Principal and St. Louis patent litigator Doug Robinson penned a new article for Pharmaphorum in which he discusses the recent U.S. Supreme Court decision in Impression Products v Lexmark International, the concept of patent exhaustion, its effects on pharmaceutical companies and their distribution networks, and methods for avoiding risk in the current legal landscape.
The case in question involves ink cartridges made by Lexmark International. The Supreme Court ruled that sales of these cartridges — even sales outside of the United States — “exhaust” any patent rights in the products sold. Exhaustion here refers to the concept that the first sale of a patented product exhausts all rights in that product.
To put it another way, if a purchaser buys a patented chair from a patent owner, the purchaser can then sell that chair to a third party without the approval or involvement of the patent owner. Problems would arise if, for example: 1) buyers could find the chair at a lower price outside the country; 2) distribution networks made the chair easily and regularly accessible to buyers outside of the country; and 3) buyers could then resell the chair in the U.S. at competitive prices that undercut the original manufacturer. This is known as a “grey market” in which patent law does not apply.
For pharmaceutical companies, who regularly sell their prescription drugs outside of the U.S. at prices lower than they go for inside the U.S., this poses a significant threat. One way to combat the problem, Robinson suggests, is to closely monitor any manufacturing and distribution that is not done exclusively by the company itself. “As a part of that strategy,” Robinson says, “companies can take steps to mark product packaging to indicate the manufacturer, distributor, and intended country of sale.”
Individual buyers will not necessarily affect the business’s bottom line, so companies should look out for large foreign distributors who can have an impact. Contracts should also clearly state that distributors cannot redistribute drugs back into the U.S., which would allow a course for litigation via contract dispute even if the course via patent law is currently at an impasse.