First, there is the question whether the introduction of a patented product in one country exhausts the right in all the countries where the product is patented or only in the country where it is introduced. This has been especially contentious in the case of medical patents because of the links between exhaustion, parallel imports and differential pricing (Cullet 2005). In the case of national exhaustion, there is scope for companies that wish to do so to sell their drugs at different prices in different markets to take into account different levels of economic development and capacity to pay²¹. In the case of drugs for diseases that exist both in developed and developing countries, differential pricing can have positive effects. It allows pharmaceutical companies to sell in developing countries at a level which allows them to maintain their profit levels. At the same time, the segmentation of the market permits the sale to developing countries of the same drug at a price much closer to the marginal cost of production. The limitations of differential pricing include the following two problems: (a) the marginal cost of production may still be much more than what most patents in developing countries can afford. Similarly, though the price of a single dose is “affordable”, this may not be the case, if a drug is to be taken for long periods of time²²; and (b) differential pricing does not solve the problem of the incentive to the private sector pharmaceutical industry in the case of diseases that occur only in developing countries. The prices that developing countries can afford are not sufficient to entice a company in developed countries to engage in the necessary research and development²³. Further, there are other problems associated with differential pricing. On the one hand, differential pricing works satisfactorily from the point of view of intellectual property holders, if markets are highly segmented to prevent the leakage of differentially priced drugs to high-income markets²⁴. This implies that there can be no parallel importation as provided under Article 6 of the TRIPS, if there is to be differential pricing, as markets must remain separate. On the other hand, Article 6 of the TRIPS constitutes one of the instruments that developing countries can use to take advantage of different prices in different markets either due to different market conditions or due to different IPR regimes. On the whole, Article 6 of the TRIPS provides developing countries with some flexibility within the patent system, while differential pricing with segmented markets provides this flexibility to holders of IPR ²⁵.

Secondly, there is the issue of the actual meaning of exhaustion in specific cases. This is an ongoing issue, in particular in the context of genetically modified seeds. There is still significant uncertainty as to whether patent owners can claim rights only over the actual seeds they sell or also over future generations of seeds created on the basis of the patented seed but without any contribution of the patent owner. Article 6 of the TRIPS Agreement does not provide a general solution to the question of exhaustion. The Doha Declaration on Health goes slightly further in clearly asserting that individual countries can establish their own exhaustion regime and are only bound in doing so by their obligations under Articles 3 and 4 of the TRIPS Agreement ²⁶.

Notes and References
²¹ On parallel imports, see generally Frederick M. Abbott, ‘First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation', Journal of International Economics and Law , 607 (1998).
²² See, for example, P. Danzon, ‘Differential Pricing for Pharmaceuticals: Reconciling Access, R&D, and Intellectual Property' (CMH Working Paper Series Paper No. WG2: 10, 2001).
²³ Ibid.
²⁴ World Health Organisation and World Trade Organisation Secretariats, Report of the Workshop on Differential Pricing and Financing of Essential Drugs, 8-11 April 2001, Hosbjor, Norway. See also Council Regulation (EC) No. 953/2003 of 26 May 2003 to Avoid Trade Diversion into the European Union of Certain Key Medicines, 26 May 2003.
²⁵ John H. Barton, ‘Differentiated Pricing of Patented Products' (CMH Working Paper, Series Paper No. WG4: 2, 2001).
²⁶ Paragraph 5 (d), Declaration on the TRIPS Agreement and Public Health, Ministerial Conference – Fourth Session, WTO Doc WT/MIN(01)/DEC/2 (2001) [hereafter Doha Health Declaration]