Pharmaceuticals and the European Union: Managing Gray Markets in an Uncertain Legal Environment

[Robert C. Bird is an Assistant Professor and Ackerman Scholar at the University of Connecticut School of Business; Peggy E. Chaudhry is an Associate Professor at Villanova University School of Business]

Professor Robert Bird, Assistant Professor, University of Connecticut and Peggy Chaudhry, Associate Professor, Villanova University will discuss their Article, “Pharmaceuticals and the European Union: Managing Gray Markets in an Uncertain Legal Environment.” Their Article investigates the divergent views of parallel importers and manufacturers and the resulting legal battles that have evolved to contest access to the €133 billion European drug market. Drug manufacturers and gray marketers provide conflicting information about the merits of their position. The manufacturers’ stance on parallel trade is evident at its trade association, European Federation of Pharmaceutical Industries and Associations, and they respond that parallel traders exploit the regulatory price systems set up by EU governments and do not create benefits for health care, consumers, or the economy of Europe. Manufacturers also suggest that parallel trade results in safety and quality issues that stem from these distributors handling the pharmaceuticals. The counterargument from gray marketers is evident at the European Association of Euro-Pharmaceutical Companies (“EAEPC”) that profess that parallel trade provides competition and savings to consumers and health insurance funds across Europe. Manufacturers, they argue, charge the highest possible price in each country market and use supply restrictions to block parallel trade. Drug manufacturers respond that traders exploit the regulatory price systems set up by EU governments and do not create benefits for health care, consumers, or the economy of Europe. Manufacturers also suggest that parallel trade results in safety and quality issues that stem from these distributors handling the pharmaceuticals. The 2009 health scare of counterfeit pharmaceuticals in the supply chain of the NHS in the United Kingdom further supported the drug manufacturers’ trepidation about parallel trade in the EU. However, parallel traders through their associations, such as EAEPC, have been adamant in their claims that there is no link between the counterfeit and gray marketing of pharmaceuticals. The authors’ provide a synopsis of these divergent views and summarize the near-continuous stream of litigation in European courts through concise exhibits. The authors’ assert that parallel importers can never be eliminated altogether and provide several tactics that firms can use to slow gray market activity through a savvy mixture of legal and marketing strategies.