Counterfeit medicines - the quintessential borderless crime

Over 10 percent of medicines sold in developing countries and one percent sold in developed countries are thought to be counterfeit—and the problem is growing. It is the quintessential borderless crime.

A key factor is the convenience, globalisation and anonymity of the Internet, which has spurred the proliferation of Internet pharmacies. Another is China, which has become a vast production house for both genuine and counterfeit pharmaceutical products. From there, counterfeit medicines are commonly shipped for packaging elsewhere and distributed through various transit hubs before reaching their final destinations all around the globe.

Only an internationally co-ordinated strategy can seriously disrupt the widespread counterfeit medicine production and distribution network: a purely reactive or piecemeal approach is doomed.

It is critical to identify the essential issues and options based on intelligence, data collection, research and analysis; to set clear priorities with backing from the top; and to take action on a highly selective basis, in co-operation with government agencies and other brand owners. Such strategies must combine specific local knowledge and advice with closely co-ordinated action across borders in an iterative process, sharing intelligence and results in real time.

Common problems

The availability and provenance of counterfeit medicines varies quite markedly from country to country, though the continuing growth of the problem is ubiquitous.

In Brazil, for instance, about 20 percent of drugs are counterfeit, typically originating in Asia and transiting through Paraguay and Uruguay. At the other end of the scale, in Canada, Italy, Switzerland, Spain, the UK and Australia less than one percent of available drugs are counterfeit. The key differences are more consistently affluent populations and well-regulated public health and reimbursement systems, which make it harder for counterfeits to penetrate the market in any significant way.

In Australia, for instance, most prescription medications are imported and distributed under the Pharmaceutical Benefits Scheme, a centralised system under which the government purchases drugs directly from pharmaceutical companies, imports them into Australia and provides them to patients on a subsidised basis.

As the supply chain is tightly controlled, it is more difficult for counterfeit medicines to infiltrate. Standard consistent packaging for each product in Australia also makes it easier for pharmacists to identify anomalies in the appearance or packaging of drugs, which could indicate that they are counterfeit.

Counterfeit pharmaceutical activities in the US comprise not only counterfeiters importing fake drugs into the US market, but also US citizens carrying counterfeit drugs from the US-Canadian and US-Mexican borders. This is due, in part, to the high cost of pharmaceuticals in the US compared to its neighbours.

That said, all countries face a growing threat from products sold over the Internet. Most famously, this applies to discretionary lifestyle drugs, such as those used to combat erectile dysfunction or weight loss. Not everyone with such problems wants to visit a doctor for a prescription, particularly when it seems so easy to buy them anonymously over the Internet.

Online purchasers are probably not thinking about the WHO estimates that 50 percent of medicines available from sites that conceal their physical address are counterfeit. In Spain, for example, police recently dismantled three online pharmacies that specialised in selling fake erectile dysfunction products.

More recently, there has been a worrying trend towards sales of counterfeit life-saving medicines such as cancer and heart drugs into healthcare systems of developed countries, where the potential profits are significant. For instance, there is evidence that sophisticated counterfeit medicine gangs are increasingly targeting Britain’s network of high-street chemists, hospitals and GP surgeries.

A fake consignment of Zyprexa, an anti-psychotic treatment prescribed for schizophrenia, first infiltrated Britain’s healthcare system in 2007. Since then, there have been eight recalls of counterfeit medicines in the UK, which had reached pharmacy and patient levels.

A further five cases were discovered at wholesale level before they reached the market. Australia experienced similar problems during the height of the global swine flu crisis, when there were several instances of Australians purchasing counterfeit Tamiflu over the Internet.

The health and safety concerns are readily apparent as there is no quality control: counterfeit drugs are typically manufactured in non-sterile if not outright unhygienic environments, with no screening for toxic impurities and no assurance as to there being any relevant active ingredient. The traditional concerns of trademark owners regarding the damage caused by counterfeits to brand values, equity and reputation appear rather pale against that background, but they are nonetheless real and entirely justified.

China

Alongside India, China is a global hotspot for the production, transportation and sale of counterfeit drugs. Estimates vary by city and region, but they are thought to account for between 10 and 30 percent of the market, exceeding 40 percent in some cities. According to testimony by Peter Pitts, president of the US-based Center for Medicine in the Public Interest, an estimated 200,000 to 300,000 Chinese die each year due to counterfeit or substandard medicine.

The infrastructure and political will to tackle such problems in China are developing in the right direction. Criminal sanctions can be severe: anyone caught producing or selling counterfeit pharmaceuticals that harm human health can be sentenced to a fixed term of imprisonment of not more than three years; and if they seriously harm human health, this is raised to 10 years.

If fake drugs result in loss of life, or cause exceptionally serious harm to human health, the available sentences are at least 10 years in jail, life imprisonment or death.

“Border measures using customs recordation and notice processes can be highly effective in reducing the incidence of reported counterfeit goods.”

China’s State Food and Drug Administration has released several administrative notices and measures that raise standards for the manufacture of pharmaceutical products by requiring factory certification, as well as barcodes on products to facilitate tracking. In 2007, the SFDA created the Market Supervision Office to focus on the counterfeit pharmaceutical market and illegal drug-related advertisements. IP rights owners should be aware of these administrative bodies and work with them to track and shut down counterfeit production bases and distribution channels.

Playing catch-up

Most countries outlaw the production, transportation and sale of counterfeit pharmaceuticals, but they can use quite different approaches to deal with the problem and in reality are playing catch-up.

In Brazil, counterfeiters face up to 15 years in jail, and public authorities and the police have stepped up efforts in recent years to identify and apprehend offenders. Counterfeiting is often related to organised crime in Brazil (as it is elsewhere) and police investigations and criminal lawsuits can therefore be complex.

Operations against counterfeit products in Brazil have intensified since 2007. In 2009, for instance, there were 63 operations, 203 arrests, more than 500 companies inspected and more than 300 tons of goods seized.

In Canada, activities relating to the counterfeiting of pharmaceuticals are criminal offences under the Trademarks Act and the Copyright Act, and there are various forgery and fraud-related offences under the Canadian Criminal Code. Counterfeiting activities are being given increased attention by police and other law enforcement authorities, again taking into account the involvement of criminal organisations.

There is a significant enforcement issue in Canada as it currently lacks a regime for recordal of trademarks or other IP rights with Canadian Customs. As a result, customs officials will not act independently to search for and seize goods that violate a trademark owner’s rights.

It is possible to seek to have counterfeit goods seized at the Canadian border in certain situations, though, through a civil action based upon violation of a trademark right under the Trademark Act or as a result of the Royal Canadian Mounted Police acting upon information provided by a trademark owner respecting an offence under the Canadian Criminal Code.

In Italy, counterfeiting can be punished by up to four years in prison and substantial damages awards against the infringer. Also, representatives from police forces, the Italian Customs Agency, the Superior Institute of Health and three ministries have set up IMPACT. This is an autonomous group that has the power to investigate and prosecute any activity relating to counterfeited pharmaceuticals on Italian territory, with recourse to the Criminal Court.

In Switzerland, dealing with cases using the criminal track can be very effective, as it often allows the complainant to obtain further information on the scope of the alleged infringement and distribution channels. Rights holders can also rely on civil measures, and obtain injunctions to enjoin infringers from dealing with counterfeit goods. Injunctions are available in full as well as interlocutory proceedings, and can be granted ex parte. In addition, infringers must compensate rights holders.

In the UK, the Medicines and Healthcare products Regulatory Agency monitors medicines sold or distributed there. It has the power to prosecute those who distribute counterfeit products in the UK in conjunction with other law enforcement agencies such as the police, customs and trading standards officers.

Criminal actions in the UK can lead to raids of premises, arrests and prosecutions. However, the deterrence value of these criminal sanctions is limited as the return on investment can be high and penalties relatively light. Brand owners often opt to take civil action to obtain injunctions and compensation.

In the US, counterfeiting can be a criminal offense. Under statutory law, those found guilty of criminal counterfeiting may be sentenced to up to 10 years in prison and/or fined up to $2 million dollars. Historically, the majority of counterfeiting cases in the US have focused on civil litigation.

However, the US Department of Justice recently instituted the Intellectual Property Task Force as a means to combat, in part, counterfeiting and assess criminal sanctions, particularly against counterfeiters endangering the public safety, as with counterfeit pharmaceuticals.

In all countries where they are available, border measures using customs recordation and notice processes can be highly effective in reducing the incidence of imported counterfeit goods. Once counterfeits enter the market, it is a considerably more difficult, uncertain and expensive process to deal with them.

The role of the brand

IP rights owners must take primary responsibility for protecting their own product lines and brands, and cannot realistically expect government agencies to tackle counterfeit pharmaceuticals on their own. Brand owners uniquely have the information that is relevant to their own products, and no other entity or agency will be so concerned to ensure that they are protected.

There is a wide variety of approaches among IP rights owners, but a multi-faceted strategy is common, involving co-ordination across a number of key jurisdictions; and combining civil and criminal enforcement, partnering with police, government authorities, and other stakeholders.

Public education, intelligence gathering and networks, monitoring Internet activity, packaging protection technologies and authentication systems all have their part to play. As there is considerable room for improved legislation and administrative action, lobbying is becoming increasingly important, often involving industry groups and cross-border initiatives as well as individual companies and countries.

While many of these measures apply in all countries, local differences in approach can be important. In China, for instance, multiple authorities can have jurisdiction over pharmaceutical counterfeiting activities and the most appropriate enforcement channel must be considered carefully in each case, depending on location and circumstance.

Co-operation with local enforcement officials is the key to increasing the likelihood that counterfeit drugs are discovered, and that they receive enforcement attention. Consumer education and raising public awareness must be conducted within the confines of pharmaceutical advertising laws in China.

For the quintessential global crime, ultimately all strategies converge on the counterfeiters, particularly at the points of organisation and manufacture, so that it becomes much harder for them to turn a profit without significant risk to their assets and freedom.

The following members of the Baker & McKenzie Global IP Practice Group made contributions for their respective jurisdictions: Managing contributor Richard Gough (Australia); Luba Poukchanski (Australia); Flavia Vasconcelos, Debora Pimentel and Flavia Amaral (Brazil); Christopher Aide and Jim Holloway (Canada); Isabella Liu (China); Marco Piana (Italy): Carles Prat and Montserrat Llopart (Spain); Eva- Maria Strobel (Switzerland); Beverley Potts (UK); and Lisa Meyerhoff (US). For more information, visit www.bakermckenzie.com/IntellectualProperty