Parallel import in pharmaceuticals in Vietnam

The parallel importation of pharmaceuticals has become a critical issue in Vietnam. As a developing country with a large population, Vietnam has long viewed parallel imports as an effective antidote to the high price of innovator drugs. Still, debates linger over whether the benefits outweigh the complications.

Legal Basis for Parallel Importation

Exhaustion of rights refers to a limitation of IP rights. The IP rights associated with a product, particularly the rights of commercial exploitation, will end with the first sale of the product. Basically, there are three markets on which goods are placed: the domestic market, the regional market and the international market. The three types of market give rise to the establishment of different doctrines of rights exhaustion, which can include national exhaustion, regional exhaustion and international exhaustion.

Vietnam expressly adopts the regime of international exhaustion with regard to industrial property rights (patent, trademark, industrial design, etc.). Under Article 125.2(b) of the IP Law, IP owners may not prevent others from “circulating, importing or utilizing products which have been legally put on the market, including foreign markets, unless such products were put on the market by someone other than the trademark owner or its licensees”. Under this regulation, IP owners no longer control the commercial exploitation of goods that legally make their market debut in any part of the world. Consequently, the owners cannot oppose the subsequent commercial exploitation of the goods, which can include the importation of the goods into Vietnam. In other words, parallel importation is allowed.

Vietnam still leaves the concept of copyright exhaustion ambiguous. It is not clear whether it is legal for someone other than the copyright holder to import or distribute originals or copies of copyrighted works which have legally entered the market, including foreign markets. However, IP practitioners have reached the consensus that since there is no statutory limitation on the subsequent distribution of the copyrighted works, the international exhaustion of copyrights must be applied. In connection with this, copyrights subsisting in pharmaceuticals, such as copyrights to the original packaging of the products, will end upon the first sale of the drugs on any market anywhere in the world.

Specific Regulations on Parallel Importation of Drugs

As a developing country, Vietnam places great weight on the affordability of medicine. Given the increasing demands for innovator drugs, in 2004, the Ministry of Health introduced Decision No. 1906/2004/QD-BYT, specifically authorizing the parallel importation of medicines for the prevention and treatment of human diseases. This decision covers medicines with the same specific names as medicines already granted registration numbers for circulation in Vietnam, when the foreign producers set the prices of such medicines lower in another country than in Vietnam.

This decision was in line with the regime of international exhaustion of rights that Vietnam applies. Vietnam expected that it would help eliminate the price discrimination in segmented markets set out by the IP owners by allowing Vietnamese importers outside of the IP owners’ distribution channels to purchase drugs from the cheapest overseas sources. Accordingly, Vietnamese patients would gain access to innovator drugs at low prices. Still, these regulations have triggered debates over whether the benefits provided by parallel-imported drugs could be outnumbered by the problems caused.

Predicaments and Challenges Posed by Parallel Imports

Parallel imports of pharmaceuticals can put the public health at risk, as the quality of the drugs is not guaranteed. In theory, the Drug Administration of Vietnam (DAV), when weighing the decision to grant a parallel import license, will focus on the price and the name of the drugs, but not the quality. In practice, producers could manufacture different medicines under the same trademark for different markets, contingent on the different tastes and demands of those markets. In addition, the standards associated with the drugs, such as storage requirements, could vary from market to market. Thus, allowing parallel importation purely based on the name of the drugs could negatively impact consumers’ health.

In a recent case, the competent authority detected some drugs parallel-imported into Vietnam which had been manufactured for the Turkish market. While the drugs were “genuine” products of the manufacturer, Turkey requires different standards for storage than Vietnam, and the quality of the drugs could deteriorate more rapidly in Vietnam’s tropical climate. With a view to protecting the public health, the authorities decided to sanction the distribution of the parallel imports by relying on regulatory aspects, especially labelling regulations.

Economic concerns also arise relating to grey-market drugs. Under Decision No. 1906/2004/QD-BYT, the crucial condition for approval of parallel importation is the low cost of the drugs. The wholesale and retail prices of the drugs, as determined by the parallel importers, must be lower than the prices of the drugs distributed under the control of the producer. However, the DAV has not specified how these prices should be set. Parallel importers could take advantage of the lack of regulations by setting prices that are just slightly lower than the white-market prices, regardless of the actual price savings found in the source country. Consequently, the parallel importers would be generating large profits for themselves while the Vietnamese buying public would see only minimal savings.

Some IP owners argue that parallel importation could diminish their profits, thereby reducing research and development efforts, and leading to a slowdown in the innovation of new drugs. Additionally, given the reduced profits, the producers might consider not distributing their newest innovator drugs to Vietnam. Consequently, the access to new drugs by Vietnamese people could be impaired.

The affordability of drugs that comes with parallel importation is an undeniable benefit. However, the health authorities should also take into account the risks, especially the threat to public health, posed by grey-market drugs when granting licenses for parallel importation. In the future, it is expected that Vietnam will lay down further regulations on parallel importation to the effect that the quality of the imported drugs as well as the post-sale responsibility are guaranteed.

Authors: Linh Duy Mai and Loc Xuan Le

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