I. INTRODUCTION
Parallel trade refers to the resale of goods between countries without
the authorization of the owner of the intellectual property (IP) rights
associated with those goods. It is a response to international price
discrimination, whereby an identical product is sold at different prices in
different countries. Changes in both trade regulations and intellectual
property rights may affect the legality and prevalence of parallel trade,
which in turn may impact the product market strategies of IP-intensive
firms such as pharmaceutical manufacturers. Competition policy, in turn,
may constrain how firms respond to parallel trade.
There have been proposals in the United States to permit parallel
imports of pharmaceuticals from Canada (and other countries) in the last
several years. The U.S. is not alone in considering changes to the legality of
parallel trade; developed countries like Switzerland, New Zealand and
Australia have also reconsidered or revised their policies, and parallel
imports into developing countries is an increasingly contentious trade
issue. Both the law and the strategies firms used in response to parallel
trade are relevant not only to the pharmaceutical industry, but to all IPintensive
firms that are active in multiple countries. Concerns raised about
access to treatments and the widespread use of price regulation for
medical treatments, however, make the issue of parallel trade especially
salient in pharmaceuticals.
The implications of parallel trade for social welfare, both static and
dynamic, are theoretically ambiguous in most economic models. However,
these models typically consider a limited range of responses by firms to
the threat of parallel trade. There is a growing body of empirical evidence
that documents the effect of parallel trade in pharmaceuticals within the
European Union. This paper summarizes the theoretical and empirical
literatures and discusses the implications for competition policy.