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Dancing the night away. The venue was so- so but the night was a lot of fun.Monday, October 19, 2009
Thursday, October 8, 2009
The Transshipped Pills that Kills
There is a growing problem in the health care industry that is widely unreported. Illegal and counterfeit drugs are appearing in both developed and developing nations with alarming regularity. These drugs are a threat to the integrity of the health care system, the confidence of patients and the quality of treatment required to combat serious medical problems. Unfortunately, this issue has been considered by many countries to be someone else’s problem. A large part of the counterfeited drugs enter the medical system through transshipments. These transshipments often take place in “economic free” zones, known as foreign trade zones. These zones are relatively free from customs inspections and simply operate to improve the ease of transactions. Since the majority of the products entering the foreign trade zones never flow into the host country’s domestic market, the country hosting the zone has little incentive to inspect the goods. These goods then get passed along to other countries with the counterfeit pharmaceuticals now included. The counterfeit drugs are then passed off as authentics, whether or not they provide the same benefit for the customer or patient. This paper will discuss the hazards of counterfeit pharmaceuticals entering the streams of medical commerce and the risks associated with it.
What is a Transshipment?
A transshipment is a shipment of goods, or a container, to an intermediate destination, before reaching its final destination.[1] Transshipments are usually legitimate actions and part of everyday trade in goods. [2] Companies use transshipments for a number of logistical reasons. Companies may need to break down a ship with goods in it, separate those goods and send a portion of that good to many different destinations. For example, Ship A may be carrying acetaminophen, better known as Tylenol, to a transshipment yard. Ship A will then offload its cargo of pills. Those pills will be labeled in the respective languages and destinations and get loaded on Ships 1, 2 and 3. Each of these ships will take the newly labeled pills to their respective countries for sale. In this manner, each country gets the pills they need, in properly labeled bottles, with the correct dosage and language requirements. Transshipments, in a fully legal form, allow companies and distributors to most efficiently distribute their product. This method allows Ship A to bring the product to the transshipment yard, which is acting as a giant distribution center. Transshipment also allows ships 1, 2 and 3 to take back to their respective countries the proper goods from “Tylenol” and the many other suppliers that bring goods to the transshipment yard. The problem with this type of operation is that the transshipment yards are often located in a Foreign Trade Zone (zone).[3] These zones are relatively free from regulation and inspection by customs and the granting authority.
How do Transshipments Promote Counterfeits?
When products are transshipped, they are typically sent to designated Foreign Trade Zones to be offloaded. These zones are specifically set up so that goods can pass without being subject to customs duties.[4] The goods are often unloaded and broken down into their most basic units so that they may be placed into their final sales packaging and organized into manageable distributable quantities. When the product is broken down into smaller sections, those who produce counterfeit pharmaceuticals introduce those products into the health care stream. Introduction of counterfeit goods is relatively easy because customs officials generally do not inspect the goods with the same veracity that goods would receive if they were being imported into that host country’s domestic market.
In 1934, the United States enacted the Foreign Trade Zones Act.[5] The purpose of this act is to expedite and encourage foreign commerce. In order to achieve this purpose, host countries must exempt goods that are brought into a foreign trade zone from rigorous customs inspections. Additionally, the goods are encouraged to be “broken up”, which allows counterfeited goods to be easily slipped in with “legitimate” goods or become purposefully mislabeled as a different product. The Foreign Trade Zone Act of 1934, 19 U.S.C. § 81c, says the following:
Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States, except as otherwise provided in this chapter, be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured except as otherwise provided in this chapter, and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise; but when foreign merchandise is so sent from a zone into customs territory of the United States it shall be subject to the laws and regulations of the United States affecting imported merchandise.[6]
(emphasis added)
This section states that companies may purchase goods that are in the zone, break them up, and even repackage the goods before shipping and selling them into a stream of commerce. All of these steps in the process are weak points for counterfeiters to introduce their products into a legitimate health care system. Additionally, the guidelines for customs supervisors are outlined in 19 C.F.R. § 146.3(b) as follows:
(b) Supervision. … The port director may direct a Customs officer to supervise any transaction or procedure at a zone. Supervision may be performed through a periodic audit of the operator's records, quantity count of goods in a zone inventory, spot check of selected transactions or procedures, or review of recordkeeping, security, or conditions of storage in a zone.[7]
These guidelines have no instruction to ensure that the goods that come into the port are authentic, i.e. not counterfeit. Very few people would argue that it is the job of customs to ensure that all products are of an adequate quality to be resold in a particular market; nor would most claim that it is the job of customs to be the primary enforcer of patent, trademark, or copyright protection. This paper posits that it should be the job of customs to ensure that parties acting in the Foreign Trade Zones obey the laws of the land where the zone is located. At the very least, customs officials should ensure that parties are prohibited from purposefully mislabeling or fraudulently misrepresenting their products.
What Type of Counterfeits at Issue?
The World Health Organization (WHO) has created a task force to combat counterfeiting of medical products. This task force is called the International Medical Products Anti-Counterfeiting Taskforce (IMPACT).[8] IMPACT has created a proposal for combating counterfeits by utilizing standard definitions. This document contains a proposal attempting to define a counterfeit pharmaceutical. That definition is as follows:
A medical product is counterfeit when there is a false representation in relation to its identity (name, composition, strength, or any other element that may influence the judgment of health professionals, patients or consumers about the identity of the product) or source (manufacturer, country of manufacturing, country of origin, marketing authorization holder, or any other element that may influence the judgment of health professionals, patients or consumers about the source of the product). This applies to the product, its container or other packaging or labeling information. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct components or with the wrong components, without active ingredients, with incorrect amounts of active ingredients or with fake packaging.[9]
This is a very broad definition and covers the two main aspects of counterfeiting, trademark/patent protection and “quality control”[10]. The first type of counterfeiting, trademark/patent protection, thwarts customs and regulatory systems designed to protect patents and monitor drug safety, efficacy, and quality. The second type of counterfeiting, quality control, is the most concerning aspect of counterfeiting. Poor quality counterfeited products can impede patient recovery, undermine disease control and prevention, increase drug resistance, and, if toxic, sicken or kill patients.[11] Since no uniform definition about what a counterfeit drug actually exists, authorities are struggling to enforce the law.
Most people falsely believe that the pharmaceutical industry has an interest solely in protecting intellectual property rights part of the definition. Additionally, people falsely believe access to healthcare groups solely have an interest in the quality control definition against counterfeiting. In reality, both sides should argue for both aspects of the definition because each has an interest in comprehensive protection. Without protection for both IP and quality control the public will suffer in terms of both economic factors and quality of life.
Many human rights and access to healthcare pundits are not in favor of cracking down on counterfeiters because they believe that enforcement will raise the price and decrease the availability of pharmaceuticals in developing nations. The counter argument is that without enforcement, serious health concerns arise. Sub-par pharmaceuticals can do more damage than good, despite the great price. No matter how cheap the product is, if it does not work, it is not worth the price. Unfortunately, the usefulness of the counterfeited drug, or lack thereof, is not discovered until long after the product is consumed.
How do Counterfeits Hurt the Public?
Pharmaceutical counterfeiting appears to be a perfect crime. Since counterfeit and authentic drugs are virtually indistinguishable by consumers, the crime is difficult to detect.[12] If a patient’s condition improves, nobody even knows that a counterfeiter profited from his illegal actions.[13] On the other hand, if the patient’s health deteriorates the decline often is attributed to reasons other than counterfeit medicine.[14] Typically, when a medicine does not respond as expected in an individual, that reaction is attributed to either an adverse reaction with that medicine or an ineffective method of treatment. The usual course of action is to try another method of treating the patient. Rarely does the patient or the doctor first attribute the adverse reaction or result to a possibility that the medicine which was prescribed was not the medicine that the patient was taking.
If doctors knew the anticipated extent of consequences that result from counterfeit drugs, their behavior in prescribing pharmaceuticals might be different. Imagine living in a world where doctors were afraid to write prescriptions because it was unclear whether the pharmacy had “real” pharmaceuticals. [15] Deterioration in a patient’s condition or adverse affects from a sub-par drug is a logical conclusion when a counterfeit drug is taken. The effects upon patients are clear, counterfeit drugs that are not exact replicas of the licensed drugs will affect the quality of the medical care that patients receive.
The effect of counterfeit medicines on pharmaceutical companies is not quite as obvious. If a counterfeit drug is violating an intellectual property protection, the drug company will need to discover, investigate, and litigate to get the drug off the market. Additionally, any recovery that the drug company may receive will be offset by a counterfeiter’s judgment proof bank balance. In the alternative, if the counterfeit drug makes it all the way to the patient and indeed does cause harm, the drug company will have an additional set of problems.
If the patient is harmed by the counterfeit drugs, they will most likely go after the brand name drug manufacturer. The burden will be on the drug manufacturer to prove that it was not their product, but a counterfeit, that caused the harm to the patient. Additionally, lawsuits against major drug manufacturers open a floodgate of litigation from other patients who are not having success with their treatments, whether or not the problems with treatment are from their medication. Moreover, the drug manufacturer will lose their goodwill and reputation as a result of the pending lawsuits.[16] These costs are all placed upon the public in one of three ways; the price to consumers will increase, the wages of employees will decrease, or the return on investment will decrease. The resulting loss in gross income that the “real pharmaceutical companies” experience as a result of counterfeiters will stifle the funds they can allocate to research and development.[17] This will result in a lower number of “cures” for diseases, which will harm all sectors of the public, both developed and developing nations.
Public Health’s Lethal Injection
Some say that counterfeiters provide the only low cost option to developing nations. This viewpoint ignores the costs associated with substandard pharmaceuticals. Often, counterfeits contain inactive ingredients, incorrect ingredients, improper dosages, or sub-potent or super potent ingredients.[18] As a result, patients may experience adverse health consequences and will never know the cause of their undesirable reaction. If you purchase a counterfeit handbag or watch, you are stealing from the authentic producer. If you buy a counterfeit drug, it may cost you your life. Although counterfeit drugs might be cheaper in direct purchase cost, you get what you pay for in the long run. For example, the drug PROCRIT, an injectable, sterile drug used by cancer and AIDS patients, was counterfeited by replacing the active ingredient with non-sterile tap water, which could have caused a severe infection in the bloodstream of these vulnerable patients. [19] Other counterfeiters have replaced schizophrenia and bipolar drugs with aspirin.[20] In addition to psychological patients not receiving the proper drugs to treat their illnesses, some of the patients may have been allergic to aspirin which would have been particularly dangerous.[21] Costs such as a decrease in confidence in the medical community, increased costs from inadequately treated diseases, and increased costs from side effects of sub-par treatment from the counterfeit medicines are not factored into the cheaper price of counterfeits.
Problems with Enforcement
Enforcing laws that prohibit counterfeit pharmaceuticals is not an easy task. To begin with, legislators need to sway public opinion towards enforcing safe drug laws. Since the largest group of consumers for pharmaceuticals is seniors, who also happen to be regular voters, cheaper medical costs is an easy way to get votes.[22] Even well intentioned legislators wishing to lower pharmaceutical costs are swept into looking towards purchasing price controlled pills. Unfortunately, price controls do not guarantee safe pharmaceuticals. According to Health Canada, the countries national health agency, Canada cannot be responsible for monitoring the quality of drugs that is exported to America; especially not the drugs that are not even manufactured in Canada.[23] The lack of quality control is not a political issue regularly viewed by voters and so it is not factored into their decisions when picking a candidate. Without backing from the voters, price becomes the main, and perhaps only, issue that is discussed by politicians. This provides a perverse incentive to legislators to ignore quality for cheap and substandard pharmaceuticals.
Assuming for a moment that legislators could get the backing of voters, and prioritized enforcing violations by counterfeits pharmaceuticals, the difficulties of enforcement would not stop there. When legitimate pharmaceuticals produce different types of packaging due to repackaging of parallel-traded goods, consumers may not be able to detect counterfeits from authentic drugs.[24] Additionally, counterfeit drugs may also be mixed with shipments of legitimate drugs, making detection virtually impossible.[25] Moreover, problems with transshipments are not the only source confusion for consumers of pharmaceuticals. Customers routinely order prescriptions directly from the internet. [26] These prescriptions may come from pharmacies in Canada or other countries. Because these pharmaceuticals are shipped directly to the consumer, regulating these shipments is much more difficult than in a “bricks and mortar” pharmacy.[27]
How to Stop Counterfeit Transshipments
With all of the difficulties simply identifying counterfeits, combating them seems to be an impossible challenge. Stopping counterfeit pharmaceuticals needs to be addressed on two fronts. First, the governments of both developed and developing countries needs to strengthen their intellectual property law in addition to their pharmaceutical regulation (i.e. the U.S.A.’s FDA). Second, companies need to use these laws and technology to ensure that their intellectual property rights are protected and quality control standards in the medicines provided to the public is established. There is little question that the first step in combating counterfeits is governmental regulation.
The European Union has made a lot of news recently by seizing counterfeit pharmaceuticals that were transshipped from India. These seizures were made possible through the authority of COUNCIL REGULATION (EC) No. 1383/2003. This regulation has some key points that other countries should take under advisement. For example, Article 4 states;
1. …[C]ustoms authorities ,… before an application has been lodged by a right-holder…, have sufficient grounds for suspecting that goods infringe an intellectual property right, they may suspend the release of the goods or detain them for a period of three working days from the moment of receipt of the notification by the right-holder…
2. …[C]ustoms authorities may, without divulging any information other than the actual or supposed number of items and their nature and before informing the right-holder of the possible infringement, ask the right-holder to provide them with any information they may need to confirm their suspicions. [28]
This law is the first step in giving customs authorities a proactive role in preventing counterfeit pharmaceuticals. The regulation at Article 10 continues;
The law in force in the Member State within the territory of which the goods are placed in one of the situations referred to … shall apply when deciding whether an intellectual property right has been infringed under national law.[29]
Article 10 is pivotal in allowing the laws of the host state to control what a counterfeit is. This is particularly important with regards to intellectual property rights. Since there can be questions about which country’s definition of IP infringement should apply to products in foreign trade zones, having a definite answer eases commerce. By expressly stating that customs will enforce the patent and trademark laws of the country the transshipment yard is located in, companies using that yard will have advance knowledge of what rules apply. Such rules make it possible to foresee with fair certainty how a country will behave, and therefore, companies may plan their own affairs on the basis of this knowledge.[30] Council Regulation No. 1383/2003 also has provisions for the destruction of counterfeit goods and strictly limits what can happen to goods after they have been determined counterfeit.[31] Regulations like these help improve the quality of medical care and ensure that patents and trademarks are protected. This is the first step in combating counterfeit drugs, the second steps lies in the hands of drug companies.
Drug companies have an interest and a duty to protect their patents and ensure that counterfeiters do not soil their name. The primary way to do this is through technology. Pharmaceutical companies began by making unique pill shapes, then placing holographic images on the packaging. These measures were easily copied by counterfeiters and so a new method is now being used.[32] Sun Microsystems developed a special pharmaceutical–based radio frequency identification (RFID) software for drug authentication. This tool enables drug companies to monitor their product through the entire supply chain.[33] This way, a pharmacy can verify that the pharmaceuticals that they have received are in fact authentic. Other companies have begun labeling drugs with “DNA Codes”. These act like genetic fingerprints to authenticate that the drug is indeed what it says that it is.[34] Still other companies are using a series of codes that you can text message into the drug manufacturer to ensure that the prescription is authentic.[35] Additionally, Pfizer uses its website to inform the public on how to spot counterfeits and what a person should do if they suspect a product is counterfeit.[36] Proactive approaches like these will help maintain confidence in the pharmaceutical industry and ensure that the proper medicine gets to the patients. Plus, these types of measures will make those individuals who want the authentic drugs less likely to be fooled by counterfeiters.
Conclusion
Pharmaceuticals are a very profitable and easily copied product that has become the target of counterfeiters. Transshipments are one of the most prevalent methods of introducing these counterfeits into the stream of commerce. Without some definitive action taken by both governmental authorities, trademark and patent holders, the lives of many patients are being placed at risk. Substandard pharmaceutical products are more frequently finding their ways into the homes of individuals because of a lack of enforcement. Hopefully in the near future, governments will take initiatives to crack down on counterfeiters. This will provide for a healthier patient, more confidence in the medical system, and stronger property rights for IP holders.
[1] http://en.wikipedia.org/w/index.php?title=Transshipment&printable=yes (Oct. 2, 2009)
[2] Id.
[3] 3M Health Care, LTD v. Grant, 908 F.2d 918 (1990)
[4] Id.
[5] 19 U.S.C. 81a – 81u (West 2009)
[6] 19 U.S.C. § 81c (West 2009)
[7] 19 C.F.R. § 146.3(b) (West 2009)
[8] http://www.who.int/impact/en/ (Oct. 1, 2009)
[9] http://www.who.int/impact/events/IMPACTJakarta07MeetingReport.pdf (Oct. 6, 2009)
[10] Quality control is being used here, and throughout this paper, from a healthcare standpoint. This covers aspects that would impede patient recovery, sicken, increase resistance to drugs or kill the patient.
[11] http://blogs.cgdev.org/globalhealth/2009/08/terminology-matters-the-dispute-between-india-and-eu-over-generic-drug-transshipments.php (Oct. 4, 2009)
[12] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[13] Id.
[14] Id.
[15] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[16] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[17] Id. at 1072
[18] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[19] Id.
[20] Id. at 1070
[21] Id. at 1070
[22] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[23] Id.
[24] Counterfeit Pharmaceuticals: A Worldwide Problem at 1070
[25] Id.
[26] Id. at 1084
[27] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[28]www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 2, Article 4
[29] www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 3, Article 10
[30] F.A. Hayek, The Road to Serfdom 80 University of Chicago Press 1994 1944
[31] www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 3, Articles 11 & 16
[32] http://www.policynetwork.net/uploaded/pdf/keeping_it_real_2009.pdf, Keeping it Real, Combating the Spread of Fake Drugs in poor Countries, p. 20 (Oct. 1, 2009)
[33] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1081
[34] Id.
[35] http://www.policynetwork.net/uploaded/pdf/keeping_it_real_2009.pdf, Keeping it Real, Combating the Spread of Fake Drugs in poor Countries, p. 21 (Oct. 1, 2009)
[36] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1082
What is a Transshipment?
A transshipment is a shipment of goods, or a container, to an intermediate destination, before reaching its final destination.[1] Transshipments are usually legitimate actions and part of everyday trade in goods. [2] Companies use transshipments for a number of logistical reasons. Companies may need to break down a ship with goods in it, separate those goods and send a portion of that good to many different destinations. For example, Ship A may be carrying acetaminophen, better known as Tylenol, to a transshipment yard. Ship A will then offload its cargo of pills. Those pills will be labeled in the respective languages and destinations and get loaded on Ships 1, 2 and 3. Each of these ships will take the newly labeled pills to their respective countries for sale. In this manner, each country gets the pills they need, in properly labeled bottles, with the correct dosage and language requirements. Transshipments, in a fully legal form, allow companies and distributors to most efficiently distribute their product. This method allows Ship A to bring the product to the transshipment yard, which is acting as a giant distribution center. Transshipment also allows ships 1, 2 and 3 to take back to their respective countries the proper goods from “Tylenol” and the many other suppliers that bring goods to the transshipment yard. The problem with this type of operation is that the transshipment yards are often located in a Foreign Trade Zone (zone).[3] These zones are relatively free from regulation and inspection by customs and the granting authority.
How do Transshipments Promote Counterfeits?
When products are transshipped, they are typically sent to designated Foreign Trade Zones to be offloaded. These zones are specifically set up so that goods can pass without being subject to customs duties.[4] The goods are often unloaded and broken down into their most basic units so that they may be placed into their final sales packaging and organized into manageable distributable quantities. When the product is broken down into smaller sections, those who produce counterfeit pharmaceuticals introduce those products into the health care stream. Introduction of counterfeit goods is relatively easy because customs officials generally do not inspect the goods with the same veracity that goods would receive if they were being imported into that host country’s domestic market.
In 1934, the United States enacted the Foreign Trade Zones Act.[5] The purpose of this act is to expedite and encourage foreign commerce. In order to achieve this purpose, host countries must exempt goods that are brought into a foreign trade zone from rigorous customs inspections. Additionally, the goods are encouraged to be “broken up”, which allows counterfeited goods to be easily slipped in with “legitimate” goods or become purposefully mislabeled as a different product. The Foreign Trade Zone Act of 1934, 19 U.S.C. § 81c, says the following:
Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States, except as otherwise provided in this chapter, be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured except as otherwise provided in this chapter, and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise; but when foreign merchandise is so sent from a zone into customs territory of the United States it shall be subject to the laws and regulations of the United States affecting imported merchandise.[6]
(emphasis added)
This section states that companies may purchase goods that are in the zone, break them up, and even repackage the goods before shipping and selling them into a stream of commerce. All of these steps in the process are weak points for counterfeiters to introduce their products into a legitimate health care system. Additionally, the guidelines for customs supervisors are outlined in 19 C.F.R. § 146.3(b) as follows:
(b) Supervision. … The port director may direct a Customs officer to supervise any transaction or procedure at a zone. Supervision may be performed through a periodic audit of the operator's records, quantity count of goods in a zone inventory, spot check of selected transactions or procedures, or review of recordkeeping, security, or conditions of storage in a zone.[7]
These guidelines have no instruction to ensure that the goods that come into the port are authentic, i.e. not counterfeit. Very few people would argue that it is the job of customs to ensure that all products are of an adequate quality to be resold in a particular market; nor would most claim that it is the job of customs to be the primary enforcer of patent, trademark, or copyright protection. This paper posits that it should be the job of customs to ensure that parties acting in the Foreign Trade Zones obey the laws of the land where the zone is located. At the very least, customs officials should ensure that parties are prohibited from purposefully mislabeling or fraudulently misrepresenting their products.
What Type of Counterfeits at Issue?
The World Health Organization (WHO) has created a task force to combat counterfeiting of medical products. This task force is called the International Medical Products Anti-Counterfeiting Taskforce (IMPACT).[8] IMPACT has created a proposal for combating counterfeits by utilizing standard definitions. This document contains a proposal attempting to define a counterfeit pharmaceutical. That definition is as follows:
A medical product is counterfeit when there is a false representation in relation to its identity (name, composition, strength, or any other element that may influence the judgment of health professionals, patients or consumers about the identity of the product) or source (manufacturer, country of manufacturing, country of origin, marketing authorization holder, or any other element that may influence the judgment of health professionals, patients or consumers about the source of the product). This applies to the product, its container or other packaging or labeling information. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct components or with the wrong components, without active ingredients, with incorrect amounts of active ingredients or with fake packaging.[9]
This is a very broad definition and covers the two main aspects of counterfeiting, trademark/patent protection and “quality control”[10]. The first type of counterfeiting, trademark/patent protection, thwarts customs and regulatory systems designed to protect patents and monitor drug safety, efficacy, and quality. The second type of counterfeiting, quality control, is the most concerning aspect of counterfeiting. Poor quality counterfeited products can impede patient recovery, undermine disease control and prevention, increase drug resistance, and, if toxic, sicken or kill patients.[11] Since no uniform definition about what a counterfeit drug actually exists, authorities are struggling to enforce the law.
Most people falsely believe that the pharmaceutical industry has an interest solely in protecting intellectual property rights part of the definition. Additionally, people falsely believe access to healthcare groups solely have an interest in the quality control definition against counterfeiting. In reality, both sides should argue for both aspects of the definition because each has an interest in comprehensive protection. Without protection for both IP and quality control the public will suffer in terms of both economic factors and quality of life.
Many human rights and access to healthcare pundits are not in favor of cracking down on counterfeiters because they believe that enforcement will raise the price and decrease the availability of pharmaceuticals in developing nations. The counter argument is that without enforcement, serious health concerns arise. Sub-par pharmaceuticals can do more damage than good, despite the great price. No matter how cheap the product is, if it does not work, it is not worth the price. Unfortunately, the usefulness of the counterfeited drug, or lack thereof, is not discovered until long after the product is consumed.
How do Counterfeits Hurt the Public?
Pharmaceutical counterfeiting appears to be a perfect crime. Since counterfeit and authentic drugs are virtually indistinguishable by consumers, the crime is difficult to detect.[12] If a patient’s condition improves, nobody even knows that a counterfeiter profited from his illegal actions.[13] On the other hand, if the patient’s health deteriorates the decline often is attributed to reasons other than counterfeit medicine.[14] Typically, when a medicine does not respond as expected in an individual, that reaction is attributed to either an adverse reaction with that medicine or an ineffective method of treatment. The usual course of action is to try another method of treating the patient. Rarely does the patient or the doctor first attribute the adverse reaction or result to a possibility that the medicine which was prescribed was not the medicine that the patient was taking.
If doctors knew the anticipated extent of consequences that result from counterfeit drugs, their behavior in prescribing pharmaceuticals might be different. Imagine living in a world where doctors were afraid to write prescriptions because it was unclear whether the pharmacy had “real” pharmaceuticals. [15] Deterioration in a patient’s condition or adverse affects from a sub-par drug is a logical conclusion when a counterfeit drug is taken. The effects upon patients are clear, counterfeit drugs that are not exact replicas of the licensed drugs will affect the quality of the medical care that patients receive.
The effect of counterfeit medicines on pharmaceutical companies is not quite as obvious. If a counterfeit drug is violating an intellectual property protection, the drug company will need to discover, investigate, and litigate to get the drug off the market. Additionally, any recovery that the drug company may receive will be offset by a counterfeiter’s judgment proof bank balance. In the alternative, if the counterfeit drug makes it all the way to the patient and indeed does cause harm, the drug company will have an additional set of problems.
If the patient is harmed by the counterfeit drugs, they will most likely go after the brand name drug manufacturer. The burden will be on the drug manufacturer to prove that it was not their product, but a counterfeit, that caused the harm to the patient. Additionally, lawsuits against major drug manufacturers open a floodgate of litigation from other patients who are not having success with their treatments, whether or not the problems with treatment are from their medication. Moreover, the drug manufacturer will lose their goodwill and reputation as a result of the pending lawsuits.[16] These costs are all placed upon the public in one of three ways; the price to consumers will increase, the wages of employees will decrease, or the return on investment will decrease. The resulting loss in gross income that the “real pharmaceutical companies” experience as a result of counterfeiters will stifle the funds they can allocate to research and development.[17] This will result in a lower number of “cures” for diseases, which will harm all sectors of the public, both developed and developing nations.
Public Health’s Lethal Injection
Some say that counterfeiters provide the only low cost option to developing nations. This viewpoint ignores the costs associated with substandard pharmaceuticals. Often, counterfeits contain inactive ingredients, incorrect ingredients, improper dosages, or sub-potent or super potent ingredients.[18] As a result, patients may experience adverse health consequences and will never know the cause of their undesirable reaction. If you purchase a counterfeit handbag or watch, you are stealing from the authentic producer. If you buy a counterfeit drug, it may cost you your life. Although counterfeit drugs might be cheaper in direct purchase cost, you get what you pay for in the long run. For example, the drug PROCRIT, an injectable, sterile drug used by cancer and AIDS patients, was counterfeited by replacing the active ingredient with non-sterile tap water, which could have caused a severe infection in the bloodstream of these vulnerable patients. [19] Other counterfeiters have replaced schizophrenia and bipolar drugs with aspirin.[20] In addition to psychological patients not receiving the proper drugs to treat their illnesses, some of the patients may have been allergic to aspirin which would have been particularly dangerous.[21] Costs such as a decrease in confidence in the medical community, increased costs from inadequately treated diseases, and increased costs from side effects of sub-par treatment from the counterfeit medicines are not factored into the cheaper price of counterfeits.
Problems with Enforcement
Enforcing laws that prohibit counterfeit pharmaceuticals is not an easy task. To begin with, legislators need to sway public opinion towards enforcing safe drug laws. Since the largest group of consumers for pharmaceuticals is seniors, who also happen to be regular voters, cheaper medical costs is an easy way to get votes.[22] Even well intentioned legislators wishing to lower pharmaceutical costs are swept into looking towards purchasing price controlled pills. Unfortunately, price controls do not guarantee safe pharmaceuticals. According to Health Canada, the countries national health agency, Canada cannot be responsible for monitoring the quality of drugs that is exported to America; especially not the drugs that are not even manufactured in Canada.[23] The lack of quality control is not a political issue regularly viewed by voters and so it is not factored into their decisions when picking a candidate. Without backing from the voters, price becomes the main, and perhaps only, issue that is discussed by politicians. This provides a perverse incentive to legislators to ignore quality for cheap and substandard pharmaceuticals.
Assuming for a moment that legislators could get the backing of voters, and prioritized enforcing violations by counterfeits pharmaceuticals, the difficulties of enforcement would not stop there. When legitimate pharmaceuticals produce different types of packaging due to repackaging of parallel-traded goods, consumers may not be able to detect counterfeits from authentic drugs.[24] Additionally, counterfeit drugs may also be mixed with shipments of legitimate drugs, making detection virtually impossible.[25] Moreover, problems with transshipments are not the only source confusion for consumers of pharmaceuticals. Customers routinely order prescriptions directly from the internet. [26] These prescriptions may come from pharmacies in Canada or other countries. Because these pharmaceuticals are shipped directly to the consumer, regulating these shipments is much more difficult than in a “bricks and mortar” pharmacy.[27]
How to Stop Counterfeit Transshipments
With all of the difficulties simply identifying counterfeits, combating them seems to be an impossible challenge. Stopping counterfeit pharmaceuticals needs to be addressed on two fronts. First, the governments of both developed and developing countries needs to strengthen their intellectual property law in addition to their pharmaceutical regulation (i.e. the U.S.A.’s FDA). Second, companies need to use these laws and technology to ensure that their intellectual property rights are protected and quality control standards in the medicines provided to the public is established. There is little question that the first step in combating counterfeits is governmental regulation.
The European Union has made a lot of news recently by seizing counterfeit pharmaceuticals that were transshipped from India. These seizures were made possible through the authority of COUNCIL REGULATION (EC) No. 1383/2003. This regulation has some key points that other countries should take under advisement. For example, Article 4 states;
1. …[C]ustoms authorities ,… before an application has been lodged by a right-holder…, have sufficient grounds for suspecting that goods infringe an intellectual property right, they may suspend the release of the goods or detain them for a period of three working days from the moment of receipt of the notification by the right-holder…
2. …[C]ustoms authorities may, without divulging any information other than the actual or supposed number of items and their nature and before informing the right-holder of the possible infringement, ask the right-holder to provide them with any information they may need to confirm their suspicions. [28]
This law is the first step in giving customs authorities a proactive role in preventing counterfeit pharmaceuticals. The regulation at Article 10 continues;
The law in force in the Member State within the territory of which the goods are placed in one of the situations referred to … shall apply when deciding whether an intellectual property right has been infringed under national law.[29]
Article 10 is pivotal in allowing the laws of the host state to control what a counterfeit is. This is particularly important with regards to intellectual property rights. Since there can be questions about which country’s definition of IP infringement should apply to products in foreign trade zones, having a definite answer eases commerce. By expressly stating that customs will enforce the patent and trademark laws of the country the transshipment yard is located in, companies using that yard will have advance knowledge of what rules apply. Such rules make it possible to foresee with fair certainty how a country will behave, and therefore, companies may plan their own affairs on the basis of this knowledge.[30] Council Regulation No. 1383/2003 also has provisions for the destruction of counterfeit goods and strictly limits what can happen to goods after they have been determined counterfeit.[31] Regulations like these help improve the quality of medical care and ensure that patents and trademarks are protected. This is the first step in combating counterfeit drugs, the second steps lies in the hands of drug companies.
Drug companies have an interest and a duty to protect their patents and ensure that counterfeiters do not soil their name. The primary way to do this is through technology. Pharmaceutical companies began by making unique pill shapes, then placing holographic images on the packaging. These measures were easily copied by counterfeiters and so a new method is now being used.[32] Sun Microsystems developed a special pharmaceutical–based radio frequency identification (RFID) software for drug authentication. This tool enables drug companies to monitor their product through the entire supply chain.[33] This way, a pharmacy can verify that the pharmaceuticals that they have received are in fact authentic. Other companies have begun labeling drugs with “DNA Codes”. These act like genetic fingerprints to authenticate that the drug is indeed what it says that it is.[34] Still other companies are using a series of codes that you can text message into the drug manufacturer to ensure that the prescription is authentic.[35] Additionally, Pfizer uses its website to inform the public on how to spot counterfeits and what a person should do if they suspect a product is counterfeit.[36] Proactive approaches like these will help maintain confidence in the pharmaceutical industry and ensure that the proper medicine gets to the patients. Plus, these types of measures will make those individuals who want the authentic drugs less likely to be fooled by counterfeiters.
Conclusion
Pharmaceuticals are a very profitable and easily copied product that has become the target of counterfeiters. Transshipments are one of the most prevalent methods of introducing these counterfeits into the stream of commerce. Without some definitive action taken by both governmental authorities, trademark and patent holders, the lives of many patients are being placed at risk. Substandard pharmaceutical products are more frequently finding their ways into the homes of individuals because of a lack of enforcement. Hopefully in the near future, governments will take initiatives to crack down on counterfeiters. This will provide for a healthier patient, more confidence in the medical system, and stronger property rights for IP holders.
[1] http://en.wikipedia.org/w/index.php?title=Transshipment&printable=yes (Oct. 2, 2009)
[2] Id.
[3] 3M Health Care, LTD v. Grant, 908 F.2d 918 (1990)
[4] Id.
[5] 19 U.S.C. 81a – 81u (West 2009)
[6] 19 U.S.C. § 81c (West 2009)
[7] 19 C.F.R. § 146.3(b) (West 2009)
[8] http://www.who.int/impact/en/ (Oct. 1, 2009)
[9] http://www.who.int/impact/events/IMPACTJakarta07MeetingReport.pdf (Oct. 6, 2009)
[10] Quality control is being used here, and throughout this paper, from a healthcare standpoint. This covers aspects that would impede patient recovery, sicken, increase resistance to drugs or kill the patient.
[11] http://blogs.cgdev.org/globalhealth/2009/08/terminology-matters-the-dispute-between-india-and-eu-over-generic-drug-transshipments.php (Oct. 4, 2009)
[12] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[13] Id.
[14] Id.
[15] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[16] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[17] Id. at 1072
[18] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1069
[19] Id.
[20] Id. at 1070
[21] Id. at 1070
[22] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[23] Id.
[24] Counterfeit Pharmaceuticals: A Worldwide Problem at 1070
[25] Id.
[26] Id. at 1084
[27] http://special.pacificresearch.org/pub/sab/health/2005/21st_Century_Counterfeiting_Report2.pdf (Oct. 3, 2009)
[28]www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 2, Article 4
[29] www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 3, Article 10
[30] F.A. Hayek, The Road to Serfdom 80 University of Chicago Press 1994 1944
[31] www.ecta.org/private/REGULATIONS/17-customs%20regulation.doc, Council Regulation (EC) No 1383/2003, Chapter 3, Articles 11 & 16
[32] http://www.policynetwork.net/uploaded/pdf/keeping_it_real_2009.pdf, Keeping it Real, Combating the Spread of Fake Drugs in poor Countries, p. 20 (Oct. 1, 2009)
[33] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1081
[34] Id.
[35] http://www.policynetwork.net/uploaded/pdf/keeping_it_real_2009.pdf, Keeping it Real, Combating the Spread of Fake Drugs in poor Countries, p. 21 (Oct. 1, 2009)
[36] Counterfeit Pharmaceuticals: A Worldwide Problem, The Trademark Reporter, Vol. 96, No. 5, 1068 at 1082
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