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Current information on patent law.

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Parallel Imports

Exhaustion of patent rights

  

Background

In its decision from the year 1999 (BGE 126 III 129), the Federal Supreme Court set up the principle of national exhaustion for patent law whereby the patent owner can legally prevent his patent-protected products, that he has launched into a foreign market, to be imported into Switzerland against his will. The principle of national exhaustion has been controversially discussed since the Federal Supreme Court's decision.

Since then, the Federal Council many times discussed alternatives to national exhaustion. It steadily held to the principle of national exhaustion but advocated measures for the prevention of abuse of patent law.

On 21 December 2007, the Federal Council presented parliament with a regulation recommendation with its dispatch on an amendment to the Patent Act (Decision on the system of patent law exhaustion). It gave priority to long-term politically innovate viewpoints (promotion of dynamic competition, which is based on the successive introduction of new and better products).

The proposal was politically debated by the two Councils. Eventually, a majority of both Councils agreed to the following regulation: basically, the principle of unilateral (i.e. without establishing a reciprocal agreement) regional exhaustion in relationship to European Economic Area member states should be applied.  Patent-protected products that are placed on the market within the European Economic Area with the consent of the patent owner can be imported without his consent. The import of those products, which have been placed on the market outside of the European Economic Area by the patent owner, continues to be possible when the patent protection for the functional characteristics of the product is of only secondary importance. For products whose prices are fixed by the state both in Switzerland and abroad, the Councils will decide whether the patent owner’s consent for importation is necessary. National exhaustion is therefore valid to this extent. This specifically affects pharmaceutical products. Article 27b of the Federal Agriculture Act (SR 910.1) remains unchanged. International exhaustion continues to be valid for agricultural means of production and capital goods.

In the course of dealing with the question regarding exhaustion, the Councils decided to abolish Article 14, para. 3 of the Therapeutic Products Act (SR 812.21). This specifies that the Swiss Agency for Therapeutic Products (Swissmedic) may permit an approved original medication as long as it has not been simplified for import because the original medication is patent protected. With the deletion of Article 14, para. 3 from the Therapeutic Products Act, parliament wanted to distinguish between public law duties and private law enforcement regarding patent laws.

  

Some concepts

  

Exhaustion of patent rights

Exhaustion of patent rights is concerned with the relationship between a patent owner’s right to prohibit use (exclusivity) and the rights to use a patent-protected product through the acquisition of such rights. If a person lawfully entitled to a patent puts the product protected by this patent into circulation, his/her right to prohibit use of this product as granted by the patent, infringes on the rights of the person who acquired these rights-based tangible property. According to the principle of exhaustion, the rights to prohibit use of a patent-protected product as conferred through a patent are used up or exhausted when the person holding the patent puts this product into circulation or when it is put on the market with his permission.  The rightful owner of the patent loses the authority to make commercial use as well as resale of the product by a third party dependent on his permission if he has put the patent-protected product into circulation.
The controversy surrounding the exhaustion of patent rights has to do with the territorial limits of the principle of exhaustion. At issue is whether the exclusive right to a product based on a patent effective in Switzerland can be exhausted when the product is put into circulation outside of Switzerland by the rights holder or with his permission. There are three basic variants: the system of national exhaustion, regional exhaustion, or international exhaustion.

  

National exhaustion

According to the principle of national exhaustion of patent rights, the exclusive rights for a product protected by a patent granted domestically expire when the product is brought into circulation domestically with the permission of the patent rights holder. The legal owner of the product acquires the right to freely use and further circulate the product.  If a protected product is brought into circulation abroad, the domestic rights to the product are not exhausted. Importing a product which was put into circulation abroad requires the permission of the rights holder.

  

Regional exhaustion

According to the principle of regional exhaustion, the exclusive rights for a product in countries belonging to the same economic area (e.g., EU, EEA) expire when the product is brought into circulation with the permission of the patent owner in any one of the countries belonging to the economic group. This means that the patent owner can therefore not oppose the resale of the protected product within the economic area.  However, the patent owner’s exclusive rights are retained in the countries of the economic area when the protected product is brought into circulation outside of the economic area.

  

International exhaustion

According to the principle of international exhaustion, the exclusive rights to a product arising from a national patent expire when the product is put into circulation either domestically or abroad with the permission of the patent owner. The patent owner cannot oppose the trans-border resale of the product abroad.

  

Parallel imports

Parallel imports are products which are acquired abroad and resold domestically outside the normal manufacturer distribution channels by an importer who wishes to exploit a price gap. The parallel importer is thus in the position of competing directly with the manufacturer of the product. The significant incentive for parallel importation is the differential between the buying price abroad and the selling price domestically, whereby federal tax, costs and profit margin must be added in.
In a narrow sense, the term “parallel imports” refers to the trans-border trade of products based on intellectual property rights. The option of parallel imports for protected products is determined by the system of exhaustion for the associated intellectual property rights, however, it is not exclusively dependent on this.

  

Chronology

31.05.2000The Federal Council approves the first report, “Parallel Imports and Patent Rights”. The report constitutes the National Council’s answer to the request of the Commission on Business and Import Taxation of 24.01.2000, who wanted an overall view on the topic of exhaustion in patent law from the Federal Council.
In the report, the Federal Council comes to the conclusion that the question regarding the economic effects of a system change from national to international exhaustion cannot be answered in light of the current level of knowledge and therefore a subsequent decision should not be made hastily. In this context, the Federal Council declares national exhaustion, which is currently in force, as valid in patent law.  In view of the problem of exhaustion, however, the Federal Council agrees to further clarify the situation.
22.03.2001The National Council submits a postulate from their Commission for Economic Affairs and Taxation (00.3612 in German or French) that requests a second report on the exhaustion in patent law from the Federal Council. The Federal Council responds to the postulate by creating the Parallel Import Interdepartmental Working Group under the leadership of the General Secretariat of the Swiss Federal Department of Economic Affairs FDEA. The working group assigns three mandates to external experts regarding the following aspects:
  1. The economic effects of changing over from national to international exhaustion (System change study)
  2. The influence of state regulation on the price of medication (Medicinal products for human use study)
  3. Legal possibilities of introducing a regional or product-differentiated exhaustion (legal opinions)
29.11.2002The Federal Council approves the second report, “Parallel Imports and Patent Rights”. The report is the response to the postulate from the National Council’s Commission for Economic Affairs and Taxation (00.3612 in German or French).
Supported by three comprehensive external studies, the Federal Council refuses a changeover to international exhaustion in patent law. According to the Federal Council, the anticipated economic uses with a growth of the gross domestic product (GDP) of between 0.0% and 0.1% does not compensate for the disadvantages of making such a changeover. However, the Federal Council agrees with measures which prevent abuse of the current patent law.
03.10.2003The National Council submits a postulate from their Commission for Economic Affairs and Taxation (03.3423 in German or French). This requests the Federal Council to start negotiations within the framework of the existing free trade treaties between the EU and Switzerland, once the bilateral negotiations II with the EU have been concluded. The aim of the negotiations should be to introduce reciprocal regional exhaustion in the European area through a qualified patent law agreement
Also see the parallel postulates Sommaruga (04.3197 in German or French) and Strahm (04.3164 in German or French).
03.12.2004The Federal Council approves the third report, “Parallel Imports and Patent Rights”. Regional exhaustion - good.
The Federal Council is of the opinion that introducing separate negotiations with the EU in order to provide for mutual regional exhaustion in patent legislation by means of a separate bilateral agreement would not be desirable at this point in time. The changeover from national to regional exhaustion in patent law with regards to the EU will result in the additional growth of between 0.0% and 0.1% of the gross domestic product. In view of this modest positive effect on welfare, it is not worthwhile to start negotiations regarding this point.
20.12.2006The National Council decides to remove the question regarding exhaustion in patent law from the draft on the amendment to the Patent Act and approve a motion from the National Council Commission for Legal Affairs (06.3633 in German or French), which requests the Federal Council to submit a recommendation for regulation within the framework of a specific Federal Assembly Dispatch.
14.03.2007The Council of States agrees with the National Council’s decision of 20.12.2006.
18.04.2007The Federal Council opens the consultation for a decision on the system of exhaustion in patent law. The consultation draft should meet parliament’s request for a comprehensive presentation of the question concerning exhaustion in patent law. The draft presents the full range of solutions and assesses the various options both from a legal and an economic point of view based on the Federal Council’s analyses of the issue up until now. In order to have a complete picture of the argumentation, it was decided not to restrict the solutions through a restricted options proposal. The consultation ends on 30 June 2007.
21.12.2007The Federal Council adopts the dispatch on the amendment to the Patent Law (Decision on the system of exhaustion in patent law).
19.12.2008Parliament accepts the changes to the Patent Act in the final vote.(Federal Gazette 2009 201 in German, French, Italian). For parliamentary debates, see the database of parliamentary proceedings (Issue 08.010 in German or French).
29.05.2009The Federal Council has decided at its meeting today to put the amendment of the Patent Act with regards to the question of exhaustion into force as of 1 July 2009.