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In summary
· The scale of the problem with counterfeit drugs is not fully known, but is certainly increasing. The United States Food & Drug Administration, for example, estimates that up to 10% of drugs in the global supply chain might well fit its definition of counterfeit, and in African countries, that figure could be as high as 90%
· Problems arising from the trade in counterfeit drugs can include patient confusion and consequent serious safety risks; brand dilution and the damage to public perception; the difficulty in monitoring and controlling internet pharmacies; and potential liability for manufacturers and others in the supply chain
· This article identifies three types of "counterfeit" drugs, and explores the legal and practical strategies that can be deployed to minimise harm, to both consumers and the rights owners. The author concludes that an holistic anti-counterfeiting strategy will encompass prevention, detection and enforcement
Just say no
When patent and brand theft can kill – the problem with fake drugs
This article reviews the full range of implications arising from patent and brand theft in the pharmaceutical industry. Fake drugs come with a tremendous human cost, as well as creating a legal minefield for manufacturers
Counterfeiting is probably the biggest brand protection issue for most consumer product companies and many other brand owners, but counterfeit pharmaceutical products raise a wide range of further issues. These can include patient confusion and consequent serious safety risks; brand dilution and the damage to public perception that can lead, at times, to panic in the marketplace; the difficulty in monitoring and controlling internet pharmacies; and potential liability for manufacturers and others in the supply chain.
This article explores these issues and introduces strategies that may be deployed to deal with the same.
Counterfeit drugs are not a new phenomenon, but have hit the headlines again in recent times. Last year, counterfeit Cialis and Viagra infiltrated the UK supply chain. Though dealt with quickly by both the manufacturers and regulatory authorities, the human cost is not yet known.
There are a number of different definitions of a “counterfeit drug”. The World Health Organisation defines a counterfeit drug as: “a drug which is deliberately and fraudulently mislabelled with respect to identity and/or source”. In the United States, the FDA defines a counterfeit drug as: “a drug which, or the container or labelling of which, without authorisation, bears the trade mark, trade name, or other identifying mark… of a drug manufacturer… which thereby falsely purports or is represented to be the product… of such drug manufacturer”.
These definitions, ostensibly dealing with labelling and trademark issues, do not emphasise the real nature of the problem. Whilst there are a wide variety of different types of counterfeit drugs, broadly they may be categorised as follows:
· complete fakes: often, no attempt is made to recreate the therapeutic attributes of the products, rather ingredients are selected for whatever combination “looks right” – dangerous chemicals may even be included
· tampered fakes: often, the original ingredients will be tampered with – perhaps liquid formulations being watered down or tablets powdered, diluted and reformed with other ingredients
· re-labelled fakes: other times, authentic drugs may be supplied, but are mislabelled to show, for example, a higher dosage or to obscure an expired “use by” date.
The complications and serious health consequences can be as severe for any of these categories of counterfeit drugs.
The scale of the problem
The problem of counterfeit drugs is increasing. The FDA estimates that up to 10% of drugs in the supply chain worldwide could be counterfeit. The statistics vary according to country – in some developing African countries, over 90% of drugs in the supply chain may be counterfeit.
The problem has been exacerbated by the numerous opportunities that exist to enter the supply chain (see box: “How do fakes enter the supply chain?”). Of particular importance is the fact that numerous different types of packaging may be in circulation for the same or similar products; whether this is due to repackaging of parallel-traded goods, foreign imports, generic copies or otherwise, the result is confusion in the minds of consumers opening the way for counterfeiters to enter the supply chain unnoticed.
At times, manufacturers do not help themselves by “dumping” stock on to the market to meet quotas, or not effectively monitoring and controlling production and allowing “overruns” to enter the market at substantial discounts. Possibly the greatest opportunity for counterfeiters, however, is provided the vehicle of “internet pharmacies”. These are discussed in more detail below.
Not only are the opportunities great for counterfeiters to enter the supply chain in the pharmaceutical sector – in addition, the risks are low. Counterfeit drugs have been described as “the perfect crime” – if the patient’s condition improves, no-one is the wiser; if the patient’s condition fails to improve, then this will be attributed to their condition rather than to the medication. By the time counterfeiting may be suspected, the evidence will have been consumed and packaging disposed of.
Even if the counterfeiter is caught, the penalties are very low, particularly in comparison to narcotics trafficking. Further, the counterfeiter will be aware of the substantial financial gain that can be made by such counterfeit activities. For example, a twelve-week course of the body-boosting drug, Serostim, used to relieve the wasting symptom of AIDS, can cost US$21,000. These high returns may even prompt organised criminals to embark upon pharmaceutical counterfeiting.
The human cost
The protection of human health is, of course, paramount to all those concerned with dealing with the serious problem of counterfeit drugs. Examples of the tragic consequences of these activities are not difficult to find. In Haiti in 1995, 89 children died taking cough syrup containing anti-freeze. In Nigeria in 1995, 2,500 people died taking a fake meningitis vaccine. In recent times we have seen counterfeit products enter the market place in developed Western countries.
The scope of the problem, and the imperative to deal quickly with the same to prevent harm to patients, is evidenced by the significant, and often extremely costly, measures that pharmaceutical companies have undertaken in the face of threatened counterfeit activities. In May 2002, fake Procrit (a drug for the treatment of anaemia) found its way into the US market. The manufacturer, Johnson & Johnson, made a significant investment to secure the supply chain. It also worked with law enforcement agencies to ensure that a number of those involved were arrested. In May 2003, 20 million doses of fake Lipitor (a statin) were confiscated by the rights owner, Pfizer, and withdrawn from the market. Multiple litigation also ensued, including actions taken by Pfizer against members of the supply chain to ensure the removal of fake product from all shelves.
Potential liability?
The examples of actions taken by pharmaceutical companies above are also testament to a further consequence of pharmaceutical counterfeiting – the potential liability on the part of manufacturers, and others in the supply chain. In both examples there was litigation against a number of companies at different stages in the supply chain. A further example is the recent US case of Fagan v Amerisourcebergen Corp. and others. The facts of the case are worth recounting.
Timothy Fagan suffered personal injuries as a result of repeated injection between February 2002 and April 2002 of counterfeit Epogen used to treat anaemia that resulted from a liver transplant. In May 2002, the counterfeit drugs were discovered and a “Dear Doctor” letter posted on the manufacturer’s website and sent to healthcare professionals. Fagan continued to receive and inject counterfeit Epogen after this time. Fagan brought proceedings for personal injuries against the manufacturer (Amgen), the wholesale distributor (Amerisourcebergen), and the retailers (CVS Corporation and ProCare Pharmacy). Fagan claimed that all the defendants were aware of the problem of diversion of drugs and had failed to take appropriate steps to secure the distribution chain.
In a preliminary judgment, Amerisourcebergen and CVS ProCare both failed to have the claim against them struck out. In particular, the US District Court found that the wholesale distributor was in the best position to control movement of drugs and therefore in the best position to protect the trade from counterfeit drugs entering the market. It was foreseeable that in purchasing products on the grey market, counterfeit drugs might enter the distribution chain. The wholesale distributor was therefore required to take steps to protect the distribution chain. Similarly, the retailer had failed to exercise “the highest practicable degree of prudence, thoughtfulness and vigilance and the most exact and reliable safeguard to the system with reasonable conduct of the business”.
The claim against Amgen, however, failed with the Judge finding that a manufacturer does not have a duty to anticipate and prevent criminal conduct by third parties or to design a product in such a way as to anticipate and frustrate criminal tampering. Although the claim against Amgen failed, it appears that such a claim could succeed in other circumstances and in other jurisdictions.
Whilst the precise legal position will differ in different countries, it is likely that an injured party will have two principle causes of action – based on contract or negligence. Under the law of contract, the injured party will be likely to have an action against the retailer selling the goods to him. Under English law, this is a cause of action with strict liability and there is no need for the injured party to establish recklessness, carelessness, or other intention on the part of the retailer. Since there are unlikely to be contractual arrangements with others in the supply chain, a claim in contract will only lie against the retailer.
A further cause of action may arise, however, in negligence. This may be brought against any member of the supply chain who has breached a duty to take reasonable care. Since negligence is not concerned with the product itself or its quality, it will not be a defence for members of the supply chain to argue that the goods supplied were not theirs and that they should not therefore be held responsible for them. Rather, members of the supply chain will be under a duty to conduct themselves to a reasonable standard of care to prevent harm to persons whom it might reasonably be foreseen will be affected by their actions.
Precisely what constitutes “reasonable care”, to whom the duty extends, and what constitutes a “foreseeable risk” are questions to be resolved. In the meantime, all those in the supply chain should exercise caution and ensure all reasonable steps are taken (and are seen to be taken) to minimise the risk to patients.
Internet pharmacies – the issues faced
Internet pharmacies present a further significant opportunity for counterfeiters to enter the market. We can expect to see a significant increase in the number of internet pharmacies in the months and years ahead. Some of these will be legitimate; some will not. It will not always be easy to tell the difference (see box).
In the UK, the government last year indicated that it intends to implement amendments to the relevant Regulations to allow internet and mail-order pharmacies to obtain NHS dispensing contracts for prescription-only products. These amendments are expected shortly.
Legitimate internet pharmacies will need to deal with a number of issues including:
· Regulatory issues – ensuring compliance with the various regulatory requirements for both prescription-only and OTC products
· Advertising restrictions – ensuring compliance with relevant restrictions on advertising, particularly of prescription-only medicines, including the ABPI Code of Practice for the Pharmaceutical Industry
· Intellectual property – ensuring that the use of brand names, logos and copyright material (e.g. Patient Information Leaflets) does not infringe upon any third party intellectual property rights
· Delivery – ensuring compliance with restrictions on the delivery of medicinal products by postal services
· Protecting patient information – confirming the identity of the patient, and ensuring compliance with relevant data protection and confidentiality requirements
· Electronic prescriptions – coping with the technological advances that can be expected, and regulatory requirements that will be put in place, to deal with the electronic transfer of prescriptions.
From the marketing authorisation and brand-owners’ perspective, there will be further difficulties in seeking to monitor even “legitimate” internet pharmacies, to engage regulatory authorities (with limited resources) to deal with the same, and to seek to enforce rights where necessary by way of criminal proceedings or private prosecutions and/or civil proceedings.
In addition, rights holders will need to deal with the proliferation of unlawful, unregulated and unsafe internet pharmacies that will continue to emerge. They will likely face a number of difficulties.
Among them will be the need to identify counterfeits from genuine product. In light of the increase in the number of legitimate internet pharmacies, there will be increasing difficulties in determining whether or not any particular website is a genuine or counterfeit operation. These difficulties will be faced by industry, regulators, law enforcement agencies, healthcare professionals and consumers alike.
Once a website has been identified as being counterfeit, there are enormous difficulties in identifying those responsible for the supply of counterfeit products from the website and locating the physical source of such products.
Brand or patent owners will then be faced with problems in enforcing their rights. There may be jurisdictional issues in seeking to enforce one’s rights against unlawful internet pharmacies. This may depend upon where the host computer is situated or which jurisdictions the website is directed to.
The internet’s lack of regulation and the lack of a regulatory body responsible for this presents further difficulties that are widely acknowledged, although still lacking solution.
The sheer volume of internet sites selling pharmaceutical products makes it very difficult to track success in dealing with the problem, and long term prevention will also prove difficult. The fact that even once enforcement action has been taken against a particular entity, there is a real risk that the same party will open up a further website, possibly under a new name, raises questions as to how realistic the long-term prevention of such counterfeit activities is.
Holistic strategies
It is evident that the problems associated with counterfeit pharmaceutical products are very real and not easily dealt with. It is likely that only through implementation of an “holistic” anti-counterfeiting strategy one can hope to have any real effect. Such strategy is likely to comprise the tactics of prevention, detection and enforcement and may include the following measures.
Prevention will span actions to register intellectual property rights, publicise successful enforcement, educate the public, monitor movements through Customs, lobby governments, and overt technological measures such as holograms and tamper-proof packaging.
Detection measures may include incentive schemes for reporting counterfeits, employee and law enforcement education, hidden technological measures such as RFID and forensic fingerprinting, and Internet searches and test purchases.
Moving to the enforcement stage, this may involve prioritisation to allow selected (test) cases to be brought and subsequently publicised, the formation of a global strategy with particular focus in certain jurisdictions, use of litigation to obtain information regarding counterfeit networks, and consistent and rigorous protection of IP and other rights.
A version of this article appeared in Legal Week in June 2005 |