provisions being maintained in the acceding states.


c) The Regulative Framework


a Single Market in Phar
maceuticals?


The establishment of a unified market is imperative in the Community legal system.
From the first European Community pharmaceutical directive, issued in 1965 and still
considered as the “foundation of Community pharmaceutical law”,
24

a score
of legal
instruments have been adopted with the aim of achieving a single and free, EU
-
wide
market in pharmaceuticals.
25

These four decades of legislative activity covered wide
-
ranging issues primarily related to marketing authorisations,
26

data exclusivity,
27

patent time restoration,
28

pharmacovigilance
29

and transparency of the control



21

EU Medicines Industry Seeking Additional Accession Conditions,
Enlargement Weekly
, 2 July 2002

22

E
GA
, Supp
lementary Protection Certificates,
Pharmaceutical Intellectual Property Issues and
Enlargement

23

E
GA
,

Pre
-
Patent Expiry Development and Registration Work for Generic Medicines,
Pharmaceutical
Intellectual Property Issues and Enlargement


24

Commission, supr
a note 8, p.13.

25

Commission, supra note 8, p.1.

26

Council Directive 65/65/EEC, [1965] O.J. 22/369; Council Directive 75/318/EEC, [1975] O.J. L
147/1; Council Directive 75/319/EEC, [1975] O.J. L 147/13; Council Directive 87/22/EEC, [1987]
O.J. L15/38; Coun
cil Regulation 1993/2309, [1993] O.J. L 214/1; Council Directive 93/41/EEC,
[1993] O.J. L 214/40; and Council Directive 93/39/EEC, [1993] O.J. L/22.

27

Council Directive 65/65/EEC supra note 26.

28

Council Regulation 1992/1768 of June 18, 1992 concerning th
e creation of a supplementary
protection certificate for medicinal products, [1992] O.J. L 182/1.

29

Council Directive 75/319/EEC, Council Regulation 1993/2309 supra note 24, Commission
Regulation 1995/540, [1995] O.J. L55/5.


15

mechanisms,
30

labeling, package leaflet
31

and advertising of medicines.
32

The
unification of the internal market for medicinal products has been a slow, gradual
process within the
Community and, despite the considerable efforts undertaken, it has
still not been completed:
33

“perhaps the most surprising thing about the EC market for
drugs is that, by and large, it does not exist”.
34



The major impediment to the unification process has

been the fact that healthcare
provision and legislation in Europe are the responsibility of individual Member
States. In the view of fulfilling primarily domestic needs and promoting their national
industries, governments have opted for different policies

to regulate their healthcare
systems
35

in line with “the different social values, ethics and levels of wealth across
Europe”.
The result has been that effectively there is no single European
pharmaceutical market, but instead fifteen national markets, whic
h are subject to the
same laws at the European level.
36


The continuing government controls over pharmaceuticals explains why the European
approach to competition and free movement of goods
-

predicated to an open market
-

has always created difficulties an
d gave rise to inherent tensions with regard to this
field.
The market for pharmaceuticals is still not a liberalised one and
its
fragmentation among national borders is primarily accused of contributing to the
tendentious decline of the European competit
iveness by generating inconsistencies,
inefficient use of resources and lack of competition, especially in price terms.


The system for marketing authorisations, their mutual recognition and the related
administrative formalities being widely harmonised o
n the Community level, the



30

Council Directive 89/105/EEC,

[1989] O.J. L40/8.

31

Council Directive 92/27/EEC, [1992] O.J. L 113/8.

32

Council Directive 92/28/EEC.
[1992] O.J. L 113/13.

33

M.

F
ICSOR
,

Intellectual Property Issues and EU Accession, Presentation at the EGA Annual
Conference 2
000

34

R
OTHNIE
,

supra note 15
, p.474.

35

R
OTHNIE
,

supra note 15, p.473.

36

J.

N
AZERALI
,

S.

H
OCKING
and

U.

R
ANASINGHE
:

Parallel Imports of Pharmaceuticals


a Prescription
for Success or a Free Market Overdose? [1998] ECLR 6, p. 334.


16

major tensions arise from the national price regulations for medicines, thus from the
fact that prices are not determined by the market in the neoclassical sense. Many
times, patent holders have been often trying to challenge the
se national pricing
systems, or to defend themselves from “unjustified” parallel trade benefiting from the
“artificial” price discrepancies in vain: in
Russel Laboratoria
, the European Court of
Justice endorsed the system of price regulation of medicines,
provided that it does not
discriminate between domestic and imported pharmaceuticals.
37

Although clearly
recognising its harmful effects it stated in
Merck v. Primecrown
that:


it is well
settled that distortions caused by different price legislation in a M
ember State must be
remedied by measures taken by the Community authorities”.
38



Almost ten years have passed since this later judgement, but it remains still open
-

and subject to constant debates on the future of the pharmaceutical sector in Europe
-

on
which legal base the Community could find a means to intervene in the area of
healthcare, traditionally belonging to the exclusive national competence of the
Member States. Predictably, the harmonisation will be cautious and gradual. The
recommendation of
the G10 Medicines Group,
39

aiming at the reconciliation of the
“twin goals of both encouraging innovation and competitiveness and ensuring
satisfactory delivery of public health and social imperatives” suggests that the
Member States’ competence to regulate

the pharmaceutical prices should be confined
to those medicines purchased or reimbursed by the state, while full competition in the
neoclassical sense should be allowed for all other medicines.



Being aware of the already existing problem of price dis
crepancies on the Common
Market and the importance attached to the elimination of its distorting effects, it
becomes clearer, why the integration of the Central and Eastern European
pharmaceutical markets, operating with significantly lower prices was perc
eived as
one of the most sensitive issues of the negotiating process. Of course, the argument of
“relatively low prices”
-

albeit strongly represented by the industrial lobby as well as



37

Case 181/82,
Russel Laboratoria BV and Ors v.
État
Néerlandais
, [1983] ECR I
-
3849

38

Merck v. Primecrown
, supra note 1, para 47.

39

High Level Group on Innovation and Provision of Medicines, Recommedation VI.


17

by independent experts
-

not being legally founded, could not be raise
d officially by
the EU while monitoring the implementation of the acquis communautaire. Instead,
they were consequently referring to the “de facto” inadequate level of patent
protection for pharmaceuticals, in order to justify the introduction of a specifi
c
mechanism restricting parallel trade. This ambiguity of the negotiating process is
well demonstrated by the words of the Czech negotiator, Pavel Telicka in October
2000: “If the difference is in the levels of patent protection, then, let’s discuss it. B
ut
if it’s another discussion, such as pharmaceutical prices, then do we have to defer to
European companies?”


2. Patent Protection of Pharmaceuticals within the Community and in the
Acceding States


Intellectual property rights are generally recognised a
s essential in a modern
economy. This assumption is particularly true for the industries characterised by high
innovation costs, such as the pharmaceutical sector, where research is complex, time
-
consuming and exceptionally expensive.
40

An adequate reward f
or the “creative effort
of the inventor”
41

is indispensable in maintaining the ability of pharmaceutical
companies to develop new drugs in the future. The importance of an effective patent
protection is further accentuated by the fact that once discovered a
nd determined safe
for public use, most pharmaceuticals are technically relatively simple to copy and to
reproduce.
42



The traditional way of protecting pharmaceuticals was via process patents, since
patent laws originally evolved to protect, in the words
of the United Kingdom’s 1624
Statute of Monopolies, “any manner of new manufacture”.
43

But process patents are



40

N
AZERALI
,

H
OCKING AND
R
ANASINGHE
,

supra note 36, p.332.

41

Essential element of the definition of t
he specific subject matter of a patent, laid down by case 15/74,
Centrafarm BV and de Peijper v. Sterling Drug Inc
, [1974] ECR I
-
1147, para 9.

42

E.

P.

R
ACITI
,

Incompletion of the European Common Market: The Problem of Extending
Pharmaceutical Patent Prote
ction, in:
A.

W
EBSTER
,

K.

P
ACKER
:
Innovation and the Intellectual
Property System
, London, Kluwer Law International, 1996, p.147.

43

L.

B
RAZELL
:

The Protection of Pharmaceutical Products and Regulatory Data: E.U. Enlargement
Update, [2002] EIPR 3 p.155.


18

generally perceived to provide a less efficient protection of the exclusivity conferred
to the rightholder: their effect can be evaded by the use
of a process different from
that patented to make the product
44

or simply by conducting a process in a country
where no patent protection is available for that process.
45

The only argument in
favour of their maintenance, namely the aim of protecting young or

undeveloped
domestic industries
46

is overruled by the development of the pharmaceutical sector
and the imperative of encouraging and protecting innovative investment. Now there is
a “worldwide trend in favour of recognising the patentability of chemical an
d
pharmaceutical products as such and not merely the processes for making them.”
47


Thus, by the time of the coming into force of the TRIPS Agreement, its Article 27,
stating that “patents shall be available for any inventions, whether products or
processes
, in all fields of technology, provided that they are new, involve an inventive
step and are capable of industrial application” did not have any harmonising effect
neither within the Community, nor for the Acceding States, but merely confirmed the
state th
ese legislations have already achieved.


a) Patent Protection of Pharmaceuticals within the Community


The Patent Protection System of the Community



In the early 1970’s, in order to avoid political difficulties involved formulating a
unified patent s
ystem, the Community and its Member States have opted for a “two
-
approach system to patent protection”
48
, consisting of the Convention on the Grant of
European Patents (European Patent Convention


EPC) and the Convention for the
European Patent for the Com
mon Market (Community Patent Convention


CPC). As
a result, with national patents existing alongside European patents and with the



44

E
FPIA
, supra note 18.

45

B
RAZELL
,

supra note 43, p.155.

46

A.

D
IETZ
,

Test Issues in the Eastern European Patent Field, [1993] EIPR 6, p.191.

47

Opinion of Advocate General Fennelly in
Merck v. Primecrown,
supra note 1, para 82

48

R
ACITI
,

supra note 42, p.151.



19

establishment
-

presumably by 2006


of the unified Community
-
wide patent, the
patent system has become highly complicated i
n Europe.


Recognition of Product Patent Protection for Pharmaceuticals


From the point of view of an extensive recognition of the product patent protection
for pharmaceuticals the European Patent Convention
49

constituted the major step
forward. Albeit al
lowing for a maximum of 15 years of reservation,
50

it contained an
obligation for the introduction of product patents in the field of medicines, unified its
extension and established the duration of 20 years. Except for the United Kingdom,
Ireland and Germa
ny, which already granted product patent claims independently
before, it clearly provided an impetus for all other EU and EFTA Member States.
These measures generated a development in these countries, whereby the general
recognition of product patents has
became reality by 1995.


Having been recognised by the English courts ever since the beginning of the 20th
century, the first explicit provision for product patents was made in the
United
Kingdom

by Section 4(7) of the Patents Act 1949 and in
Ireland

by

Section 2 of
Patents Act 1964, followed by Germany in 1967. In
Italy
, originally both
pharmaceutical products and processes for their manufacture were excluded from
patentability until the prohibition of the Italian Patent Act was declared
unconstitutiona
l and therefore inapplicable by a judgement of the Italian
Constitutional Court in 1978. The next in line were
Denmark

(1983),
Austria

(1987),
Norway
and
Greece

(1992).
Spain

and
Portugal

had to follow suit, as they were
required by their Acts of Accessio
n “to provide the level of protection of industrial
property attained in the Community”. The process of gradual recognition came to its
end with
Finland

in 1995.
51






49

The European Patent Convention
adopted in 1973, entered into force in 1977.

50

It was terminated on 7 October 1992.

51

The recognition of product patent protection within the Community was summarised on the basis of
the Opinion of Advocate General Fenne
lly in
Merck v. Primecrown
, supra note 1, para 79
-
82.


20

Patent
-
term Restoration


the Introduction of Supplementary Protection Certificates


The r
egime of supplementary protection certificates for medicinal products,
introduced by Council Regulation 1768/92 is strictly speaking, until now the only
successful legal action of the Community in the narrower field of patents.
52

Its aim is
to provide compe
nsation for the delays in getting pharmaceutical products to the
market, inherent in the process of regulatory approval requiring that the quality,
safety and efficacy of the product be established by means of evidence, before
marketing authorisation can b
e granted. These lengthy procedures lead to a significant
erosion of the twenty years basic protection given by a European patent: “by the time
a medicinal product has been developed and a marketing authorisation obtained, only
eight to ten years’ protecti
on remained”.
53

Similar considerations resulted to
amendments of the patent laws of the United States
54

and Japan
55

already in 1984 and
1987, and raised the fear of European industry that the centre of drug research could
shift from Europe to other regions
56

i
f no measures are taken at Community level.


The Regulation, inspired by an earlier French law, is in application since the
beginning of 1993 throughout the European Union and the European Economic Area.
It has the effect of permitting patentees to extend,

in so far as they relate to a
medicinal product having a marketing authorisation, certain pharmaceutical patents
which would otherwise have expired for a maximum of five years up to the end of the
lawful term of the basic patent. The exact duration of the

supplementary protection
certificate is calculated on the basis of the delay between the date of filing the
application for a patent and the date on which the marketing authorisation has been
granted, reduced by a period of five years. During the negotiat
ions it has been held
that “the most significant difference between EU law and the present laws of the



52

J.

S
TRAUS
,

The Present State of the Patent System in the European Union
, Luxembourg, Office for
Official Publications of the European Communities, 1997, p. 44.


53

Commission, Communication from the C
ommission to the Council and the European Parliament on
the Outlines of an Industrial Policy for Pharmaceutical Sector in the European Community, COM (93)
718

54

Drug Price Competition and Patent Term Restoration Act, 1984

55

Amendment to the Patent Utility

Model, Design and Trade marks Law, 1987

56

F
ICSOR
,

supra note 33.


21

candidate countries is that in the former, research
-
based industry now has the benefit
of patent term extension, intended to compensate it for the delays

in getting their
products to market”, while in the latter, such extensions were generally not
available.
57


b) Patent Protection of Pharmaceuticals in the Acceding States


Pursuant to the Europe Agreements, the Central and Eastern European states have all
undertaken to continue to improve the protection of intellectual, industrial and
commercial property rights in order to provide a level of protection similar to that
existing in the Community from the beginning of the 1990’s. In order to comply with
this r
equirement, candidate countries from Central and Eastern Europe, where
traditionally only process patents were available, have all introduced product patent
protection for pharmaceuticals between 1991 and 1994: the
Czech Republic

and
Slovakia

in 1991,
Slov
enia

in 1992,
Latvia

and
Poland



in line with its obligation
undertaken in the Trade Agreement with the United States


in 1993, while
Hungary
,
Estonia

and
Lithuania

in 1994.


In addition, under the substantial pressure of the research
-
based industry, th
e majority
of the Central and Eastern European states have also introduced a transitional patent
protection


a so
-
called “pipeline protection”
-

for those pharmaceuticals that could
not obtain product protection in these countries
58

-

although under differ
ent terms.
The Czech Republic, Slovakia, Latvia and Lithuania agreed to grant unconditional
protection to those medicines, while in two other countries, certain conditions


in
Hungary, a limitation in time, in Poland “economically justified reason for
mar
keting”
59



were required. However, in the view of the organic industry, the risk,
that some of the highest
-
earning drugs in the European Union could be completely



57

B
RAZELL
, supra note 43, p.159.

58

B
RAZELL
,

supra note 43, p.156.

59

D
IETZ
,

supra note 46, p.193.


22

unprotected
60

in the new Member States was still not entirely ruled out by these
arrangements.


c) Comparison of the Level of Protection


the “Cornerstone” of the Negotiations


The comparison of the level of patent protection has always been in the foreground of
the negotiating process. The EU was faced with a twofold problem: while assessing
the
equivalence of the corresponding legislative provisions of the candidates and
monitoring their compliance with the acquis communautaire on an individual basis, it
had to follow at the same time a single approach towards all these states in order to
arrive
to a relatively common regime at the end.


Underlying the importance of securing an effective patent protection in generating
investment it claimed, that although the Central and Eastern European countries have
clearly improved their patent legislation be
tween 1991 and 1994, this does not mean
that the level of patent protection will become an “industrial reality” on the market in
the applicant countries in the near future. In the absence of generalised retroactive
effects of the new laws, there is a risk
of many medicinal products remaining
unprotected, while still being under patent in the Member States. In addition, because
of the time, which usually elapses between filing a patent application for a
pharmaceutical and having marketing authorisation grant
ed, pharmaceuticals placed
on the market after the introduction of product patent protection could not benefit
from the new law either. On these grounds, the EU considered any derogation from
the obligation to implement the relevant acquis unacceptable and

proposed a specific
mechanism
-

in order to minimise the negative effects of the situation after
enlargement.



Besides claiming that primarily, a level of protection
similar

and not
equal

to that
within the Community has been undertaken in the Europe A
greements and that the
comparison of the levels of protection should be based on the overall level of



60

B
RAZELL
,

supra note 43, p.156.


23

protection provided; maybe the strongest among all arguments raised by the applicant
countries were those referring to the discrepancies on the Community
level.
61

Recalling that product patent protection for pharmaceutical was only introduced a few
years ago in some Member States as well, they requested to be “placed on an equal
footing with those having acceded to the Union in the past”. On the basis that G
reece,
Spain, Portugal and Finland were in fact allowed to join the EC or the EU without
prior providing in their patent law for the product patentability of pharmaceuticals,
they maintained that “the obviously smaller differences in the protection level t
hat
might occur in the present accession process could have been accepted without the
need to resort to unprecedented exceptional mechanisms”.


These general claims and arguments constituted the starting point to arrive to the
complex compromises on the
field of patent protection of pharmaceuticals. The
challenges faced by the Community industry at the moment, the intensive
participation of both organic and generic associations in the public debate and
experiences gained from past enlargements all contrib
uted to the way solutions were
finally elaborated.




61

The arguments of the applicant countries have been summ
arised on the basis of the presentation by
F
ICSOR
,

supra note 3.


24

III.

T
HE
M
AIN
I
SSUES OF THE
N
EGOTIATIONS



1. The Restriction of Parallel Trade



Ever since the endorsement of the principle of community
-
wide exhaustion of
intellectual property rights and more precisely, t
he “first sale consent test”, parallel
trade
62

has always been a highly emotive subject for the research
-
based
pharmaceutical companies. In fact, due to the lack of price harmonisation for
pharmaceutical products at a European level, the EC pharmaceutical s
ector is one of
the industries most subject to the attention of prospective parallel traders.
63

These
traders are traditionally importing drugs from the relatively low priced countries such
as Spain, Portugal and Greece into the higher
-
level ones, most typi
cally the United
Kingdom, Germany, Denmark and the Netherlands.
64


From the Community perspective, parallel imports are viewed as a way to break
down national and trade barriers, a key element in the establishment of a common
market for goods,
65

which increa
ses overall efficiency by eliminating excessive prices
and provides benefits to both consumers and health systems within Member States.
66

As stated by the Court of Justice in
de Peijper
, “parallel importers are very often in a
position to offer the goods at

a price lower than the one applied by the duly appointed
importer for the same product, a fact which, where medicinal preparations are
concerned, should, where appropriate, encourage the public health authorities not to
place parallel imports at a disadva
ntage, since the effective protection of health and



62

Parallel trade is
the trade in genuine products outside “official” channels of distribution that means
other than those authorised by the owner or a licensee of a patented product.

63

R
OTHNI
E
, supra note 15, p.471.

64

M.

H
ODGSON
:

Introduction, in:
Pharmaceutical Parallel Trade
, supra note 7, 1999, p.1.

65

P.

D
EMARET
,

I.G
OVAERE
:

Parallel Imports, Free Movement of Goods and Competition Rules: The
European Experience and Perspective, in:
T.C
OTTIER
,

P.

C.

M
AVROIDIS
,

Intellectual Property: Trade,
Competition and Sustainable Development, World Trade Forum, Volume 3
, Michigan, The University
of Michigan Press, 2003, p.147.


66

F
INLAYSON
,

supra note 7, p.

83.


25

life of humans also demands that medicinal preparation should be sold at reasonable
prices.”
67


The research based organic industry, on the other hand, sees the concept of parallel
imports as an “odd and h
armful mix of free movement of goods and price controls”,
68

a policy, which is not based upon efficiency or other economic grounds, but rather on
integration policies imposing a burden on research and development in
pharmaceuticals: “a case of the triumph o
f European
-
unification politics over sound
economics and law”.
69

Over the years, the industry representatives have been
criticizing the strong pro
-
single market approach adopted by both the European Court
of Justice and the Commission, claiming that they fa
iled to take into account the
specific features of the pharmaceutical market and undermined the chances of an
adequate reward for investment in research. In addition, they claimed that


due to the
policies of national health authorities
-

parallel import
rarely benefits the social
security systems or the patients, but instead the parallel importer: “its profits go to the
middle
-
man”.
70



Enlargement brought to light “the real economic dimension of the law on parallel
imports”
71

and the organic manufacturers
urged to find an effective protection against
a further substantial wave of parallel imports coming from Central and Eastern
Europe. To assess, whether the “specific mechanism” introduced by enlargement has
been an adequate response to the industry’s conce
rns, it is first of all necessary to
analyse the underlying context: the evolution of the legal concepts allowing parallel
trade.





67

Case 104
-
75,
de Peijper, Managing Director

of Centrafarm BV
, [1976] ECR 613, para 25.

68

H.

E.

B
ALE
,

The Conflicts Between Parallel Trade and Product Access and Innovation: The Case of
Pharmaceuticals, [1998] 4 JIEL, p.647.

69

B
ALE
,

supra note 68, p.647.

70

E
FPIA
,

The Accession of Central and East Eu
ropean Countries (CEECs) to the European Union
(EU),
Position Paper,
July 1997, p.4.

71

R.

N
AZZINI
,

Parallel Trade in the Pharmaceutical Market


Current Trends and Future Solutions,
[2003] WC 26(1), p.53.


26

a) Parallel Trade of Patented Pharmaceuticals Within the Community


the
Elaboration of the Theory of Community
-
wide Exhaus
tion


The relationship between the Treaty provisions concerning free movement of goods,
and the rules governing the protection of intellectual property rights, inherently
national and territorial in their nature, has always created difficulties and requir
ed the
development of fine distinctions by the Court of Justice. The community
-
wide
exhaustion doctrine, as the main means of reconciling this “conflict between two
competing interests” was born out from its consequent case law primarily based on
the inter
pretation of Articles 28 (ex Article 30), 30 (ex Article 36) and 295 (ex Article
222) of the Treaty.


It was in 1966, in
Consten and Grundig,
72

that the Court first faced the interpretation
of Article 295 (ex Article 222) and the possibility of the Communit
y law to prohibit
the “improper use” of national intellectual property rights. In relation to an ancillary
trademark agreement ensuring absolute territorial protection against parallel imports
and thus being condemned as violating the Community law on cart
els, the Court
stated: “Article 222 confines itself to stating that the Treaty shall in no way prejudice
the rules in Member States governing the system of property ownership. The
injunction … to refrain from using rights under national trademark law in or
der to set
an obstacle in the way of parallel imports
does not affect the grant

of those rights but
only limits their exercise

to the extent necessary to give effect to the prohibition under
Article 85(1)”.
73

This distinction between
existence

and
exercise

of intellectual
property rights, as refined on the occasion of the following cases concerning parallel
trade, constituted the theoretical basis for the Community intervention in the field of
intellectual properties.


The first judgement addressing directly

the compatibility of the use of a national
intellectual property right


a right related to copyright
-

to prevent parallel trade with



72

Joined cases 56/64 and 58/64,
Établissements Cons
ten S. á R.L. and Grundig
-
Verkaufs GmbH. v.
Commission
, [1966] ECR 299.

73

Consten v. Grundig
, supra note 73, para 345, emphasis added.


27

the provisions on free movement of goods was
Deutsche Grammophon
in 1971.
74

The
question for reference was based primaril
y on Article 81 (ex Article 85), but also on
all other Community provisions. Therefore, the Court was free to draw attention to
the rules governing the free movement of goods and in particular, Article 30 (ex
Article 36) thereof. Its assessment has been su
bstantially repeated by all subsequent
decisions on parallel imports: “Amongst the prohibitions or restrictions on the free
movement of goods, Article 36 refers to industrial and commercial property… it is
nevertheless clear from that article that, althoug
h
the Treaty does not affect the
existence of rights

recognised by the legislation of a Member State with regard to
industrial and commercial property,
the exercise of such rights may nevertheless fall
within the prohibitions laid down by the Treaty
. Altho
ugh it permits prohibitions or
restrictions on the free movement of products, which are justified for the purpose of
protecting industrial and commercial property, Article 36 only admits derogations
from that freedom to the extent to which they are justifi
ed for the purpose of
safeguarding rights which constitute the
specific subject
-
matter
of that property”.
75



Furthermore, it definitely ruled out that preventing parallel trade could be comprised
within the concept of the “specific subject matter” of an in
tellectual property right,
after that the products have been “distributed by the holder of the right or with his
consent

76

on the territory of a Member State. Practically, with this statement, the
applicability of the principle of “national exhaustion”, tr
aditionally recognised by the
majority of domestic intellectual property laws has been declared contrary to the
Treaty. It was claimed that it “would be repugnant to the essential purpose of the
Treaty, which is to unite national markets to a single market
”.
77



In
Centrafarm v. Sterling Drug
78
, the first case elaborating the same doctrine with
regard to patents, this consequence was explicitly recognised: “an obstacle to the free



74

Case 78/70,
Deutsche Grammphon Gesellschaft mbH v. Metro
-
SB
-
Grossmärkte GmbH & Co. KG
,
[1971] ECR 487

75

Deutsche Gramm
ophon
, supra note 74, para 5, emphasis added.

76

Deutsche Grammophon,
supra note 74, para 6, emphasis added.

77

Deutsche Grammophon,
supra note 74, para 6.

78

Centrafarm,
supra note 41.


28

movement of goods may arise out of the existence, within a national legislation

concerning industrial and commercial property, of provisions laying down that a
patentee’s right is not exhausted when the product protected by the patent is marketed
in another Member State”.
79

While substantially following the reasoning in
Deutsche
Gramm
ophon
, the Court laid down the basic principles governing community
exhaustion with relation to patents, on which all the subsequent decisions were based.


From the definition of the “specific subject matter” of a patent as “the guarantee that
the patente
e, to reward the creative effort of the inventor has the exclusive right to use
an invention with a view to manufacturing industrial products and
putting them into
circulation for the first time
, either directly or by the grant of licences to other parties
,
as well as the right to oppose infringements”,
80

the Court went on to define the
conditions, under which an obstacle to the free movement of goods may be
nevertheless justified. In line with this decision, the patent holder may rely on his
exclusive ri
ght whenever “such protection is invoked against a product coming from a
Member State where it is
not patentable and has been manufactured by third parties
without the consent of the patentee;

and in cases where exist patents, the original
proprietors of w
hich are legally independent”.
81


However, if the “product
has been put on the market in a legal manner, by the
patentee himself or with his consent
, in the Member State from which it has been
imported”
82
, a derogation in the sense of Article 30 (ex Article
36) is not allowed.
From the point of view of our analysis, the most important issue lays in the
interpretation of the first justification for derogation, namely in the application of the
doctrine to cases, where the protected product was marketed in a Mem
ber State in
which no patent protection was available. This situation was first addressed to the



79

Centrafarm,
supra note 41, para 10.

80

Centrafarm,
supra note 41, para

9, emphasis added.

It has to be noted that this definition of the
“specific subject matter” of a patent has been widely criticized. As
N
AZZINI
pointed out, the Court
“first identified the balance between free movement and patent rights and then defined pa
tent rights
accordingly”, although the “proper line of reasoning would have been to look for the legal definition of
the patents first”, supra note 71, p.61.

81

Centrafarm,
supra note 41, para 11, emphasis added.

82

Centrafarm,
supra note 41, para 11.


29

Court in
Merck v. Stephar
83

in 1981. The crucial question was, whether Merck, the
owner of a Dutch product patent can legally invoke this right under the Commun
ity
legal order in order to prevent the importation of his product from Italy, where it was
lawfully marketed by himself but unable to get protected at the priority date as a
result of a prohibition by the Italian Patent Act.


On the one hand, the importe
r undertaking
Stephar
and the
Commission

argued, that
once the proprietor of the patent has himself,
on his own free will
, placed the product
on the open market in a Member State where it was not patentable, the importation
into the Member State in which t
he product is protected may not be prohibited. Hence
the right is exhausted not by an act of exercise of the right, which by definition does
not exist in the exporting country, but by the operation of the rules on free movement
of goods.
84


Merck
, supported

by the
French Government
and the
Government of the United
Kingdom

on the other hand claimed, that “the purpose of the patent, which is to
reward the inventor”
85

would not be safeguarded, if its rights would exhaust by
putting the product on a market where
the invention is not patentable. Without
enjoying a monopoly, he was unable to “collect the reward for his creative effort”
86

in
Italy. Consequently, he asked for an interpretation that patent rights are only
exhausted, if the invention is patentable in the

country where it is marketed.




By refining the definition of the “specific subject matter” of a patent, and in particular
the meaning of “the exclusive right of first placing a product on the market”, the
Court rejected Merck’s argument. It took
the view, that
the rules on free movement of
goods prevail

as long as the product has been marketed in the exporting state by the
holder of the patent or with his
consent
. In its view, “that right of first placing a
product on the market enables the invent
or, by allowing him a monopoly in exploiting



83

Case 187/80,
Merck & Co Inc. v. Stephar BV and Petrus Stephanus Exler
, [1981] ECR 2063.

84

N
AZZINI
, supra note 71, p.62.

85

Merck v. Stephar,
supra note 84, para 8.

86

Merck v. Stephar,
supra note 84, para 8.


30

his product, to obtain the reward for his creative effort,
without however,
guaranteeing

that he will obtain such a reward in all circumstances”.
87



In line with the argument put forward by
Stephar
, the very c
ore of this decision is the
“own free will” of the proprietor of a patent “to
decide
, in the light of all
circumstances, under what conditions he will market his product, including the
possibility of marketing it in a Member State where the law does not pr
ovide patent
protection for the product in question. If he decides to do so he must then
accept the
consequences of his choice

as regards the free movement of the product within the
Common Market”.
88

Substantially, it means that Community
-
wide exhaustion oc
curs
regardless the patent protection granted. This formalistic approach taken by the Court
of Justice has been widely criticised, both from the point of view of legal theory and
practice.


From a practical perspective, the underlying argumentation that “
it is for the
proprietor of the patent to decide” whether “marketing in a Member State where the
law does not provide patent protection for the product in question”, might be
questioned in two ways. First of all, in light of the fact that territorial restr
ictions to
supply are likely to constitute a breach of Article 81 (ex Article 85) and, if the
supplier is a dominant undertaking, an abuse of a dominant position under Article 82
(ex Article 86), the mere possibility of the patent holder to act “of his own

free will”
is relativised. If we admit that the patentee can still be in a position to retain his
products from being marketed in a given Member State, it can be argued that this
would equally “bring about a partitioning of the national markets”, as would

the
exercise of the exclusive right by the patent holder. The patentee is merely
“encouraged to partition the Common market in a different way”.
89






87

Merck v. Stephar,
supra note 84, para 10, empha
sis added.

88

Merck v. Stephar,
supra note 84, para 11, emphasis added.

89

Opinion of Advocate General Fennelly,
Merck v. Primecrown
, supra note 1, para 108.


31

On a theoretical basis, it is equally problematic to explain the decision in terms of the
exhaustion princi
ple.
90

In circumstances where in the country of exportation no
intellectual property right was in force, it is difficult to perceive how this non
-
existent
right could prove to be exhausted. Therefore, it seems to be more adequate to design
the criteria appl
ied by the Court of Justice as the “first sale consent test”,
91

according
to which parallel imports cannot be opposed by the owner of a national intellectual
property right if the goods involved were first sold abroad by himself or with his
consent.


This c
ategorical approach was somewhat nuanced by the decision in
Pharmon v.
Hoechst.
92

Here, the Court accepted that the doctrine of exhaustion does not apply if
the holder of parallel patents has not put the product onto the market freely, but under
a
compulsor
y licence

granted to a third party by the competent authorities of a
Member State. Recalling the substance of a patent right as defined in
Merck v.
Stephar
, it ruled that under such circumstances, “the patentee cannot be deemed to
have consented to the ope
ration of that third party”
93

and that “it is therefore
necessary to allow the patent proprietor to prevent the importation and marketing of
products manufactured under a compulsory licence in order to protect the substance
of his exclusive rights under his

patent”.
94


Nevertheless, there has been only one case,
Warner Brothers v. Christiansen,
95

where
the Court of Justice has shown a real sign towards a more flexible interpretation of
the “first sale consent test”. Taking into account the evolution in market
conditions,
notably the increased popularity of renting as opposed to purchasing video
-
cassettes,
it stated that “it cannot … be accepted that the marketing by a film
-
maker of a video
-
cassette containing one of his works, in a Member State which does not p
rovide
specific protection for the right to hire it out, should have repercussions on the right



90

N
AZZINI
,

supra note 71, p.62.

91

D
EMARET
,

G
OVAERE
,

supra note 65, p. 148.

92

Case 19/84,
Pharmon BV
v. Hoechst AG
, [1985] ECR 2281.

93

Pharmon,
supra note 93, para 25.

94

Pharmon
, supra note 93, para 26.

95

Case 158/86,
Warner Brothers Inc. and Metronome Video ApS v Christiansen
, [1988] ECR 2605


32

conferred on that same film
-
maker by the legislation of another Member State to
restrain, in that State, the hiring
-
out of that video
-
cassette”.
96

Thus the Court

made it
clear, that


at least in this specific case for secondary rental right


the exhaustion of
one right in a Member State does not affect a different right in the same product in
another Member State, even despite the free choice exercised by the ri
ght holder.



This interpretation, and in particular, the willingness of the Court of Justice to take
into account the evolution of the conditions on the market constituted one of the basic
arguments in
Merck v. Primecrown
, aiming at reversing the ruling

Merck v. Stephar

under the specific circumstances of the accession of Spain and Portugal.


b) The Accession of Spain and Portugal to the European Community


Legal
Problems in Relation to the Patent Protection of Pharmaceuticals


Pharmaceutical products w
ere not patentable neither in Spain nor in Portugal prior
their accession in 1986. Consequently price levels in these countries
-

based upon
generic production costs
-

were significantly lower than in the former Member States.
In order to bring their legis
lation
in line with the level of industrial property
protection achieved within the common market
they were required
-

by means of the
protocols to their respective Acts of Accession
97

-

to accede to the European Patent
Convention of 1973 and to make produc
t patent protection for pharmaceuticals
available within a certain period of time.


In addition, as a transitional measure, a special limited exception to Article 30 of the
Treaty was provided for in Articles 47 and 209 of the Accession Treaties, stating t
hat
“the holder, or his beneficiary, of a patent for a chemical or pharmaceutical product or
a product relating to plant health, filed in a Member State at a time when
a product
patent could not be obtained

in Spain / in Portugal for that product
may rely
on the
rights granted by that patent in order to prevent the import and marketing of that



96

Warner Brothers,
supra note 96, para 17.

97

Protocol 8 and 19

respectively for Spain and for Portugal.


33

product in the present Member State or States where that product enjoys patent
protection even if that product was put on the market in Spain / in Portugal for the
fi
rst time by him or with his consent”
. According to the second paragraph of these
Articles, this right could be invoked “
until the end of the third year

after Spain /
Portugal has made these products patentable”


which was effected on 7 October
1992 in Spa
in and on 1 January 1992 in Portugal.


Substantially, this transitional provision suspended the rule
Merck v. Stephar
for a
limited period of time, as illustrated by the case
Wellcome Foundations
98

in 1993.

In
this decision, the United Kingdom Patents Cou
nty Court had to consider the
construction and application of Article 47 of Spain’s Act of Accession, on which the
English patentee had relied in order to justify, that it was enabled to prevent the
importation and sale of the patented product in the Unite
d Kingdom from Spain,
where only process patents were available.


In construing the meaning of Article 47, the Court concluded that the words “a time
when a product patent could not be obtained in Spain for that product” were to be
interpreted as meaning
“not obtainable because of some rule of, or absence of
authorisation under Spanish
enacted law
”. As at a time when Wellcome had applied
for its UK patent it was not possible to obtain a patent for a pharmaceutical product
under Spanish law, his right to pr
event parallel importation, raised by the restrictions
imposed by the Spanish Government on prices for pharmaceuticals, was found
justified.
99



There can be no doubt, that the reasoning of the British Court was perfectly in line
with Article 47 of the Span
ish Accession Treaty while creating this “Wellcome
exception”
100

to the rules on free movement of goods and to the community
exhaustion doctrine. Its underlying statement, that “the purpose of Article 47 was to



98

Wellcome Foundations Ltd. v. Discpharm Ltd and Others,
United Kingdom Patents County Court,
[1993]

99

J.

J
ONES
,

Exhaustion of Rights: Pharmaceuticals Marketed in Spain


a Wellcome Exception? [1993]
3 EIPR, p. 109
.

100

J
ONES
,

supra note 100, p. 107.


34

ameliorate the position of pharmaceutical manuf
acturers in Spain following Spain’s
entry into the EEC”, can be nevertheless contested. As the Spanish pharmaceutical
industry was traditionally based on generic manufacturers, the aim of the transitional
provision was probably more to grant at least tempo
rary protection to the Community
right holders against parallel imports flowing from these low
-
priced countries. As the
subsequent claims demonstrated, even the three years protection afforded proved to
be insufficient, because a whole generation of pharma
ceutical products, which
enjoyed patent protection elsewhere in the Community, could not be protected in
Spain or Portugal as they lacked the requisite novelty:
101

”unfortunately, the ban was
lifted before the advent of fully effective intellectual property
protection in Spain and
Portugal”.
102




An easy solution to this problem could have been the granting of safeguard measures
under Article 379 of the Accession Treaties, aiming to “rectify and adjust to the
economy of the common market a given economic sect
or experiencing economic
difficulties which are serious and liable to persist”.
103

However, by its decision of 20
December 1995, the Commission rejected the requests of seven Member States


France, Belgium, Germany, Austria, Denmark, Ireland and the United
Kingdom
-

for
the extension of the transitional measures with regard to Spain.


The applications were based on “the economic difficulties to which the
pharmaceutical market would be subjected” as a result of the expiry of the transitional
period, and in pa
rticular, the appreciable increase in parallel imports due to the
relatively low price of speciality products on the Spanish market.


The Commission founded its rejection on a restrictive interpretation of the derogation
to the principle of free movement
of goods, as provided by Article 379. It viewed that



101

P.

T
RACY
,

J.

W
ATTS
,

Exhaustion for Rights Revisited, [1996] 11 EIPR, p. 625.

102

Memorandum submitted by Glaxo Wellcome plc,

International development


Third report
, the
United Kingdom Parliament, June 29, 2000.

103

Commi
ssion Decisions 1996/318
-
324 refusing France’s, Belgium’s, Germany’s, Austria’s,
Denmark’s, Ireland’s and the United Kingdom's application for protective measures with regard to
pharmaceutical products coming from Spain, [1996] O.J. L122/20
-
26.


35

first, the pharmaceutical industries of these states are “not experiencing economic
difficulties which are liable to persist” and second, that “an increase in the volume of
imports coming from Spain woul
d not appear to be significant in the long run as to
bring about, by itself, serious economic difficulties on the pharmaceutical markets of
these countries”. Merck, Organon and Glaxo Wellcome appealed the decision,
104

but
their action for annulment was decla
red inadmissible by the Court of First Instance.


Thus, the only one possibility left for preventing parallel imports of pharmaceuticals
first marketed by the patentee or with his consent in Spain and Portugal, was the
direct challenge of European Court o
f Justice’s case law on patent exhaustion. This
has occurred in 1996 at the occasion of the joined cases
Merck v. Primecrown,
105

where
-

in essence
-

the Court was asked to review and revise its case law relating to
the exhaustion of rights, as laid down by
Merck v. Stephar.
106



The underlying facts were very similar: the applicants,
Merck and Beecham

claimed
that the defendants,
Primecrown and Europharm

had infringed their respective
patents for pharmaceuticals by parallel importing those products to the Unit
ed
Kingdom from Spain and Portugal, where no patents were available at the time the
“first marketing” occurred. The national court raised two distinct issues concerning
the interpretation of Community law: the exact duration of the transitional
arrangement

and the question, “whether the principle of the exhaustion of patent
rights, as laid down by the Court in
Merck v. Stephar
, must be reconsidered”
107

in
view of the particular circumstances at issue.


As to the exact date of expiry of the transitional period
, the Court concluded


after
having considered all the possible options proposed


that “only two dates may
reasonably be considered”,
108

namely 6 October 1995 and 31 December 1995 in the



104

Case T
-
60
/96,
Merck & Co. Inc., NV Organon and Glaxo Wellcome plc v Commission
, [1997] ECR
II
-
849.

105

Merck v. Primecrown,
supra note 1.

106

Merck v. Stephar,
supra note 84.

107

Merck v. Primecrown,
supra note 105, para 15.

108

Merck v. Primecrown,
supra note 85, para 19
.


36

case of Spain and 31 December 1994 and 31 December 1995 in the case o
f Portugal,
depending on whether “the transitional provision expired exactly three years after” or
“at the end of the third calendar year” after the date on which the products became
patentable. Thus the only interpretation, which could have had the effect

to
“circumvent” the whole problematic of parallel trade as raised by Articles 47 and 209,
namely that “the end of the third year after the
particular pharmaceutical
, protected
by a product patent in one or more Member State(s) … has become patentable”
109

sh
ould be taken as a point of reference, was even not considered to be
“reasonable”.
110

Finally, on the basis of the “general scheme and the purpose of the
regulatory system” and in particular the settled case law suggesting that “derogations
are to be interpr
eted strictly” and in line with the Opinion of Advocate General
Fennelly on this point, the Court opted for the earliest possible dates.


In relation to the crucial issue, whether it is necessary to reconsider
Merck v. Stephar
,
either in its entirety or “h
aving regard to the specific circumstances mentioned”
-
, the
applicants considered, that “there are weighty reasons for departing” from that rule.
Advocate General Fennelly perfectly agreed with all their arguments: “I am satisfied,
however, that Merck and

Stephar should no longer be applied”.
111


In support of their position, that the specific subject matter of a national patent cannot
in logic be exhausted unless the patented product is first marketed with the benefit of
patent protection, they pointed out
the
important change in the situation

since
Merck
.
Albeit “until quite recent times, the patentability of pharmaceutical products was the
exception rather than the rule in many European States”,
112

they noted that
“nowadays, such products are
patentable

in a
ll the countries of the European
Economic Area, with the exception of Iceland”.
113

This “evidence of a world
-
wide
trend” is reinforced by the emphasis Community institutions put on the
importance of



109

Merck v. Primecrown,
supra note 85, Question 1/e of the High Court of Justice of England and
Wales, emphasis added.

110

However, it has to be noted that this was perfectly in line with the judgement of the Patent County
Court in Wellcome Foundations, sup
ra page 24.

111

Opinion of Advocate General Fennelly, supra note 1, para 106.

112

Opinion of Advocate General Fennelly, supra note 1, para 79.

113

Merck v. Primecrown,
supra note 1, para 29, emphasis added.


37

pharmaceutical patents

-

for instance by proposing the intr
oduction of Supplementary
Protection Certificates. The “increasingly serious consequences” of endorsing the
“first sale consent test” would “appreciably reduce the value of patents granted in the
Community” and thus run contrary to the aim expressed in the

explanatory
memorandum to the proposal: “to improve protection of innovation” in
pharmaceuticals. Finally, relying on
Pharmon v. Hoechst

and
Warner Brothers v.
Christiansen,
both departing somewhat from the “ideal of unfettered free movement
of goods thro
ughout Europe”
114
, they argue that maintaining
Merck

would not only
empty the exclusive right conferred by a patent of much of its significance, but also
be incompatible with the later case law of the Court of Justice.


However, the Court ruled that these a
rguments are not such as to call in question the
rule laid down in
Merck
. Although it recognised the general trend, as well as the
Community efforts made in favour of a more effective protection of pharmaceuticals,
it deduced that “the situations addressed

by the ruling in
Merck

are set to
disappear”
115

and emphasised that the transitional measures were precisely adopted in
light of this judgement by common accord of the Member States. Furthermore, it has
definitely rejected that the two quoted judgements cou
ld be interpreted as calling into
question the established principles. In its view,
Pharmon
confirmed
Merck

by
emphasising the importance of a “constitutive consent”, while
Warner Brothers

was
merely concerned with the right to hire out as opposed to sell,

a specific market in the
case of copyrighted videocassettes, for which a “specific consent” would have been
required. After having thus refused the re
-
examination of the concept in
Merck
, it
went on to consider whether, on the basis of the specific circum
stances mentioned by
the national court, its scope must be restricted.


In this respect, the applicants identified several instances, which may have vitiated
their “own free will”
116

to market. First, they claimed to have “an ethical obligation”
to supply ph
armaceuticals to the Spanish and Portuguese markets and second, they



114

T
RACY
,

W
ATTS
,

supra note 102, p.628.

115

Merck v. Prime
crown,
supra note 1, para 38.

116