The Medicines and Related Substance Control Amendment Bill (B30-97) and its Effect on Intellectual Property Rights

The abovementioned Bill was published recently and is currently under consideration by the relevant parliamentary committee. Inter alia, it seeks to make medicines more affordable by removing existing barriers to the parallel importation of medicines which are already registered locally, and by making generic substitution not only possible but mandatory in certain circumstances.

1. Generic Substitution

1.1 The Bill seeks to amend the existing Act by introducing the following definition:

" 'generically equivalent medicines´ means medicines that contain the same active ingredients and are identical in dose or concentration, dosage form and route of administration and comply with the requirements for bioequivalence as determined by the council". (The Council referred to is of course the Medicines Control Council established in terms of the Act).

1.2 The Bill also introduces a new sub-section 22F which reads as follows:

"22F -

1. Subject to subsections (2), (3) and (4), a pharmacist shall:

a. Inform all members of the public who visit his or her pharmacy with a prescription for dispensing, of the benefits of the substitution for a branded medicine of a generically equivalent medicine; and

b. Dispense a generically equivalent medicine instead of the medicine prescribed by a medical practitioner, dentist, practitioner, nurse, veterinarian or other person registered under the Health Professions Act, 1974, unless expressly forbidden by the patient to do so.

2. If a pharmacist is forbidden as contemplated in subsection (1)(b), that fact shall be noted by the pharmacist on the prescription and confirmed by the patient with his or her signature.

3. When a generically equivalent medicine is dispensed by a pharmacist he or she shall note the brand name or the name of the manufacturer of that generically equivalent medicine in the prescription book.

4. A pharmacist shall not sell a generically equivalent medicine:

a. If the person prescribing the medicine has written in his or her own hand on the prescription the words ´no substitution´ next to the item prescribed;

b. If the retail price of the generically equivalent medicine is higher than that of the prescribed medicine; or

c. Where the product has been declared not substitutable by the council.

5. A pharmacist who sells a generically equivalent medicine in accordance with this Act shall not incur a greater liability in respect of that sale than the liability which he or she would have incurred had he or she sold the medicine which was prescribed".

1.3 It is noteworthy that the definition of "generically equivalent medicines" makes no reference to patent rights.

1.3.1 Although generically equivalent products are understood in certain quarters and especially in the pharmaceutical industry to mean products which are free of patent protection, this is not the meaning of generic equivalents in its ordinary grammatical sense. Moreover as you will see from Section 22F(1)(a) as quoted above, the legislature makes reference to "a generically equivalent medicine" in contradistinction to a "branded medicine": a concept far removed from a product free of patent protection.

a. It falls outside the scope of this memorandum to discuss the socio-economic implications of the absence of or inadequate protection for pharmaceutical patents. The implications for the pharmaceutical industry in South Africa could be little short of catastrophic.

b. South Africa as a member of the World Trade Organisation (WTO) is a signatory to the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) in terms of which it is obliged to uphold minimum standards for the protection of intellectual property rights, including pharmaceutical patents. (See below).

c. Although proposed subsection 22F does not specifically seek to exclude the provisions of the Patents Act No. 57 of 1978, it is capable of such an interpretation in the light of the proposed provisions relating to parallel importation (see below).

1.4 It is essential that any uncertainty as to the possible implications for pharmaceutical patents flowing from the provisions relating to generic substitution must be removed by incorporating a suitable proviso to the definition of "generically equivalent medicines" whereby products which are the subject of subsisting South African patent rights are expressly excluded from the definition.

1.5 It should also be noted that the provisions for generic substitution are mandatory in that a pharmacist shall invariably dispense a generically equivalent medicine which is cheaper than the medicine actually prescribed unless expressly forbidden to do so. Again, it falls outside the scope of this memorandum to discuss the implications of this for the local pharmaceutical industry save to note that mandatory generic substitution appears to fly in the face of the principles underpinning a free market economy and erodes the goodwill built up by the suppliers of branded medicines. Although the explanatory memorandum published with the Bill asserts (in the first full sentence at the top of page 38 thereof) that generic substitution be made "a legal option", the proposed provisions in the Act make generic substitution a legal obligation, not a legal option, and cost becomes the final determinant. Section 22F (1) (b) could be amended to read "may dispense a generically equivalent medicine ... " instead of "shall dispense".

2. Parallel Importation

2.1 Subsection 1 (2) of the existing Act effectively precludes the parallel importation of medicines.

2.2 The proposed Bill completely reverses this position by introducing the following provisions

"(2) Notwithstanding anything to the contrary in any law contained a medicine shall -

a. if its components are identical to those of another medicine registered in the Republic as to physical characteristics, quantity and quality; and

b. if it is manufactured by the same manufacturer, be regarded as the same medicine as the other medicine and need not be registered

(3) In determining whether or not the registration or availability of a medicine is in the public interest, regard shall be had only to the safety, quality and therapeutic efficacy thereof in relation to its effect on the health of man or any animal, as the case may be.

(4) A medicine referred to in subsection (2) may, in the prescribed manner and on the prescribed conditions, be imported by any person.

(5) International tendering for pharmaceuticals shall be allowed in the prescribed manner and on the prescribed conditions".

2.3 In other words, a medicine which is available abroad and which is identical to one registered by the same manufacturer in South Africa need not be the subject of a separate registration and may therefore be imported and sold in competition with the product which is the subject of the local registration.

2.4 It will be noted that subsection (2) introduced parallel imports with the words "notwithstanding anything to the contrary in any law contained". Conceivably, this could countenance the importation of "generically equivalent medicines" as discussed above. No parameters are set for the "prescribed manner" and "prescribed conditions" referred to in proposed subsections (4) and (5), and it could be that the "prescribed manner" and "prescribed conditions" will allow importation of a product which would otherwise constitute an act of patent infringement.

2.5 Furthermore, proposed sub-section (4) could well torpedo business relationships which have been set-up, often over many years, between foreign licensors and local licensees, and foreign international companies and local subsidiary companies by opening the doors to unrelated local third parties to demand the right also to import proprietary medicines.

3. The possible impact of the new Bill on intellectual property rights has been canvassed above with particular reference to patents and is discussed further below under the separate headings of Trade Marks and Copyright.

4. Trade Marks

4.1 The Trade Marks Act already provides that a registered trade mark is not infringed by the importation into or the distribution, sale or offering for sale in the Republic of goods to which the trade mark has been applied by or with the consent of the proprietor thereof (Section 34 (2) (d) of the Trade Marks Act, 1993).

4.2 The broad provisions intended to facilitate parallel imports of medicines are, however, to some extent mitigated by the requirement in subsection (2)(b) that the parallel import must be manufactured by the same manufacturer as the product which is the subject of the local registration in terms of the Medicines and Related Substances Control Act. It is unlikely that "the same manufacturer" could be interpreted to include a member of the same group of companies or an appointed licensee which manufactures the product corresponding to that covered by the local registration.

4.3 It is instructive to note the pronouncements of the European Court of Justice in considering the legality of parallel imports in the European Union. The European Court was faced with several cases in which it had to resolve the apparent discrepancy between the trade mark legislation of member states of the European Union on the one hand, and directives of the European Community designed to promote the free flow of goods between member states on the other hand. Thus the situation on which the European Court had to pronounce was not on all fours with the South African situation due to the overriding consideration of the relevant Community directives. Nonetheless, the European Court made some rulings and findings on parallel imports that are of general application, inter alia:

4.3.1 The specific subject matter of a trade mark is in particular to guarantee to the owner that he has the exclusive right to use that trade mark for the purpose of putting a product on the market for the first time.

4.3.2 The essential function of a trade mark is to guarantee to the consumer or any user the identity of the trade mark product’s origin by enabling him to distinguish it without any risk of confusion from products of different origin.

4.3.3 Therefore, the specific subject matter of a trade mark includes the right to oppose any use of the trade mark which is liable to impair the guarantee of origin, namely the guarantee that a trade marked product has not been subject at a previous stage of marketing to interference by a third person, without the authorisation of the trade mark owner, in such a way as to affect the original condition of the product.

4.3.4 The original condition of the product may be indirectly affected where:

a. The parallel importer’s instructions are inaccurate or omit important information;

b. An extra article is inserted by the parallel importer

c. The new packaging does not give the product adequate protection.

4.3.5 Further, the parallel importer must comply with the following obligations:

a. He must indicate on the external packaging who re-packaged the product and who manufactured the product, printed in such a way as to be understood by a person with normal eyesight exercising a normal degree of attentiveness;

b. If the parallel importer has added an extra article to the package, he must ensure that its origin is indicated in such a way as to dispel any impression that the trade mark owner is responsible for it;

c. He must give the trade mark owner advance notice of the product being put on sale. The trade mark owner may also require the parallel importer to supply him with a specimen of the re-packaged product before it goes on sale.

4.3.6 Poor presentation of a product sold to consumers could damage the trade mark´s reputation. The trade mark owner may use his rights to oppose the parallel importation of products in which the re-packaging is defective, untidy or of poor quality. It is for the National Court to determine whether the cutting of blister packs or the insertion of loose blister packs constitutes an untidy form of packaging liable to damage the reputation of the trade mark.

4.3.7 Trade mark rights, the court has held, constitute an essential element in the system of undistorted competition which the Community is intended to establish. In such a system, undertakings must be able to attract and retain customers by the quality of their products or services, which is possible only thanks to the existence of trade marks allowing them to be identified. For the trade mark to be able to fulfil that function, it must constitute a guarantee that all products which bear it have been manufactured under the control of a single undertaking to which responsibility for their quality may be attributed.

4.3.8 The trade mark owner must be given advance notice of the re-packaged product being put on sale. The owner may also require the importer to supply him with a specimen of the re-packaged product before it goes on sale, to enable him to check that the re-packaging is not carried out in such a way as directly or indirectly to affect the original condition of the product and that the presentation after re-packaging is not such as to damage the reputation of the trade mark.

4.3.9 Similarly, such a requirement affords the trade mark owner a better possibility of protecting himself against counterfeiting.

4.4 Having held that the Community directives may in certain instances override the ostensible protection afforded to trade mark owners by national legislation, the court dealt with some of the specific instances before it and highlighted problems that could be encountered with parallel imports that would have to be dealt with by the National Courts. For example:

a. Blister packs coming originally from different packets grouped together in several external packaging might have come from different production batches with different use-by dates,

b. Products might have been stored for too long,

c. Light-sensitive products might have been damaged by light during re-packaging,

d. Temperature-sensitive products may have been damaged during re-packaging, storage or transport.

4.5 Because trade mark registrations are strictly territorial in their effect it can and does happen that the same trade mark is owned by different proprietors in different countries. Moreover, for linguistic or other reasons it frequently happens that a particular product is marketed by the same manufacturer under different trade marks in different countries.

4.6 This could result (in terms of proposed Section 1(2) of the Act) in imported products infringing South African trade mark registrations of third parties, and confusion in the market. In these circumstances, the proposed amendments would enable parallel importers to ride roughshod over the rights of trade mark owners which would again bring the provisions of the Bill in conflict with South Africa’s WTO obligations and the TRIPS agreement.

5. Copyright

5.1 Copyright will usually subsist in the artwork and layout of packaging, and in product inserts. In terms of the Copyright Act, this copyright will be infringed by unauthorised adaptations, reproductions or translations.

5.2 By prefacing the provision regarding parallel imports with the words "notwithstanding anything to the contrary in any law contained", it is clearly intended to overrule the provisions of the Copyright Act insofar as they may be invoked to block parallel imports.

5.3 The packaging and inserts which accompany medicines need not and should not be disregarded in this context. If the object of the Act is to facilitate parallel imports of medicines it does not and need not follow that intellectual property rights such as copyright and trade mark rights must be forfeited. Thus, the Appellate Division of the Supreme Court has held in regard to parallel importation of electronic goods that this does not carry with it the right to infringe the copyright in the packaging of the original (genuine) product. Similar considerations apply in regard to the parallel importation of pharmaceuticals.

6. General

6.1 The terms "brand name" and "trade name" are not defined elsewhere in this Act and do not correspond to the terminology of the Trade Marks Act. The term "trade mark" as defined in the Trade Marks Act includes what are popularly referred to as "brand names", as well as certification marks, house marks and common law trade marks. Section 1(a) of the Bill should be amended to read

"... such other name as the Council may determine, not being a trade mark as defined in the Trade Marks Act, 1993 (Act No. 194 of 1993)".

6.2 It is desirable to include a definition of the term "brand name" in this Act in the light of the provisions relating to sales to the State (Section 18(5) of the Act, Section 10 of the Bill) and proposed Section 22F of the Act relating to generic substitution, to the effect that "brand name" in relation to medicines means a trade mark used as a designation to identify only a specific medicine and "branded medicine" shall have a corresponding meaning.

6.3 Mention has been made of the absence of guidelines relating to "the proper manner" and "proper procedure" for parallel imports. Given that the Minister may not only promulgate regulations in this regard herself but may also delegate this function it is tantamount to giving the Department of Health an uncontrolled discretion which could place the entire future of the pharmaceutical industry in South Africa at risk.

6.4 The proposed amendment envisages that parallel imports may be effected by "any person", and it is surely desirable that the importer/distributor should be a stakeholder in the pharmaceutical industry and not merely a speculator.

6.5 There is a real risk that generic substitution and parallel imports will facilitate the importation and distribution in South Africa of counterfeit products which are already a major concern in many countries. The Act should place an obligation on the importer and distributor to ensure that parallel imports and generic equivalents are indeed the genuine article and comply with the definition and other requirements. Proposed Section 22F(5) of the Bill should be qualified to exclude pharmacists who are themselves the importers or distributors of the medicine in question from the indemnity conferred by the Act.

Anthony Hooper

Spoor & Fisher

Date published: 1990/01/01
Author: Anthony Hooper

Tags: medicines substance control amendment bill intellectual property rights