Imported Drugs Violate Patent Rights, Threaten Trade, Canadian Study Finds

Published April 1, 2006

While some reports suggest the new Medicare prescription drug benefit may be slowing U.S. consumers’ demand for Canadian drugs, a Vancouver-based think tank warns cross-border drug sales threaten Canada’s drug supply and its trading relationship with the United States.

In February 2006, the Fraser Institute released “Price Controls, Patents, and Cross-Border Internet Pharmacies: Risks to Canada’s Drug Supply and International Trade Relations,” by Brett J. Skinner, the institute’s director of health and pharmaceutical policy research.

“One concern is the impact government policies will have on Canadians’ access to drugs,” Skinner said. “We also fear the long-term free-trade consequences of a government policy that essentially encourages Canadian-based businesses to violate the property rights of U.S. firms.”

Cross-Border Traffic Falls

According to data provided to Skinner by IMS Health Incorporated, a global pharmaceutical consulting firm, some 278 confirmed or suspected Canadian-based Internet pharmacies participate in cross-border drug sales. Nearly 70 percent of their sales, measured as the total value of drugs sold over a 12-month period, are to consumers in the United States.

Between July 2004 and June 2005 drug sales to the United States totaled CDN $507 million (roughly $435 million US). That was down 18 percent from sales over the previous 12 months.

Traffic in Generics Increases

An analysis of the data by IMS Health indicates the falling value of cross-border sales is only partly related to declining demand from U.S. consumers.

The total value of cross-border drug sales is down primarily because less-expensive generics are displacing brand-name products in the volume of drugs sold over the Internet to Americans. The monthly value of all cross-border sales fell 29 percent between July 2003 and June 2005. Over the same period, the monthly value of cross-border sales in generics rose 70 percent.

The rising demand by U.S. consumers for generic drugs sold through Canadian-based Internet pharmacies is “very surprising,” writes Skinner, as past research has shown most generic drugs available in both Canada and the United States are significantly less expensive in the United States.

The explanation, Skinner notes, is that drugs not yet off-patent in the United States are being sold as generics in Canada. Fifty generic drugs sold to U.S. consumers through Canadian-based Internet pharmacies have no generic equivalent in the United States.

Patent Rights Violated

Canadian-based Internet pharmacies appear to be engaged in a “massive theft of intellectual property,” writes Skinner. The Canadian government’s failure to act against patent violations may damage international trading relationships and open the country to international legal challenges, he notes.

“The property rights violations are really an important part of the story,” said Skinner. “A ban on exports of generic drugs that violate foreign patents would be consistent with our commitment to protecting intellectual property and respecting the patent rights of our trading partners.”

Policy Change Recommended

Skinner also notes cross-border sales threaten the supply of drugs for Canadians themselves. He estimates almost 119 million American consumers–nearly four times the entire population of Canada, at 32 million–might compete for access to the Canadian drug supply.

“In order to protect the Canadian drug supply, an export ban would be appropriate,” Skinner writes, but only if “governments stubbornly cling to misguided pharmaceutical price controls” and provincial single-buyer practices. Skinner recommends instead repealing price controls and provincial monopsony buying rules, replacing them with consumer cost-sharing and drug programs targeting assistance to persons with catastrophic needs.

Diane Carol Bast ([email protected]) is vice president of The Heartland Institute and executive editor of Health Care News.

For more information …

“Price Controls, Patents, and Cross-Border Internet Pharmacies” is available online at