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Many contend that American consumers would pay less for medicines if the U.S. market were opened to imported drugs. Indeed, the Medicine Equity and Drug Safety Act of 2000 purported to open the U.S. market to drug importation from 25 countries if the secretary of Health and Human Services certified that there would be no risk to public health or safety and that there would be a significant cost reduction. While the secretary has provided no such certification, the Food and Drug Administration (FDA) has adopted a policy of not enforcing, against individuals, the standing law that only FDA-approved manufacturers may import drugs. As a result, cross-border sales of pharmaceuticals have now risen to well above $1 billion annually. Public health and safety concerns aside, drug importation may violate the patent rights of U.S. drug companies in two instances. In the first, the U.S. patent holder manufactures the drug in the United States and exports it for sale abroad. There, a third party buys the drug and imports it into the United States. In the second instance, the U.S. patent holder or its authorized representative manufactures and sells the drug outside of the United States. A third-party purchaser then imports the drug into the United States for resale. A patent permits the owner to exclude others from making, using, offering to sell, selling or importing the patented subject matter without permission for a specified period of time-typically 20 years from the patent’s filing date. Thus, if a prescription drug or its method of manufacture or use falls within the scope of a U.S. patent, the owner can exclude a third party from importing, selling or using the drug in the United States. On the face of it, then, a third party cannot import a patented pharmaceutical into the United States without the permission of the patent owner. Whether a patent owner can actually enforce its patent rights against the drug importer, however, depends on whether the patent owner’s activities in connection with the imported product have exhausted those rights. For example, has the patent owner’s manufacture of the drug in the United States and sale of the drug outside the United States exhausted its rights under the U.S. patent? Has the manufacture and sale of the drug outside the United States by the patent owner or under its authority exhausted its U.S. rights? Patent exhaustion Patent exhaustion, or the “first sale” doctrine, terminates a patentee’s rights if it has sold the patented product without restriction. For example, the purchaser of the patented product in the United States may resell it without running afoul of a U.S. patent claiming the product. See Mitchell v. Hawley, 83 U.S. 544, 548 (1872); Intel Corp. v. ULSI Sys. Tech., 995 F.2d 1566, 1568-70 (Fed. Cir. 1993). In the context of the drug importation debate, U.S. courts have limited the doctrine of patent exhaustion in two ways that are important. First, legal sales of products outside of the United States do not exhaust the patent owner’s rights under a U.S. patent. For example, in Boesch v. Graff, 133 U.S. 697, 702 (1890), a third-party sale in Germany, under prior-user rights, did not exhaust a patentee’s rights under the U.S. patent. More recently, the U.S. Court of Appeals for the Federal Circuit extended this rule to non-U.S. sales, even under the authority of the U.S. patentee. Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1376-77 (Fed Cir. 2005). But see Sanofi S.A. v. Med-Tech. Veterinarian Prods. Inc., 565 F. Supp. 931, 937-38 (D.N.J. 1983) (unrestricted foreign sales exhaust U.S. patent rights). In Jazz Photo, Fuji, the U.S. patent owner, had authorized the foreign sale of its disposable cameras. Jazz had obtained many of those cameras, refurbished them, and imported them for sale in the United States. It argued that Fuji’s unrestricted sales outside of the U.S. exhausted Fuji’s U.S. patent rights. Jazz’s theory was that the patentee Fuji had received the benefit of its patent. See U.S. v. Masonite Corp., 316 U.S. 265, 277-82 (1942): “The test [is] whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article.” Id. at 278. The Federal Circuit, however, ruled against Jazz: “The patentee’s authorization of an international first sale does not affect exhaustion of the patentee’s rights in the U.S.” Fuji Photo, 394 F.3d at 1376. Second, the sale of a product under explicit and lawful restrictions may preclude the purchaser from subsequent resale both as a matter of contract law and patent law. See, e.g., B. Braun Med. Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed. Cir. 1997) (sales of patented valve limited to particular uses precluded resale for other uses). The issue is the scope of the sale restriction, or “label license,” and whether those restrictions are unlawful or anti-competitive. For example, restrictions on resale price are typically unlawful.

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