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Patents and Prescription Drug Importation

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March-In Rights Under the Bayh-Dole Act

September 23Patents and Prescription Drug Importation October 4, 2016 (R44640)
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Summary

Congress approved the Bayh-Dole Act, P.L. 96-517, in order to address concerns about the commercialization of technology developed with public funds. This 1980 legislation awards title to inventions made with federal government support if the contractor consists of a small business, a university, or other nonprofit institution. A subsequent presidential memorandum extended this policy to all federal government contractors. As a result, the contractor may obtain a patent on its invention, providing it an exclusive right in the invention during the patent's term. The Bayh-Dole Act endeavors to use patent ownership as an incentive for private sector development and commercialization of federally funded research and development (R&D).

The federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The government retains a "nonexclusive, nontransferable, irrevocable, paid-up license" for its own benefit. The Bayh-Dole Act also provides federal agencies with "march-in rights," codified at 35 U.S.C. §203. March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a "nonexclusive, partially exclusive, or exclusive license" to a "responsible applicant or applicants." If the patent owner refuses to do so, the government may grant the license itself.

No federal agency has ever exercised its power to march in and license patent rights to others. In particular, the National Institutes of Health (NIH) has received six march-in petitions and has denied each one. A 2016 exchange of correspondence between Members of Congress and the Department of Health and Human Services suggests a difference of views related to agency authority under the march-in provision. Supporters of the use of march-in rights assert that they provide an unused mechanism for combatting high drug prices and ensuring that U.S. citizens enjoy the benefits of public R&D funding. Others assert that march-in rights do not provide such a broad authority, but rather are limited to four circumstances identified in the statute. They are also concerned that use of march-in rights might discourage private investment in the often considerable effort needed to bring early-stage technologies to the marketplace.

Congress possesses a number of options with respect to march-in rights. If the current situation is deemed acceptable, then no action need be taken. Congress could also consider amending the Bayh-Dole Act by specifying in greater detail the precise circumstances in which march-in rights should be exercised. Congress may also take such steps as transferring authority over the administration of march-in rights, requiring government contractors to submit periodic reports regarding the commercialization of inventions achieved through public funding, creating a centralized database of inventions subject to the Bayh-Dole Act, and taking steps to ensure that patents on inventions developed through government funding are licensed to the most capable enterprise.


March-In Rights Under the Bayh-Dole Act

Introduction

Congressional interest in facilitating U.S. technological innovation led to the passage of P.L. 96-517, Amendments to the Patent and Trademark Act.1 This legislation is commonly referred to as the "Bayh-Dole Act,"2 after its two primary sponsors, former Senators Robert Dole and Birch Bayh. This 1980 legislation awards title to inventions that government contractors make with federal government support, if the contractor consists of a small business, a university, or other nonprofit institution. A subsequent presidential memorandum extended this policy to all federal government contractors.3 As a result, the contractor may obtain a patent on its invention, providing it with an exclusive right in the invention during the patent's term. The legislation is intended to use patent ownership as an incentive for private sector development and commercialization of federally funded research and development (R&D).

The federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The government retains a "nonexclusive, nontransferable, irrevocable, paid-up license" for its own benefit.4 The Bayh-Dole Act also provides federal agencies with "march-in rights."5 March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a "nonexclusive, partially exclusive, or exclusive license" to a "responsible applicant or applicants." If the patent owner refuses to do so, the government may grant the license itself.

Members of Congress have recently taken note of the fact that march-in rights have never been exercised during the 35-year history of the Bayh-Dole Act.6 In particular, the National Institutes of Health (NIH) has received six march-in petitions and has denied each one. A 2016 exchange of correspondence between some Members of Congress and the Department of Health and Human Services has suggested a potential difference of views about the appropriate use of march-in rights.7 Some observers believe that march-in rights should be rarely, if ever invoked due to the significant investment the private sector investment may make to bring early-stage inventions into practical application. These commentators further assert that the use of march-in rights would discourage private enterprise from investing in the commercial development of any invention funded in part by the government.8 On the other hand, others believe that U.S. taxpayers should be protected from what they view as excessive profiteering on technologies developed with public funding. They consider march-in rights to constitute a long-available, but entirely unused mechanism for combatting the high and growing cost of health care.9

This report reviews the availability of march-in rights under the Bayh-Dole Act. It begins by providing a brief overview of the patent system and innovation policy. The report then introduces the Bayh-Dole Act. The specific details of the march-in authority provided to federal agencies are reviewed next. The report then considers past efforts to obtain march-in authorization from NIH. The report closes with an identification of potential issues for congressional consideration.

The Patent System: An Overview

The Mechanics of the Patent System

The patent system is grounded in Article I, Section 8, Clause 8 of the U.S. Constitution, which states that "The Congress Shall Have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.... " As mandated by the Patent Act of 1952,10 U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office (USPTOFundamentals of Pharmaceutical Patents

  • Patent Policy
  • U.S. Patent Acquisition and Enforcement
  • The Exhaustion Doctrine
  • International Aspects
  • The Parallel Importation of Patented Pharmaceuticals
  • Related Issues
  • State and Local Governments
  • Label Licenses
  • The TRIPS Agreement
  • Free Trade Agreements
  • Legislative Issues and Alternatives
  • Summary

    Prescription drugs often cost far more in the United States than in other countries. Some consumers have attempted to import medications from abroad in order to realize cost savings. The practice of importing prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation" or "re-importation." Parallel imports are authentic products that are legitimately distributed abroad and then sold to consumers in the United States, without the permission of the authorized U.S. dealer.

    Numerous bills have been introduced in the 114th Congress that would ease the ability of individuals to import lower-cost prescription drugs from foreign jurisdictions. None of these bills has been enacted. Each bill would allow individuals to import drugs from foreign jurisdictions, although the bills differ on the jurisdictions from which imports would be permissible. Some bills are restricted to Canada; some to a set of specifically named jurisdictions; while others potentially apply to any foreign country.

    None of these bills addresses intellectual property issues that may arise through parallel importation. However, many prescription drugs are subject to patent rights in the United States. In its 2016 decision in Lexmark International v. Impression Products, Inc., the U.S. Court of Appeals for the Federal Circuit confirmed that the owner of a U.S. patent may prevent imports of patented goods, even in circumstances where the patent holder itself sold those goods outside the United States. The Lexmark opinion squarely declined to extend the "exhaustion" doctrine—under which patent rights in a product are spent upon the patent owner's first sale of the patented product—to sales that occurred in foreign countries. The court's ruling will in some cases allow brand-name pharmaceutical firms to block the unauthorized parallel importation of prescription drugs through use of their patent rights.

    In addition to any patent rights they possess, brand-name drug companies may place label licenses on their medications. A label license may be drafted in order to restrict use of a drug to the jurisdiction in which it was sold. As a result, in addition to a charge of patent infringement, an unauthorized parallel importer may potentially face liability for breach of contract.

    Introduction of an "international exhaustion" rule restricted to pharmaceuticals does not appear to be restricted by the provisions of the so-called TRIPS Agreement, which is the component of the World Trade Organization (WTO) agreements concerning intellectual property. Another possible legislative response is the immunization of specific individuals, such as pharmacies or importers, from patent infringement liability. Alternatively, no legislative action need be taken if the current possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed satisfactory.

    Patents and Prescription Drug Importation

    Introduction

    The pricing of prescription drugs remains a significant concern for many U.S. consumers.1 As spending on health care has risen in recent years, so too has consumer interest in purchasing more affordable medications. Overseas markets provide one possible source of less costly prescription drugs. Some comparative studies of prescription drug prices in the United States and foreign nations have concluded that prices for specific drugs may be significantly lower abroad.2

    In order to take advantage of these price disparities, at least six bills have been introduced in the 114th Congress that would allow individuals to import lower-cost prescription drugs from foreign jurisdictions. The bills differ on the jurisdictions from which imports would be permissible. Some bills restrict the sources of prescription drugs to Canadian pharmacies;3 some to a set of specifically named jurisdictions;4 while others potentially apply to any foreign country.5 None of these bills has been enacted.

    None of the bills introduced in the 114th Congress addresses the intellectual property implications of this so-called "parallel importation" or "re-importation."6 Although debate surrounding the parallel importation of prescription pharmaceuticals has largely addressed the safety and efficacy of the imported medications,7 this practice may also raise significant intellectual property concerns. Many prescription drugs are subject to patent rights in the United States. Among the rights granted by an issued patent is the ability to exclude others from importing the patented product into the United States.8 As a result, even if a foreign drug is judged safe and effective for domestic use, brand-name firms may nonetheless be able to block the unauthorized importation of prescription drugs through use of their patent rights.

    The parallel trade of patented pharmaceuticals involves a fundamental trade-off within the intellectual property law: encouraging the labors that led to technological innovation, on one hand, and promoting access to the fruits of those labors, on the other. The patent system is built upon the premise that patents provide individuals with an incentive to innovate by awarding inventors exclusive rights in their inventions for a limited period of time. Some observers believe that a diminishment of patent rights will decrease incentives to develop new pharmaceuticals in the future.9 Yet there is growing concern that drug prices are too high in the United States as compared to other nations. Some commentators believe that the patent system should not be used to regulate the movement of legitimate, lawfully purchased products through the global marketplace.10

    This report explores the intellectual property laws and policies concerning the parallel importation of patented pharmaceuticals into the United States. It begins with a review of patent policy and procedures. The report then discusses the current legal framework for analyzing the permissibility of the parallel importation of patented pharmaceuticals, including both the domestic and international exhaustion doctrines. This report closes with a review of legislative issues and alternatives as they relate to intellectual property issues and parallel importation.

    Fundamentals of Pharmaceutical Patents Patent Policy

    The patent system is animated by a number of policy objectives designed to promote the production and dissemination of technological information. Many commentators have argued that the patent system is necessary to encourage individuals to engage in inventive activity. Proponents of this view reason that, absent a patent system, inventions could easily be duplicated by free riders, who would have incurred no cost to develop and perfect the technology involved, and who could thus undersell the original inventor. The resulting inability of inventors to capitalize on their inventions would lead to an environment where too few inventions are made. By providing individuals with exclusive rights in their inventions for a limited time, the patent system allows inventors to realize the profits from their inventions.11

    The courts have also suggested that absent a patent law, individuals would favor maintaining their inventions as trade secrets so that competitors could not exploit them. Trade secrets do not enrich the collective knowledge of society, however, nor do they discourage others from engaging in duplicative research. The patent system attempts to avoid these inefficiencies by requiring inventors to consent to the disclosure of their inventions in issued patent instruments.12

    There are still other explanations for the patent laws. For instance, the Patent Act of 1952 is thought by supporters to stimulate technological advancement by inducing individuals to "invent around" patented technology. Issued patent instruments may point the way for others to develop improvements, exploit new markets or discover new applications for the patented technology. The patent system may encourage patentees to exploit their proprietary technologies during the term of the patent.13

    The current patent system has attracted a number of critics. Some assert that the patent system is unnecessary due to market forces that already suffice to create an optimal level of invention. The desire to gain a lead time advantage over competitors, as well as the recognition that technologically backward firms lose out to their rivals, may well provide sufficient inducement to invent without the need for further incentives. Some commentators observe that successful inventors are sometimes transformed into complacent, established enterprises that use patents to suppress the innovations of others. Others assert that the inventions that have fueled some of our most dynamic industries, such as early biotechnologies and computer software, arose at a time when patent rights were unavailable or uncertain.14

    While these various justifications and criticisms have differing degrees of intuitive appeal, none of them has been empirically validated. No conclusive study broadly demonstrates that we get more useful inventive activity with patents than we would without them. The justifications and criticisms of the patent system therefore remain open to challenge by those who are unpersuaded by their internal logic.

    U.S. Patent Acquisition and Enforcement As mandated by the Patent Act of 1952,15 U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office ("USPTO") if they wish to obtain patent protection.) if they wish to obtain patent protection.11 USPTO officials, known as examiners, then assess whether the application merits the award of a patent.12 The patent acquisition process is commonly known as "prosecution."

    In deciding whether to approve a patent application, a USPTO examiner will consider whether the submitted application fully discloses and distinctlyclearly claims the invention.13 The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must be useful, novel, and nonobvious.16 The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit.14 To be judged novel, the invention must not be fully anticipated by a prior patent, publication or other state-of-the-art knowledge that is collectively termed the "prior art."15knowledge within the public domain. A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made.16

    If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention.17 Those who engage in these acts without the permission of the patentee during the term of the patent can be held liable for infringement. Adjudicated infringers may be enjoined from further infringing acts.18 The patent statute also provides for the award of damages "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer."19

    The maximum term of patent protection is ordinarily set at 20 years from the date the application is filed.20 At the end of that period, others may employ that invention without regard to the expired patent.

    Patent rights are not self-enforcing. Patentees who wish to compel others to observe their rights must commence enforcement proceedings, which most commonly consist of litigation in the federal courts. Although issued patents enjoy a presumption of validity, accused infringers may assert that a patent is invalid or unenforceable on a number of grounds.21 The U.S. Court of Appeals for the Federal Circuit (Federal Circuit) possesses national jurisdiction over most patent appeals from the district courts.22 The U.S. Supreme Court enjoys discretionary authority to review cases decided by the Federal Circuit.23

    Patents and Innovation Policy

    The patent system is intended to promote innovation, which in turn leads to industry advancement and economic growth. The patent system in particular attempts to address "public goods problems" that may discourage individuals from innovating. Innovation commonly results in information that may be deemed a "public good," in that it is both non-rivalrous and non-excludable. Stated differently, consumption of a public good by one individual does not limit the amount of the good available for use by others; and no one can be prevented from using that good.24

    The lack of excludability in particular is believed to result in an environment where too little innovation would occur. Absent a patent system, "free riders" could easily duplicate and exploit the inventions of others. Further, because they incurred no cost to develop and perfect the technology involved, copyists could undersell the original inventor. Aware that they would be unable to capitalize upon their inventions, individuals might be discouraged from innovating in the first instance. The patent system corrects this market failure problem by providing innovators with an exclusive interest in their inventions, thereby allowing them to capture their marketplace value.25

    The patent system potentially serves other goals as well. The patent law may promote the disclosure of new products and processes, as each issued patent must include a description sufficient to enable skilled artisans to practice the patented invention.26 In this manner the patent system ultimately contributes to the growth of information in the public domain. Issued patents may encourage others to "invent around" the patentee's proprietary interest. A patent proprietor may point the way to new products, markets, economies of production, and even entire industries. Others can build upon the disclosure of a patent instrument to produce their own technologies that fall outside the exclusive rights associated with the patent.27

    The patent system also has been identified as a facilitator of markets. If inventors lack patent rights, they may have scant tangible assets to sell or license. In addition, an inventor might otherwise be unable to police the conduct of a contracting party. Any technology or know-how that has been disclosed to a prospective licensee might be appropriated without compensation to the inventor. The availability of patent protection decreases the ability of contracting parties to engage in opportunistic behavior. By lowering such transaction costs, the patent system may make transactions concerning information goods more feasible.28

    Patent protection may also encourage enterprises to commercialize and market existing inventions. Even though a new technology has already been patented, a firm might have to make refinements, construct manufacturing facilities, establish distribution channels, comply with government safety and regulatory requirements, and educate consumers prior to marketing. Second entrants to the market may not have to bear all of the first mover's costs. As a result, the exclusive rights provided by a patent may encourage not just the invention of new technologies, but also their commercialization.29

    Through these mechanisms, the patent system may act in a more socially desirable way than its chief legal alternative, trade secret protection.30 Trade secrecy guards against the improper appropriation of valuable, commercially useful, and secret information.31 In contrast to patenting, trade secret protection does not result in the disclosure of publicly available information. That is because an enterprise must take reasonable measures to keep secret the information for which trade secret protection is sought. Taking the steps necessary to maintain secrecy, such as implementing physical security measures, also imposes costs that may ultimately be unproductive for society.

    The patent system has long been subject to criticism, however. Some observers have asserted that the patent system is unnecessary due to market forces that already suffice to create an optimal level of innovation. The desire to obtain a lead time advantage over competitors may itself provide sufficient inducement to invent without the need for further incentives. Other commentators believe that the patent system encourages industry concentration and presents a barrier to entry in some markets. Additionally, while the patent incentive encourages the development of new medicines, some assert that it also contributes to the growing costs of healthcare.32

    Each of these arguments for and against the patent system has some measure of intuitive appeal. However, they remain difficult to analyze on an empirical level. We lack rigorous analytical methods for studying the impact of the patent system upon the economy as a whole. As a result, current economic and policy tools do not allow us to calibrate the patent system precisely in order to produce an optimal level of investment in innovation at the lowest social costs.

    The Bayh-Dole Act

    Even prior to the Bayh-Dole Act, the federal government considered the intellectual property implications of R&D projects financed by public funds.33 In 1963, the Kennedy Administration called for greater consistency in diverse agency practices regarding the disposition of rights to inventions made by government contractors. This early "Government Patent Policy" generally allowed the U.S. government to retain rights to inventions developed through government contracts.34 However, the contractor could obtain title in specified circumstances. For example:

    [W]here the purpose of the contract is to build upon existing knowledge or technology to develop information, products, processes, or methods for use by the government, and the work called for by the contract is in a field of technology in which the contractor has acquired technical competence (demonstrated by factors such as know-how, experience, and patent position) directly related to an area in which the contractor has an established nongovernmental commercial position, the contractor shall normally acquire the principal or exclusive rights throughout the world in and to any resulting inventions, subject to the government acquiring at least an irrevocable non-exclusive royalty free license throughout the world for governmental purposes.35

    In those situations, the 1963 policy retained significant government rights in privately held patents that resulted from publicly funded projects. In a prelude to today's march-in rights, the 1963 policy further provided:

    Where the principal or exclusive (except as against the government) rights to an invention are acquired by the contractor, the government shall have the right to require the granting of a license to an applicant royalty free or on terms that are reasonable in the circumstances to the extent that the invention is required for public use by governmental regulations or as may be necessary to fulfill health needs, or for other public purposes stipulated in the contract.36

    The 1980 enactment of the Bayh-Dole Act altered the intellectual property landscape with respect to patents and government-sponsored R&D. Congress instead accepted the proposition that the lack of patent title discouraged private enterprise from advancing early-stage technologies into the marketplace. For example, suppose that a university researcher identifies a promising chemical compound using funds provided by the National Institutes of Health (NIH). Some observers believed that under pre-Bayh-Dole Act practices, a brand-name pharmaceutical company would be unlikely to undertake costly and risky clinical trials in order to convert that early-stage research into a drug approved by the Food and Drug Administration. Absent patent protection, generic firms could quickly introduce competing products. This view accepts that patents provide incentives not just for individuals to invent, but also to commercialize completed inventions.37

    Under the Bayh-Dole Act, each nonprofit organization (including universities) or small business is permitted to elect within a reasonable time to retain title to any "subject invention" made under federally funded R&D.38 The institution must commit to commercialization of the invention within a predetermined, agreed upon, timeframe. However, the government may keep title under "exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title to any subject invention will better promote the policy and objectives of this chapter." Additionally, the government may withhold title if the contractor "is not located in the United States or does not have a place of business located in the United States or is subject to the control of a foreign government"; in situations associated with national security; or when the work is related to the naval nuclear propulsion or weapons programs of the Department of Energy.39

    Certain other rights are reserved for the government. The government retains "a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.... "40 The government also retains "march-in rights" which enable the federal agency to require the contractor to license a third party to use the invention under certain circumstances.41 This report discusses march-in rights at greater length below.

    By its own terms, the Bayh-Dole Act applies only to nonprofit organizations (including universities) and small businesses. However, in a February 1983 memorandum concerning the vesting of title to inventions made under federal funding, then-President Ronald Reagan ordered all agencies to treat, as allowable by law, all contractors within the Bayh-Dole Act framework regardless of their size.42 This longstanding practice lacks a legislative basis, however.

    The Bayh-Dole Act authorizes the government to withhold public disclosure of information for a "reasonable time" until a patent application can be made.43 Licensing by any contractor retaining title under this act is restricted to companies that will manufacture substantially within the United States. This requirement may be waived if domestic manufacture is not commercially feasible, or if the contractor or its successors made reasonable but ultimately unsuccessful efforts to license domestic manufacturers.44 The Secretary of Commerce was provided the authority to issue regulations implementing the Bayh-Dole Act.45

    March-In Rights

    The Mechanics of March-In Rights

    The Bayh-Dole Act provides the government with the ability to "march in" and grant licenses for patents that resulted from publicly funded R&D. In particular, march-in rights allow the federal government, in specified circumstances, to require the contractor or successors in title to the patent to grant a "nonexclusive, partially exclusive, or exclusive license" to a "responsible applicant or applicants."46 If the patent owner refuses to do so, the government may grant the license itself. The terms of the license must be "reasonable under the circumstances."

    The Bayh-Dole Act specifies four circumstances under which march-in rights may be exercised. The federal agency that provided the funding arrangement under which the patented invention was made must reach one of the following determinations:

    (1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

    (2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

    (3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or

    (4) action is necessary because the agreement required by section 204 [generally requiring that patented products be manufactured substantially in the United States unless domestic manufacture is not commercially feasible] has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.47

    With respect to the first of these conditions, the Bayh-Dole Act further defines the term "practical application" as "to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms."48

    The Bayh-Dole Act states that any adversely affected "contractor, inventor, assignee, or exclusive licensee" may appeal a march-in rights petition to the United States Court of Federal Claims. The statute further explains that in cases described in paragraphs (1) and (3) above, march-in authority may not actually be exercised until all appeals or petitions are exhausted.49

    The exercise of march-in rights does not invalidate or void the relevant patent. That patent remains extant and could presumably be enforced against entities that did not enjoy march-in rights. However, march-in rights grant a license—in other words, a permission—to the enterprise identified by the government. That entity may practice the patented invention without concern for infringement, so long as it satisfies the conditions stipulated in the march-in order, such as the payment of a royalty.

    March-in rights should be distinguished from the "nonexclusive, nontransferable, irrevocable, paid-up license" that the Bayh-Dole Act grants the U.S. government elsewhere.50 This license solely benefits the federal government. Should another entity—such as a generic drug company or other enterprise—wish to practice the patented invention, then march-in rights provide a possible legal mechanism.

    March-in rights are also distinct from the workings of another statute, 28 U.S.C. §1498(a).51 That provision states

    Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

    28 U.S.C. §1498(a) operates independently of the Bayh-Dole system. That statute applies to the use of a patented invention by the U.S. government, or one of its contractors with the authorization or consent of the U.S. government, without the permission of the patent proprietor. In such a case, the sole remedy for the patent owner is a suit in the U.S. Court of Federal Claims for monetary damages. An injunction is not available to the patent owner in such cases.

    Three significant distinctions exist between march-in rights under the Bayh-Dole Act and 28 U.S.C. §1498(a). First, march-in rights apply only to patented inventions that were developed with the support of public funding. 28 U.S.C. §1498(a) applies to every U.S. patent, no matter what the sources of funding were. Second, private enterprises may take the initiative in requesting march-in rights from the government. 28 U.S.C. §1498(a) applies when the federal government practices the patented invention on its own behalf or requests a contractor to do so. Finally, recipients of march-in rights are awarded licenses "upon terms that are reasonable under the circumstances" and would presumably pay royalties to the patent proprietor. In contrast, under 28 U.S.C. §1498(a) the patent proprietor commences litigation and may be awarded damages to compensate for the use of the government or its contractors.

    March-In Petitions

    March-in rights have never been exercised during the 35-year history of the Bayh-Dole Act. Apparently the only federal agency that has even received a petition is the National Institutes of Health (NIH).52 In particular, six petitions have been filed requesting that the NIH "march in" with respect to a particular pharmaceutical. Each petition was denied. A common theme of each of the denials was the agency's views that concerns over drug pricing were not, by themselves, sufficient to provoke march-in rights. The six requests were

    CellPro, Inc. (1997). CellPro requested that the government exercise march-in rights after being found to infringe patents held by the contractor. Although the NIH recognized that CellPro's device was the only FDA-approved product on the market, the agency observed that (1) the contractor and its licensees had not sought immediately to enjoin CellPro and (2) that they were making reasonable efforts to commercialize their own product. As a result, the agency declined to initiate march-in procedures.53

    Norvir/ritonavir (2004). The petitioners, which included some Members of Congress, asked the NIH to exercise march-in rights due to perceived concerns over the high price of this HIV/AIDS treatment. The agency declined to initiate march-in proceedings because it deemed Abbott Laboratories, Inc., to have made the drug available to the public on a sufficient basis.54

    Xalatan/latanoprost (2004). Petitioners asserted that the price of this glaucoma treatment was higher than that of other nations. The NIH declined to initiate march-in proceedings because the drug was readily available for use by the public.55

    Fabrazyme/agalsidase beta (2010). This petition asked the NIH to grant an open license on certain patents relating to this treatment for Fabry disease. According to the petitioners, Genzyme Corporation was encountering difficulties in manufacturing sufficient quantities of the drug. The NIH did not initiate a march-in proceeding because (1) Genzyme was working diligently to resolve its manufacturing difficulties and (2) other enterprises were unlikely to obtain FDA marketing approval on agalsidase beta products before those problems were addressed.56

    Norvir/ritonavir (2012). The second petition against this HIV/AIDS drug more specifically requested the NIH to invoke march-in rights when prices in the United States were greater than other high-income nations. The NIH did not initiate march-in right proceedings because, in the view of the agency, such pricing disparities did not trigger any of the four statutory criteria for marching in.57

    Xtandi/enzalutamide (2016). The petitioner asserted both that the prostate cancer drug Xtandi had an average wholesale price of $129,269 per year; and that this price was much higher than in other high-income nations. The NIH declined to initiate a march-in investigation because sales of the product were increasing and no evidence suggested that the product was in short supply.58

    The NIH has offered some observations about the role of march-in rights during these proceedings. In its response to the 1997 CellPro petition, the agency stated its reluctance to undermine the exclusivities offered by the patent system:

    We are wary, however, of forced attempts to influence the marketplace for the benefit of a single company, particularly when such actions may have far-reaching repercussions on many companies' and investors' future willingness to invest in federally funded medical technologies. The patent system, with its resultant predictability for investment and commercial development, is the means chosen by Congress for ensuring the development and dissemination of new and useful technologies. It has proven to be an effective means for the development of health care technologies. In exercising its authorities under the Bayh-Dole Act, NIH is mindful of the broader public health implications of a march-in proceeding, including the potential loss of new health care products yet to be developed from federally funded research.59

    In the 2004 proceedings regarding Norvir/ritonavir, the agency spoke more specifically about drug pricing:

    Finally, the issue of the cost or pricing of drugs that include inventive technologies made using Federal funds is one which has attracted the attention of Congress in several contexts that are much broader than the one at hand. In addition, because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH, the NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.60

    The NIH has also observed that another statute, the Drug Price Competition and Patent Term Restoration Act, P.L. 98-417, plays a role in the public availability of medicines.61 Better known as the Hatch-Waxman Act, this legislation allows generic drug companies to develop their own products without incurring liability for patent infringement. It also allows generic drug companies to market their products prior to the expiration of relevant patents, although if they do so they may incur infringement liability at that time.62

    Debate over March-In Rights

    Concerns over the lack of assertion of march-in rights have been expressed for the past two decades. In 2001, Peter S. Arno63 and Michael H. Davis64 published an article in the Tulane Law Review asserting that the Bayh-Dole Act "has had a powerful price-control clause since its enactment in 1980 that mandates that inventions resulting from federally funded research must be sold at reasonable prices."65 According to Arno and Davis, "the solution to high drug prices does not involve new legislation but already exists in the unused, unenforced march-in provision of the Bayh-Dole Act."66 Arno and Davis followed this article with a 2002 editorial published in the Washington Post, stating in part

    Although Bayh-Dole has been in place for 20 years, the government has never enforced it—not even once. That, despite the AIDS crisis at home and abroad, despite the millions of elderly and chronically ill Americans in need of affordable prescription drugs and the 40 million others who have no health insurance coverage whatever—and despite the general hand-wringing over the skyrocketing costs of pharmaceuticals.67

    Former Senators Birch Bayh and Robert Dole, as they were then, responded with an editorial published in the Washington Post less than a month later. The editorial states in part

    Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government.... The [Arno and Davis] article also mischaracterizes the rights retained by the government under Bayh-Dole. The ability of the government to revoke a license granted under the act is not contingent on the pricing of the resulting product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research. The law instructs the government to revoke such licenses only when the private industry collaborator has not successfully commercialized the invention as a product.68

    Dialogue over the use of march-in rights was renewed in 2016, resulting in several exchanges between some Members of Congress, on one hand, and the Department of Health and Human Services (HHS) on the other. In an undated letter that was reportedly sent on January 11, 2016, the Honorable Lloyd Doggett, joined by 51 Members of Congress, addressed a letter to Secretary Sylvia Matthews Burwell of HHS and NIH Director Francis S. Collins. The letter in part requested NIH to provide official guidance regarding the situations in which march-in rights should apply.69

    Secretary Burwell responded by letter on March 2, 2016. Her letter states in part that the Bayh-Dole Act's march-in right was "strictly limited and can only be exercised if the agency conducts an investigation and determines that specific criteria are met, such as alleviating health or safety needs or when effective steps are not being taken to achieve practical application of the inventions." She also concluded that "the statutory criteria are sufficiently clear and additional guidance is not needed."70

    Representative Lloyd Doggett sent an additional letter to Secretary Burwell and Director Collins on March 28, 2016. Signed by eleven other Members of Congress, the letter encourages the NIH to conduct a public hearing regarding the request of public interest groups to invoke march-in rights to the cancer drug Xtandi/enzalutamide. The letter explains

    NIH was recently petitioned to exercise these march-in rights on Xtandi, a prostate cancer drug developed at the University of California, Los Angeles (UCLA) through taxpayer supported research grants from the U.S. Army and NIH grants. The petition states that a Japanese licensee, Astellas, is charging Americans $129,000 for this drug, which sells in Japan and Sweden for $39,000, and in Canada for $30,000. We do not think that charging U.S. residents more than anyone else in the world meets the obligation to make the invention available to U.S. residents on reasonable terms.71

    As noted above, the NIH denied march-rights for Xtandi/enzalutamide on June 20, 2016.72

    Congressional Issues and Options

    To date, no bills have been introduced in the 114th Congress to address march-in rights under the Bayh-Dole Act. Therefore, if Congress deems the current situation to be acceptable, then no action need be taken. Other options include clarifications that further stipulate the circumstances under which march-in rights may be invoked, either by statutory amendment or the encouragement of regulatory refinements. Congress could, for example, define with greater clarity the precise circumstances under which a patented invention is deemed "available to the public on reasonable terms."73 Congress could also define with greater specificity when march-in rights are needed to "alleviate health or safety needs,"74 particularly with respect to inventions that might be perceived as too costly for many consumers to afford.

    Other options include transfer of oversight of administering march-in rights. Currently the Bayh-Dole Act assigns the agency that provided funds that led to the patented invention responsibility for exercising these rights.75 Another entity might have distinct perspectives than the funding agency and might reach different conclusions on whether to exercise march-in rights.

    Transferring decisionmaking authority to a distinct entity might also eliminate any perceived conflicts of interest with respect to march-in rights. Former employees of federal agencies often wish to pursue careers within the private sector and may wish to maintain good relationships with those enterprises. In addition, agency officials may themselves be named inventors on patents to which march-in rights apply.76 These factors could conceivably lead to a perception of bias against the institution of march-in rights.

    Some commentators have also suggested that Congress should establish a centralized database of inventions subject to the Bayh-Dole Act.77 Such a record would potentially improve the ability of the public to track its R&D investments and observe the degree to which these investments have resulted in new products for the marketplace. If a further level of monitoring were desirable, one possibility would be to require licensees of patents subject to the Bayh-Dole Act to submit periodic reports disclosing both their efforts at introducing the patented inventions to the public and their pricing policies.

    Other commentators also have urged reconsideration of the statutory requirement that in certain cases all judicial appeals be exhausted before march-in authority may actually be exercised.78 Under current law, even though a federal agency has authorized march-in rights, they may at times not be used until the patent proprietor has taken his case as far as the Supreme Court of the United States. As Arti K. Rai79 and Rebecca S. Eisenberg80 assert, "the tolerance for protracted delays inherent in the current process is at odds with the time-sensitive nature of the interests reflected in the substantive standard, such as achieving practical application of the invention 'within a reasonable time' and 'alleviat[ing] health or safety needs.'"81 This possibility of delay could also possibly discourage march-in petitions in the first instance.

    Still other commentators have suggested that Congress should take further steps to ensure that the best candidate receives licenses for patents subject to the Bayh-Dole Act. Under current law, government contractors may choose to license their inventions to anyone. Such a system may not place these inventions in the most capable hands, either from the perspective of the contractor or of the public.82 Another option might be an open-bidding auction that might better ensure that patents on inventions developed through government funding are licensed to the most capable enterprise.83

    Concluding Observations

    Current dialogue over march-in rights involves a familiar policy debate in intellectual property law. On the one hand, the patent laws are intended to promote the labors that lead to innovation. Critics of the use of march-in rights believe that diluting the patent incentive will discourage private investment and ultimately work against the aims of the Bayh-Dole Act. But others say that the patent laws are also intended to distribute the fruits of those labors to the public. This goal is most visibly achieved when patents expire and previously proprietary technologies enter the public domain. However, some observers believe that march-in rights provide an unused mechanism for discouraging excessive profiteering and providing the public an appropriate return on its R&D investments during a patent's term. Striking a balance between these competing views regarding the commercialization of federally funded research remains a matter of congressional judgment.

    Author Contact Information

    [author name scrubbed], Visiting Scholar ([email address scrubbed], [phone number scrubbed])

    Footnotes

    11. 15. See David Tseng, "Bypassed: The Kirtsaeng Decision's Underwhelming Impact on Exhaustion," 43 AIPLA Quarterly Journal (2015), 559.

    35 U.S.C. § 287(c).

    1.

    94 Stat. 3015 (1980). For further information about this legislation, see CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of Technology, by [author name scrubbed].

    2.

    See, e.g., Fred Reinharta and Stephen J. Susalkaa, "Inspired Bayh-Dole Act Turns 35," les Nouvelles, vol. 51 (March 2016), p. 17.

    3.

    See Memorandum on Government Patent Policy from President Ronald Reagan, to Heads of Executive Departments and Agencies, February 18, 1983, http://www.presidency.ucsb.edu/ws/index.php?pid=40945&st=&st1=.

    4.

    35 U.S.C. §202(c)(4).

    5.

    35 U.S.C. §203.

    6.

    See, e.g., William O'Brien, "March-In Rights Under the Bayh-Dole Act: The NIH's Paper Tiger?," Seton Hall Law Review, vol. 43 (2013), p. 1403.

    7 or importing into the United States the patented invention.17 The term of the patent is ordinarily set at twenty years from the date the patent application was filed.18 Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits the inventor to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market.

    Patent rights are not self-enforcing. A patentee bears responsibility for monitoring others to determine whether they are using the patented invention or not. Patent owners who wish to compel others to observe their intellectual property rights must usually commence litigation in the federal district courts. The U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") possesses exclusive national jurisdiction over all patent appeals from the district courts,19 while the U.S. Supreme Court possesses discretionary authority to review cases decided by the Federal Circuit.

    Pharmaceutical patents are subject to special provisions created by the Drug Price Competition and Patent Restoration Act of 1984.20 This legislation, which was subject to significant legislative revisions in 2003, is commonly known as the Hatch-Waxman Act. This statute establishes special rules for enforcement of certain patents on certain drugs and medical devices by brand-name firms against generic competitors. The Hatch-Waxman Act includes provisions extending the term of a patent to reflect regulatory delays encountered in obtaining marketing approval by the Food and Drug Administration (FDA); exempting from patent infringement certain activities associated with regulatory marketing approval; establishing mechanisms to challenge the validity of a pharmaceutical patent; and creating a reward for disputing the validity, enforceability, or infringement of a patented and approved drug. The 1984 Act also provides the FDA with certain authorities to offer periods of marketing exclusivity for a pharmaceutical independent of the rights conferred by patents.21

    The Exhaustion Doctrine

    Patent rights are subject to a significant restriction that is termed the "exhaustion" doctrine.22 Under the exhaustion doctrine, an authorized, unrestricted sale of a patented product depletes the patent right with respect to that physical object. As a result of this doctrine, the purchaser of a patented good ordinarily may use, charge others to use, or resell the good without further regard to the patentee. The courts have reasoned that when a patentee sells a product without restriction, it impliedly promises its customer that it will not interfere with the full enjoyment of that product. The result is that the lawful purchasers of patented goods may use or resell these goods free of the patent. Because it is the first sale of a patented product that extinguishes patent rights with respect to the item that is sold, some authorities refer to the exhaustion doctrine as the "first sale rule."23

    For example, suppose that a consumer purchases an appliance at a hardware store. The appliance is subject to a patent that is owned by the manufacturer. Later, the consumer sells the appliance to a neighbor at a garage sale. Ordinarily, the patent laws provide the manufacturer with the ability to prevent others from selling an appliance that uses its patented design. In this case, however, the patent right in that particular appliance was exhausted when the manufacturer made its first sale to the consumer. That consumer, as well as any subsequent purchasers of that individual appliance, may freely sell it without concern for the manufacturer's patent.

    International Aspects

    U.S. patents provide their owners with rights only within the United States.24 The grant of a U.S. patent provides its owner with no legal rights in any foreign nation. If inventors desire intellectual property protection in another country, they must specifically procure a patent in that jurisdiction. Ordinarily the foreign patent acquisition process begins with the submission of a patent application to a foreign patent office.

    As a practical matter, multinational corporations often obtain a set of corresponding national patents for each of their significant inventions. Although these patents concern the same invention—for example, the same chemical compound that possesses pharmacological properties—they often do not have precisely the same legal effect in each jurisdiction. Divergent wordings of the patents' claims, translations into various languages, and distinctions between national patent laws and practice are among the factors that lead to these differences.25

    Under an important international agreement concerning patents, the Convention of Paris for the Protection of Industrial Property ("Paris Convention"),26 each issued national patent is an independent legal instrument. One significant consequence of the independence of national patents is that they must be enforced individually. For example, suppose that an inventor owns patents directed towards the same invention in both the United States and Canada. Following litigation in Canada, a court rules that the Canadian patent is invalid. Even though the Canadian patent may be similar or identical to the U.S. patent, the U.S. patent may still be freely enforced. Although a U.S. court may find the reasoning of the Canadian court persuasive as it reaches its own judgment regarding the validity of the U.S. patent, the Canadian court decision has no direct effect upon the validity or enforceability of the U.S. patent.

    The Parallel Importation of Patented Pharmaceuticals

    In some circumstances, widely divergent drug prices between the United States and other nations have encouraged parallel importation. Price disparities between the United States and other nations create incentives for individuals to purchase medications from abroad, and import them into the United States, in order to lower health care costs or undercut the U.S. distributor. In this context, the term "parallel imports" refers to patented products that are legitimately distributed abroad, and then sold to consumers in the United States without the permission of the authorized U.S. dealer.27 Although these "grey market goods" are authentic products that were sold under the authorization of the brand-name drug company, they entered the U.S. market outside the usual distribution channels for that drug.28

    Two competing positions have arisen with respect to the use of patent rights to block parallel importation.29 One is that the exhaustion doctrine is not limited to domestic sales by the patentee or its representative, but to all sales regardless of their location. This position is commonly referred to as "international exhaustion." Under this view, because the importer lawfully purchased authentic goods from the patent holder or its representative, the U.S. patent right is subject to "international exhaustion" due to the sale, despite the fact that the sale technically took place under a foreign patent.

    The other position, more favorable to patent proprietors, is that the U.S. patent is fully enforceable against imports despite the exhaustion doctrine.30 The Federal Circuit has, since at least 2001, adopted this view of "national exhaustion." Under this line of reasoning, a "patentee's authorization of an international foreign sale does not affect exhaustion of the patentee's rights in the United States."31 This principle relies on the fact that U.S. patents exist independently of foreign patents, and that U.S. patents are effective only within the United States. As a result, this reasoning continues, a foreign sale cannot result in exhaustion of a U.S. patent. This legal doctrine—which restricts the exhaustion doctrine to domestic sales only—allows the U.S. patent to be used to block unauthorized imports of a patented pharmaceutical.

    The position of the Federal Circuit became subject to question in view of the Supreme Court's 2013 ruling in Kirtsaeng v. John Wiley & Sons.32 In Kirtsaeng, the Supreme Court held that sales of books that were purchased overseas, imported in the United States, and sold here did not infringe copyrights on the books.33 The Court's adoption of an "international exhaustion" principle with respect to copyright created a distinct rule from the "national exhaustion" principle that the Federal Circuit has applied to patents.

    The Supreme Court decision centered upon the activities of Supap Kirtsaeng, a Thai national who came to the United States to study at Cornell University. He discovered that textbooks sold by John Wiley & Sons were more expensive in the United States than in Thailand. Kirtsaeng asked his relatives to buy Wiley books in Thailand and ship them to him. Kirtsaeng then sold the books at a profit.34 When Wiley sued Kirtseang for copyright infringement, the Supreme Court applied the "international exhaustion" principle. Under the Court's ruling, works of authorship lawfully purchased abroad, and then imported into the United States, were protected from charges of copyright infringement via the first sale doctrine.35

    The Court based its decision on two principal grounds. First, the Court construed several provisions of the copyright statute to determine that the international exhaustion was the appropriate rule.36 Second, the Court believed that sound intellectual property policy supported international exhaustion. To restrict copyright exhaustion to domestic sales, the Court concluded, would establish intolerable burdens for booksellers, museums, and retailers who would have to determine whether particular copies of works of authorship were fabricated overseas. In this respect, the Court observed:

    Technology companies tell us that "automobiles, microwaves, calculators, mobile phones, tablets, and personal computers" contain copyrightable software programs or packaging.... Many of these items are made abroad with the American copyright holder's permission and then sold and imported (with that permission) to the United States.... A [domestic exhaustion rule] would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. Yet there is no reason to believe that foreign auto manufacturers regularly obtain this kind of permission from their software component suppliers, and Wiley did not indicate to the contrary when asked.... Without that permission a foreign car owner could not sell his or her used car.37

    In view of the Supreme Court decision in Kirtsaeng, the Federal Circuit decided to take a fresh look at its stance on the international exhaustion of patented products.38 The result was the 2016 decision in Lexmark International, Inc. v. Impression Products, Inc.,39 which confirmed the appeals court's earlier position rejecting the doctrine of "international exhaustion." Following Lexmark, in contrast to the international exhaustion principle of copyright law, the patent exhaustion doctrine is limited to sales that occur within the United States.

    Writing for the majority, Judge Taranto reasoned that the Supreme Court had based the Kirtsaeng ruling upon its interpretation of specific provisions of the Copyright Act. The Patent Act does not include analogous provisions—indeed, it does not expressly address exhaustion at all.40 He also concluded that, unlike copyright, patent rights may vary significantly from country to country. Under this view, patents should not be so easily equated with copyrights with respect to international exhaustion.41 Judge Taranto also observed, with respect to patented pharmaceuticals:

    There seems to be no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee.42

    Judge Dyk authored a dissenting opinion asserting that many of the policy arguments that the Kirtsaeng opinion advanced in favor of the international exhaustion rule apply with equal force to patents.43 He observed that, as with copyrights, U.S. retailers deal with high-technology, patented products that may or may not have been manufactured in this country. Unless an international exhaustion rule were to be adopted, Judge Dyk asserted, sorting through applicable patent rights may prove extremely burdensome.44

    Unless the Supreme Court decides to intervene,45 the Federal Circuit's ruling in Lexmark v. Impression Products remains the law of the land. Under this holding, patent exhaustion applies only to sales that occurred in the United States. This rule squarely rejects the principle of "international exhaustion." As a result, brand-name drug companies may potentially block imports of patented medications into the United States even if the imported good is the patent owner's own product, legitimately sold to a customer in a foreign jurisdiction.

    Related Issues

    In addition to the issue of patent infringement, the parallel importation of patented pharmaceuticals potentially raises other issues. This report next considers three of them: the status of state and local governments that have either themselves imported, or have encouraged others to import, patented medications from foreign jurisdictions; the potential use of label licenses on patented drugs; and the implications of international trade rules established by World Trade Organization (WTO).

    State and Local Governments

    Several state and local governments have considered or implemented plans to import or facilitate the importation of prescription drugs.46 A patentee's ability to obtain relief against a state or local government presents some complexities in view of the Eleventh Amendment to the Constitution.47 The Eleventh Amendment provides that a federal court is without power to entertain a suit by a private person against a state, except under certain limited circumstances. Because the federal courts possess exclusive jurisdiction over patent infringement litigation,48 this situation creates a dilemma for patentees—the only statutorily authorized forum is constitutionally unavailable, and the only constitutional forum is statutorily unavailable, at least for the assertion of a conventional patent infringement claim.49

    This issue appears to have been altered by recent judicial developments. In Ouellette v. Mills,50 the U.S. District Court for the District of Maine held that a 2013 Maine statute allowing importation of drugs from foreign pharmacies was unconstitutional. According to Judge Torresen, the U.S. Congress intended to "occupy the field" of prescription drug importation.51 As a result, the court found that the Maine legislation was preempted by federal law and invalid. Although Ouellette v. Mills dealt only with the Maine legislation, its logic would appear to invalidate analogous legislation in other jurisdictions. As a result, issues regarding patent enforcement against state and local governments for prescription drug importation may be avoided.

    Label Licenses

    As noted previously, the theory behind the exhaustion doctrine is that when a patent proprietor makes an unrestricted sale of a product to a consumer, the proprietor impliedly promises its customer that it will not use its patent rights to interfere with the full enjoyment of that product. As a result, lawful purchasers of patented goods should be able to use or resell these goods free of the patent.52

    In some circumstances, however, the patent owner may attempt to restrict a customer's use of a good. Sales contracts are the typical mechanism for imposing such limitations. Contractual provisions that are placed on the product or its packaging are sometimes termed "label licenses" or "bag tags." A commonly observed label license is "Single Use Only," as applied to printer cartridges or other goods that the manufacturer does not intend for consumers to reuse. Other patent proprietors have attempted to impose geographical limitations upon the use of their products. A label stating "For Use in Canada Only" is representative of such a restriction.53

    Whether such label licenses are enforceable, or are instead nullified by the exhaustion principle, is a complex legal issue. However, the prevailing view of the Court of Appeals for the Federal Circuit is that absent exceptional circumstances—such as an antitrust violation or misuse of the patent by its proprietor—these restrictions will be upheld.54 The legal theory is that while the patent right gives proprietors the ability to exclude others from using the patented product, they may also impose lesser restrictions when they choose to sell the patented product. In addition, customers are presumed to have entered into binding sales contracts that are presumptively valid.

    As a result, under current law label licenses such as "Single Use Only" or "For Domestic Use Only" are ordinarily enforceable. A customer who violates a label license could be liable both for breach of contract and for patent infringement. The legal issues regarding pharmaceutical importation therefore potentially involve both contract and patent law.

    The TRIPS Agreement

    As a member of the World Trade Organization (WTO), the United States is a signatory to the so-called TRIPS Agreement, or Agreement on Trade-Related Aspects of Intellectual Property Rights.55 Under Part III of the TRIPS Agreement, all member countries agreed to enact patent statutes that include certain substantive provisions. In particular, Article 27 stipulates that "patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally prevented." Article 27 ordinarily requires that all classes of invention receive the same treatment under the patent laws, subject to certain minor exceptions. It would generally be impermissible under Article 27, for example, for a country to accord patents on pharmaceuticals a lesser set of proprietary rights than is available for patents on automobile engines, computers, or other kinds of inventions.56

    The TRIPS Agreement places lesser obligations upon signatory states with regard to the exhaustion doctrine, however. Article 6 of the TRIPS Agreement states:

    For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 above nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.

    The referenced Articles 3 and 4 of the TRIPS Agreement impose obligations of national treatment and most-favored-nation status respectively. As a result, a TRIPS Agreement signatory may not permissibly establish more favorable exhaustion rules for its own citizens than for citizens of other WTO countries. In addition, if a TRIPS Agreement signatory provides for favorable treatment with respect to the exhaustion doctrine to one WTO member state, then the same treatment must be extended to all WTO member states.

    Other than these basic national treatment and most-favored-nation obligations, the TRIPS Agreement does not impose other restrictions regarding the exhaustion doctrine. In particular, the TRIPS Agreement does not appear to require that all types of inventions be treated equally with regard to the exhaustion doctrine.57 As a result, a rule allowing the "re-importation" of certain sorts of patented inventions (such as pharmaceuticals), but not others, would not appear to violate the TRIPS Agreement.

    Free Trade Agreements

    The United States has entered into numerous bilateral "free trade agreements," or FTAs, with certain other nations. Many of the FTAs deal extensively with intellectual property rights, including numerous provisions relating to patents in general and pharmaceutical patents in particular. Consider, for example, Article 15.9, paragraph 4 of the United States–Morocco FTA, which provides:

    Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory. [Footnote 10: A Party may limit application of this paragraph to cases where the patent owner has placed restrictions on importation by contract or other means.]58

    Article 17:9, paragraph 4 of the United States–Australia FTA has a similar effect, stipulating:

    Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory, at least where the patentee has placed restrictions on importation by contract or other means.59

    The United States–Singapore FTA is worded rather differently, but appears to have similar substantive effect as the Moroccan and Australian agreements, at least with respect to pharmaceuticals. As Article 16:7, paragraph 2 of that international agreement provides:

    Each Party shall provide a cause of action to prevent or redress the procurement of a patented pharmaceutical product, without the authorization of the patent owner, by a party who knows or has reason to know that such product is or has been distributed in breach of a contract between the right holder and a licensee, regardless of whether such breach occurs in or outside its territory. [Footnote 16–10: A Party may limit such cause of action to cases where the product has been sold or distributed only outside the Party's territory before its procurement inside the Party's territory.] Each Party shall provide that in such a cause of action, notice shall constitute constructive knowledge.60

    Under these agreements, the United States is obliged to allow pharmaceutical patent holders to use their intellectual property rights to block parallel imports, at least where the patentee has placed restrictions upon importation through contract or some other mechanism.

    Legislative Issues and Alternatives

    Should congressional interest continue in this area, a variety of options are available. If the possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed sound, then no action need be taken. Alternatively, Congress could confirm the Federal Circuit's decision in Lexmark v. Impression Products, which rejects the doctrine of international exhaustion and confines the patent exhaustion principle to sales that occurred within the United States.

    If legislative activity is deemed appropriate, however, another possibility is the introduction of some form of international exhaustion doctrine into U.S. patent law. The TRIPS Agreement does not seem to require that a country adopt the international exhaustion doctrine as an all-or-nothing proposition, applying either to all patented products or to none. As a result, if Congress chose to limit application of the international exhaustion doctrine to patented pharmaceuticals, or some other specific type of invention, then no ramifications appear to arise with respect to the TRIPS Agreement obligations of the United States.

    At least two statutory mechanisms exist for implementing the international exhaustion doctrine into U.S. patent law. One possible approach would be to declare that importation into the United States of goods sold abroad by a patent proprietor or its representative is not a patent infringement. For example, in the 108th Congress, the Pharmaceutical Market Access and Drug Safety Act of 2004 (S. 2328), would have taken this approach with respect to patented pharmaceuticals, specifying that

    It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent.61

    S. 2328 further stipulated that this amendment shall not be construed "to affect the ability of a patent owner or licensee to enforce their patent, subject to such amendment."62 This language suggests a congressional intention to leave intact other rights established by the Patent Act of 1952. No subsequent bills, including those before the 114th Congress, took this approach.

    In addition to codifying the international exhaustion doctrine with respect to pharmaceuticals, such an amendment may conversely lead to the implication that the international exhaustion doctrine does not apply to patented inventions other than pharmaceuticals. This provision could potentially fortify the ruling in Lexmark v. Impression Products for inventions outside of the pharmaceutical field.

    Another statutory mechanism for promoting the importation of patented drugs is to immunize specific individuals from infringement liability. The Patent Act of 1952, as amended, takes this approach in the area of patented medical methods, exempting licensed medical practitioners and certain health care entities from patent infringement in certain circumstances.63 In the case of drug importation, potential patent infringers include importers, distributors, wholesalers, pharmacies, and individual consumers. Should Congress wish to promote parallel trade in patented pharmaceuticals, an explicit statutory infringement exemption could encourage individuals to engage in drug importation.

    In considering these or other legal changes to the patent laws, the possibility of label licenses should be kept in mind. Even if Congress exempted drug importation practices or practitioners from patent infringement liability, firms may still be able to stipulate through the contract law that a drug sold in a foreign jurisdiction is for use exclusively within that jurisdiction. If a purchaser instead imported that medication into the United States, then the seller may have a cause of action for breach of contract. As a result, any legal changes may need to account for the ability of firms to use contractual provisions as something of a substitute for patent protection in the area of prescription drug importation.

    Controlling the costs of prescription drug spending, on one hand, and encouraging the development of new drugs, on the other, are both significant policy goals. These aspirations may potentially conflict, however. Although introducing international exhaustion into U.S. patent law may initially lower the price of patented drugs, it might also decrease the incentive of firms to engage in the research and development of new pharmaceuticals, as well as to shepherd new drugs through time-consuming and costly marketing approval procedures. Consideration of patent law reforms would likely be put into the larger context of drug costs, which may be influenced by the pricing policies of foreign nations, profits earned by wholesalers and other intermediaries, the physical costs of shipment into the United States, and other diverse factors. Striking a balance between increasing access to medications and ensuring the continued development of new drugs by our nation's pharmaceutical firms is a central concern of the current drug importation debate.

    Author Contact Information

    [author name scrubbed], Visiting Scholar ([email address scrubbed], [phone number scrubbed])

    Footnotes

    1.

    See Paula Tironi, "Pharmaceutical Pricing: A Review of Proposals to Improve Access and Affordability of Prescription Drugs," 19 Annals of Health Law (2010), 311.

    2.

    See Elliot A. Foote, "Prescription Drug Importation: An Expanded FDA Personal Use Exemption and Qualified Regulators for Foreign-Produced Pharmaceuticals," 27 Loyola Consumer Law Review (2015), 369.

    3.

    H.R. 2228 and S. 122, each titled the Safe and Affordable Drugs from Canada Act of 2015; as well as H.R. 3513 and S. 2023, each titled the Prescription Drug Affordability Act of 2015; would allow U.S.-approved drugs to be imported from approved Canadian pharmacies.

    4.

    H.R. 2623, the Personal Drug Importation Fairness Act, would allow U.S.-approved drugs to be imported from Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa, a member state of the European Union, or a country in the European Economic Area, as well as any other country determined by the Commissioner of Food and Drugs to have safety and efficacy standards at least as protective as the United States.

    5.

    S. 1790, the Safe and Affordable Prescription Drugs Act of 2015, would allow U.S.-approved drugs to be imported from approved pharmacies located anywhere in the world.

    6.

    See Sarah R. Wasserman Rajec, "Free Trade in Patented Goods: International Exhaustion for Patents," 29 Berkeley Technology Law Journal (2014), 317.

    7.

    See Brittany Mahugh, "Lost in the Gray: Navigating the Problem of Pharmaceuticals in the Gray Market," 25 Health Lawyer (June 2013), 1.

    8.

    35 U.S.C. §271(a).

    9.

    Claude E. Barfield and Mark A. Groombridge, "Parallel Trade in the Pharmaceutical Industry: Implications for Innovation, Consumer Welfare, and Health Policy," 10 Fordham Intellectual Property, Media and Entertainment Law Journal (1999), 185.

    10.

    William Davis, "The Medicine Equity and Drug Safety Act of 2000: Releasing Grey Market Pharmaceuticals," 9 Tulane Journal of International and Comparative Law (2001), 483.

    See Gregory N. Mandel, "Innovation Rewards: Towards Solving the Twin Market Failures of Public Goods," 18 Vanderbilt Journal of Entertainment and Technology Law (2016), 303See Michael Mezher, "Lawmakers Urge HHS to Exercise 'March-In' Rights to Fight Higher Drug Costs," States News Service, January 11, 2016.

    812.

    See Luigi Alberto Franzonia & Arun Kumar Kaushik, "The Optimal Scope of Trade Secrets Law," 45 International Review of Law and Economics (2016), 45.

    13.

    See Herbert Hovenkamp, "Antitrust and the Patent System: A Reexamination," 76 Ohio State Law Journal (2015), 467.

    14.

    See generally "A Question of Utility," The Economist, August 8, 2015, at 50.

    Letter from Patricia Harsche Weeks, Immediate Past President, Association of University Technology Managers, to Dr. Mark Rohrbaugh, Director of the Office of Technology Transfer, NIH; http://www.autm.net/advocacy-topics/government-issues/advocacy-archives/march-in-rights/autm-response-to-march-in-provisions/.

    9.

    Amy R. Schfield,"The Demise of Bayh-Dole Protections Against the Pharmaceutical Industry's Abuses of Government-Funded Inventions," Journal of Law, Medicine & Ethics, vol. 32 (2004), p. 780.

    10.

    P.L. 82-593, 66 Stat. 792 (codified at Title 35 United States Code).

    1116.

    35 U.S.C. §111§101, 102, 103.

    1217.

    35 U.S.C. §131271(a).

    1318.

    35 U.S.C. §112154(a)(2).

    1419.

    3528 U.S.C. §1011295(a)(1).

    1520.

    35 U.S.C. §102.

    16.

    35 U.S.C. §103P.L. 98-417, 98 Stat. 1585 (1984).

    1721.

    35 U.S.C. §271(a).

    18.

    35 U.S.C. §283.

    See CRS Report R42890, The Role of Patents and Regulatory Exclusivities in Pharmaceutical Innovation, by [author name scrubbed].
    1922.

    35 U.S.C. §284See Wentong Zheng, "Exhausting Patents," 63 UCLA Law Review (2016), 122.

    20.

    35 U.S.C. §154(a)(2). Although patent term is based upon the filing date, the patentee gains no enforceable legal rights until the USPTO allows the application to issue as a granted patent. A number of Patent Act provisions may modify the basic 20-year term, including examination delays at the USPTO and delays in obtaining marketing approval for the patented invention from other federal agencies23. See John F. Duffy and Richard Hynes, "Statutory Domain and the Commercial Law of Intellectual Property," 102 Virginia Law Review (2016), 1.

    2124.

    35 U.S.C. §282.

    22.

    28 U.S.C. §1295(a)(1).

    23.

    28 U.S.C. §1254(1Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 444 (2007) (noting that U.S. patents lack extraterritorial effect).

    2425.

    See Deepa Varadarajan, "Of Fences and Definite Patent Boundaries," Vanderbilt Journal of Entertainment and Technology Law, vol. 18 (Spring 2016), p. 563.

    25.

    See Gregory N. Mandel, "Innovation Rewards: Solving the Twin Market Failures of Public Goods," Vanderbilt Journal of Entertainment and Technology Law, vol. 18 (Winter 2016), p. 303.

    26.

    35 U.S.C. §112 James Pooley and Vicki Huang, "Multi-National Patent Litigation: Management of Discovery and Settlement Issues and the Role of the Judiciary," 22 Fordham Intellectual Property, Media and Entertainment Law Journal (2011), 45.

    26.

    Paris Convention for the Protection of Industrial Property, March 20, 1883, as last revised at Stockholm on July 14, 1967, 21 U.S.T. 1629.

    27.

    A. Bryan Baer, "Price Controls Through the Back Door: The Parallel Importation of Pharmaceuticals," 9 Journal of Intellectual Property Law (Fall 2001), 109.

    28.
    27.

    See Herbert Hovenkamp, "Antitrust and the Patent System: A Reexamination," Ohio State Law Journal, vol. 76 (2015), p. 467.

    28.

    Jonathan N. Barnett, "Cultivating the Genetic Commons: Imperfect Patent Protection and the Network Model of Innovation," San Diego Law Review, vol. 36 (2000), p. 1029-1030.

    29.

    Emily Michiko Morris, "The Many Faces of Bayh-Dole," Duquesne Law Review, vol. 54, p. 81.

    30.

    For further information on trade secrets, see CRS Report R43714, Protection of Trade Secrets: Overview of Current Law and Legislation, by [author name scrubbed].

    31.

    See generally Michael R. McGurk and Jia W. Lu, "The Intersection of Patents and Trade Secrets," Hastings Science & Technology Law Journal, vol. 7 (Summer 2015), p. 189.

    32.

    See, e.g., Dan L. Burk and Mark A. Lemley, The Patent Crisis and How the Courts Can Solve It (2009); James Bessen and Michael Meuer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk (2008); Adam B. Jaffe and Josh Lerner, Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What To Do About It (2004).

    33.

    Roberto Mazzoleni, "Patents and University-Industry Interactions in Pharmaceutical Research Before 1962: An Investigation of the Historical Justifications for Bayh-Dole," Journal of High Technology Law, vol. 10 (2010), p. 168.

    34.

    "Statement of Government Patent Policy," 28 Federal Register 10943, October 10, 1963.

    35.

    Ibid., at 10945.

    36.

    Ibid.

    37.

    See F. Scott Kieff, "Property Rights and Property Rules for Commercializing Inventions," Minnesota Law Review, vol. 85 (2001), p. 697.

    38.

    35 U.S.C. §202(a).

    39.

    Ibid.

    40.

    35 U.S.C. §202(c)(4).

    41.

    35 U.S.C. §203.

    42.

    Memorandum on Government Patent Policy from President Ronald Reagan, to Heads of Executive Departments and Agencies, February 18, 1983, http://www.presidency.ucsb.edu/ws/index.php?pid=40945&st=&st1=.

    43.

    35 U.S.C. §205.

    44.

    35 U.S.C. §204.

    45.

    35 U.S.C. §206. These regulations may be found at 37 C.F.R. Part 401.

    46.

    35 U.S.C. §203(a).

    47.

    35 U.S.C. §203(a).

    48.

    35 U.S.C. §201(f).

    49.

    35 U.S.C. §203(b).

    50.

    35 U.S.C. §202(c)(4).

    51.

    See Justin Torres, "The Government Giveth, and the Government Taketh Away: Patents, Takings, and 28 U.S.C. § 1498," New York University Annual Survey of American Law, vol. 63 (2007), p. 315; Bradley M. Taub, "Why Bother Calling Patents Property? The Government's Path to License Any Patent and Maybe Pay For It," John Marshall Review of Intellectual Property Law, vol. 6, p. 151.

    52.

    The author of this report has not located any record of any march-in petition filed at any other federal agency that funds R&D. See U.S. Government Accountability Office, Federal Research: Information on the Government's Right to Assert Ownership Control Over Federally Funded Inventions, GAO-09-742, July 2009, http://www.gao.gov/assets/300/293020.pdf (noting that the Department of Defense, Department of Energy, and National Aeronautics and Space Administration "have neither discovered nor received information that would lead them to initiate a march-in proceeding or exercise their march-in authority during the last 20 years.").

    53.

    Harold Varmus, Director, NIH, Determination in the Case of Petition of CellPro,Inc., August 1, 1997, http://web.archive.org/web/20070102183356/http:/www.nih.gov/icd/od/foia/cellpro/pdfs/foia_cellpro39.pdf.

    54.

    Elias A. Zerhouni, Director, NIH, In the Case of Norvir Manufactured by Abbott Laboratories, Inc., July 29, 2004, http://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Norvir.pdf.

    55.

    Elias A. Zerhouni, Director, NIH, In the case of Xalatan, Manufactured by Pfizer, Inc., September 17, 2004, https://www.ott.nih.gov/sites/default/files/documents/policy/March-in-xalatan.pdf.

    56.

    Francis S. Collins, Director, NIH, Determination in the Case of Fabrazyme Manufactured by Genzyme Corporation, December 1, 2010, https://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Fabrazyme.pdf.

    57.

    Francis S. Collins, Director, NIH, Determination in the Case of Norvir Manufactured by AbbVie, November 1, 2013, https://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Norvir2013.pdf.

    58.

    Letter from Francis C. Collins, Director, NIH, to Andrew S. Goldman, Knowledge Ecology International, June 20, 2016, http://keionline.org/sites/default/files/Final-Response-Goldman-6.20.2016.pdf.

    59.

    Harold Varmus, Director, NIH, Determination in the Case of Petition of CellPro,Inc., August 1, 1997, http://web.archive.org/web/20070102183356/http:/www.nih.gov/icd/od/foia/cellpro/pdfs/foia_cellpro39.pdf.

    60.

    Elias A. Zerhouni, Director, NIH, In the Case of Norvir Manufactured by Abbott Laboratories, Inc., July 29, 2004, http://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Norvir.pdf.

    61.

    Francis S. Collins, Director, NIH, Determination in the Case of Fabrazyme Manufactured by Genzyme Corporation, December 1, 2010, https://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Fabrazyme.pdf, p. 9.

    62.

    CRS Report R41114, The Hatch-Waxman Act: Over a Quarter Century Later, by [author name scrubbed] and [author name scrubbed], The Hatch-Waxman Act: Over a Quarter Century Later.

    63.

    Dr. Arno was then a Professor of the Albert Eistein College of Medicine/Montefiore Medical Center.

    64.

    Mr. Davis was then a Professor of the Cleveland State College of Law.

    65.

    Peter S. Arno and Michael H. Davis, "Why Don't We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed Upon Patents Deriving in Whole or in Part from Federally Funded Research," 75 Tulane Law Review (2001), p. 631.

    66.

    Ibid.

    67.

    Peter Arno and Michael Davis, "Paying Twice For the Same Drugs," Washington Post, March 27, 2002, at A21.

    68.

    See Birch Bayh and Robert Dole, "Our Law Helps Patients Get New Drugs Sooner," Washington Post, April 11, 2002, at A28.

    69.

    Michael Mezher, "Lawmakers Urge HHS to Exercise 'March-In' Rights to Fight Higher Drug Costs," States News Service, January 11, 2016.

    70.

    Letter from Sylvia M. Burwell, Secrtary of Health and Human Services, to The Honorable Lloyd Doggett, U.S. House of Representatives, March 2, 2016, http://freepdfhosting.com/be7532cfc0.pdf.

    71.

    Letter from Lloyd Doggett, House of Representatives, to The Honorable Sylvia Burwell, Secretary, Department of Health and Human Services, March 28, 2016, http://freepdfhosting.com/1c677ecdfc.pdf.

    72.

    "Feds Won't Lower Price of Prostate-Cancer Drug," Seattle Times, June 21, 2016.

    73.

    35 U.S.C. §201(f).

    74.

    35 U.S.C. §203(a)(2).

    75.

    35 U.S.C. §203(a).

    76.

    The petition for rehearing of the Fabrazyme march-in decision asserted that NIH Director Francis Collins was named as an inventor on nineteen patents potentially subject to march-in rights. Letter from C. Allen Black, Jr., Attorney at Law, to Mark Rohrbaugh, Office of Technology Transfer, NIH, April 5, 2011, http://patentdocs.typepad.com/files/nih-petition-for-rulemaking-and-rehearing-90.pdf.

    77.

    Ryan Whalen, "The Bayh-Dole Act & Public Rights in Federally Funded Inventions: Will the Agencies Ever Go Marching In?," Northwestern University Law Review, vol. 109 (2015), pp. 1111-12.

    78.

    35 U.S.C. §203(b).

    79.

    Arti K. Rai is the Elvin R. Latty Professor of Law at the Duke University School of Law.

    80.

    Rebecca S. Eisenberg is the Robert and Barbara Luciano Professor of Law at the University of Michigan Law School.

    81.

    Arti K. Rai and Rebecca S. Eisenberg, "Bayh-Dole Reform and the Process of Biomedicine," Journal of Law and Contemporary Problems, vol. 66 (2003), p. 311.

    82.

    Peter Lee, "Transcending the Tacit Dimension: Patents, Relationships, and Organizational Integration in Technology Transfer," California Law Review, vol. 100 (2012), p. 1521.

    83.

    See Whalen, supra.

    29.

    See Caitlin O'Connell, "The End of Patent Extraterritoriality? The Reconciliation of the Patent and Copyright First Sale Doctrine," 23 George Mason Law Review (2015), 229.

    30.

    See Jay A. Erstling & Fredrick W. Struve, "A Framework for Patent Exhaustion from Foreign Sales," 25 Fordham Intellectual Property, Media and Entertainment Law Journal (2015), 499.

    31.

    Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001). (Fed. Cir. 2001); Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed. Cir. 2005).

    32.

    133 S.Ct. 1351 (2013).

    33.

    Irene Calboli, "The United States Supreme Court's Decision in Kirtsaeng v. Wiley & Sons: An "Inevitable" Step in Which Direction?" 45 International Review of Intellectual Property & Compeition Law (2014), 75.

    34.

    133 S.Ct. at 1357.

    35.

    Id. at 1358.

    36.

    Id. at 1354-1355.

    37.

    Id. at 1365.

    38.

    See Jodi LeBolt, "Sales Gone Wrong: Implications of Kirtsaeng for the Federal Circuit's Stance on International Exhaustion," 24 Federal Circuit Bar Journal (2014), 131.

    39.

    2016 WL 559042 (Fed. Cir. February 12, 2016).

    40.

    Id. at *30-34.

    41.

    Id. at *35-36.

    42.

    Id. at *45.

    43.

    Id. at *58.

    44.

    Id. at *59.

    45.

    A writ of certiorari requesting Supreme Court review of this case was filed on March 21, 2016. The matter remains on the docket of the Supreme Court as of the date this report was published.

    46.

    See, e.g., Kevin Goodno and Karen Janisch, Minnesota: Leading the Way on Canadian Prescription Medicine Importation, 31 William Mitchell Law Review (2005), 811.

    47.

    The Eleventh Amendment to the U.S. Constitution stipulates: "The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state." For more information about this topic, see CRS Report RL34593, Infringement of Intellectual Property Rights and State Sovereign Immunity, by [author name scrubbed].

    48.

    28 U.S.C. §1338(a).

    49.

    See Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999).

    50.

    91 F.Supp.3d 1 (D.Me. 2015).

    51.

    Id. at 9-12.

    52.

    See Lucas Dahlin, "When is a Patent Exhausted? Licensing Patents on a Claim-by-Claim Basis," 90 Chicago-Kent Law Review (2015), 757.

    53.

    See Elizabeth Winston, "Sowing the Seeds of Protection," 2014 Wisconsin Law Review 445.

    54.

    Lexmark International, Inc. v. Impression Products, Inc., 2016 WL 559042 (Fed. Cir. February 12, 2016), at *10.

    55.

    See Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Annex 1C, 33 I.L.M. 1197 (1994) (hereinafter "TRIPS Agreement"). See also CRS InFocus IF10033, Intellectual Property Rights (IPR) and International Trade, by [author name scrubbed] and [author name scrubbed].

    56.

    See Jacob S. Sherkow, "The Natural Complexity of Patent Eligibility," 99 Iowa Law Review (2014), 1137.

    57.

    See Daniel Erlikhman, "Jazz Photo and the Doctrine of Patent Exhaustion: Implications to TRIPS and International Harmonization of Patent Protection," 25 Hastings Communications and Entertainment Law Journal (COMM/ENT) (Winter 2003), 307.

    58.

    United States-Morocco Free Trade Agreement, Art.15.9.4, 44 I.L.M. 544 (2005).

    59.

    United States-Australia Free Trade Agreement, Art.17.9.4, KAV 6422 (2005).

    60.

    United States-Singapore Free Trade Agreement, Art. 16.7.2, 42 I.L.M. 1026 (2003).

    61.

    S. 2328, §4(f)(1)(B).

    62.

    S. 2328, §4(f)(2).

    63.