(Cross-posted on PatentlyO.)
On May 30, the Supreme Court surprised many of us by ruling that exhaustion of U.S. patent rights occurs even when sale of the item takes place in a foreign country. There is a great deal more to the ruling, and there are now very interesting questions about the characterization of transactions as something other than “sales” and about the use of contractual provisions to prevent resale into the United States following first sale of patented products elsewhere. But for now, let’s stop with the bare bones description: U.S. patent rights are exhausted when an item is sold overseas. This means that shipping an already-sold product into the United States for subsequent-sale to a U.S. consumer will not infringe the patents in question. Depending on how patent owners structure their transactions overseas going forward, this ruling could give U.S. consumers access to products that are intended for foreign markets and that are priced for those markets — lower, for instance.
One of the many topics circulating now: what are the implications for pharmaceutical companies and for U.S. consumers of pharmaceuticals?
I’m not taking up that issue. (Professors Lisa Ouellette and Daniel Hemel addressed it in a blog entry cross-posted at Written Description and Whatever Source Derived. And Professor Sarah Wasserman Rajec touched on it as well, at PatentlyO).
Instead, I am going to demystify the FDA framework that comes in to play. There are three basic principles to know.
First, it’s illegal to import new drugs that are not FDA approved. Section 505 of the Federal Food, Drug, and Cosmetic Act (FDCA) prohibits the introduction into interstate commerce of any “new drug” (which includes virtually every prescription drug) that is not the subject of an approved new drug application (NDA) or abbreviated new drug application (ANDA). Importation counts as introduction into interstate commerce, so the approval requirement applies. In plain English: it’s illegal to import a new drug that FDA has not approved, and most prescription drugs count as new drugs.
Second, it’s illegal to import the foreign version of a new drug that FDA has approved. Approval of a new drug is specific to that particular product, made and labeled exactly as described in the application that FDA reviewed. If a product is manufactured in a different facility from the facilities listed in the NDA, or if it is manufactured according to different specifications, it is considered an unapproved new drug — even if it is made by the same company. (Great explanation from FDA, here.)
To make this more concrete: Pfizer sells Viagra in the United States under an NDA that FDA has approved. Pfizer also sells Viagra in Europe. That drug is marketed pursuant to authorization by the European Commission on the basis of a separate marketing application that complied with European law. If the European product is made at a facility that is not listed in the U.S. application, or if it is manufactured according to different specifications, or if it is composed differently (different inactive ingredients for instance), then it cannot be imported into the United States. Certainly it is labeled in accordance with European labeling rules, and the European labeling is not the same as the FDA-approved labeling, so again it cannot be imported into the United States. In plain English: it’s illegal to import the foreign version of a company’s product, even if that same company sells an FDA-approved version to U.S. consumers. (The same great explanation from FDA, here.)
Third, all of this is true even if the drug was made in the United States. Don’t confuse where something was manufactured with which country has approved it. Companies have manufacturing facilities all over the world. Some drugs available in other countries are manufactured in the United States and then exported. Some drugs sold here are manufactured (in part or entirely) overseas. What matters for purposes of importation into the United States is whether the drug fully aligns with an NDA that the U.S. FDA has approved. If the product in question does not fully align with an approved U.S. new drug application, it is an unapproved new drug and cannot be imported.
Now things get a little more complicated.
You may be wondering . . .
What about so-called “reimportation”? Aren’t the rules different if the company brings the drug back itself? Well, yes and no. A new drug that lacks an approved NDA cannot be imported, period, full stop. But it is theoretically possible that the FDA-approved product is circulating in another country. I think this is probably a null set, but let’s suppose it is not. Suppose there is an FDA-approved product, with FDA-approved labeling, circulating in another country. Can it be imported? It depends.
Now it depends on where the drug was made. Section 801(d) of the statute — which was added in the late 1980s and appears at 21 U.S.C. 381(d) — changes that. If the product was made here and shipped overseas for a foreign market, and actually happens to be completely identical to the U.S. approved product (complies with the NDA in every respect), then the only company that can bring it back to the United States is the original manufacturer. (Check the same link as above, for FDA’s explanation.) We sometimes call these “American goods returned.”
And if that foreign-circulating FDA-approved drug wasn’t made here? Then, yes, that product can be imported by anyone. This follows from all of the rules I’ve already explained.
Here is a simpler way of putting it. The statute prohibits importation of unapproved new drugs. It permits importation of approved new drugs (as long as they don’t appear adulterated or misbranded), with one exception — American goods returned. That is: if the product was made here and shipped out of the country, then the only entity permitted to bring it back is the original manufacturer.
What about personal importation? Isn’t there a de minimis exception? If you have seen Dallas Buyers Club, you may be wondering, why did FDA allow Woodroof back into the country, once he claimed that all of the boxes in his car were for his personal use? The answer: it’s not a de minimis exception to the law; it is a long-standing policy of enforcement discretion. (See section 9-2 of the Regulatory Procedures Manual, here.)
This policy applies if the drug is clearly intended for personal use. (FDA will presume commercial use if the supply exceeds what one person would take in three months, which explains some of the exchange at the border in the movie.) More importantly for our purposes, the drug has to be intended for treatment of a serious condition for which satisfactory treatment is not available in the United States, and the drug cannot be approved in the United States. This means: as drafted, the policy does not permit you to bring back a foreign version of a drug that is actually available in the United States. No Canadian Januvia, for instance. That said, in practice, FDA doesn’t have the resources (or, I suspect, inclination) to stop those packages. But the agency does go after middlemen that set up storefronts or websites to facilitate foreign orders.
And it’s important to remember that this is an enforcement discretion policy; importation fully within the four corners of this policy is still illegal.
What about section 804 of the statute: doesn’t it explicitly authorize importation? Yes, and no. Here’s section 804. It directs FDA to promulgate regulations permitting pharmacists and wholesalers to import prescription drugs from Canada. But notice subsection (l): “this section shall become effective only if the Secretary certifies to the Congress that the implementation of this section will (A) pose no additional risk to the public’s health and safety; and (B) result in a significant reduction in the cost of covered products to the American consumer.” That certification has never happened. So it’s not in effect.
Also, notice that under 804(c) the imports in question must comply with section 505 of the statute. That’s the approval requirement. Section 804 is not about importing foreign versions of FDA approved drugs. It is an “American goods returned” provision.
So where does this leave us? The bottom line is that it is illegal to import the foreign version of a medicine approved in the United States.
And what does this have to do with Impression Products v. Lexmark? That might be a post for another day. But on the question whether the Supreme Court’s decision has thrown open the gates for access to cheaper foreign medicines, the answer is no. Not so long as the federal government enforces the law that ensures products in the U.S. distribution system are FDA-approved. But it may be important to remember that only the government can enforce this. There is no private right of action under the FDCA.