How much do you know about parallel trade? Perhaps you may have heard someone mention these words and have then switched off.
In a sense, it's hardly surprising given the fact that most media coverage centres on interpretation of complex legal cases.
By the time you reach the end of these types of articles, you can't work out what the mentioned companies were arguing about
in the first place and on which technical details the case was judged. Yet, time after time, a legal ruling on a parallel
trade issue rockets to the front pages of the pharmaceutical press and even, occasionally, the mainstream media.
If you work for a pharmaceutical company it's probably worth paying a bit more attention to the media's coverage of parallel
trade as it could affect your future livelihood. In fact, mention the two little words 'parallel' and 'trade' together and
you'll see that they strike fear into the heart of every senior industry executive trying to gauge future profits for their
company.
The grey market
Parallel trade is often spoken of as the 'grey market'. It involves the cross-border trade of a given product in parallel
to a manufacturer's official main supply chain in that country. If you are unfamiliar with parallel trade, you may be surprised
that it can possibly exist — but it does, and is big business to those involved. Whether the practice can take place or not
depends largely on the right to resell a product that has already been placed on a particular market by the original pharmaceutical
manufacturer — as it is pretty likely they were not intending to allow someone else to sell on their product.
Parallel trade is a complex and controversial issue that infuriates those running the pharmaceutical industry. After all,
if they have invested millions of euro in research to bring a product to market, why should someone else benefit by selling
it on? Well, unfortunately, in certain areas of the world the practice is considered acceptable depending on what's known
as the 'concept of exhaustion of intellectual property rights'. Basically, once the owner of the goods has placed his products
on the international market, there may come a point where the owner is no longer allowed to control the distribution of these
goods. In effect, he has 'exhausted' his distribution rights by first sale of the goods.
The big problem
Parallel trade is possible in the EU providing certain legal requirements are met; this is a problem particularly when one
considers that the EU is the world's second largest regional market. The EU is very keen on the principle of free trade and
this effectively means that there should be no obstacle to the free movement of goods between individual Member States of
the EU. To aggravate the situation, there are various legal articles prohibiting agreements distorting competition.
This may make little sense to the average person, but it creates enough legal ambiguity for those involved in parallel trade
to see a business opportunity. Parallel traders actively seek out a significant price difference for the same product in different
markets. They then buy the product in a lower-price market to sell it on in a higher-priced market at a more attractive price
to the buyer. In Europe, countries in the north have traditionally been seen as higher-priced pharmaceutical markets compared
with those in the south.
