MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

INTELLECTUAL PROPERTY
REPORT
TOPIC:

IMPACT OF EXHAUSTION OF INTELLECTUAL

PROPERTY RIGHT ON PHARMACEUTICAL
INDUSTRY IN VIETNAM
GROUP MEMBER:
Vũ Hoài Sơn 1311150115

Bùi Hà Phương 1317150109

Nguyễn Văn Thắ ng 1211110583

Hanoi, September 2015

 TABLE OF CONTENTS

I. INTRODUCTION ......................................................................................................... 1

I.1. Subject of the report ................................................................................................ 1

I.2. Objectives ................................................................................................................ 1

I.3. Literature Review .................................................................................................... 3

I.4. Methodology ........................................................................................................... 6

II. OVERVIEW OF EXHAUSTION OF IPRS .................................................................. 6

II.1. Definition of Exhaustion of Intellectual Property Rights: ...................................... 6

II.2. Types of exhaustion of IPRs: .................................................................................. 8

II.3. TRIPS Agreement and Exhaustion Principle: ......................................................... 9

II.4. Exhaustion in multilateral Agreements: ................................................................ 10

III. EXHAUSTION OF IPRS IN VIETNAM ................................................................ 12

III.1. Legal system in Vietnam about exhaustion of IPRs:......................................... 12

III.1.1. To patent and trademark: ........................................................................... 12

III.1.2. To copyright: .............................................................................................. 13

III.2. Overview of pharmaceutical industry in Vietnam............................................. 13

III.3. Impacts of parallel trade of patented pharmaceutical products on Vietnam: .... 14

III.3.1. Vietnamese law of parallel trade of patented pharmaceutical: .................. 14

III.3.2. Impact of parallel trade of patented pharmaceutical: ................................. 15

III.3.3. The Tamiflu case in Vietnam ..................................................................... 17

III.4. Issue related to Vietnam situation ..................................................................... 19

III.5. Policy recommendations ................................................................................... 20

IV. CONCLUSION ......................................................................................................... 22

V. REFERENCE............................................................................................................... 24
I. INTRODUCTION

I.1. Subject of the report

The exhaustion of intellectual property rights represents one of the limits of intellectual

property (IP) rights. After a product covered by an IP right, such as by a patent right, has

been sold by the IP right owner or by others with the consent of the owner, the IP right is

said to be exhausted and it can no longer be exercised by the owner. The rationale behind

the uncontroversial concept of national exhaustion is that, once the IP right owner has

recouped the whole benefit of the IP right from the first sale, there should not be any

encumbrance on the purchaser's rights regarding the particular product in the domestic

market where the product was first sold. As a consequence, this kind of limitation of

intellectual property leads to parallel import, which are legitimately produced goods

imported legally into a country without the authorization of a trademark, copyright, or

patent holder. The exhaustion of such IP has a direct impact on parallel trade in Viet Nam,

especially in the pharmaceutical industry in Vietnam. For many recent years, parallel trade

of prescription drugs has been an important issue for the pharmaceutical industry and

numerous policy institutions of developing countries in general and Vietnam in particular.

The subject matter in this report will mainly be about the exhaustion doctrine that Vietnam

has adopted nowdadays, parallel import into Vietnamese market with respect to

pharmaceutical goods and services, and the application of compulsory licensing in dispute

settlement.

I.2. Objectives

Pharmaceutical parallel imports, which are highly related to the exhaustion of IP rights, are

defined as the legal importation into a country where a patent has been registered for the

same product which is patented and legally marketed in another country without the

authorization ofthe patent holder. In the US, there have been proposals in the United States

to permit parallel imports of pharmaceuticals from Canada (and other countries) in the last

several years. Not only the US is considering changes to legality of parallel trade, other

Intellectual Property Mid-term Report Page 1

developed contries such as Switzerland, New Zealand and Australia are taking the

modification of laws and policies on parallel trade into consideration.

However, concern arose about access to treatments and the widespread use of price

regulation for medical treatment makes the issue of parallel trade more and more popular

in the pharmaceutical industry. In Vietnam, patients or medicine consumers and policy

makers have grown increasingly concern about the relative price of the patented and

branded drugs manufactured exclusively by foreign pharmaceutical firms. Importantly, the

majority of the Vietnamsese population belong to the working class so their contemporary

wages can not help them afford such drugs once they get ill. This report will focus on the

in-depth research on the exhaustion legal framework in Vietnam, how does this legality

affect the parallel import of pharmaceutical medicines into Vietnamese market. In the

effort to reduce the price of medical drugs to an affordable level, the State has approved a

measure that, instead of using drugs made by foreign firms as before, Vietnamese

importers have the right to use parallel import for such products, with a much cheaper price

from other countries. Parellel import, which is an instrument and whose legal basis is the

exhaustion of IP right, particularly patent exhaustion in this case, plays an very effective

role in the solution for the problems occuring in the pharmaceutical industry in Vietnam.

However, there exists some arguments that whether parallel import as an application of

exhaustion doctrine is really necessary. There is a rising concern about the two major

public policy objectives: innovation and developement of new medicines, on the other

hand, the short-run strategy for improving health care system as well as broad access to

existing medicines. In this research, we will try to figure out whether the adoption of

exhaustion of IP, or in other words, the first sale doctrine has made significant impact,

positive or negative, on the social welfare and economic development in Vietnam.

Intellectual Property Mid-term Report Page 2

I.3. Literature Review

The subject of exhaustion of IPR and had been presented in various studies. Some of

these important studies have been critically reviewed to develop objectives in the

context of some European counties, and further, to analyze it to draw some important

conclusions and policy recommendations. The massive literature on exhaustion of IP or

parallel import has shown various types of effects such as positive, no effects or

ambiguous in various countries.

Mattias Ganslandt and Keith E. Maskus (2004) examined the relationship between parallel

imports and the Pricing of Pharmaceutical Products in the context of European Union.

Their research highly concentrated on the issues regarding the exhaustion of patent

products, which were embodied in the act of parallel import, in the EU, a place where

parallel trade is permitted. The two economists proposed a simple assumption that original

pharceutical manufacturers compete in their home market with firms exercising parallel

import. Suggestion from the model used in this research indicated that for a small volume

of trade cost, the original drug manufacturers will be influenced by the decisions of parallel

traders and there was a negative linkage that the price in the home market falls as the

volume of parallel imports rises. By collecting the statistics on the drugs price in the region

from the period 1994 to 1994 and using econometric analysis, they had fianally found that

once the exhaustion of patented product came into the provision of the EU laws, the price

of the drugs subject to competition from parallel imports fell relatively to other drugs.

Therefore, they concluded that the exhaustion doctrine significantly reduced the

manufacturing price, by from 12 to 19 per cent.

The article Intellectual property protection: impact on public health published as WHO

Drug Information Vol 19, No. 3, 2005 stated that The World Trade Organization (WTO)

drew up the Doha Declaration in 2001 to clarify ambiguities between the need for

governments to apply the principles of public health and the terms of the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS). In particular, concerns had

Intellectual Property Mid-term Report Page 3

been growing that patent rules might restrict access to affordable medicines for populations

in developing countries in their efforts to control diseases of public health importance, such

as HIV, tuberculosis and malaria. The HIV epidemic and consequent urgency to make

treatment available for millions of people raised the issue of affordability of antiviral

therapy. When patent-protected antiviral treatments were first introduced, the cost was

over US$ 10 000 per patient per year, excluding the possibility of the vast majority of HIV

patients to receive proper treatment in developing countries where over three billion people

have to make a subsistent living with less than US$ 2 a day. Although efforts have been

made to reduce prices by pharmaceutical companies, including proposed donation

programmes or heavy discounts, the scale of the crisis in developing countries clearly

demanded a more systematic and sustainable strategy. The Doha Declaration refers to

several aspects of TRIPS, including the right to grant compulsory licenses and the freedom

to determine the grounds upon which licences are granted, the right to determine what

constitutes a national emergency and circumstances of extreme urgency, and the freedom

to establish the regime of exhaustion of intellectual property rights. The current minimum

standards of emergency in the TRIPS Agreement which was historically derived from

those of developed countries may not necessarily be appropriate for developing countries

struggling to meet health and development needs nowadays. The new obligations have

dramatically changed the legal framework for the production, supply and access to

affordable medicines in developing countries. In the end, the article concluded that there

remain major challenges for developing countries to interpret and implement the TRIPS

Agreement and other intellectual property rules in a manner supportive of their efforts to

protect public health and promote access to medicines for all.

Tran Viet Dung, Le Thi Nam Giang, and Nguyen Nhu Quynh carried out a research paper

named VIETNAM - A CASE STUDY FOR SUSTAINABLE TECHNOLOGY TRANSFER.

The paper mainly researched the relationship between intellectual property protection and

promotion of technology transfer in developing countries. The paper expicitly said that the

TRIPS Agreement has provided the WTO member countries great opportunities and

flexibilities for approaching different measures within their legal systems and practices,

Intellectual Property Mid-term Report Page 4

including, but not limited to, granting compulsory licenses and parallel import

licenses, in order to promote public interest goals such as health, nutrition and

environmental conservation. More over, the TRIPS Agreement establishes minimum

standards of protection and enforcement of intellectual property rights within the WTO

system. It also sets up a global legal framework for promoting and encouraging technology

transfer, especially from developed countries to developing ones. Developing countries

should take advantage of these flexibilities in an appropriate manner to maximize the

benefits of domestic competition and minimize the social costs of adopting a strong IP

regime required by the TRIPS Agreement. The paper took Vietnam case as an example of

the exhaustion of intellectual property, compulsory licensing and parallel import trends in

the pharmaceutical field. After nearly 20 years of Renovation, Vietnam has made

tremendous efforts toimprove and develop the laws in Intellectual Property in order to

comply with the substantive minimum standards of IP protection under the TRIPS

Agreement, and further promote creative activities, facilitate technology transfer, and

enhance the competitiveness of the economy. The prominent case study was the Tamiflu,

which is an antiviral medicien for the treatment of influenza which was invented and

patented by Gilead, a US based company. This kind of medicine helps to prevent the

influenza from spreading inside a human body and is designed to be active against all

relevant influenza virus. However, the price for such treatment was so prohibitive that the

Vietnamese patients could not afford to receive the treatment. Therefore the Drug

Administration of Vietnam requested the Ministry of Health to negotiate with the US

companies for the parallel import of Tamiflu into Vietnamese drug market. At first, the US

company refused to negotiate but after the Vietnamese government threatened to apply the

provisions relating to the exhaustion of IP right in Vietnamese Law on Intellectual

Property Right to request compulsory licensing. Under such high pressure, the US

company has no alternative but to agree to discuss the sublicensing arrangements with

Vietnamese companies interested in producing generic versions of Tamiflu. This team

research has reached to an important conclusion that there are cases in respect with the

exhaustion of Intellectual Property and the parallel import have been utilised in Vietnam

by competent state authorities. The Tamiflu case, in particular, and the exhaustion doctrine

Intellectual Property Mid-term Report Page 5

of patent, in general, proved the effectiveness of parallel import as a tool to access

technology and scientific innovation for the public interest. Finally, if there is reasonable

balance between intellectual property protection and fair competition, it will not only

encourage innovation but also economic growth.

I.4. Methodology

In order to pursue and evaluate the the effect of exhaustion of IP/ parallel trade on

pharmaceutical industry in Vietnam, we should have developed a methodology that allows

accurate estimation. This methodoly may include collecting data, number, running the

estimation analysis and conclude the result. However, we encountered some difficulties

finding the source of data and it seem reasonably unavailable for us. So we have to resort

to another way. We studied the exhaustion system and the parallel import mechanism in

many international agreements such as the TRIPS Agreement, multilateral agreement to

compare the similarities and differences of such agreement, in a way that help to find out

which exhaustion doctrine would be best applied in Vietnam legal status. We also

reviewed some of the papers, reports which studied the same or similar subject as our

report to have full understanding of what we were going to write. In this report, we have

already collected a bunch of infomation on many subject related to international trade such

as exhaustion of intellectual property right, parallel trade, and compulsory licensing.

Moreover, some actual cases were investigated as a way to show the evidence whether the

effect of exhaustion of IP is significantly important on pharmaceutical field.

II. OVERVIEW OF EXHAUSTION OF IPRS

II.1. Definition of Exhaustion of Intellectual Property Rights:

According to WIPO’s definition, the exhaustion doctrine in intellectual property law

generally aims to limit the rights of a patent, copyright or trademark owner (“IP Owner”)

to control the disposition of products after the products have been sold by or under the

Intellectual Property Mid-term Report Page 6

authority of the IP Owner. It is a concept whereby an intellectual property owner will lose

or exhaust certain rights after the first use of the IP-protected subject matter. In other

words, once the rightholder has been able to obtain an economic return from the first sale

or placing on the market, the purchaser or transferee of the good or service is entitled to

use and dispose of it without further restriction. Exhaustion means the consumption of

rights in intellectual property subject matter as a consequence of the legitimate transfer of

the title in the tangible article that incorporates or bears the intellectual property asset in

question. Exhaustion, therefore, is a natural consequence of the intangible nature of the

assets covered by intellectual property, such as expressions, knowledge, reputation,

quality, origin. Because of their intangible nature, they do not follow the tangible article

with which they are associated.

For example, consider a motorbike labelled with the famous Honda trademark. Because

the Honda Company holds rights to that mark, it may prevent others from first-selling the

motorbike without its consent. If you buy the motorbike from an authorized first-seller, the

Honda Company’s right in its trademark is exhausted, and it cannot prevent you from

using the motorbike, or from giving or selling the motorbike to someone else. The

trademark holder has lost its right to control further disposition of the product. However,

you should bear in mind that your purchase of the motorbike does not authorize you to

begin making your own motorbike of Honda, or licensing the mark to others. In other

words, the first sale does not grant you rights in the trademark, but rather it ends the Honda

Company’s entitlement to control movement of that particular motorbike.

The exhaustion doctrine is also known as the first sale doctrine in the United States. The

first sale doctrine only applies to copyright, which indicates that a person can re-sell copies

of copyrighted works which were obtained legitimately i.e such copies were originally

produced by, or with the permission of, the copyright owner. It is generally considered

legal, therefore, to re-sell a copyrighted work. A purchaser has the right to sell a

copyrighted work ( or a specific copy of the work) without permission once the work has

Intellectual Property Mid-term Report Page 7

been lawfully obtained. However, the first doctrine does not mean that you can reproduce

the work, create derivative works, or publicly perform the work.

II.2. Types of exhaustion of IPRs:

The different forms of exhaustion with respect to their scope are: international, regional

and national.

 If a country recognizes a doctrine of “national” exhaustion, an IPR holder’s right to

control movement of a good or service is only ended by the first-sale or marketing

of a good or service within the territory of that country.

Under national exhaustion, certain rights are extinguished after a domestic sale of a

product covered by IPR. In order for the sale to exhaust exclusive rights, it must be

an authorized sale by either the IPR owner or a licensee. Importantly, for a patented

product, national exhaustion only extinguishes the right to use, offer for sale, and

sell that particular product. Likewise, for a copyrighted product, national

exhaustion will extinguish the distribution right for that product but will not affect

the other rights. The rationale behind the doctrine is that the IPR owner has

received the full benefit of the IPR from the first sale. Thus, the purchaser should

receive unencumbered ownership rights in that particular product. National

exhaustion is a straightforward and uncontroversial doctrine that is nearly

universally recognized.

 If a country recognizes a doctrine of “regional” exhaustion, an IPR holder’s right to

control movement is ended when a good or service is first sold or marketed in any

country of the region.

 If a country recognizes a doctrine of “international exhaustion”, an IPR holder’s

right to control movement is ended when a good or service is first sold or marketed

anywhere in the world.

Intellectual Property Mid-term Report Page 8

Conversely, international exhaustion is a far more contentious doctrine because of its effect

on parallel imports. Parallel imports, or grey market goods as they are sometimes referred,

are not fake or counterfeit goods. Instead, parallel imports are goods that are sold

internationally by a patent owner (or a licensee) and then subsequently imported without

their permission. The products are genuine: they are made by or under the authority of the

IPR owner. Parallel imports normally occur when there is serious debate concerning

whether granting IPR holders the power to segregate markets is good or bad from various

perspectives – economic, social, political and cultural. From the view of those favouring

open markets and competition, it may appear fundamentally inconsistent to permit

intellectual property to serve as a mechanism to inhibit trade. Yet IPR holders argue that

there are positive dimensions to market segregation, and price discrimination as well.

There was extensive discussion of the exhaustion issue in GATT TRIPS negotiations, but

governments did not come close to agreeing upon a single set of exhaustion rules for the

new WTO. They instead agreed that each WTO Member would be entitled to adopt its own

exhaustion policy and rules. This agreement was embodied in Article 6, preventing

anything in that agreement from being used to address the exhaustion of rights in dispute

settlement, subject to the TRIPS provisions on national and MFN treatment.

The flow of goods and services across borders is significantly affected by the exhaustion

doctrine that WTO Members choose to adopt. Under a doctrine of international exhaustion,

goods and services flow freely across borders after they have been first sold or placed on

the market under certain conditions anywhere in the world. Under a doctrine of national

exhaustion, the movement of goods and services may be blocked by IPR holders. Under

national exhaustion, IPR holders have the power to segregate markets. There is

considerable debate concerning whether granting IPR holders the power to segregate

markets is good or bad from various perspectives – economic, social, political and cultural.

II.3. TRIPS Agreement and Exhaustion Principle:

Intellectual Property Mid-term Report Page 9

Many people, especially specialists from the USA have given voice to exhaustion principle

to reach a settlement while GATT Uruguay Round deliberation continued. As a natural

result of liberalization of international trade in the contexts of TRIPS , it had been

defended that international exhaustion should be accepted. However, due to the fact that

disagreements related to this subject have become so enormous, which prevents reaching a

settlement, whole of the agreements faced the risk of not being accepted. Against this risk,

TRIPS did not predict a direct arrangement related to exhaustion principle.

Article 6 of the TRIPS Agreement reads: “For the purposes of dispute settlement under

this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement

shall be used to address the issue of the exhaustion of intellectual property rights.” This

article in TRIPS Agreement in fact represents the settlement could be reached ( or could

not be reached) between parties involved in Uruguay Round. In these discussions, different

countries have different exhaustion priciples. In this framework, as developing countries

want to pursue a more liberal regime, EU insisted on regional exhaustion principle.

In framework of this provison, the parties of the Agreement accepted that exhaustion

principle had not been arranged in the scope of this Agreement and every country is free in

this subject. After acceptance of this Agreement, debates in order to change the

Agreement related to acceptance of exhaustion principle in global continued.

II.4. Exhaustion in multilateral Agreements:

At the multilateral level, exhaustion is explicitly covered by provisions found in four

treaties, two of which are administered by WIPO: the United Nations Set of Principles and

Rules on Competition, of 1980 (1); the Agreement on Trade-Related Aspects of

Intellectual Property Rights (the TRIPS Agreement) , of 1994 (2); the WCT, of 1996 (3);

and the WPPT, of 1996 (4):

(1) Section D(4)(e) of the UN Set reads: “Enterprises should refrain from the

following acts or behavior in a relevant market when, through an abuse or

acquisition and abuse of a dominant position of market power, they limit access to

Intellectual Property Mid-term Report Page 10

 markets or otherwise unduly restrain competition, having or being likely to have

adverse effects on international trade, particularly that of developing countries, and

on the economic development of these countries: […]

(e) Restrictions on the importation of goods which have been legitimately marked

abroad with a trademark identical with or similar to the trademark protected as to

identical or similar goods in the importing country where the trademarks in

question are of the same origin, i.e. belong to the same owner or are used by

enterprises between which there is economic, organizational, managerial or legal

interdependence and where the purpose of such restrictions is to maintain

artificially high prices; […].”

(2) Article 6 of the TRIPS Agreement reads: “For the purposes of dispute

settlement under this Agreement, subject to the provisions of Articles 3 and 4,

nothing in this Agreement shall be used to address the issue of the exhaustion of

intellectual property rights.”

Paragraph 4(d) of the Declaration on the TRIPS Agreement and Public Health

(WT/MIN(01)/DEC/2, of November 20, 2001), reads: “The effect of the provisions

in the TRIPS Agreement that are relevant to the exhaustion of intellectual property

rights is to leave each Member free to establish its own regime for such exhaustion

without challenge, subject to the MFN and national treatment provisions of Articles

3 and 4.”

(3) Article 6 of the WCT, on the Right of Distribution, reads:

“Authors of literary and artistic works shall enjoy the exclusive right of authorizing

the making available to the public of the original and copies of their works through

sale or other transfer of ownership.

Nothing in this Treaty shall affect the freedom of Contracting Parties to determine

the conditions, if any, under which the exhaustion of the right in paragraph above

applies after the first sale or other transfer of ownership ofthe original or a copy of

the work with the authorization of the author.”

Intellectual Property Mid-term Report Page 11

 An agreed statement clarifies that this provision refers “exclusively to fixed copies

that can be put into circulation as tangible objects.”

(4) Paragraphs (2) of Articles 8 and 12 of the WPPT have the same language as

Article 6.2 of the WCT, even if applied to different rights, as already noted above.

The Paris Convention contains two provisions that may have an impact on the

setting of exhaustion regimes. Those provisions are found in Articles 4bis, on the

independence of patents granted in different territories for the same invention and

Article 6(3), on the independence of trademarks registered in different countries of

the Union.

Afterall, the way these treaties interact is not clear, because, given their different purpose

and scope, those provisions may have different meanings. It can be submitted that current

international law does not provide guidance as to how WIPO Member States could use

exhaustion to address anticompetitive practices in the field of IP. The only treaty that

makes that connection explicitly is the UN Set, but the value of its recommendation is very

limited to the extent it is linked to an issue of international pricing and suggests the

application of a number of restrictive caveats, as noted above

III. EXHAUSTION OF IPRS IN VIETNAM

III.1. Legal system in Vietnam about exhaustion of IPRs:

III.1.1. To patent and trademark:

The most important point about exhaustion of IPRs to owners of industrial products is

mentioned in Article 125.2.b Intellectual Property Rights in Vietnam 2005, which states

that: “Owners of industrial property objects as well as organizations and individuals

granted the right to use or the right to manage geographical indications shall not have the

right to prevent others from circulating, importing, exploiting utilities of products having

Intellectual Property Mid-term Report Page 12

been lawfully put on the market, including overseas markets, except for products put on the

overseas markets not by the mark owners or their licensees”

According to clause 2, Article 21, decree 103/2006/ND-CP. “Products lawfully put on the

market, including overseas markets” can be understood in the sense that they are products

already put on the domestic or overseas market by owners, licensees, including licensees

under compulsory licensing decisions, or persons with the right to prior use of industrial

property objects. Therefore, the owners of industrial property subjects cannot prevents

other owners from circulating, importing, exploiting utilities of products, but do have the

rights to prevent others from doing these actions when they are not the owner of the brand

or these products are not sold on the market.

We can conclude that Vietnam adopts the international exhaustion principle to the owners

of industrial property objects with a special emphasis on patent and trademark.

III.1.2. To copyright:

According to clause 1, article 20 in Vietnamese Intellectual Property Law 2005, owners of

copyright can ‘distribute or import original works or copies thereof’. However, it does not

state that whether parallel import of original works or copies thereof is against the law or

not. Moreover, parallel trade between products protected by copyright is not mentioned in

the acts of infringing upon copyright ( Article 28, Vietnamese IPRs Law 2005). Therefore,

it is not clear whether parallel import in products protected by copyright is legal or not.

III.2. Overview of pharmaceutical industry in Vietnam

Parallel trade in patented pharmaceuticals has so far been one of the most heatedly

debated topics. As a consequence of the international exhaustion of patent, multi-national

pharmaceutical companies complain that parallel trade of patented pharmaceuticals denies

them adequate protection of their patent rights and prevents them from recouping the costs

of pharmaceutical development including research and development (R&D), regulatory

approval and amortization of the cost of unsuccessful drug development. In contrast, the

developing (and least developed) countries, suffering from the burdens of high disease

Intellectual Property Mid-term Report Page 13

levels and lack of resources to pay for high priced medicines, support liberalization of the

parallel trade in patented pharmaceuticals to fulfil basic human needs. In addition,

developing countries have a greater focus on consumer interests, social welfare and health

care policy concerns. The puzzle, therefore, is how to fully understand the differences and

how to harmonize the interests of the multi-national pharmaceutical companies with those

of developing countries.

III.3. Impacts of parallel trade of patented pharmaceutical products on

Vietnam:

III.3.1. Vietnamese law of parallel trade of patented pharmaceutical:

Vietnam has adopted the regime of international exhaustion and, of course, parallel import

of patented pharmaceutical, which benefited both Vietnamese citizens and corporations in

which peple can buy the imported products at a cheaper price. However, the price of

pharmaceutical products is still very high.

According to Decision 1906/2004/QĐ-BYT, parallel import of medicines means the

import of medicines which have the same specific names as medicines already granted

registration numbers for circulation in Vietnam when the foreign pharmaceutical

companies set the prices of such medicines in the exporting country lower than those in

Vietnam, specifically:

1. Import of medicines which have the same specific names as medicines already granted

registration numbers in Vietnam but are manufactured by different manufacturer of the

same pharmaceutical-manufacturing company or group. These medicines are supplied by

the manufacturers themselves or by other suppliers.

For example: If two manufacturers A and B of the same pharmaceutical-manufacturing

company or group manufacture of the same product S. Product S of manufacturer A has

been granted a registration number in Vietnam and is currently on sale in the Vietnamese

market at the price G1. Product S of manufacturer B has not been granted a registration
number in Vietnam and is currently on sale in another country at the price G2. If the price

Intellectual Property Mid-term Report Page 14

G2 is lower than the price G1, a Vietnamese importer may purchase product S in such

country for sale in Vietnam at the price G3, provided that the price G3 is always lower than

the price G1 (G3<G1).

2. Import of medicines which have the same specific names as medicines already granted

registration numbers in Vietnam and are manufactured by the same manufacturer in the

same country but are supplied from different countries.

For example: Manufacturer X manufactures products S, which has been granted a

registration number and is currently on sale in the Vietnamese market at the price G1.

Product S is, however, sold by manufacturer X into country A at the price G 2. If the price

G2 is lower than the price G1, a Vietnamese importer may import product S from country A

for sale in Vietnam at the price G3, provided that G3 is always lower than G1 (G3<G1).

III.3.2. Impact of parallel trade of patented pharmaceutical:

Parallel trade in patented pharmaceuticals, to a certain extent, has had an impact on the

price of pharmaceuticals, the availability of pharmaceuticals; patent holders’ profits and

investment in R&D, foreign direct investment, and technology transfer in the health area,

competition, counterfeiting and the quality of pharmaceuticals, and trade relations. In other

words, it may have effects on patent holders’ interests, consumers’ interests, the

development of local pharmaceutical industry, and the flow of pharmaceuticals crossing

borders.

First, parallel imports of patented pharmaceuticals help to solve the most serious health
concerns of Vietnamese citizens. They are: reducing the price of pharmaceuticals;

increasing the availability of pharmaceuticals; fostering imports in order to goals of export;

fostering parallel exports; increasing the capacity of domestic manufacturers; and

improving the population’s material and spiritual life. Parallel imports can be used by

domestic producers to access basic inputs at lower prices than those charged locally by IPR

holders. Potentially, consumers may gain much from parallel imports of pharmaceuticals.

By increasing the options for alternative supplies of products, parallel imports permit

consumers access to the products they need from different markets at lower prices than

Intellectual Property Mid-term Report Page 15

those charged in the local market. Hospitals, pharmacies, and health insurance companies

can potentially lower the price at which they can acquire pharmaceuticals as a result of the

lower prices from parallel import sources. Regarding retailers, wholesalers, and traders,

parallel imports allow them to obtain IPR protected pharmaceuticals directly from multiple

overseas sources. This may offer better prices to consumers than the prices charged by the

local authorized distributors.

Second, parallel trade in patented pharmaceuticals has advantages in comparison with

other solutions. As mentioned before, TRIPS provides several options to countries to solve

the questions of high pirce and low availability of pharmaceuticals such as compulsory

licensing, parallel imports, and production of generic goods. Benefits from these solutions

vary for countries dependent upon their technological development and the capacity of

their domestic pharmaceutical industry. However, generally speaking, parallel trade in

pharmaceuticals demonstrates benefits Vietnam as a good alternative. In order to apply the

solution of compulsory licensing, countries must meet the strict conditions listed in TRIPS

Article 31 and have a pharmaceutical production capability. Most developing countries,

including Vietnam, have trouble coping with the difficulties of insufficient capacity of

technology and raw materials used for producing drugs when compulsory licensing is

authorised and production of generic drugs is allowed. Many developing and least

developed countries do not have a generic drug industry and thus, may have to rely on

imports. Furthermore, almost all countries in the world regulate the prices of

pharmaceuticals particularly of patented pharmaceuticals, through review mechanisms or

cost-reimbursement limitations or through administratively fixed cost-plus prices. This

policy instrument is not prohibited under TRIPS. India, for example, has established a

complex, and relatively inefficient, system of administrative price controls. However, the

cost of effectively administering such a system may well outweigh the benefits. Reference

pricing systems may lead to uniformly higher global prices and strictly enforced regulation

could lead to shortfalls in the availability of essential medicines. It should be stressed that

parallel imports only cannot help to address the concerns, but these solutions should be

combined for the best benefits.

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Third, negative effects of parallel trade of patented pharmaceuticals may be lessened.

Admittedly, parallel trade of pharmaceuticals contains costs to Vietnam, particularly the

problems of counterfeit, low quality of pharmaceuticals, a shortage of pharmaceuticals in

case of parallel exports, and pressures on unreasonable pressure and reciprocal conditions

from developed countries.

Finally but yet significantly, parallel trade in pharmaceuticals benefits the entire global
community. Increasing access to essential pharmaceuticals for communicable diseases,

such as drugs for the treatment of HIV/AIDS, tuberculosis, and malaria, benefits not only

Vietnam but also the rest of the world. Undoubtedly, the more available affordable drug

treatments are, the less risk of infection world-wide.

III.3.3. The Tamiflu case in Vietnam

Tamiflu is an antiviral medicine for the treatment of influenza which was invented and

patented by Gilead Science, which is located in the US. The main function of Tamiflu is to

prevent the influenza virus from spreading inside a human body. Also, Tamiflu is the

primary medicine used for the prevention and treament of avian influenza, which is

commonly known as the bird-flu. Hoffmann- La Roched Ltd. purchased a license from

Gilead in 1996 for the exclusive right to develop the market of Tamiflu and became the

only pharmaceutical company authorize to manufacture and distribute the medicine

worldwide.

In 2003, the first case acquiring the bird-flu was recorded in Vietnam. The epidemic then

spread rapidly not only in Vietnam but also in many other countries in Asia. Vietnam was

among the most severely affected by the virus H5N1 and the outbreak rapidly extended to

all part of the country. The annoucement of the Ministry of Health (MOH) stated explicitly

that by November 2005, there were 91 patients, 41 of which had already died. Under such

urgent situation, the country was required to stockpile a large amount of Tamiflu to deal

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with the increasing extension of the H5N1 virus. However, the demand for the Tamiflu

was so enormous that the Roche company failed to supply the medicine for everyone.

In Octobor 2005, the Drug Administration of Vietnam (DAV) required the MOH to

approve the urgent action for the local production of Tamiflu in local territory due to the

scarcity of the medicine on the market. Initial meeting between DAV and Roche for

negotiating to ease the monopoly power in Vietnam and to permit local pharmaceutical

company to produce generic versions of Tamiflu ended in failure. As a consequence of the

emergency, the MOH had no alternative but to threaten to grant compulsory licensing for

Tamiflu production on the basis of Article 802 in the Civil Code 1995 which meant that the

competent State authority may order the patentee or the holder if invention to transfer the

right to use the inventions, utility solution and industrial designs to the person who is in the

need of anything mentioned above if “The use of such industrial property is necessary to

meet the needs of national defence, national security, health or other urgent needs of

society”. This case fell into the category of public health so that the MOH has the right to

use the production of Tamiflu without the Roche’s permission. Therefore, the MOH could

allow the third party to use the patented invention without the authorization of the patent

holder. Roche had to reach to a compromise where it agreed to grant sub-license of

production of Tamiflu to the MOH. Moreover, Roch would support Vietnamsese producers

with relevant technology and raw material so that they can start manufacturing the

medicine successfully.

The Tamiflu case provides several important observations on the policy approach of

Vietnamese government in relation to protection of the benefit of the IPR holder and the

public access to such inventions. It should be noted Vietnam follows the international

exhaustion doctrine so that the action of the MOH could be considered legitimately right.

Through this case, we can see a lot of shortcomings in the Vietnamese legal framework

relating to intellectual property rights. Since the Tamiflu case the legal framework for

application of compulsory licensing in Vietnam has been improved significantly. The

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matter is now regulated under the Intellectual Property Law and the regulatory

guidelines for detailed implementation of the law. The Intellectual Property Law provides

principles for the state policy for the protection of IPRs in general, and the application

of compulsory licensing. Pursuant to these principles, the exercise of IPRs must not

infringe the interests of the State, the public interest or the legitimate rights and interests

of other organizations and individuals, and must not breach other relevant provisions

of law. The state recognizes and protects IPRs held by organizations and individuals

on the basis of ensuring the equal benefits to both rights holders and the public interest.

The State also has the right to prohibit or limit IPR holders from the use of or exercise of

their rights, or compel them to grant licenses to other organizations, individuals

for one or more of their rights under appropriate circumstances.

III.4. Issue related to Vietnam situation

Vietnam in connection with the fulfilment of its established national development strategy

and in order to meet the requirements of economic integration has developed a relatively

comprehensive legal framework for compulsory licensing. However, Vietnam has yet

utilised fully and efficiently the flexibility under the TRIPS Agreement. This is due to a

variety of reasons, such as lack of awareness or understanding about the available

flexibilities, lack of legal expertise on related issues in government agencies, and to certain

degree inappropriate or inadequate laws to address the issues. Some legal provisions still

need to be further amended and improved, in particular the normative requirements

regarding justification for issuance of compulsory licenses for public non-commercial

purposes. Circular No.01/2007/TT-BKHCN guiding the implementation of the Intellectual

Property Law requires that an applicant for a compulsory license must provide documents

proving that (i) at the time of application submission there is a practical demand for the use

of the patent for the public, noncommercial, defence, national security, disease prevention

and treatment or people’s nutrition purposes, or for other urgent societal needs society; (ii)

the patent holder has failed to use the invention; and (iii) such non-use affects achievement

of the above mentioned goals. Pursuant to this regulation, the State authority may not issue

the compulsory license for public non-commercial purpose (i.e. defence, national security,

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disease prevention and treatment or people’s nutrition purposes) if the patent holder has

utilised the invention in practice, even with limited degree of application for the society. It

is assumed that such regulatory requirements create obstacles in a practical sense to

enforcement of the rule on compulsory licensing for the purpose of public non-commercial

use of Article 145.1(a) of the Intellectual Property Law because it is too easy for patent

holder to prove his/her “use of the invention”. This might be viewed as unnecessary

caution on the part of law-makers and/or a misunderstanding of the purpose of compulsory

licenses for public interest or use inventions on behalf of the State. The purpose of

compulsory licensing applications for public non-commercial purposes is for the benefit of

society and the State, but not as sanction against non-use by the holder.

By adopting this provision, Vietnamese lawmakers failed to make use of the relevant

flexibility set forth under TRIPS as well as the provisions of the Doha Declaration. It

should be noted that Article 31(b) of TRIPS recognizes the rights of WTO Members to

grant compulsory licenses in cases of national emergency or other circumstances of

extreme urgency, or in cases of public non-commercial use, including their use on behalf

of the State, but not subject to any conditions. It should also be noted that the Doha

Declaration expressly states that WTO Members are entitled to determine a national

emergency or other circumstances of extreme urgency when granting compulsory licenses.

It may also be observed that the relevant laws of many countries, including developing

economies, such as Korea, Malaysia, India, and Brazil, permit the grant of compulsory

license for public non-commercial purpose without requiring the any ground similar to that

of Circular No. 01/2007/TT-BKHCN.42

III.5. Policy recommendations

The Intellectual Property Law recognises the use of compulsory licenses as a remedy in the

application of competition law rules to anti-competitive practices by rights holders.

Nonetheless, there are no further guidelines regarding which anti-competitive practices

regulated under the Competition Law are subject to compulsory licensing. The

Competition Law itself does not contain specific provisions addressing IPR-related

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competition issues. This may create some uncertainty in the application of the Competition

Law to IPRs and in particular, to technology transfer-related anti-competitive practices.

One might advocate that Vietnam should not only incorporate provisions on compulsory

licensing into its Intellectual Property law but should also specify the grounds for issuance

of compulsory licenses in order to avoid ambiguity or uncertainty and ensure its widest

possible use. In particular, the further development of IPR-related competition law is

required in order to supplement the provisions of the Intellectual Property Law.

Another significant barrier to the use of compulsory licensing is the absence of clear,

straightforward administrative procedures to establish and delineate clear decision-making

processes and responsibilities. It may be necessary to establish a mechanism to enable state

agencies to discuss and take joint decisions and/or delegate power to issue compulsory

licences to the state agency in charge of specific areas of state administration. The setting

of adequate remuneration as required by Article 31(h) of TRIPS should also be further

developed to make the process more transparent, predictable and administrable. These may

consist of such things as the adoption of royalty guidelines, to reduce uncertainty and to

facilitate speedier decision-making.

Finally, Vietnam needs to improve the professional capacity of its State authorities and its

technological infrastructure so that the compulsory licensing can be applied efficiently.

Competent authorities should be equipped with the appropriate knowledge and skills so

that they can be applied efficiently and expeditiously when needed. Local industries must

also develop their technological capacity to be able to implement licensed technology in

the production lines and be further able to develop the technology (where possible).

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IV. CONCLUSION

The TRIPS Agreement mandates minimum standards for WTO country members for

protecting intellectual property. As a member of the multilateral trading system,

Vietnam is required to respect these standards. However, Vietnam can use the

flexibilities provided by the TRIPS Agreement to strengthen its national laws and

regulations and enforce them efficiently in order to promote technology transfer and

protect sustainable development. By adopting the international exhaustion regime,

Vietnam can take advantage of import products from other countries with lower prices and

products in the local territory. Adoption of a comprehensive and TRIPS compatible

Intellectual Property Law in 2005, which includes among others the norms on compulsory

licensing and parallel importing, is regarded as an important development toward

utilisation of the flexibilitiesof TRIPS Agreement.

There have been cases where the doctrines in respect of compulsory licensing and

parallel import have been utilised in Vietnam by private parties and State authorities.

The Tamiflu case, in particular proved the effectiveness of the compulsory licensing

doctrine as a ‘threat’ and/or ‘bargaining’ tool to access technology for the public

interest. Nonetheless, to date, a complete system governing the use and enforcement of

these tools continues to present difficult issues for Vietnam.

If a reasonable balance between intellectual property protection and fair competition can

be set up, it will encourage not only innovation and competition but also economic

growth. Vietnamese legislators must design and adopt guidelines for applying

Competition Law in relation to intellectual property and technology transfer. In

particular, these guidelines should include clear provisions for the application of

compulsory licensing and protection of parallel importation to remedy intellectual property

rights related anti-competitive practices.

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Vietnam also needs to develop its infrastructure for enforcement of its legislation, in

particular the by building professional capacity and cooperative mechanisms among

the various State authorities with related competence. There is still a serious lack of

knowledge, experience and legal expertise on these subjects in Vietnam among

lawyers, policy makers, and the commercial world. There should be also a simple

and effective mechanism of coordination between State authorities to deal with

enforcement so that the entire procedure can be carried out quickly and competitive.

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V. REFERENCE

 Theo Papadopoulos, The First-Sale Doctrine in International Intellectual Property

Law: Trade in Copyright Related Entertainment Products, 2004

 Tran Viet Dung and Le Thi Giang Nam, Vietnam- A case study for sustainable

technology transfer, 2011.

 WHO Drug Information, Intellectual property protection: impact on public health,

2005

 Margaret K. Kyle, Parallel trade in pharmaceuticals: firms response and

competition policy

 Vietnamese Law on Intellectual Property 1995 and 2005

 Vietnam Civil Code 1995 and 2005

 Sarah R. Wasserman Rajec, Free trade in patented goods: international exhaustion

for patents, 2014

 Secretariat of WIPO, Exceptions and Limitations to patent rights: exhaustion of

patent right, 2014

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