Prescription Drug Importation and Internet Sales: A Legal Overview
Prepared for Members and Committees of Congress
High prescription drug prices have increased consumer interest in purchasing less costly
medications abroad. Policymakers opposed to allowing prescription drugs to be imported from
foreign countries argue that the Food and Drug Administration (FDA) cannot guarantee the safety
or effectiveness of such drugs. Importation proponents, who claim that importation would result
in significantly lower prices for U.S. consumers, say that safety concerns are overblown and
would recede if additional precautions were implemented. The importation debate continues.
In response to concerns about prescription drug imports, lawmakers have introduced multiple th
bills in this and previous Congresses. Bills introduced in the 110 Congress include H.R. 194,
H.R. 380, H.R. 1218, H.R. 2638, H.R. 2900, H.R. 3161, H.R. 3580, S. 242, S. 251, S. 554, and S.
1082. In recent years, appropriations bills have contained restrictions on the use of funds by
Customs and Border Protection (CBP) to prevent certain individuals from importing Canadian
prescription drugs; however, such provisions appear to have limited effect.
The following federal and state agencies are involved in regulating aspects of prescription drug
importation: FDA, CBP, the Drug Enforcement Agency (DEA), state boards of pharmacy, and
state medical boards. This report, originally written by Jody Feder, Legislative Attorney, CRS,
focuses on legal aspects of prescription drug importation, including antitrust law, international
trade law, and patent law issues. However, policy issues are also addressed because they are
closely linked. For a more complete analysis of policy issues, see CRS Report RL32511,
Importing Prescription Drugs: Objectives, Options, and Outlook, by Susan Thaul. For more
information regarding Internet pharmacies, see CRS Report RS21711, Legal Issues Related to
Prescription Drug Sales on the Internet, by Vanessa K. Burrows.
II. Prescription Drug Importation: Legal Regulation......................................................................3
Importation of U.S.-Manufactured Prescription Drugs.............................................................4
Importation of Foreign Versions of Prescription Drugs............................................................6
Canadian Prescription Drug Importation After the FY2007 Homeland Security
The House FY2008 Agriculture Appropriations Bill..............................................................10
The FY2008 Homeland Security Appropriations Bill/ 2009 Consolidated
Penalties Under the FDCA and Other Federal Laws...............................................................12
The FDA’s Personal Importation Procedures..........................................................................13
State and Local Importation of Prescription Drugs: Violation of Federal Law?....................16
Businesses That Facilitate Importation of Prescription Drugs................................................20
Federal Antitrust Law.......................................................................................................23
State Antitrust Law...........................................................................................................27
International Trade Law..........................................................................................................29
General Agreement on Tariffs and Trade..........................................................................29
WTO Agreement on Technical Barriers to Trade..............................................................31
General Agreement on Trade in Services..........................................................................33
Author Contact Information..........................................................................................................36
his report explores the legal issues raised by prescription drug importation. Although this
report is intended to focus on legal analysis, policy issues are also addressed because they
are closely linked. For a more complete analysis of policy issues, see CRS Report T
RL32511, Importing Prescription Drugs: Objectives, Options, and Outlook, by Susan Thaul.
Issues associated with the risks posed by some online pharmacies and prescription drug sales over
the Internet will no longer be addressed in this report, but are rather addressed in CRS Report
RS21711, Legal Issues Related to Prescription Drug Sales on the Internet, by Vanessa K.
High prescription drug prices have increased consumer interest in purchasing less costly 1
medications abroad by means of either commercial or personal (consumer) imports. Meanwhile,
congressional legislators have been exploring a variety of legislative solutions to the problems th
posed by rising drug costs. During the 108 Congress, the Medicare prescription drug benefits
bill, H.R. 1, modified a provision of existing law that authorizes the FDA to allow the importation
of prescription drugs if the Secretary of HHS certifies that implementing such a program is safe
and reduces costs, a determination that no Secretary has made in the years since a similar 2
certification requirement was established in 2000.
Congress has used the appropriations process to insert provisions prohibiting the use of funds to
restrict prescription drug importation. Most recently, P.L. 110-329, the Consolidated Security,
Disaster Assistance, and Continuing Appropriations Act, 2009, prohibited the U.S. Customs and
Border Protection (CBP) from using funds to prevent individuals from transporting on their
person a 90-day supply of Canadian prescription drugs that comply with the Federal Food, Drug, 3
and Cosmetic Act (FDCA). However, few, if any, prescription drugs from Canada will comply
with the requirements of the FDCA because such drugs are likely to be unapproved, mislabeled,
or improperly dispensed. As a result, the provisions in these appropriations bills and the final
Medicare bill appear to have limited effect and ultimately did not change the law with respect to
the prohibition against importing prescription drugs from Canada and other foreign countries.
The debate about drug importation continues. On the one hand, some policymakers remain
opposed to allowing prescription drugs to be imported from foreign countries. Worried about the
risk to consumers, these critics argue that, with its current resources and authority, the FDA
1 A study by the AARP noted that prices rose 6.2 percent in 2006 for 193 brand-name prescription drugs commonly
prescribed for older individuals. AARP Public Policy Institute, Trends in Manufacturer Prices of Brand-Name
Prescription Drugs Used by Older Americans—2006 Year-End Update, http://assets.aarp.org/rgcenter/health/
dd154_drugprices.pdf. Prices of 75 commonly prescribed generic drugs decreased 2 percent in 2006. AARP Public
Policy Institute, Trends in Manufacturer List Prices of Generic Prescription Drugs Used by Older Americans—2006
Year-End Update, http://assets.aarp.org/rgcenter/health/dd153_drugprices.pdf. However, others note that particular
drugs may not necessarily cost more than before, as clinicians may have substituted more expensive drugs, though
these drugs are not necessarily more effective. Spending on prescription drugs may have increased because clinicians
are writing more prescriptions as well.
2 Medicare Modernization Act (MMA), P.L. 108-173 [hereinafter Medicare Act]. The original certification provision
was contained in the Medicine Equity and Drug Safety (MEDS) Act. P.L. 106-387. The new Medicare Act also
required HHS to conduct a study and issue a report on importing prescription drugs, which is available at
3 P.L. 110-329, § 535, 110th Cong. (2008); see also P.L. 109-295, § 535. The provision excludes narcotics, biologics,
internet sales, and importations of Canadian prescription drugs by mail order.
cannot guarantee the safety or effectiveness of such drugs,4 which they contend are more
susceptible to being mishandled, mislabeled, unapproved, or counterfeited than drugs sold 5
domestically. Legislators and others have also expressed concerns about the safety of imports in
general and the ability of the FDA to inspect increasing amounts of imported products entering 6
the United States. In addition, drug manufacturers and other opponents argue that allowing the
importation of prescription drugs would stifle investment in the research and development of new 7
drugs. On the other hand, importation proponents, who claim that importation would result in an
increased supply of prescription drugs that could result in significantly lower prices for U.S.
consumers, say that safety concerns are overblown and would recede if additional precautions
were implemented. Arguing that drug manufacturers are concerned only about their profits,
proponents of importation contend that U.S. consumers should not subsidize the cost of research 8
and development and that consumers in other countries should share the burden.
Linked to the issue of prescription drug importation is a debate about drug costs.9 While some
comparisons of U.S. and Canadian drug prices conclude that U.S. prices are higher than their
Canadian counterparts, other studies do not find such discrepancies. In part, studies may vary
depending on which drugs are selected for comparison and whether or not U.S. generic drugs, 10
which tend to be cheaper than Canadian brand-name and generic drugs, are considered.
In addition, there is an unresolved debate about whether allowing drug imports would affect drug
prices. Supporters argue that drug prices would drop due to competition if imports were allowed,
while opponents argue that increased demand for imported drugs and moves by manufacturers to
limit supplies of cheaper drugs would cause prices to rise both in the U.S. and abroad and would 11
increase the risk of counterfeit drugs being introduced into the system. According to a study by
the Congressional Budget Office (CBO), “the reduction in drug spending from importation would
be small,” in part because of new costs associated with ensuring the safety of imported drugs and
because of the likelihood that manufacturers would alter drug formulations or reduce foreign 12
supplies. Furthermore, there are questions about how much it would cost to implement a safe
4 The Canadian government has also stated that it cannot guarantee the safety of drugs exported to the U.S. from
Canada. Marc Kaufman, Canadian Drug Position Misinterpreted, WASH. POST, May 26, 2003, at A11.
5 See Donald G. McNeil, Jr., In the World of Life-Saving Drugs, a Growing Epidemic of Deadly Fakes, N.Y. TIMES,
February 20, 2007.
6 See David Hess, Rising Tide of Legitimate Drug Imports Threatens FDA’s Ability to Ensure Safety, Congress Daily
AM, June 5, 2007 (noting that while “the number of drug inspectors has risen by 10 percent, the volume of imports has
more than tripled”).
7 Marc Kaufman, FDA’s Authority Tested Over Drug Imports, WASH. POST, November 9, 2003, at A11.
9 For a discussion of the debate about drug costs and prices, see CRS Report RL32511, Importing Prescription Drugs:
Objectives, Options, and Outlook, by Susan Thaul; CRS Report RL33782, Federal Drug Price Negotiation:
Implications for Medicare Part D, by Jim Hahn; CRS Report RL33781, Pharmaceutical Costs: An International
Comparison of Government Policies, by Gretchen A. Jacobson; CRS Report RL33802, Pharmaceutical Costs: A
Comparison of Department of Veterans Affairs (VA), Medicaid, and Medicare Policies, by Gretchen A. Jacobson,
Sidath Viranga Panangala, and Jean Hearne. See also Congressional Budget Office, Prescription Drug Pricing in the
Private Sector, January 2007, http://www.cbo.gov/ftpdocs/77xx/doc7715/01-03-PrescriptionDrug.pdf.
10 HHS Task Force on Drug Importation, Health and Human Services, Report on Prescription Drug Importation,
December 2004, at 65 http://www.hhs.gov/importtaskforce/Report1220.pdf.
11 Gardiner Harris, The Nation: Prescriptions Filled; If Americans Want to Pay Less for Drugs, They Will, N.Y. TIMES,
November 16, 2003, § 4, at 4.
12 Congressional Budget Office, Would Prescription Drug Importation Reduce U.S. Drug Spending?, Economic and
Budget Issue Brief, April 29, 2004. The HHS Task Force on Drug Importation found that “total savings to consumers
drug importation program. The FDA has estimated that such a program would cost at least $100
million but that the figure could rise as high as several hundred million dollars, especially if there 13
was an increase in the volume of imported drugs.
In response to concerns about prescription drug imports, a number of congressional legislators
have introduced bills that would make changes to existing law in these areas. Bills introduced in th
the 110 Congress include H.R. 194, H.R. 380, H.R. 1218, H.R. 2638, H.R. 2900, H.R. 3161,
H.R. 3580, S. 242, S. 251, S. 554, and S. 1082.
Current regulation of prescription drug importation consists of a patchwork of federal and state 14
laws in an array of areas. At the federal level, the FDA regulates prescription drugs under the
FDCA, which governs, among other things, the safety and efficacy of prescription medications, 15
including the approval, manufacturing, and distribution of such drugs. It is the FDCA that
prohibits the importation—sometimes referred to as “reimportation”—of certain prescription
drugs by anyone other than the manufacturer and that requires that prescription drugs may be 16
dispensed only with a valid prescription. After a change in enforcement policy by CBP, the FDA
assumed the primary responsibility for determining whether foreign drug imports may legally 17
enter the country. In addition, the Drug Enforcement Agency (DEA) administers the Controlled
Substances Act, which is a federal statute that establishes criminal and civil sanctions for the
unlawful possession, manufacturing, or distribution of certain addictive or dangerous substances, 18
including certain prescription drugs that share these properties, such as narcotics and opiates. At
the state level, state boards of pharmacy regulate pharmacy practice, and state medical boards
oversee the practice of medicine. Thus, some of the laws that govern pharmacies and doctors vary
from state to state.
Finally, although foreign laws are beyond the scope of this report, it is important to note that such
laws may also affect the importation of drugs from those countries.
At the federal level, the FDA regulates prescription drugs under the Federal Food, Drug, and
Cosmetic Act (FDCA), which governs, among other things, the safety and efficacy of prescription
from legalized importation under a commercial system would be a small percentage relative to total drug spending the
U.S. (about one to two percent.” HHS Task Force on Drug Importation, supra note 11, at 65.
13 Inside Washington Publishers, $58 Million for Canadian Rx Importation Based on Outdated Estimate, FDA WEEK,
March 19, 2004.
14 For other information on prescription drug importation and Internet sales, see CRS Report RL32511, Importing
Prescription Drugs: Objectives, Options, and Outlook, by Susan Thaul; CRS Report RL32271, P.L. 108-173, by Susan
Thaul and Donna U. Vogt; and GAO Report GAO-01-69, Internet Pharmacies: Adding Disclosure Requirements
Would Aid State and Federal Oversight.
15 21 U.S.C. § 301 et seq.
16 21 U.S.C. § 353(b).
17 See section entitled “Canadian Prescription Drug Importation After the FY2007 Homeland Security Appropriations
Bill,” infra at p. 10.
18 Id. at § 801 et seq. For more information on the Controlled Substances Act, see CRS Report 97-141, Drug
Smuggling, Drug Dealing and Drug Abuse: Background and Overview of the Sanctions Under the Federal Controlled
Substances Act and Related Statutes, by Charles Doyle.
medications, including the approval, manufacturing, and distribution of such drugs.19 Although
many states also have their own laws that regulate drug safety, the FDA maintains primary
responsibility for the premarket approval of prescription drugs, while the DEA and CBP have
somewhat more limited regulatory authority over such drugs.
The FDCA contains several provisions that apply to prescription drug imports. First, the statute
contains an outright prohibition that forbids anyone other than the manufacturer from importing
prescription drugs. This prohibition affects drugs originally made in the United States. Second,
the FDCA contains a number of other provisions relating to drug approvals and labeling that
make it nearly impossible for prescription drugs made for foreign markets to comply with the
extensive statutory requirements, in part because the FDA considers any drugs not made on an
FDA-inspected production line to be unapproved and therefore illegal. These provisions generally
affect foreign versions of drugs that are approved for domestic sale.
Importation of both U.S.-manufactured prescription drugs and unapproved foreign versions of
U.S.-approved prescription drugs are discussed in this next section. That section also discusses
the change in CBP policy with regard to the seizure of mail order prescription drugs, the penalties
under the FDCA, the FDA’s personal importation procedures, state plans to import prescription
drugs, and businesses that facilitate the importation of prescription drugs. In addition, this section
contains a discussion of other legal areas that may affect prescription drug importation, including
antitrust law, trade law, and patent law.
Currently, the FDCA prohibits anyone other than the manufacturer20 of a prescription drug from 21
importing that drug into the United States. Thus, it is technically a violation of the statute for
19 21 U.S.C. § 301 et seq.
20 Id. at § 381(d)(1). The Secretary, however, is authorized to allow the importation of any drugs that are required for
emergency medical care. Id. at § 381(d)(2).
21 The FDCA does not define “United States,” except for in one section, which may present unique issues for U.S.
territorial possessions. However, the FDCA defines “state” and “territory.” 21 U.S.C. § 321(a). The FDCA defines
“state” as any U.S. state or territory, the District of Columbia, and Puerto Rico. 21 U.S.C. § 321(a)(1). The FDCA
defines “territory” as any territory or possession of the United States, including D.C. and excluding Puerto Rico and the
Canal Zone. 21 U.S.C. § 321(a)(2). The principal insular possessions are: U.S. Virgin Islands, Guam, American Samoa,
Wake Island, Midway Islands, and Johnston Atoll. The Northern Mariana Islands are also “generally covered by the
[FDCA].” DEPARTMENT OF THE INTERIOR, OFFICE OF THE SOLICITOR, THE APPLICATION OF FEDERAL LAWS IN AMERICAN
SAMOA, GUAM, THE NORTHERN MARIANA ISLANDS, THE U.S. VIRGIN ISLANDS, VOL. 2—U.S. CODE TITLES 17-39, p.
624, 626 (1993). These insular possessions are outside U.S. customs territory. 19 C.F.R. § 7.2. As mentioned above,
with limited exception, anyone other than the manufacturer is prohibited from importing into the United States
prescription drugs that are manufactured in a state and exported. 21 U.S.C. § 381(d)(1). If the definition of “United
States” in 21 U.S.C. § 381(d)(1) includes insular possessions, then it appears that pharmacies in these insular
possessions are also prohibited from importing U.S.-made prescription drugs. Section 381(d)(1) might be paraphrased
as follows: ... no drug subject to section 503(b) [essentially a prescription drug] ... which is manufactured in a State
[including insular possessions] and exported [to an insular possession, due to its status as outside the customs territory
of the U.S., or a foreign country] may be imported into the United States [including insular possessions] unless the drug
is imported by the manufacturer of the drug. For example, under this interpretation, a drug made in Iowa and exported
to the U.S. Virgin Islands could only be imported into American Samoa or any state by the drug’s manufacturer. It
appears that whether pharmacies in insular possessions are prohibited from importing prescription drugs depends on
whether the definition of “United States” in 21 U.S.C. § 381(d)(1) includes insular possessions. The Department of
Health and Human Services has argued that “United States” includes territories. DEPARTMENT OF THE INTERIOR, OFFICE
OF THE SOLICITOR, THE APPLICATION OF FEDERAL LAWS IN AMERICAN SAMOA, GUAM, THE NORTHERN MARIANA
ISLANDS, THE U.S. VIRGIN ISLANDS, VOL. 2—U.S. CODE TITLES 17-39, p. 628 (1993). However, if the definition of
individual consumers or online pharmacies to import a prescription drug back into the country,
even though the drug was, prior to export, originally manufactured in any U.S. state or territory,
the District of Columbia, or Puerto Rico and even if the drug otherwise complies with the 22
FDCA. Although critics of this law argue that there is no rational justification for forbidding the
importation of a drug that is theoretically identical to its counterpart sold in the United States, the
FDA contends that the agency can no longer guarantee the safety of a prescription drug once it
has left the country and the agency’s regulatory control. According to the agency, the FDA
“cannot provide adequate assurance to the American public that the drug products delivered to
consumers in the United States from foreign countries are the same products approved by the 23
In response to concerns about the rising costs of prescription drugs, however, Congress adopted
importation amendments to the FDCA in 2000. Under the Medicine Equity and Drug Safety 24
(MEDS) Act, the FDA was authorized to allow pharmacists and wholesalers to import 25
prescription drugs from Canada if certain safety precautions were followed. The act, however,
stipulated that the importation provision would not become effective until and unless the
Secretary of HHS determined that the implementation of the provision would “pose no additional
risk to the public’s health and safety; and [would] result in a significant reduction in the cost of 26
covered products to the American consumer.” Citing safety concerns, both the current and
former Secretaries declined to implement this provision.
In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare 27
Act), Congress revisited the issue of prescription drug importation. Like the MEDS Act it
“United States” in 21 U.S.C. § 381(d)(1) did not include insular possessions, then it appears that insular possessions
may not be prohibited from importing U.S.-made prescription drugs. The statute could potentially be read as follows:
‛... no drug subject to section 503(b) ... which is manufactured in a State [which includes the insular possessions] and
exported [to an insular possession, due to its status as outside U.S. customs territory, or a foreign country] may be
imported into the United States [excluding insular possessions] unless the drug is imported by the manufacturer of the
drug. 21 U.S.C. § 381(d)(1).’ Under this interpretation, for example, a drug made in Illinois and exported to South
Africa or Guam could be imported into the U.S. Virgin Islands by an individual other than a manufacturer. However,
the FDCA contains other provisions relating to drug approvals and labeling. According to William K. Hubbard, then
the FDA’s Associate Commissioner for Policy and Planning, a version of an FDA-approved drug that is produced for a
foreign market “usually does not meet all of the requirements of U.S. approval, and thus it is considered to be
unapproved.” Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food and Drug
Administration, to Robert P. Lombardi, Esq., The Kullman Firm 1 (February 12, 2003), http://www.fda.gov/ora/import/
kullman.pdf [hereinafter Lombardi Letter]. In order to be properly labeled, a prescription drug must be labeled in
accordance with the FDA’s extensive statutory requirements. See infra the section entitled “Importation of Foreign
Versions of Prescription Drugs.”
22 Under the FDA’s personal importation procedures, however, the FDA currently allows border staff to exercise
discretion in implementing the prohibition against individuals who import a limited supply of prescription drugs for
personal use. See infra notes 85-95 and accompanying text. The CBP previously enforced importation laws in the same
general manner as the FDA’s personal importation procedures, then increased enforcement for an almost eleven-month
period. See infra notes 47-64 and accompanying text. However, due to a recent change in enforcement policy after the
passage of a provision in the FY2007 Department of Homeland Security appropriations act, the CBP will now “focus
on intercepting only counterfeit medicines, narcotics, and illegal drugs.” Christopher Lee, U.S. to Stop Seizing
Prescription Drugs Imported for Personal Use, WASH. POST, October 5, 2006, A16.
23 Lombardi Letter, supra note 22, at 1.
24 P.L. 106-387.
25 21 U.S.C. § 384.
26 Id. at § 384(l).
27 Medicare Act, supra note 3.
superseded, the Medicare legislation directs the FDA to allow pharmacists and wholesalers to 28
import prescription drugs if certain safety precautions are followed. Unlike the MEDS Act,
which covered prescription drugs from a specified group of foreign countries, the Medicare Act 29
allows imports from Canada only. In addition, the Medicare Act, unlike the MEDS Act, also
authorizes the FDA to allow, by regulatory waiver, individuals to import prescription drugs for 30
personal use under certain circumstances. Despite these new importation provisions, the
Medicare Act, like the MEDS Act, stipulates that the importation provisions will not become
effective until and unless the Secretary certifies that the implementation of the provision would
“pose no additional risk to the public’s health and safety; and [would] result in a significant 31
reduction in the cost of covered products to the American consumer.” As noted above, the
Secretary of HHS has thus far declined to provide such certification. Absent such certification, the
ban on the importation of prescription drugs remains in effect.
Even if the FDCA did not contain an explicit prohibition against drug importation, the FDA
maintains that consumer imports of prescription drugs from foreign countries would almost 32
certainly violate other provisions of the act. For example, such drugs are likely to be 333435
unapproved, mislabeled, or improperly dispensed. According to the FDA:
The reason that Canadian or other foreign versions of U.S.-approved drugs are generally
considered unapproved in the U.S. is that FDA approvals are manufacturer-specific, product-
specific, and include many requirements relating to the product, such as manufacturing
location, formulation, source and specifications of active ingredients, processing methods,
manufacturing controls, container/closure system, and appearance... . Moreover, even if the
manufacturer has FDA approval for a drug, the version produced for foreign markets usually
does not meet all of the requirements of the U.S. approval, and thus it is considered to be
unapproved. Virtually all shipments of prescription drugs imported from a Canadian
pharmacy will run afoul of the Act, although it is a theoretical possibility that an occasional
shipment will not do so. Put differently, in order to ensure compliance with the Act when
they are involved in shipping prescription drugs to consumers in the U.S., businesses and
individuals must ensure, among other things, that they only sell FDA-approved drugs that are 36
made outside of the U.S. and that comply with the FDA approval in all respects.
The difficulty in determining whether a drug is FDA-approved is demonstrated by the agency’s
response to a letter from Representative Edward Markey. On October 11, 2006, he asked the
28 The Medicare Act also required the Secretary to conduct a study on the importation of drugs. This study, which was
released in December 2004, concluded that legalizing drug importation would be likely to result in increased risk to
consumers and would not significantly reduce retail drug prices. HHS Task Force on Drug Importation, supra note 11.
29 Medicare Act, supra note 3.
30 Id. This legislation, which is similar to the FDA’s personal importation procedures, is discussed in more detail in a
separate section below.
32 Lombardi Letter, supra note 22, at 2.
33 21 U.S.C. § 355.
34 Id. at §§ 352, 353(b)(2).
35 Id. at § 353(b)(1).
36 Lombardi Letter, supra note 22, at 3.
agency how a consumer would know if a product is FDA-approved or unapproved.37 The agency
responded with a recommendation that consumers
access the FDA site to search for the active ingredient or name of drug. The names of
approved companies for a drug will be listed... . If the manufacturer of a consumer drug is
not listed, the drug may be unapproved or there may be data errors. The drug may also be an
approved drug, but distributed under the name of another company. Consumers are also 38
advised to check with the drug manufacturer.
In addition to complying with the requirements regarding FDA approvals, imported drugs must
also meet FDA requirements regarding labeling and dispensing. For example, mislabeling a drug
is a violation of the FDCA, as is the act of introducing or receiving a mislabeled drug in interstate 39
commerce. In order to be properly labeled, prescription drugs must be labeled in accordance 40
with the FDA’s extensive labeling requirements. Furthermore, the FDCA requires that 41
prescription drugs may be dispensed only with a valid prescription. Therefore, it is a violation of
the act to import prescription drugs without a legitimate U.S. prescription.
According to the FDA, an inspection of prescription drug shipments by CBP found that 1,728 of
“unapproved drugs” that could pose safety problems. Although the reason for the violation
varied depending on the shipment, the FDA and CBP found shipments of drugs that, among other
things, had never been approved by the FDA, were inadequately labeled (e.g., lacked instructions
or were labeled in a foreign language), had been withdrawn from the U.S. market due to safety
concerns, could cause dangerous interactions, required monitoring by a doctor, or were controlled 43
substances. For example, in February 2007, the FDA alerted consumers that Americans who had
ordered the prescription drugs Ambien, Xanax, Lexapro, and Ativan online instead received a
product with haloperidol, the active ingredient in an anti-psychotic drug used to treat 44
schizophrenia. A separate FDA investigation found that approximately 43 percent of the
imported drugs that the agency intercepted from four countries—India, Israel, Costa Rica, and
Vanuatu—were shipped to fill orders that consumers believed they were placing with Canadian
pharmacies. Of the products believed to be Canadian, FDA reported that only 15 percent actually
Inside Washington Publishers, Markey Eyes Bill on Stronger Unapproved Drugs Enforcement, FDA WEEK, January 5,
39 21 U.S.C. §§ 331 (a)-(c), 353(b)(2).
40 See e.g., 21 C.F.R. §201.100(c)(2).
41 21 U.S.C. § 353(b)(1).
42 Press Release, Food and Drug Administration, Recent FDA/U.S. Customs Import Blitz Exams Continue to Reveal
Potentially Dangerous Illegally Imported Drug Shipments (January 27, 2004), http://www.fda.gov/bbs/topics/NEWS/
44 Press Release, Food and Drug Administration, FDA Alerts Consumers to Unsafe, Misrepresented Drugs Purchased
Over the Internet (February 16, 2007), http://www.fda.gov/bbs/topics/NEWS/2007/NEW01564.html; see also Press
Release, Food and Drug Administration, FDA Warns Consumers About Counterfeit Drugs from Multiple Internet
Sellers (May 1, 2007), http://www.fda.gov/bbs/topics/NEWS/2007/NEW01623.html (cautioning consumers about
websites distributing counterfeit drugs, including counterfeit Xenical, a drug “used to help obese individuals who meet
certain weight and height requirements lose weight and maintain weight loss”).
originated in Canada, while the remaining 85 percent were manufactured in 27 different 45
Until recently, the Department of Homeland Security, via the U.S. Customs and Border Protection
agency (CBP), was responsible for examining imported prescription drugs at the nation’s
international mail centers and borders and for detaining and destroying any FDA-regulated 46
prescription drugs that did not meet statutory or regulatory requirements. Prior to November 17,
2005, CBP officials tolerated prescription drug mail orders from Canada of up to 90 days worth
of medication, “generally interpreting U.S. laws against the importation of drugs as applying to 47
wholesalers and distributors.” However, the CBP began strictly enforcing importation laws on
November 17, 2005, two days after the beginning of open enrollment for the Medicare
prescription drug program. This policy change lead consumer groups and Canadian pharmacies to
complain that CBP’s policy was intended to encourage seniors to enroll in the Medicare plan and
decrease competition for often costly prescription drugs. CBP officials denied this charge, noting
that the new enforcement policy was designed “to protect consumers from potentially dangerous 48
drugs manufactured abroad.” For the next eleven months, CBP agents confiscated mail
packages with foreign prescription drugs and often destroyed the drugs, then mailed letters about 49
the violation to consumers attempting to import the drugs. An estimated 37,000 to 40,000 50
packages were detained by CBP during this period.
In past years, the House Committee on Appropriations had added provisions to appropriations
bills that would have prohibited the FDA from using monies to prevent drug importation from
foreign countries. Such provisions were always removed during conferences between the House
and the Senate. Representative Emerson added a similar provision to the FY2007 Homeland
Security appropriations bill prohibiting CBP from using funds to prevent importation of “FDA-51
approved” drugs. Opponents labeled the provision “an inappropriate way to address the issue of
drug affordability” and expressed concerns that the United States would be more exposed to 52
harmful counterfeit drugs or that terrorists would take advantage of the provision. Additionally,
some Canadian pharmacist associations and other importation opponents worried that their
45 Press Release, Food and Drug Administration, FDA Operation Reveals Many Drugs Promoted as “Canadian”
Products Really Originate From Other Countries (December 16, 2005), http://www.fda.gov/bbs/topics/NEWS/2005/
46 Lee, supra note 23.
47 Id.; Lisa Girion, U.S. to Allow Canadian Drug Imports, L.A. TIMES, October 4, 2006.
48 Lisa Girion, Seized Drugs Being Released, L.A. TIMES, March 1, 2006, at C1; Susan Heavey, FDA Role Restored
Over Mail-Order Drug Imports, WASH. POST, October 4, 2006; Girion, supra note 48.
49 Heavey, supra note 49.
50 Inside Washington Publishers, Senators’ Effort to Force Reimportation Floor Debate Blocked, FDA WEEK, August
4, 2006; Lee, supra note 23.
51 Inside Washington Publishers, Homeland Security Approps Bill Allows Drug Reimportation, FDA WEEK, June 2,
52 Executive Office of the President, OMB, Statement of Administration Policy: H.R.5441—Department of Homeland
Security Appropriations Bill, FY 2007, May 25, 2006, at 3; Inside Washington Publishers, FDA to Resume Rx Drug
Import Oversight as Customs Backs Off, FDA WEEK, October 6, 2006; Inside Washington Publishers, Reimportation
Debate Rages on with Little Movement in Congress, FDA WEEK, July 28 2006.
country would encounter shortages as a result of the provision.53 Supporters noted that the
provision was “aimed at forcing FDA to assess prescriptions from foreign countries for safety 54
instead of simply blocking all reimported drugs.”
The Senate Committee on Appropriations subsequently stripped the Homeland Security
appropriations bill of the importation provision, but Senators Vitter and Nelson introduced the
CBP funding prohibition for certain seizures of Canadian drug imports in an amendment that 55
passed 68-32. As passed on September 25, 2006, Section 535 reads as follows:
None of the funds made available in this Act for United States Customs and Border
Protection may be used to prevent an individual not in the business of importing a
prescription drug (within the meaning of section 801(g) of the Federal Food, Drug, and
Cosmetic Act) from importing a prescription drug from Canada that complies with the
Federal Food, Drug, and Cosmetic Act: Provided, That this section shall apply only to
individuals transporting on their person a personal-use quantity of the prescription drug, not
to exceed a 90-day supply: Provided further, That the prescription drug may not be—(1) a
controlled substance, as defined in section 102 of the Controlled Substances Act (21 U.S.C.
802); or (2) a biological product, as defined in section 351 of the Public Health Service Act 56
(42 U.S.C. 262).
The provision excludes narcotics, biologics, Internet sales, and importations of Canadian 57
prescription drugs by mail order. Most importantly, the bill appears to allow individuals to
transport a 90-day supply of prescription drugs from Canada across the border by foot or vehicle.
However, the provision ultimately appears to have limited effect because it states that individuals
may personally import Canadian prescription drugs that comply with the FDCA. By definition,
most prescription drugs from Canada do not comply with the FDCA. As the previous section
explained, drugs that comply with the FDCA must be approved by the FDA, be dispensed with a
valid prescription by a U.S. doctor, and meet, among other possible requirements, mandates that
are manufacturer and product specific, manufacturing controls and processing methods, extensive 58
labeling requirements, and source and active ingredient specifications. While it is possible that a
prescription drug could meet FDA requirements and therefore obtain FDA approval, in almost all
cases, imported prescription drugs will not comply with the FDCA. Thus, the provision does not
change the current illegal status of most drugs imported from Canada, and it appears that CBP
may still legally use funds to detain Canadian drug imports that do not comply with the FDCA.
Despite the limited effect of the importation provision, CBP announced a change in its
enforcement policy, effective October 9, 2006. CBP agents now “focus on intercepting only 59
counterfeit medicines, narcotics, and illegal drugs.” As a result, the FDA assumed the primary
responsibility for determining whether Canadian and other international drug imports may legally
53 Inside Washington Publishers, Lawmakers’ Solution to High-Cost Drugs Makes Waves in Canada, FDA WEEK,
October 27, 2006.
54 Inside Washington Publishers, Following House Lead, Senate Votes to Allow Drug Reimportation, FDA WEEK, July
56 P.L. 109-295.
57 Inside Washington Publishers, Conferees Strike Deal to Allow Personal Rx Importation, FDA WEEK, September 29,
58 Lombardi letter, supra note 22. See 21 C.F.R. § 314.50; notes 35-39, 42-44 and accompanying text.
59 Lee, supra note 23.
enter the United States. In most cases, prescription drugs are illegal to import into the United 60
States. The FDA has the authority to seize “[a]ny article of food, drug, or cosmetic that is 61
adulterated or misbranded when introduced into or while in interstate commerce . . . .”
However, the FDA’s ability to “thoroughly inspect and handle confiscated imports” is questioned 62
by some, given the agency’s shortage of resources and staff.
In December 2006, Senators Grassley and Baucus attempted to alter the Homeland Security
importation provision. Their modification would have only allowed importation from Canada of
prescription drugs “with at least two generic competitors” and would have excluded certain drugs
and biologics from the those that the Homeland Security appropriations bill intended to allow 63
individuals to personally carry across the Canadian border in a 90-day supply.
Members of Congress have also attempted to use the agriculture appropriations bill to attach 64
language to FDA funding that would allow prescription drug importation in various forms. The
House FY2008 agriculture appropriations bill, H.R. 3161, included a provision that purported to
expand the types of persons who may import prescription drugs. An amendment to strike the
provision failed by a vote of 146-283. The Senate bill, S. 1859, did not contain a similar
provision. As passed by the House on August 2, 2007, § 726 of H.R. 3161 read as follows:
None of the funds appropriated or otherwise made available by this Act for the Food and
Drug Administration may be used under section 801 of the Federal Food, Drug, and
Cosmetic Act to prevent an individual not in the business of importing a prescription drug
within the meaning of section 801(g) of such Act, wholesalers, or pharmacists from
importing a prescription drug which complies with sections 501, 502, and 505.
The provision would have prohibited the FDA from using appropriated funds to prevent
wholesalers, individuals not in the business of importing prescription drugs, and pharmacists from
importing prescription drugs that—among other FDCA conditions—obtain FDA approval;
comply with good manufacturing practices; meet strength, quality, and purity requirements; do
not contain other mixtures or substitutions for other substances; are labeled in accordance with
FDCA requirements; and were manufactured in establishments registered with the Secretary of
HHS. It appears unlikely that any prescription drug manufactured for a foreign market would 65
have met these and other requirements of FDCA §§ 501, 502, and 505. In a statement of
administration policy, the White House remarked: “While the provision theoretically limits
60 Id.; U.S. Steps Back on Drug Confiscations, N.Y. TIMES, October 4, 2006.
61 21 U.S.C. § 334(a)(1).
62 Heavey, supra note 51; Lee, supra note 23.
63 Inside Washington Publishers, Grassley, Baucus Tried Banning Drug Imports When Generics Available, FDA WEEK,
December 8, 2006. The provision would have excluded “therapeutic DNA plasmid products, therapeutic synthetic
peptide products, monoclonal antibody products used in vivo, therapeutic recombinant DNA-derived products, infused
drugs, injected drugs, drugs inhaled during surgery, drugs with at least two generic competitors, and sterile ophthalmic
drugs intended for use on the skin or in the eye.” Id.
64 Although the FDA was transferred from the USDA in 1940, FDA appropriations remain part of the agriculture
appropriations bills. Richard M. Cooper, Introduction to Food and Drug Law and Regulation in 1 FUNDAMENTALS OF
LAW AND REGULATION 5 (Robert P. Brady et al. ed. 1997).
65 See supra section entitled “Importation of Foreign Versions of Prescription Drugs.”
importation to only FDA-approved prescription drugs, it would be impossible for FDA to verify 66
at the border that they are not counterfeit.”
The provision would not have “legalized” importation for wholesalers, pharmacists, or other
individuals not in the business of importing prescription drugs. Under FDCA § 801(d)(1), only 67
manufacturers are allowed to import prescription drugs into the United States. Thus, while H.R.
3161 would not have provided funding to the FDA to prevent those such as wholesalers or
pharmacists from importing prescription drugs that comply with parts of the FDCA, the bill’s
provision would not have legalized importation by those persons. Failure to comply with the 68
FDCA may have exposed such individuals to criminal and civil liability. Additionally, drug
manufacturers may not have allowed individuals not in the business of importing prescription
drugs, wholesalers, or pharmacists to import such drugs into the United States. As a result, it
appears that the provision would have had limited effect.
The FY2008 agriculture appropriations bill was included in P.L. 110-161, the Consolidated
Appropriations Act, 2008. However, the provision in H.R. 3161 was not included. Rather, § 558
of the act included the same language as the FY2007 homeland security appropriations bill.
Please see above for a discussion of that provision.
Senators Vitter and Stabenow cosponsored an amendment to the FY2008 Homeland Security
Appropriations bill that appeared to expand upon the prescription drug importation amendment
passed the previous fiscal year:
None of the funds made available in this Act for U.S. Customs and Border Protection or any
agency or office within the Department of Homeland Security may be used to prevent an
individual from importing a prescription drug from Canada if—(1) such individual is not in
the business of importing a prescription drug (within the meaning of section 801(g) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 381(g))); and (2) such drug—(A)
complies with sections 501, 502, and 505 of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 351, 352, and 355); and (B) is not—(i) a controlled substance, as defined in section
102 of the Controlled Substances Act (21 U.S.C. 802); or (ii) a biological product, as defined 70
in section 351 of the Public Health Service Act (42 U.S.C. 262).
66 Executive Office of the President, Office of Management and Budget, Statement of Administration Policy: H.R.
3161—Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act,
2008 (July 31, 2007), http://www.whitehouse.gov/omb/legislative/sap/110-1/hr3161sap-h.pdf.
67 As stated previously, the Secretary of HHS may authorize a drug’s importation for emergency medical care. 21
U.S.C. § 381(d)(2).
68 “Enforcement of the FDCA is not limited to FDA. Seizure, injunction, and misdemeanor or felony proceedings may
be instituted by the United States Attorney in the district in which the case is brought. In addition, the DHHS Inspector
General has been given the responsibility for investigating felony violations of the FDCA, except for matters ‘that
should remain a function of the Food and Drug Administration.’ ” I. Scott Bass, Enforcement Powers of the Food and
Drug Administration in 1 FUNDAMENTALS OF LAW AND REGULATION 57 (Robert P. Brady et al. ed. 1997).
69 H.R. 2638 began as the FY2008 Homeland Security Appropriations bill and that bill was used as the vehicle for the
70 H.R. 2638, § 542, 110th Cong. (2007). The Vitter amendment was opposed by the committee, and Senators Cochran
and Byrd cosponsored a second degree amendment that would have placed the same provision from the FY2007
The provision excluded narcotics and biologics. By preventing CBP from using funds to prevent
certain individuals from importing Canadian prescription drugs, the amendment would have
appeared to allow an unlimited supply of importations—by mail order, Internet sales, or physical
transportation across the border—of Canadian prescription drugs that comply with parts of the
FDCA. However, like the provision in the previous fiscal year’s bill, the amendment ultimately
would likely have had limited effect because it stated that the imported Canadian prescription
drugs must comply with three sections of the FDCA that address adulteration, misbranding, and
new drug applications. These three FDA provisions require, among other things, that drugs obtain
FDA approval; comply with good manufacturing practices; meet strength, quality, and purity
requirements; do not contain other mixtures or substitutions of other substances; are labeled in
accordance with FDCA requirements; and were manufactured in establishments registered with
the Secretary of HHS. It appears unlikely that prescription drugs manufactured for the Canadian 71
market would meet these and other requirements of FDCA §§ 501, 502, and 505. While it is
possible that a prescription drug could meet FDA requirements and therefore obtain FDA
approval, in almost all cases, imported prescription drugs will not comply with the FDCA. Thus,
the provision would not have changed the current illegal status of most drugs imported from
Canada, and it appears that CBP would still have been able to use appropriated funds to detain
Canadian drug imports that did not comply with the selected sections of the FDCA mentioned in
As passed on September 30, 2008, § 535 of P.L. 110-329, the Consolidated Security, Disaster
Assistance, and Continuing Appropriations Act, 2009, did not include the amended provision. The
Consolidated Act contained the same text as the FY2007 Homeland Security Appropriations bill.
Please see above for a discussion of that provision. The Department of Homeland Security had
proposed deleting the section from the FY2007 appropriations bill in its Performance Budget
Overview for FY2008, “because prohibiting CBP from exercising its authority to assist the FDA
in enforcing current laws designed to protect the health and safety of American consumers is not 72
the best way to address drug affordability.”
If a business or consumer violates the FDCA by importing unapproved or misbranded
prescription drugs, there are a number of criminal and civil penalties that may apply. As set forth
in the act, penalties vary depending on the offense. Violations of the act’s general prohibitions are 73
a misdemeanor offense punishable by up to a year in prison or a fine of up to $1,000, or both. A
violation of a general FDCA prohibition that occurs after a prior conviction for violating the act
or that is committed with the intent to defraud or mislead is a felony offense punishable by up to 74
three years of imprisonment or up to a $10,000 fine, or both. Penalties for violations of the
Homeland Security Appropriations bill into the FY2008 bill. After a period of debate, a deal was apparently struck; the
second degree amendment was withdrawn, and Senator Vitter, by unanimous consent, modified the text of his
amendment, which passed. See 153 Cong. Rec. S 10,067, 10,070-72, S 10,076-77 (daily ed. 2007).
71 See supra section entitled “Importation of Foreign Versions of Prescription Drugs.”
72 Department of Homeland Security, Performance Budget Overview, Fiscal Year 2008 Congressional Budget
Justification, at 82, http://www.dhs.gov/xlibrary/assets/budget_pbo_fy2008.pdf.
73 21 U.S.C. § 333(a)(1). In addition, misdemeanor violations of the act are strict liability offenses. United States v.
Dotterweich, 320 U.S. 277, 284 (1943).
74 21 U.S.C. § 333(a)(2).
FDCA’s importation provisions are stricter. If a business or consumer knowingly imports a drug
in violation of these provisions, then the violation is a felony offense punishable by up to 10 years 75
in prison or up to $250,000 in fines, or both.
Despite these designated penalties, individuals and corporations that violate the act may face
monetary fines far greater than those specified in the FDCA because those sanctions are
superceded by general fines set forth in the Sentencing Reform Act of 1984, which applies across
the board to all federal crimes. That statute raised the limit on the maximum penalties that apply
to federal crimes. As a result, misdemeanor violations of the FDCA are actually punishable by a
fine of up to $100,000 for individuals and up to $200,000 for organizations, and felony violations 76
of the act are punishable by up to $250,000 for individuals and up to $500,000 for corporations.
In addition, federal courts are authorized to issue injunctions in order to enjoin violations of the 7778
act, and any drug that is adulterated or misbranded is subject to seizure under the act.
It is important to note that “[t]hose who aid and abet a criminal violation of the act, or conspire to 79
violate the act, can also be found criminally liable.” Federal criminal law generally makes it a
separate crime to aid or abet any criminal offense against the United States or to conspire to 80
commit a criminal offense against the United States, so illegal importers could potentially be
charged with these offenses as well as other general federal crimes, such as mail or wire fraud or
making false statements. In addition, the FDCA explicitly forbids certain acts, as well as the 81
causing of such prohibited acts. Thus, businesses that facilitate the importation of unapproved
prescription drugs or U.S.-manufactured prescription drugs may be liable if they are deemed to be
“causing” violations of the act. In addition to penalties under the FDCA and other federal criminal
statutes, individuals or businesses that illegally import prescription drugs that are also controlled
substances may be subject to penalties under the Controlled Substances Act.
Despite the range of penalties that FDA has available to punish those who import prescription
drugs in violation of the act, the agency has clarified that its “highest enforcement priority would 82
not be actions against consumers.” Indeed, the FDA exercises its enforcement discretion
leniently in this regard by allowing consumers to import certain otherwise illegal prescription
drugs under certain circumstances. These enforcement procedures, known as the FDA’s personal
importation procedures, are described in detail below.
Because importing unapproved prescription drugs is a violation of the FDCA, the FDA is 83
responsible for determining whether pharmaceuticals should be admitted into the United States.
75 Id. at §§ 333(b)(1), 381(d)(1). The act provides exceptions to the penalties in certain cases of good faith. Id. at §
76 18 U.S.C. §§ 3559, 3571.
77 21 U.S.C. § 332.
78 Id. at § 334.
79 Lombardi Letter, supra note 22, at 1.
80 18 U.S.C. §§ 2, 371.
81 21 U.S.C. § 331.
82 Lombardi Letter, supra note 22, at 4.
83 CBP, Medication/Drugs, http://www.cbp.gov/xp/cgov/travel/clearing_goods/restricted/medication_drugs.xml.
According to the FDA, CBP has the initial responsibility for examining imported goods at the nation’s borders.
To determine whether to allow or refuse entry to imported drugs, the FDA developed its personal
importation procedures. Under the procedures, the FDA exercises its enforcement discretion to
permit consumers to import otherwise illegal prescription drugs for purposes of personal use.
Recognizing that the agency’s limited enforcement resources are best directed at commercial
shipments of imported drugs rather than personal imports, the FDA may, at its discretion, refrain
from taking legal action against illegally imported drugs under the following circumstances:
a) the intended use is unapproved and for a serious condition for which effective treatment
may not be available domestically either through commercial or clinical means;
b) there is no known commercialization or promotion to persons residing in the U.S. by those
involved in the distribution of the product at issue;
c) the product is considered not to represent an unreasonable risk; and
d) the individual seeking to import the product affirms in writing that it is for the patient’s
own use (generally not more than three month supply) and provides the name and address of
the doctor licensed in the U.S. responsible for his or her treatment with the product, or
provides evidence that the product is for the continuation of a treatment begun in a foreign 84
Ultimately, the personal importation procedures detail the FDA’s enforcement priorities for
imported drugs, but are not intended to grant a license to consumers to import unapproved 85
prescription drugs into the United States. Indeed, the FDA emphasizes that even if all of the
factors above are met, “the drugs remain illegal and FDA may decide that such drugs should be 86
refused entry or seized.” Furthermore, these procedures do not apply to commercial shipments
of unapproved prescription drugs, nor are they intended to permit the importation of foreign
versions of drugs that are already approved in the United States. Thus, it appears that personal
importations of cheaper versions of prescription drugs that are already available in the U.S. do not 87
conform to the FDA’s personal importation procedures. Nevertheless, U.S. consumers continue
to import drugs from abroad, and one Canadian group claims that Canadian pharmacies supply 88
two million people in the U.S., or roughly one percent of the U.S. market for prescription drugs.
Accordingly, CBP is supposed to notify the FDA if it has detected a mail or baggage shipment of “an FDA-regulated
article intended for commercial distribution, an article that FDA has specifically requested be detained, or an FDA-
regulated article that appears to represent a health fraud or an unknown risk to health.” OFFICE OF REGULATORY
AFFAIRS, FOOD AND DRUG ADMINISTRATION, Coverage of Personal Importations, REGULATORY PROCEDURES MANUAL,
http://www.fda.gov/ora/compliance_ref/rpm_new2/ch9pers.html. In light of the CBP’s policy change in October 2006,
it is unclear whether the CBP is continuing to alert the FDA if it detects shipments of the above-mentioned items.
84 Id.; see also OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Importation of Prescription
Medicines/Drugs, http://www.fda.gov/ora/import/traveler_alert.htm; OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG
ADMINISTRATION, Information on Importation of Drugs (April 3, 1998), http://www.fda.gov/ora/import/pipinfo.htm.
85 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Coverage of Personal Importations,
REGULATORY PROCEDURES MANUAL, http://www.fda.gov/ora/compliance_ref/rpm_new2/ch9pers.html.
86 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Importation of Prescription Medicines/Drugs,
87 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Information on Importation of Drugs (April 3,
88 Inside Washington Publishers, Canadian Pharmacist to Drug Firms: Support Limited Rx Imports, FDA WEEK, May
Meanwhile, in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
Congress authorized the FDA to allow individuals to import prescription drugs for personal use
under certain circumstances, provided that the Secretary has certified that importation is safe and 89
cost-effective. Specifically, the act, subject to certification, requires the Secretary of HHS to
allow individuals to import prescription drugs from Canada if the drug:
a) is imported from a licensed pharmacy for personal use by an individual, not for resale, in
quantities that do not exceed a 90-day supply;
b) is accompanied by a copy of a valid prescription;
c) is imported from Canada, from a seller registered with the Secretary;
d) is a prescription drug approved by the Secretary ...
e) is in the form of a final finished dosage that was manufactured in [a registered]
f) is imported under such other conditions as the Secretary determines to be necessary to 90
ensure public safety.
Although the new individual importation provisions in the Medicare Act appear similar to the
FDA’s personal importation procedures, the legislation differs significantly because it contains the
certification requirement. The current Secretary of HHS, however, has declined to provide such
certification in the past, and it is unclear what direction the agency will take in the future. Thus,
the new individual importation provisions do not appear to represent a codification of the FDA’s
personal importation procedures.
Although the FDA exercises its enforcement discretion to permit personal importation, such
importation remains illegal. However, an elderly couple from Chicago challenged the FDCA’s
prohibition on personal importation. In Andrews v. United States Department of Health and 91
Human Services, the court rejected the plaintiffs’ claim that the statutory prohibition on personal
drug importation violated their substantive due process rights under the Fifth Amendment of the
Constitution. The standard of review that courts use when reviewing substantive due process
claims depends on whether or not the statute in question affects a fundamental right. If a statute
affects a fundamental right, then strict judicial scrutiny is required; if the statute does not affect a
fundamental right, then a court applies rational basis review. In the Andrews case, the court
determined that there is no fundamental right “to purchase drugs from a preferred source at a 92
preferred price.” As a result, the court, applying the rational basis test, upheld the ban on
personal importation because it is rationally related to a legitimate governmental interest in 93
ensuring the safety of prescription medications.
89 Medicare Act, supra note 3, at § 1121.
91 2005 U.S. Dist. LEXIS 5710 (D.D.C. 2005).
92 Id. at *7.
93 Id. at *8-9.
Just as individual consumers have sought to buy cheaper prescription drugs from foreign sources,
several state and local governments have in place or have considered plans to import or facilitate
the importation of prescription drugs in order to save themselves or their residents money on
medicines. Contending that carefully structured state programs will provide a sufficient degree of
safety, states and cities continue to argue that they have a duty to explore innovative methods for
providing more affordable prescription drugs to their residents, even at the risk of violating
federal law. Currently, several states and the District of Columbia have online prescription drug
importation programs, and several localities, including Boston, Massachusetts, are importing 94
prescription drugs from Canada. Interest in importing Canadian prescription drugs may be
beginning to wane due to factors including the Medicare Part D prescription drug program, a
temporary increase in seizures by the CBP, declining currency-exchange rates, and a greater use 95
of generic drugs. For example, the first city to import Canadian prescription drugs, Springfield,
Massachusetts, reported no problems with its Canadian prescription drug importation program;
however, it later switched to a state health benefits program that does not import Canadian 96
Each state and local importation plan varies somewhat in the details. Illinois, for example, has
implemented a drug importation program known as I-SaveRx. Under the program, the state has
established a website that offers information regarding pharmacies in Canada, Ireland, and the
United Kingdom that the state has inspected and determined to be reliable sources for prescription
drugs. The state, however, does not import drugs directly, but rather provides users with
information on available drugs, prices, and order forms. Currently, Kansas, Missouri, Vermont, 97
and Wisconsin also participate in I-SaveRx. In addition, Rhode Island legislators passed a law 98
that allows the state to license Canadian pharmacies. Many other states and localities have 99
considered and/or implemented importation plans of their own.
94 City of Boston, Affordable Prescription Drugs, http://www.cityofboston.gov/publichealth/prescription.asp. The states
are: Illinois, Kansas, Minnesota, Missouri, Vermont, and Wisconsin. See, e.g., Get Access to Low-Cost Prescription
Drugs, http://hc.rrc.dc.gov/hc/cwp/view,a,3,q,456095.asp; About Minnesota RxConnect, http://www.state.mn.us/portal/
mn/jsp/content.do?id=-536885145&agency=Rx. New Hampshire previously advertised such a program; however, after
a different governor was elected in 2005, the program was no longer advertised on the state’s main website. Associated
Press, Future Unclear for State’s Canadian Web Links, January 2, 2005.
95 Id.; Kelley M. Butler, Local Rx Import Programs Find Fewer Takers, Employee Benefit News, January 1, 2007. In
the fall of 2006, several retail pharmacies said they would sell certain prescription drugs for as low as $4. Id.
96 Christopher Rowland, Mass. City Ends Drug Plan that Defied U.S., Boston Globe, August 26, 2006.
97 See http://www.i-saverx.net/ for more information on drug importation programs for Illinois, Wisconsin, Kansas,
Vermont, and Missouri.
98 R.I. Gen. Laws § 5-19.1-11. Inside Washington Publishers, Rhode Island is First State to Pass Canadian Drug
Import Law, FDA WEEK, July 9, 2004. The FDA has warned Rhode Island that the legislation may be preempted by
federal law. Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food and Drug
Administration, to Governor Donald L. Carcieri (July 1, 2004), http://www.fda.gov/oc/opacom/hottopics/importdrugs/
carcieri.pdf. For a discussion of the preemption doctrine, see infra notes 119-20 and accompanying text.
99 For example, California, Kansas, Illinois, Iowa, Minnesota, Missouri, New Hampshire, North Dakota, Rhode Island,
Vermont, and Wisconsin are among the states that have considered and/or implemented importation programs. For
current information on state activities with regard to prescription drug importation, see National Conference of State
Legislators, 2007 Prescription Drug State Legislation (August 1, 2007), http://www.ncsl.org/programs/health/
drugbill07.htm. According to the National Conference of State Legislators, 13 states considered the issue of
prescription drug importation during 2006, while only 7 states considered the issue during the first seven months of
In addition, several states, including Vermont, have petitioned the FDA in hope that the agency
would, as it has done with regard to personal drug importation, exercise its enforcement 100
discretion and allow states to establish prescription drug importation pilot plans. The Medicare
Act authorized the FDA to provide waivers for individual importation, and some lawmakers have
argued that the individual importation waiver authority extends to state importation plans because
such plans are intended to provide prescription drugs to individual state residents. The FDA,
however, responded that the waiver provisions in the Medicare Act become effective only upon 101
certification by the Secretary that drug importation is safe and reduces costs. If the Secretary
would grant a waiver or if federal law would otherwise allow such a program, Maine would 102
provide access to foreign prescription drugs.
Ultimately, Vermont, whose petition for a pilot program was rejected by the FDA, sued the
agency, claiming that the FDA’s failure to implement regulations that authorize waivers and
subsequent denial of Vermont’s petition violated the Administrative Procedure Act (APA). The
Vermont lawsuit also claimed that the importation provisions in the Medicare Act constitute an 103
unconstitutional delegation of legislative authority to the Secretary of HHS. Vermont’s claims, 104
however, were rejected by a federal district court. In the case, Vermont v. Leavitt, the court held
that the FDA did not act arbitrarily and capriciously in violation of the APA because Vermont’s
petition asked the agency to approve a program that was illegal. The court based its ruling, in
part, on its determination that, as the FDA had argued, the FDCA provision authorizing waivers
for personal importation becomes effective only upon certification by the Secretary that drug 105
importation is safe and reduces costs. Likewise, the court rejected Vermont’s claim that the
certification provision constitutes an unconstitutional delegation of legislative authority, holding
that the provision “provides clear guidance to the Secretary of HHS by directing the Secretary to 106107
consider safety and cost-effectiveness.” Vermont did not appeal the decision.
Montgomery County in Maryland petitioned the FDA for a waiver to allow its residents and
employees to import prescription drugs from Canada. The FDA rejected the petition, citing the 108
Leavitt case. In response, Montgomery County filed a lawsuit alleging that the FDA’s denial of
2007. Id.; National Conference of State Legislators, 2006 Prescription Drug State Legislation (March 26, 2007),
100 Inside Washington Publishers, Vermont Wants FDA to Allow Drug Reimportation for State Employees, FDA WEEK,
December 19, 2003; see also Inside Washington Publishers, Sen. Dorgan Pushes for Drug Import Pilot Program in
North Dakota, FDA WEEK, April 2, 2004; Letter from Lester M. Crawford, Acting Commissioner of Food and Drugs,
Food and Drug Administration, to Governor Rod R. Blagojevich, State of Illinois (June 3, 2004), http://www.fda.gov/
101 Kelly Field, Battle Brewing Between Administration, Local Officials Over Drug Importation Issue, CQ TODAY,
December 19, 2003.
102 22 Me. Rev. Stat. § 254-C. Similarly, the Washington legislature incorporated into its state laws the ability to ask for
waivers from the FDA that would allow them to license Canadian, United Kingdom, Irish, and other nondomestic
prescription drug wholesalers. Wash. Rev. Code § 18.64.490.
103 Vermont v. Thompson (D. Vt. filed August 19, 2004). In January 2005, Mike Leavitt succeeded Tommy Thompson
as Secretary of the Department of Health and Human Services, resulting in a different case name.
104 405 F. Supp. 2d 466 (D. Vt. 2005).
105 Id. at 473-75.
106 Id. at 476.
107 Tim Craig, Duncan Sues FDA Over Canadian Drugs, WASH. POST, February 23, 2006, at B05.
108 Letter from Randall W. Lutter, Ph.D., Acting Associate Commissioner for Policy and Planning, Food and Drug
its petition was arbitrary and capricious and violated the APA.109 Specifically, the County argued
that the FDA’s action was arbitrary because the agency has tacitly allowed numerous other states
and localities to import prescription drugs in violation of the FDCA but nonetheless refuses to
assist jurisdictions that attempt to import drugs legally under a waiver program. Furthermore, the
County contended that the FDA’s failure to act with respect to illegal importation programs
indicates that the agency does not believe that importation poses a safety risk, despite the 110
agency’s statements to the contrary. The federal district court granted the FDA’s motion to
dismiss the case. The court held that the FDA complied with the FDCA and the Medicare Act
when it denied the County’s waiver request and found the FDA’s denial did not violate the APA 111
because it was not arbitrary or capricious. In response to the County’s argument that the FDA
failed to act with respect to importation programs, the court held that “the FDA’s failure to
enforce the FDCA in some situations does not constitute de facto certification by the Secretary”
of HHS, because the statute gives the Secretary discretion to issue such certification that 112
Canadian prescription drug importation programs are safe and cost-effective. The court could
not review the Secretary’s failure to certify importation programs, nor could the court grant the 113
County any relief, because certification is discretionary.
Despite the efforts of such state and local governments, the FDA continues to maintain that
importing unapproved prescription drugs is unsafe and illegal. Indeed, FDA representatives have
met with and sought to convince state officials to change their minds about importing drugs in
apparent violation of federal law. At the same time, the agency has notified certain states of its 114
legal position regarding drug imports. For example, according to the FDA’s response to an
inquiry from California officials, “if an entity or person within the State of California (including
any state, county, or city program, any public pension, or any Indian Reservation) were to import
prescription drugs into the State of California from Canada [or any other foreign country], it 115
would violate FDCA in virtually every instance.”
The FDA provides several legal arguments for reaching its conclusion that state and local drug
importation is a violation of the FDCA. First, the statute prohibits anyone other than the
manufacturer from importing drugs that were originally manufactured in the United States.
Second, even if an FDA-approved drug is manufactured outside the U.S., the imported version of
the drug will likely violate statutory requirements regarding drug approvals, labeling, and 116
dispensing. These first two arguments are identical to the arguments that FDA has made when
Administration, to Douglas M. Duncan, County Executive, Office of the County Executive (November 8, 2005),
109 Montgomery County v. Leavitt, 445 F. Supp. 2d 505 (D. Md. 2006).
110 Press Release, Montgomery County, Maryland, Duncan Sues Bush Administration Over Canadian Drug Import
(February 23, 2006), http://www.montgomerycountymd.gov/apps/News/press/DisplayInfo.cfm?ItemID=1755.
111 Montgomery County, 445 F. Supp. 2d at 508-10.
112 Id. at 512.
113 Id. at 513-14.
114 Indeed, the FDA has issued a series of warning letters to states that have considered or that have implemented
prescription drug importation plans. These letters are posted on the FDA’s website at http://www.fda.gov/
115 Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food and Drug Administration,
to Gregory Gonot, Deputy Attorney General, State of California 2 (August 25, 2003), http://www.fda.gov/opacom/
gonot.html [hereinafter California Letter].
116 Id. at 3.
explaining why the agency views business and consumer imports of prescription drugs to be 117
statutory violations. Therefore, the FDA considers virtually any imports of prescription drugs,
as well as virtually any act that causes such imports, to be illegal, regardless of whether such
imports are conducted by businesses, consumers, or governmental entities.
In addition, the FDA contends that any effort by states to enact legislation authorizing 118
prescription drug imports would be preempted by federal law. Although the FDA sets forth
several legal arguments for its position, preemption of a state act’s importation provisions does
not appear to have been tested in court, and there are several instances in which other prescription 119
drug provisions in the FDCA have been held not to preempt state law. Finally, the agency has
warned some states that they could be subject to lawsuits for injuries to consumers who relied on
the state’s endorsement when purchasing prescription drugs from Canada. For example, in a letter
to Minnesota state officials, the FDA warned of “the potential tort liability that a state could be
subject to if a citizen purchases an unapproved, illegal drug on your advice, and suffers an injury 120
as a result.”
Despite the FDA’s position regarding state and local imports of prescription drugs, it appears that
the agency is currently refraining from taking legal action against state and local governments
that have established drug importation programs. Indeed, in a warning letter to Minnesota, which
established a website that provides information about accessing less costly prescription drugs
from Canada, the agency notably refrained from asserting that the state’s program violated the 121
FDCA and did not describe any potential enforcement action that the FDA might take.
Likewise, the FDA has indicated that it is unlikely to sue the state of Illinois, which has
117 See supra notes 21-46 and accompanying text.
118 California Letter, supra note 117, at 5-7. In a warning letter to Rhode Island, the FDA elaborated on its preemption
argument in greater detail. Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food
and Drug Administration, to Patrick C. Lynch, Attorney General of Rhode Island (January 28, 2005),
http://www.fda.gov/oc/opacom/hottopics/importdrugs/lynch012805.html. The preemption doctrine derives from the
Supremacy Clause of the Constitution, which establishes that the laws of the United States “shall be the supreme law of
the land; and the judges in every state shall be bound thereby, any thing in the Constitution or laws of any State to the
contrary notwithstanding.” U.S. CONST. art. VI, cl. 2. In applying this constitutional mandate, courts have recognized
both express and implied forms of preemption, which are “compelled whether Congress’ command is explicitly stated
in the statute’s language, or implicitly contained in its structure and purpose.” Gade v. National Solid Wastes
Management Association, 505 U.S. 88, 97 (1992) (quoting Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)).
119 Many of these cases, however, deal with prescription drug labeling, not importation, and state common law claims,
not state statutory law. David R. Geiger and Mark D. Rosen, Rationalizing Product Liability for Prescription Drugs:
Implied Preemption, Federal Common Law, and Other Paths to Uniform Pharmaceutical Safety Standards, 45 DEPAUL
L. REV. 395, 408 (1996). It is also important to note that the FDCA expressly preempts state law with regard to over-
the-counter drugs and medical devices but not with regard to prescription drugs. As a result, it is more difficult to
predict the outcome of a preemption challenge to state laws on prescription drugs. A detailed examination of the
preemption issue, however, is beyond the scope of this report.
120 Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food and Drug Administration
to the Honorable Tim Pawlenty, Governor of Minnesota 3 (February 23, 2004), http://www.fda.gov/oc/opacom/
hottopics/importdrugs/pawlenty022304.html. In the Minnesota warning letter, the FDA explicitly noted that
Minnesota’s own inspection of some of the recommended Canadian pharmacies had revealed potential safety
violations. Id. at 1-3.
121 Id. One possible explanation for the FDA’s silence with respect to the legality of Minnesota’s actions could be that
it is unclear whether the state is “causing” the prohibited importation activity in violation of the statute, in part because
the state neither imports drugs from Canada nor allows consumers to order directly through its website. On the other
hand, the Minnesota website does provide order forms, pricing information, and instructions on how to submit an order
to the recommended pharmacies, and such actions may be enough to establish that Minnesota is facilitating illegal
importation. See http://www.state.mn.us/portal/mn/jsp/home.do?agency=Rx to view Minnesota’s website.
implemented a plan to import drugs from Canada and certain European countries, despite the
agency’s earlier pronouncement that it would refrain from suing states and localities as long as 122
those entities imported drugs from Canada and not from other countries. One possibility is that
the agency is “simply waiting for a state to actually buy foreign drugs for their residents, which 123
would constitute direct commercial importation, before taking legal action.” Although several
localities are importing drugs directly, “the FDA has not gone after these cities because they are 124
too small.” Previously, the FDA had indicated that it had not yet sued states or localities
because “the agency wants to first win its case against Rx Depot, giving FDA bargaining power 125
for the more difficult task of taking formal action against states and local governments.”
However, in the Rx Depot case, which involved a private company that helped individual
consumers import prescription drugs, the FDA successfully concluded its lawsuit when Rx Depot
agreed to enter into a consent decree that permanently enjoins the company from the importation 126
of unapproved prescription drugs. The Rx Depot case is discussed in detail in the following
Although the FDA has refrained thus far from taking legal action against both states and
individual consumers who import prescription drugs in violation of the FDCA, the agency has
pursued legal action against businesses that facilitate the importation of such drugs. Unlike
pharmacies, which receive orders from consumers and dispense drugs directly, some businesses
facilitate drug sales without dispensing drugs directly. Rather, these companies, many of which
are online, act as middlemen between consumers, who provide medical and payment information,
and foreign (typically Canadian) pharmacies, which then ship drugs directly to consumers. The
FDA has pursued legal action against at least one such business. That case is discussed in detail in
this section, while separate but related issues involving online pharmacies are discussed in CRS
Report RS21711, Legal Issues Related to Prescription Drug Sales on the Internet.
In United States v. Rx Depot,127 the Department of Justice (DOJ), acting on behalf of the FDA,
filed suit against Rx Depot, a storefront operation that helped U.S. consumers obtain prescription 128
drugs from Canada. In the suit, DOJ contended that Rx Depot was violating two provisions of
122 Inside Washington Publishers, FDA Signals Reluctance to Sue Illinois for Importing Drugs, FDA WEEK, August 20,
123 Inside Washington Publishers, CMS Could Refuse Medicaid Approvals for Rx-Importing States, FDA WEEK,
December 10, 2005. Even if a state were to import drugs directly, however, the Centers for Medicare and Medicaid
Services (CMS) may be better positioned to halt such state activities than the FDA would be, since the FDA would
have to engage in potentially lengthy litigation over the issue, while CMS could deny approval for any state Medicaid
plan that contained a drug importation program, thereby eliminating what would otherwise be a significant source of
state funding for importation activities.
125 Inside Washington Publishers, FDA To Resolve Rx Depot Suit Before Taking on States, FDA WEEK, October 31,
126 Press Release, Food and Drug Administration, Rx Depot Agrees in Consent Decree to Cease Importing Unapproved
Drugs from Canada (August 20, 2004), http://www.fda.gov/bbs/topics/news/2004/NEW01105.html.
127 290 F. Supp. 2d 1238 (D. Okla. 2003) (order granting preliminary injunction).
128 DOJ initiated this lawsuit after Rx Depot failed to respond to the agency’s warning letter and continued to facilitate
the importation of prescription drugs and the importation of unapproved drugs. See Letter from David J. Horowitz,
Esq., Director, Office of Compliance, Center for Drug Evaluation and Research, Food and Drug Administration, to
Harry Lee Jones, Store Manager, Rx Depot, Inc., (March 21, 2003), http://www.fda.gov/foi/warning_letters/archive/
the FDCA, namely the provision prohibiting importation and the provision prohibiting the 129
introduction into interstate commerce of any drug that violates the act’s approval requirements.
Although Rx Depot was not directly importing drugs, the company admitted that it was “engaged
in the business of causing the shipment of U.S.-manufactured and unapproved, foreign-130
manufactured prescription drugs from Canadian pharmacies to U.S. citizens.”
Rx Depot countered that the FDA was not actually concerned about the safety of imported drugs
because the agency had never tested the drugs it bought from Rx Depot as part of a sting 131
operation against the company. Similar complaints have been voiced by other businesses that
facilitate the importation of prescription drugs. Critics of FDA’s importation stance also argue that
it “fails to protect the public health because it allows individuals to import drugs, while 132
prohibiting ‘commercial’ operations that are in the best position to develop safeguards,” and 133
allege that the FDA’s importation procedures may violate international trade agreements.
Ultimately, critics argue that the FDA’s procedures protect the profits of drug manufacturers at the 134
expense of consumer pocketbooks.
Despite these arguments, the district court held against Rx Depot during a preliminary ruling in
the case. Concluding that “Rx Depot’s importation of prescription drugs clearly violates the law,”
the district court issued a preliminary injunction enjoining Rx Depot from facilitating the 135
importation of prescription drugs. While the court’s order was not actually a final order on the
merits of the case, it did indicate that DOJ had a substantial likelihood of prevailing in the
lawsuit. Indeed, the court appeared particularly concerned with the safety of imported drugs:
[U]napproved prescription drugs and drugs imported from foreign countries by someone
other than the U.S.-manufacturer do not have the same assurance of safety and efficacy as
drugs regulated by the Food and Drug Administration. ... Because the drugs are not subject
to FDA oversight and are not continuously under the custody of a U.S. manufacturer or
authorized distributor, their quality is less predictable than drugs obtained in the United
States. For instance, the drugs may be contaminated, counterfeit, or contain erratic amounts
of the active ingredient or different excipients. Also, the drugs may have been held under 136
uncertain storage conditions, and therefore be outdated or subpotent.
g3888d.pdf. The FDA has sent similar warning letters to other businesses that facilitate the importation of prescription
drugs. See, e.g., Letter from David J. Horowitz, Esq., Director, Office of Compliance, Center for Drug Evaluation and
Research, Food and Drug Administration, to G. Anthony Howard, President, CanaRx Services, Inc., (September 16,
129 United States v. Rx Depot, 290 F. Supp. 2d 1238 (D. Okla. 2003) (order granting preliminary injunction); see also
21 U.S.C. §§ 331(d), 331(t), and 355.
130 Rx Depot, 290 F. Supp. 2d at 1241.
131 Inside Washington Publishers, Rx Depot: FDA Alleged Safety Concerns With Reimportation Are Bogus, FDA
WEEK, November 7, 2003.
133 Inside Washington Publishers, CanaRx Says FDA’s Reimportation Policy Violates Trade Agreements, FDA WEEK,
November 7, 2003.
134 Marc Kaufman, FDA’s Authority Tested Over Drug Imports, WASH. POST, November 9, 2003, at A11.
135 Rx Depot, 290 F. Supp. 2d at 1247.
136 Id. at 1241-42.
With regard to Rx Depot, the court specifically noted that drugs ordered through the company
were often dispensed in quantities greater than prescribed and did not contain the required
package inserts. Although the court acknowledged that the cost of prescription drugs in the U.S. is
high and that there are no known cases of an individual who has suffered harm from drugs
imported through Rx Depot, the court nevertheless concluded that the FDA has legitimate safety
concerns and that Congress is in the best position to resolve the tension between prescription drug 137
safety and cost.
Shortly after the court issued the preliminary injunction, Rx Depot agreed to enter into a consent
decree with the FDA. Under the terms of the consent decree, Rx Depot “admitted liability for
causing the importation of unapproved new drugs and U.S.-manufactured drugs in violation of 138
the act and agreed to permanently cease such activities.” In the wake of the consent decree, the 139
legal battle continued, as the U.S. requested disgorgement of Rx Depot’s profits. The federal
court of appeals found that disgorgement was an appropriate remedy under the FDCA because
disgorgement “furthers the purposes of the FDCA by deterring future violations of the Act which 140
may put the public health and safety at risk.” Many companies like Rx Depot remain in 141
business, and a number of states and localities have contemplated or implemented their own
importation programs. In response, several drug manufacturers have begun limiting sales of their
drugs to Canadian pharmacies in an effort to prevent the drugs from being resold in the U.S. at
cheaper prices. These actions have raised questions about whether such behavior violates federal
antitrust laws, a topic that is discussed in the following section.
As noted above, several major prescription drug manufacturers have responded to the rise in the
number of businesses and consumers that are importing cheaper drugs into the U.S. by reducing
the supply of such drugs to distributors and pharmacies in Canada, where most of the imported 143
drugs originate. Although some manufacturers argue that restrictions on sales are designed to
prevent drug shortages in Canada, such moves may instead be intended to limit Canadian
distributors and pharmacies to selling prescription drugs to Canadian consumers only, rather than
selling excess supplies of prescription drugs to U.S. consumers at cheaper prices than such
consumers would pay for similar drugs in the United States. As a result, several members of
Congress have questioned whether these drug manufacturers are violating federal antitrust 144th145
laws. Several bills introduced in the 109 Congress would have prohibited such sales tactics,
137 Id. at 1241-42, 1245.
138 Press Release, Food and Drug Administration, Rx Depot Agrees in Consent Decree to Cease Importing Unapproved
Drugs from Canada (August 20, 2004), http://www.fda.gov/bbs/topics/news/2004/NEW01105.html.
139 United States v. Rx Depot, 438 F.3d 1052, 1053 (2006), cert. denied 127 S. Ct. 80 (2006).
140 Id. at 1058, 1061.
141 For example, in a case against a business similar to Rx Depot, the FDA won a permanent injunction that enjoins a
company known as Canada Care from importing unapproved prescription drugs. Press Release, Food and Drug
Administration, Court Halts Illegal Importation of Prescription Drugs (December 27, 2004), http://www.fda.gov/bbs/
142 This section was written by Janice E. Rubin, Legislative Attorney in the American Law Division of CRS.
143 Following the example set by GlaxoSmithKline, Pfizer Inc., the world’s biggest drug manufacturer, also announced
that the company was limiting sales of prescription drugs to Canadian pharmacies that resold such drugs to U.S.
consumers. Ceci Connolly, Pfizer Cuts Supplies to Canadian Drugstores, WASH. POST, February 19, 2004, at A10.
144 Inside Washington Publishers, Lawmakers Seek DOJ Anti-Trust Probe of Firms Limiting Sales to Canada, FDA
and similar legislation was introduced in the 110th Congress.146 Furthermore, a federal district
court issued what appears to be the first ruling regarding antitrust allegations against several drug 147
manufacturers and the decision was affirmed on appeal. In addition, at least one state has
launched an investigation into whether the drug manufacturer GlaxoSmithKline (GSK) has 148
violated state antitrust laws. This section discusses the potential federal and state antitrust
issues raised by the decision of certain drug manufacturers to limit the supply of drugs to
Canadian distributors and pharmacies.
Federal antitrust law is concerned with the competitiveness of markets (competition), and not
with the competitors—unless they have suffered an injury as a result of an actionable wrong
under the antitrust laws. Similarly, the achievement or implementation of specific programs or
goals is not a concern of the federal antitrust laws. It is not a given, therefore, that existing federal
antitrust laws could be successfully employed to challenge pharmaceutical manufacturers whose
actions appear either to reduce the U.S. supply of imported prescription drugs or to make it more
difficult for Americans to purchase prescription drugs from other countries, including Canada.
First, neither current antitrust statutes nor doctrine make unlawful the market-oriented activities 149
of individual entities, unless, under certain circumstances, the entity is a monopolist. Section 1 150
of the Sherman Act makes illegal “[e]very contract, combination ... or conspiracy, in restraint
of trade or commerce ... .” That provision, by its terms, may only be violated by multiple parties
engaged in concerted, or joint action. Thus, it would not currently be applicable to, for example, a
drug manufacturer who, on his own, and not in agreement with another drug manufacturer or 151
other person, refuses to supply, or reduces supplies to, a Canadian or other non-U.S. pharmacy.
The Sherman Act [15 U.S.C. §§ 1-7] contains a ‘basic distinction between concerted and
independent action.’ The conduct of a single firm is governed by § 2 [of the Sherman Act, 15
U.S.C. § 2] alone and is unlawful only when it threatens actual monopolization. It is not
enough that a single firm appears to ‘restrain trade’ unreasonably, for even a vigorous
competitor may leave that impression.... Section 1 of the Sherman Act [15 U.S.C. § 1], in
contrast, reaches unreasonable restraints of trade effected by a ‘contract, combination . . . or
WEEK, November 7, 2003.
145 See, e.g., H.R. 328; S. 334.
146 See, e.g., H.R. 380; S. 242.
147 In Re: Canadian Import Antitrust Litig., 385 F. Supp. 2d 930 (D. Minn. 2005), aff’d, 470 F.3d 785 (8th Cir. 2006).
148 Inside Washington Publishers, Judge Wants More Info Before Deciding Motion to Compel Against GSK, FDA
WEEK, November 21, 2003.
For a more detailed discussion of this issue, see CRS Report RL33708, The Distinction Between Monopoly and
Monopolization in Antitrust Law, and CRS Report RS20241, Monopoly and Monopolization - Fundamental But
Separate Concepts in U.S. Antitrust Law, by Janice E. Rubin, and Congressional Distribution Memorandum, Duty of a
Monopolist to Deal, by Janice E. Rubin.
150 15 U.S.C. §§ 1-7.
151 See infra the section of this report on “State Antitrust Law” regarding the existence at the state level of some
unilateral restraint of trade provisions.
conspiracy’ between separate entities. It does not reach conduct that is ‘wholly 152
Moreover, the Court long ago noted in United States v. Colgate that
the [Sherman] act does not restrict the long recognized right of [a] trader or manufacturer
engaged in an entirely private business, freely to exercise his own independent discretion as
to parties with whom he will deal; and, of course, he may announce in advance the 153
circumstances under which he will refuse to sell.
The U.S. Court of Appeals for the Federal Circuit added that the fundamental Colgate precept of
seller choice set out above is not altered by the applicability of either the patent or copyright law
to the item(s) in question, unless it is judicially determined that the patent or copyright in question 154
was fraudulently procured.
Second, whether certain joint activity is unlawful and therefore violates the antitrust statutes is
not always susceptible of proof. Although the Supreme Court has indicated several times that a
formal contract may not be necessary to establish the collective action required by section 1, an 155
antitrust violation may be found if the unlawful agreement can be inferred from the totality of 156
In 1984, in Monsanto Co. v. Spray-Rite Service Corp., the Court said:
The correct standard is that there must be evidence that tends to exclude the possibility of
independent action by the [parties]. That is, there must be direct or circumstantial evidence
that reasonably tends to prove that the [parties] had a conscious commitment to a common 157
scheme designed to achieve an unlawful objective.
“Conscious parallelism” is the term often given to uniform or synchronous business behavior, 158
which, while prima face evidence of concerted behavior, is not proof of unlawful agreement. In
152 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-68 (1984) (ruling that a parent corporation was
not legally capable of conspiring with its own wholly owned subsidiary, and so could not be guilty of conspiracy)
(citations and footnote omitted) (emphasis added).
153 United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
154 In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 1326 (Fed. Cir. 2000).
155 There are a small number of actions (e.g., price fixing, market allocation, boycotts or concerted refusals to deal) that
the courts have designated as per se violations of section 1; other actions are analyzed pursuant to the Rule of Reason
(anticompetitive consequences weighed against any procompetitive result), and only those found to unreasonably
restrain trade are considered unlawful violations of section 1.
156 “No formal agreement is necessary to constitute an unlawful conspiracy.... The essential combination or conspiracy
in violation of the Sherman Act may be found in a course of dealings or other circumstances as well as in any exchange
of words. [A conspiracy, or unlawful agreement may be found where] the conspirators had a unity of purpose or a
common design and understanding, or a meeting of minds in an unlawful arrangement.... ” American Tobacco Co. v.
United States, 328 U.S. 781, 809-10 (1946) (citation omitted).
157 465 U.S. 752, 768 (1984) (refusing to find that concerted action may be inferred from the fact that a seller
terminated a dealer after the seller had received complaints from a competing dealer about the terminated dealer’s
158 “Tacit collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes the process,
not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their
prices at a profit-maximizing, supracompetitive level by recognizing their shared economic interests and their
interdependence with respect to price and output decisions. ... Firms that seek to recoup predatory losses through the
conscious parallelism of oligopoly must rely on uncertain and ambiguous signals to achieve concerted action. The
an early case, for example, the Court held that the circumstances surrounding imposition by eight
motions picture distributors of nearly identical restraints concerning the licensing of first-run
“feature” films were sufficient to create a valid inference that the distributors had acted in
concert, in violation of section 1 of the Sherman Act.
It is elementary that an unlawful conspiracy may be and often is formed without
simultaneous action or agreement on the part of the conspirators. Acceptance by competitors,
without previous agreement, of an invitation to participate in a plan, the necessary
consequence of which, if carried out, is restraint of interstate commerce, is sufficient to 159
establish an unlawful conspiracy under the Sherman Act.
In Theatre Enterprises v. Paramount Film Distributing Corp., the Court continued to state that
parallel behavior by itself is not necessarily proof of a conspiracy:
The crucial question is whether respondents’ conduct toward petitioner stemmed from
independent decision or from an agreement, tacit or express. To be sure, business behavior is
admissible circumstantial evidence from which the fact finder may find agreement. But this
Court has never held that proof of parallel business behavior conclusively establishes
agreement or, phrased differently, that such behavior itself constitutes a Sherman Act
offense. Circumstantial evidence of consciously parallel behavior may have made heavy
inroads into the traditional judicial attitude toward conspiracy; but “conscious parallelism” 160
has not yet read conspiracy out of the Sherman Act entirely.
Although the Supreme Court has stated, and lower court decisions have continued to illustrate,
that an unlawful agreement or conspiracy in restraint of trade may be proved by consciously
parallel behavior that is accompanied by any of several “plus” factors—“the additional facts or
factors required to be proved as a prerequisite to finding that parallel action amounts to a 161
conspiracy”—there has not been much agreement or standardization concerning exactly which 162
“plus” factors are to be given what, if any, evidentiary weight. The “plus” factors courts have 163
considered favorably include artificial standardization of products and raising prices in time of 164
surplus. Less persuasive is evidence that indicates merely that the parties had an opportunity to
signals are subject to misinterpretation and are a blunt and imprecise means of ensuring smooth cooperation, especially
in the context of changing or unprecedented market circumstances. This anticompetitive minuet is most difficult to
compose and to perform ... .” Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227, 228
(1993) (citations omitted).
159 Interstate Circuit, Inc. v. United States, 306 U.S. 208, 227 (1939) (citations omitted).
160 346 U.S. 537, 540-44 (1954) (citations omitted).
161 See, e.g., In re Baby Food Antitrust Litigation, 166 F.3d 112, 122 (3d Cir. 1999) (citing Areeda, ANTITRUST LAW §
162 For example, the Baby Food court, id. at 122, quoted Balaklaw v. Lovell, 822 F. Supp. 892, 903 (N.D.N.Y. 1993)
and cited Todorov v. DCH Healthcare Authority, 921 F.2d 1438, 1456 note 30 (11th Cir.1991): “[T]he mere presence of
one or more of these ‘plus factors’ does not necessarily mandate the conclusion that there was an illegal conspiracy
between the parties, for the court may still conclude, based upon the evidence before it, that the defendants acted
independently of one another, and not in violation of antitrust laws”; “If an inference of ... an agreement may be drawn
from highly ambiguous evidence, there is a considerable danger that the doctrines enunciated in [Continental T.V., Inc.
v. GTE] Sylvania [, Inc., 433 U.S. 36 (1977), non-price restraints evaluated under the antitrust rule of reason] and
Colgate [supra note 155, freedom of seller to deal with whom he wishes] will be seriously eroded.” Monsanto Co. v.
Spray-Rite Service Corp., 465 U.S. 752, 763 (1984).
163 C-O-Two Fire Equip. Co. v. United States, 197 F.2d 489 (9th Cir. 1952), cert. denied, 344 U.S. 892 (1952).
164 American Tobacco Co. v. United States, 328 U.S. 781 (1946).
collude.165 That the parties communicated with one another is, at best, ambiguous evidence of 166
conspiracy. The bottom line appears to be whether the parties acted in their own self-interest:
where there is no direct evidence of a conspiracy, behavior as consistent with a desire to maintain
profitability or to remain in business at all as with any participation in injurious or unlawful 167
conduct does not constitute sufficient indirect evidence of an alleged conspiracy; similarly,
where a defendant would have little or no motive to enter a conspiracy, his actions will be 168
considered unilateral and independent.
Based upon these cases and assuming that there is no evidence that the drug manufacturers in
question conspired or colluded when reducing drug supplies to Canadian distributors and
pharmacies, it would appear difficult to sustain a charge that the drug companies that limit sales
to Canada have violated the Sherman Act. Indeed, there may be lawful reasons for their actions.
For example, the manufacturers may be capable of supplying only the United States market and
to a lesser extent foreign markets because of limited production capacity. They may also need to
recoup research and development costs by obtaining a profit margin through sales primarily in the
United States. However, if one were able to show that the drug companies did in fact conspire or
collude or that they engaged in parallel behavior accompanied by other factors, a case might be
made for a Sherman Act violation.
In the first federal court case on the question, In Re: Canadian Import Antitrust Litigation, a
group of consumers and organizations from Minnesota who purchased prescription drugs in the 169
U.S. from American drug companies challenged the defendant drug companies. The plaintiffs
claimed that the defendants violated federal antitrust laws “by engaging in a course of conduct
designed to suppress the importation of prescription drugs purchased from Canadian pharmacies 170
for personal use in the United States.” The district court held that prescription drugs imported
from Canada are misbranded and that “the transport of drugs for personal use into the United 171
States constitutes an ‘introduction into interstate commerce.’ “ The introduction of misbranded 172
drugs into interstate commerce violates the FDCA. Noting that the plaintiffs lacked standing
165 See, e.g., Greater Rockford Energy & Tech. Corp. v. Shell Oil Co., 998 F.2d 391 (7th Cir. 1993); Carpet Group
International v. Oriental Rug Importers Ass’n, 256 F. Supp. 2d 249 (D.N.J. 2003). Both cases stand for the proposition
that mere membership in a trade association, even with the knowledge that the association is engaging in unlawful
activity, is insufficient to prove that a party participated in such activity.
166 See, e.g., Monsanto, supra note 164, at 764: “Permitting an agreement to be inferred merely from the existence of
complaints ... could deter or penalize perfectly legitimate conduct.” See also In re Baby Food Antitrust Litigation,
supra note 163; Intervest, Inc. v. Bloomberg, L.P., 340 F.3d 144 (3d Cir. 2003). But see e.g. Toys “R” Us v. Federal th
Trade Commission, 221 F.3d 928, 934-35 (7 Cir. 2000): “When circumstantial evidence is used, there must be some
evidence that ‘tends to exclude the possibility’ that the alleged conspirators acted independently.... The test states only
that there must be some evidence which, if believed, would support a finding of concerted behavior. In the context of
an appeal from the Commission, the question is whether substantial evidence supports its conclusion that it is more
likely than not that the manufacturers acted collusively.” (citations omitted).
167 Intervest, supra note 168; Twombly v. Bell Atlantic Corp., 313 F. Supp. 2d 174 (S.D.N.Y.2003).
168 Matsushita Electric Industries Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Todorov, supra note 164; Hall v.
United Air Lines, 296 F. Supp. 2d 652, 600 (E.D.N.C. 2003) (quoting Matsushita, 475 U.S. at 588: “[C]onduct as
consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of
antitrust conspiracy. ... a plaintiff seeking damages for a violation of § 1 [of the Sherman Act] must present evidence
‘that tends to exclude the possibility’ that the alleged conspirators acted independently.”)
169 In Re: Canadian Import Antitrust Litig., 385 F. Supp. 2d 930 (D. Minn. 2005) aff’d, 470 F.3d 785 (8th Cir. 2006).
170 Id. at 932.
171 Id. at 934.
172 21 U.S.C. §331(a).
“to challenge Defendants’ allegedly anti-competitive behavior because the importation of these
drugs is unlawful and, therefore, not the type of activity which federal antitrust laws were 173
designed to protect,” the district court dismissed the case. The district court also dismissed the
state and common law claims, which were ancillary to the federal antitrust claim, after deciding 174
not to exercise supplemental jurisdiction over them.
On appeal, the United States Court of Appeals for the Eighth Circuit affirmed the district court
judgment, finding that the importation of prescription drugs from Canada is illegal and that the
plaintiffs did not have standing under antitrust laws to maintain the suit. Even if importation were
legal, according to the court, the antitrust injury that the plaintiffs encountered—“an absence of
competition from Canadian sources in the domestic prescription drug market”—was not a result
of the defendants’ behavior and was not an injury that the antitrust laws were designed to prevent.
Rather, the injury to the plaintiffs was “caused by the federal statutory and regulatory scheme 175
adopted by the United States government.” Although this decision is not binding on courts in
other jurisdictions, it provides an initial glimpse of how the antitrust issue may play out in the
Despite the apparent lack of violation of federal antitrust law, drug manufacturers that limit sales
of prescription drugs to Canadian distributors and pharmacies may still violate state antitrust
laws. Because antitrust laws vary from state to state, this section does not provide an exhaustive
analysis of state antitrust laws, but rather describes the legal dispute between GlaxoSmithKline
(GSK) and the state of Minnesota as an example of potential liability under state antitrust statutes.
Even if drug manufacturers that limit sales of prescription drugs to certain Canadian distributors
and pharmacies are found not to have violated federal antitrust laws, they may still be in violation
of state antitrust law. Antitrust laws exist in all fifty states and the District of Columbia, but their 176
scope and enforcement differ from state to state. Most state antitrust laws mirror the federal 177
statutes or are interpreted to reflect case law interpreting these federal statutes, although there 178
are a small number of states in which a restraint of trade violation includes a unilateral act. This
section describes the recent legal dispute between the state of Minnesota and GlaxoSmithKline
(GSK) over state antitrust law and its effect on prescription drug importation.
385 F. Supp. 2d at 932.
174 Id. at 934.
175 In Re: Canadian Import Antitrust Litig., 470 F.3d 785, 791 (8th Cir. 2006).
176 See generally Section of Antitrust Law, American Bar Association, STATE ANTITRUST ENFORCEMENT HANDBOOK,
177 Id.; see, e.g., Minnesota Twins Partnership v. State ex rel. Hatch, 592 N.W.2d 847, 851 (Minn. Ct. App. 1999), cert.
den. Hatch v. Minnesota Twins Partnership, 528 U.S. 1013 (1999): “Minnesota’s antitrust laws are generally
interpreted consistently with federal courts’ construction of federal antitrust laws” (citing State by Humphrey v. Alpine
Air Products, Inc., 490 N.W.2d 888, 894 (Minn. Ct. App.1992), aff’d, 500 N.W.2d 788 (Minn. S.Ct.1993)).
178 E.g., § 203(A) of the Oklahoma Antitrust Reform Act (OKLA. STAT. tit. 79, §§ 201 et seq.) makes illegal and “against
public policy” not only agreements, contracts, or combinations in restraint of trade, but also “acts” in restraint of trade.
In 2003, the Minnesota Attorney General (AG), who is investigating whether GSK violated 179
Minnesota antitrust laws, filed a court motion seeking to compel GSK to release information
located in Canada and the United Kingdom about the company’s decision to stop selling drugs to
Canadian pharmacies that then sell the drugs to U.S. consumers. According to the AG, GSK
conspired to limit drug sales to Canada, and “GSK’s refusal to supply prescription drugs to 180
Canadian pharmacies that sell drugs to Minnesota buyers violates state laws.” In reply, GSK
argued that “importing drugs from Canada is illegal and a drug company can take steps to stop 181
illegal sales of its products;” and also that federal law preempts Minnesota’s antitrust laws.
Ultimately, the district court of Hennepin County, Minnesota, ordered GSK to produce the 182
records and information sought by the AG. The court ruled that even if GSK’s position that “the
importation of non-approved drugs from Canada is illegal under the FDCA, and there cannot be a 183
conspiracy in violation of the antitrust laws to restrain trade in illegal goods” were correct,
which the court questioned, “[e]nforcement of federal law is the responsibility of the FDA, not of
GSK,” especially since “the FDA has never even reviewed GSK’s boycott,” much less 184
specifically approved it. The district court judge obliquely addressed the preemption argument,
finding sufficient authority for the Minnesota AG’s investigation and the document request in
pursuit of that investigation under the Minnesota statute that mandates that the Attorney General 185
“investigate violations of the business and trade laws of this state.... ”
Based on information revealed in the GSK documents that were turned over, the Minnesota AG 186
filed a lawsuit against GSK in 2004, alleging that the company had violated state antitrust laws.
GSK and the Minnesota AG are mired in fighting over the public release of over 40 documents
turned over by GSK. The Minnesota Supreme Court recently remanded the case regarding public
disclosure of the documents to the district court with a framework to apply to determine whether
to issue a protective order for each document in order to protect a person’s association rights or to 187
publicly disclose the document’s information. Minnesota’s case against GSK may have been
harmed by a federal court decision in In re: Canadian Import Antitrust Litigation, which
determined that drug manufacturers had not violated federal antitrust law by attempting to halt the 188
importation of prescription drugs.
179 Minn. Stat. §§ 325D.49 et seq.
180 Inside Washington Publishers, Judge Wants More Info Before Deciding Motion to Compel Against GSK, FDA
WEEK, November 21, 2003.
182 In the Matter of GlaxoSmithKline plc, No. MC 03-15992, slip op. (D. Minn., May 7, 2004).
183 Id. at 11.
185 Id. at 6 (citing Minn. Stat. § 8.31(2002)).
186 Inside Washington Publishers, Minnesota Tries to Publicize GSK Documents to Bolster Antitrust Suit, FDA WEEK,
December 17, 2004.
187 In the Matter of GlaxoSmithKline plc, 732 N.W. 2d 257, 262, 269, 273 (2007). The court stated the framework as
follows: First, the court should determine whether a party asserting the need for a protective order has sufficiently
established a potential chilling effect on its association right. Second, if the party meets this burden, the court should
balance the party’s association right against the state’s interest in releasing the information to the public. The state must
demonstrate a compelling governmental interest in order to release documents protected by the First Amendment right
to association.Id. at 269-70.
188 See supra notes 171-77 and accompanying text.
As with antitrust law, international trade obligations may also impact the feasibility of
prescription drug importation. On the one hand, permitting some importation of prescription
drugs may be seen as removing an existing barrier to trade or trade liberalizing; on the other hand,
the United States’ international trade obligations may present obstacles to prescription drug
importation. Furthermore, legislative and/or regulatory proposals regarding importation may be
inconsistent with provisions of various international trade agreements including, but not limited
to, the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Technical
Barriers to Trade (TBT) and the General Agreement on Trade in Services (GATS), all of which
are a part of the World Trade Organization (WTO) Agreement to which the United States is a 190
signatory member. At the same time, however, these agreements contain exceptions that may
be used to justify some of the potential inconsistencies that may arise.
Under the GATT 1994, Articles III:4, I:1 and XI:1 contain provisions that may affect prescription
drug imports. Generally, Article III governs the application of domestic regulatory measures
requiring that “laws, regulations and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products ... should not be applied to domestic
products so as to afford protection to domestic production.” Article III:4 specifically obligates
Member countries, with respect to all such domestic measures, to provide national treatment to
imported products from other WTO Member countries. Simply put, national treatment requires
that Member countries not discriminate against imported goods relative to like domestic products.
In addition to the national treatment obligation, internal regulatory measures are also required to
comply with Article I:1, the most-favored-nation (MFN) clause. MFN requires that “any
advantage, favor, privilege or immunity granted by any contracting party to any product
originating in or destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the territories of all other
contracting parties.” The inclusion of Article III measures within the Article I:1 MFN obligation
was intended to extend the obligation to them “regardless of whether national treatment is 191
provided with respect to these matters.”
To the extent that any legislative or regulatory proposal contains requirements affecting the
internal sale, offering for sale, purchase, transportation, distribution, or use of prescription drugs
in the United States, it could be viewed as falling within the purview of Article III. The provisions
of Article III have been interpreted broadly, with the use of the word “affecting” having been
interpreted as implying that the drafters of the Article intended it to apply to “not only the laws
189 This section was written by Todd B. Tatelman, Legislative Attorney in the American Law Division of CRS.
190 It should be noted that many of the same issues raised in the WTO context may also arise with respect to the North
American Free Trade Agreement (NAFTA), to which the United States, Canada, and Mexico are signatories. While it
appears that under NAFTA similar defenses are potentially available, the rationales and analysis may be quite different.
Furthermore, issues have been raised with respect to other Free Trade Agreements (FTA) to which the United States is
a party; however, since each agreement contains different provisions, they should be analyzed independently and are
beyond the scope of this report.
191 World Trade Organization, Analytical Index: Guide to GATT Law and Practice 30 (6th ed. 1995) (quoting the
proposal offered by the United States during the Second Session of the Preparatory Committee of the United Nations
Conference on Trade in Employment, Geneva, April-October 1947).
and regulations which directly govern the conditions of sale or purchase, but also in any law or
regulations which might adversely modify the conditions of competition between the domestic 192
and imported products in the international market.” Given this broad interpretation, it appears 193
that any proposals containing provisions affecting the labeling of imported drugs, or requiring
that prescription drugs produced in foreign countries for importation be destined only for the
United States may be interpreted by the WTO as inconsistent with our national treatment and
In addition to potential conflicts with Articles III:4 and I:1, GATT Article XI:1 prohibits a
Member country from instituting or maintaining quantitative prohibitions or restrictions “on the 194
importation of any product of the territory of any other contracting party.” The language of
Article XI has been interpreted to be comprehensive, applying to “all measures instituted or
maintained by a contracting party prohibiting or restricting the importation, exportation ... of the 195
products other than measures that take the form of taxes duties and charges.” Measures may 196
fall within the scope of Article XI:1 if they “prevent the importation of goods as such,” or 197
“affect the right of importation as such.” Furthermore, Article XI:1 requires that any
quantitative restrictions that are imposed be instituted on a non-discriminatory basis, in other
words, that all exports of like products to and imports of like products of, third countries be
similarly restricted or prohibited. Therefore, to the extent that any legislative or regulatory
proposal appears to prohibit, or authorize prohibitions, on the importation of prescription drugs
under specific circumstances, there is a possibility that the proposals may constitute or result in a
measure affecting importation “as such,” and thus, may be challenged under Article XI:1.
Article XX contains the general exceptions to the GATT. These general exceptions permit
Members to impose otherwise GATT-inconsistent measures to fulfill certain enumerated public
policy objectives, provided that the measures are not “applied in a manner which would constitute
a means of arbitrary or unjustifiable discrimination between countries where the same conditions 198
prevail or a disguised restriction on international trade.” Specifically relevant to legislation
involving prescription drugs is Article XX(b), which exempts measures “necessary to protect 199
human, animal or plant life and health.”
192 Panel Report on Italian Discrimination Against Imported Agricultural Machinery, GATT, Basic Instruments and
Selected Documents (BISD), 7th Supp. 60, 64 ¶ 12 (1959).
193 It should be noted that not all labeling provisions would be inconsistent with GATT obligations. Article IX of the
GATT 1994 permits contracting parties to require marks of origin, and the WTO Agreement on Rules of Origin
contains additional obligations. Only to the extent that a labeling requirement goes beyond what is permitted in either
of these provisions could it be considered inconsistent with Article III:4.
194 Article XI:1 states that “no prohibitions or restrictions other than duties, taxes or other charges, whether made
effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any
contracting party on the importation of any product of the territory of any other contracting party or on the exportation
or sale for export of any product destined for the territory of any other contracting party.”
195 Panel Report Japan—Trade in Semi-Conductors, GATT, BISD, 35th Supp. 116, 153, ¶ 104 (1988).
196 Panel Report on Canada—Administration of Foreign Investment Review Act, GATT, BISD, 30th Supp. 140, 162-63,
¶ 5.14 (1985).
197 Panel Report on Untied States—Measures Affecting Alcoholic and Malt Beverages, GATT, BISD, 39th Supp. 206,
292, ¶ 5.63 (1993).
198 GATT Art. XX, chapeau.
199 Id. at Art. XX(b).
To determine whether a measure is eligible for the Article XX(b) exception a three-part test, as
established by the WTO Appellate Body (AB) must be applied. First, the policy must fall within
the range of policies designed to protect life or health. Second, the country invoking the exception
must show that any GATT/WTO inconsistent measures are “necessary” to fulfill the policy
objective. Third, the measures must be applied in conformity with the introductory clause, or 200
“chapeau,” of Article XX. Finally, should the United States invoke Article XX(b) in defense of
the import restrictions, the United States would bear the burden of demonstrating that the 201
measures satisfy all three parts of the test.
In addition to Article XX(b), another possibly relevant GATT exception is Article XX(d), which
may be invoked where an allegedly GATT-inconsistent measure can be shown to be “necessary to
secure compliance with laws or regulations that are not inconsistent with the provisions of the
Agreement, including those related to customs enforcement, ... the protection of patents, trade
marks and copyrights, and the prevention of deceptive practices.”
According to its preamble, the WTO Agreement on Technical Barriers to Trade (TBT Agreement)
expands upon the GATT Article III obligations with respect to internal regulations and is intended 202
to promote the general aims of the GATT. The TBT Agreement applies to all products,
including industrial and agricultural products, but does not apply to measures covered by the
WTO Agreement on Sanitary and Phytosanitary Measures, nor to government purchasing 203
specifications for production or consumption of governmental bodies.
The three categories of measures covered by the TBT Agreement are: (1) technical regulations;
(2) standards; and (3) conformity assessment procedures. Of particular relevance to prescription
drug importation are technical regulations and conformity assessment procedures.
A “technical regulation” is defined as a “[d]ocument which lays down product characteristics or
their related processing and production methods, including their administrative provisions, with 204
which compliance is mandatory.” A technical regulation may also include or deal exclusively
with terminology, symbols, packaging, marking or labeling requirements as they apply to a 205
product, process or production method.” To qualify as a “technical regulation,” a measure must
fulfill three criteria, derived from the above-cited definition:
First, the document must apply to an identifiable product or group of products. The
identifiable product or group of products need not, however, be expressly identified in the
200 See Appellate Report on United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R
(April 29, 1996), p. 25 [hereinafter cited as U.S. - Gasoline (AB Report)]. The chapeau states that measures are not
prohibited so long as they are not “applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised restriction on international trade.”
GATT 1994, Art. XX.
201 See generally World Trade Organization, WTO Analytical Index; Guide to WTO Law and Practice 341-42 (1st ed.
2003)[hereinafter cited as WTO Analytical Index].
202 TBT Agreement, Preamble.
203 See Appellate Body Report on European Communities—Measures Affecting Asbestos and Asbestos Containing
Products, WT/DS135/AB/R (March 12, 2001) ¶ 80 [hereinafter EC—Asbestos (AB Report)].
204 TBT Agreement, Annex 1, ¶ 1.
205 Id. at Annex I, ¶ 3.
document. Second, the document must lay down one or more characteristics of the product.
These product characteristics may be intrinsic, or they may be related to the product. They
may be prescribed or imposed in either a positive or negative form. Third, compliance with 206
the product characteristic must be mandatory.
The TBT Agreement’s primary obligations require that the central governments of WTO 207
Members provide national treatment with respect to technical regulations. In addition, WTO
Members must also “ensure that technical regulations are not prepared, adopted or applied with a 208
view to or with the effect of creating unnecessary obstacles to international trade.” This means
that “technical regulations shall be no more trade-restrictive than necessary to fulfil a legitimate
objective, taking account of the risks non-fulfillment would create. Such legitimate objectives
[include] ... the prevention of deceptive practices; [and] protection of human health or safety ... .”
Moreover, Members are obligated not to maintain technical regulations “if the circumstances or
objectives giving rise to their adoption no longer exist or if the changed circumstances or 209
objectives can be addressed in a less trade-restrictive manner.”
A conformity assessment procedure is “[a]ny procedure used, directly or indirectly, to determine 210
that relevant requirements in technical regulations or standards are fulfilled.” Such procedures
may include, among other things, “procedures for sampling, testing and inspection; evaluation,
verification and assurance of conformity; registration, accreditation and approval as well as their
Obligations concerning conformity assessment procedures are primarily contained in Article 5 of
the TBT Agreement, which requires WTO Members to ensure that a number of specific
requirements are met “where a positive assurance of conformity with technical regulations is 211
required.” These include a requirement that the procedures be prepared, adopted and applied in 212
accordance with the principles of national treatment. The TBT Agreement further provides that
“access entails suppliers’ right to an assessment of conformity under the rules of the 213
procedure.” In addition, conformity assessment procedures may not be “prepared, adopted or
applied with a view to or with the effect of creating unnecessary obstacles to international 214
trade,” meaning, among other things, that “conformity assessment procedures shall not be more
strict or be applied more strictly than is necessary to give the importing Member adequate
206 Appellate Body Report on European Communities—Trade Description of Sardines, WT/DS231/AB/R (September
26, 2002), ¶ 176.
207 See TBT Agreement, Art. 2.1 (requiring Member countries to “ensure that ... products imported from the territory of
any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to
like products originating in any other country.”).
208 Id. at Art. 2.2.
Id. at Art. 2.3.
210 Id. at Annex 1, ¶ 3.
211 Id. at Art. 5.1.
212 Id. at Art. 5.1.1 (stating that suppliers are to be granted access to “like products originating in the territories of other
Members under conditions no less favourable than those accorded to suppliers of like products of national origin or
originating in any other country, in a comparable situation”).
214 Id. at Art. 5.1.2.
confidence that products conform with the applicable technical regulations ... , taking account of 215
the risks non-conformity would create.”
Application of the TBT Agreement will depend on the details of any prescription drug
importation program that might be enacted. The AB has speculated that a measure consisting
“only of a prohibition on ... [a product] ... might not constitute a ‘technical regulation,’” thereby 216
placing it outside the scope of the TBT Agreement. On the other hand, a measure that has both 217
“prohibitive and permissive elements” may potentially be covered by the Agreement. If a
legislative or regulatory proposal were to be considered solely in light of provisions that would
allow importation of drugs from a limited set of approved countries, the proposal could
potentially be viewed as constituting solely a prohibition (albeit implied) on importing
prescription drugs from countries other than those named or designated as such. One might thus
be able to argue, based on the above-quoted AB statement, that there are no issues under the TBT
Agreement. On the other hand, were any such proposal to be viewed more broadly—that is, as
having both prohibitive and permissive elements—TBT obligations may come into play.
While the TBT Agreement does not contain a separate Article with general exceptions, there is
language within the Agreement that appears to provide for something similar to an Article XX(b)
exception. Specifically, the Preamble to the TBT Agreement states that “no country should be
prevented from taking measures necessary ... for the protection of human, animal or plant life or 218
health ... .” Given that there has been no WTO panel or AB ruling to date with respect to this
language, it remains unclear as to what, if any, weight or interpretation this language would be
given, especially considering it appears only in the Preamble and is not within the body of the
The General Agreement on Trade in Services (GATS)219 applies to “measures by Members 220
affecting trade in services.” The Agreement defines trade in services as the supply of a service
through four modes, two of which would appear to be most relevant to the issue of prescription
drug importation: cross-border supply, or supply “from the territory of one Member into the
territory of any other Member” (Mode 1) and consumption abroad, or supply “in the territory of 221
one Member to the service consumer of any other Member” (Mode 2).
For purposes of the GATS, the phrase “measures by Members affecting trade in services” has
been interpreted broadly, encompassing “any measure of a Member to the extent it affects the
216 EC—Asbestos (AB Report), supra note 205, at ¶ 71.
217 Id. at ¶ 64.
218 TBT Agreement, Preamble.
219 General Agreement on Trade in Services (GATS), entered into force January 1, 1995, H.Doc.103-316, v.1, at 1586-
1653, and v. 2, at 3748 http://www.wto.org/English/docs_e/legal_e/26-gats.pdf.
220 GATS, Art. I:1.
221 GATS, Art. I:2. The other two modes of service supply—commercial presence of one Member in the territory of
any other Member, and presence of natural persons, or supply “by a service supplier of one Member, through presence
of natural persons of a Member, in the territory of any other Member—would not seem to be directly at issue here.
supply of a service regardless of whether such measure directly governs the supply of a service or 222
whether it regulates other matters but nevertheless affects trade in services.”
A basic obligation of the GATS is the unconditional most-favored-nation (MFN) obligation set
forth at Article II:1. The obligation applies to “any” GATS-covered measure, though Members are
allowed to exempt specific national measures pursuant to Article II:1 and the Annex on Article II
Exemptions and may accord preferential treatment to countries that are members of regional trade
agreements (see GATS, Arts. V and V bis). The other fundamental GATS obligations are the
market access and national treatment obligations made with respect to a Member’s specific 223
scheduled sectoral commitments. These are set forth, with any limitations, in the Member’s
Schedule of Specific Commitments by mode of service supply. As with the TBT Agreement,
application of the GATS will depend on the details of any specific prescription drug importation
that might be enacted. For example, in the event that a legislative or regulatory proposal affects
the wholesale distribution of prescription drugs, the measure may be subject to a WTO challenge
as inconsistent with our specific GATS commitments.
GATS obligations are also subject to various general exceptions at Article XIV, including one for
measures “necessary to protect human, animal, or plant life or health.” General exceptions are
subject to a requirement that such measures “are not applied in a manner which would constitute
a means of arbitrary or unjustifiable discrimination between countries where like conditions
prevail, or a disguised restriction on trade in services.” While there does not appear to be any
WTO jurisprudence on this exception to date, it would seem that the same or similar test as the
GATT Article XX(b) exception would also be applicable with respect to the GATS Article XIV. It
should be noted, however, that the GATS contains the phrase “like conditions” as opposed to the
phrase “same conditions” found in the GATT. In the absence of any WTO jurisprudence, it
remains unclear whether this change in language would have any effect on the application of the 224
In addition to raising questions about antitrust law and trade law, the issue of prescription drug
imports has also prompted inquiries regarding whether or not a drug importation program would 225
violate patent rights. In particular, a federal court case, Jazz Photo Corp. v. ITC, has raised the
prospect that a drug manufacturer could, under certain circumstances, sue a drug importer for
patent infringement and block U.S. imports of drugs the company sells abroad. Under patent law,
the first sale of a patented product in a given market extinguishes, or “exhausts,” the patent
222 Panel Report on EC—Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/R/USA (May 22,
1997) ¶ 7.285. See generally WTO Analytical Index, supra note 203, at 1089-91.
GATS, Arts. XVI, XVII. Article XXI of the GATS allows a WTO Member to modify or withdraw any of its scheduled
commitments, once three years have elapsed from the date the commitment entered into force, subject to certain
conditions, including possible compensation to Members affected by the change.
224 Should the United States take any legislative or regulatory action with respect to the importation of prescription
drugs, any challenges that are brought on international trade grounds will be required to be adjudicated under the
procedures set forth in the specific agreement. For example, if a challenge is brought pursuant to a WTO Agreement,
that challenge will be required to be heard according to the procedures contained in the WTO Dispute Settlement
Understanding. See CRS Report RS20088, Dispute Settlement in the World Trade Organization: An Overview, by
Jeanne J. Grimmett; see also WTO website http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm.
225 264 F.3d 1094 (Fed. Cir. 2001).
holder’s rights in the product. Prior to the Jazz Photo decision, some legal commentators believed
that this exhaustion doctrine extended internationally, meaning that the sale of a patented product
abroad would exhaust the patent rights in the U.S. and elsewhere, thereby allowing the purchaser
of the product to use, sell, or otherwise do as he pleases with the product without regard to the
patent holder, unless the purchaser is contractually restricted from importing into the U.S.
In Jazz Photo, however, the court, which addressed the exhaustion doctrine question only briefly,
stated: “United States patent rights are not exhausted by products of foreign provenance. To
invoke the protection of the first sale doctrine, the authorized first sale must have occurred under 226
the United States patent.” Under this ruling, because the U.S. patent is not exhausted by the
foreign sale, the patent holder retains its patent rights. Thus, a drug manufacturer could exercise
these rights to block imports of its patented drug products into the U.S. It is important to note,
however, that some legal commentators have questioned the validity of the ruling in the Jazz thth
Photo case, and bills proposed in the 109 and 110 Congresses would have overturned the ruling 227
with respect to patent exhaustion for pharmaceutical imports. For further information on the
subject, see CRS Report RL32400, Patents and Drug Importation, by John R. Thomas.
The debate about importing prescription drugs continues. Although the FDA maintains that it
cannot guarantee the safety or effectiveness of imported drugs, many U.S. consumers, in search
of affordable prices, continue to purchase and import such drugs. As a result, legislators and
interest groups have suggested a variety of changes to current law, including encouraging the
development of more generic drugs; negotiating lower drug prices through bulk purchase
programs; increasing prescription drug insurance coverage; lowering co-pays; allowing drug
imports but restricting ports of entry; establishing state pilot programs; allowing only certain
drugs to be imported; educating consumers about the dangers of imported drugs; allowing drug
imports from approved Canadian pharmacies only; regulating credit card companies, search
engines, and shipping companies that enable rogue online pharmacy sites to do business;
increasing the number of inspections of foreign drug manufacturers; and utilizing anti-228
counterfeiting technologies, such as radio frequency identification technology (RFID), for
shipments of prescription drugs.
226 Id. at 1105
227 See S. 334, 109th Cong. (2005); S. 1082, 110th Cong. (2007). The Federal Circuit has subsequently upheld its Jazz
Photo ruling in Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005).
228 Inside Washington Publishers, Senate Bill Requires Drug Tracking Systems that Discourage RFID, FDA WEEK,
May 25, 2007.
Vanessa K. Burrows