Global attack
Cross-border co-operation and addressing counterfeit medicines
and pharmaceuticals in Latin America, Asia and worldwide: we poll
a global panel of experts at Baker & McKenzie for a front-line picture
of the war against counterfeiting.
2008 Issue
The level of threat directly affecting IP and brands that needs to be taken seriously by in-house counsel and brand managers at pharmaceutical and biotechnology companies is immense, as the experts’ answers to these fundamental questions reveal.
Online pharmacies are a growing problem in the cross-border trade in counterfeit medicines, particularly for a country such as Australia, where medicines are subsidised and large shipments are rare. Effective border control by customs authorities and the global co-ordinating role taken by the World Customs Organization are critically important in addressing the problem, but in reality, enforcement authorities, legal regimes and pharmaceutical companies around the world are playing catch-up, and have only recently begun to grapple seriously with the issues. For example, the threshold question of jurisdiction over online trade has not been sorted out in many countries, being commonly determined by factors such as the location or domicile of the host and the countries targeted for website sales and delivery. This can make enforcement rather slow and clumsy, while online traders pick their jurisdictions and exploit the gaps in regulatory and enforcement regimes. For pharmaceutical companies taking a strategic approach, this is difficult and new territory, requiring multi-jurisdictional investigations and legal action. It involves a different mindset, with the emphasis on mapping what is happening across borders, identifying the hottest links, and leveraging results and information in real time as it comes in from actions and customs seizures. The level of co-ordination, organisation and response across borders between the separate elements—legislation, enforcement agencies, pharmaceutical companies—will have to improve markedly before there is any significant progress.
There is increasing alarm at the extent of trade
in counterfeit medicines destined for, or at
least in transit through, major EU countries.
Even more worryingly, this trade can and does
infiltrate authorised channels of distribution.
The EU has, in part, harmonised its measures
to combat this through the Counterfeit Goods
Regulations, allowing customs recordations
to be filed throughout the EU and, further, by
way of harmonisation of legal remedies through
the EU Enforcement Directive, although more
needs to be done, on the ground, to make this
cross-border co-operation really effective. Also,
recent European Court of Justice (ECJ) decisions
(such as Class International, which held that
goods merely transiting through an EU country
are not liable to be injuncted on the grounds of
trademark infringement) militate against a zero
tolerance policy trend and are sending a message
that the EU is a safe harbour for trans-shipment
of counterfeit goods. This cannot be what was
intended, and there needs to be a more rigorous
review of EU policy in this respect.
Not as a matter of priority. In the US, federal
prosecutions are handled primarily by the
US Attorney’s offices located throughout
the country. Due to limited resources, the
US Attorney’s offices are often interested in
large and important targets at or near the top
of the criminal enterprise. Counterfeiting
investigations by their nature, however, often
must begin with street-level violators, and
substantial time and resources are required for
a brand owner to proceed up the supply chain to
identify larger, more lucrative targets. It is often
the case that federal prosecutors have neither
the budget nor the manpower to assume the
prosecution of the lower ranks, thereby limiting
action against the more important defendants.
The Brazilian government has recently taken
effective action to deal with pharmaceuticalrelated
counterfeiting, including by increasing
penalties, which range from R2,000 to R1.5
million ($1,200 to $920,000). Brazilian IP laws
now comply with modern international treaties,
and the available remedies have reduced piracy
levels. Counterfeit product is subject to police,
customs and sanitation authority control,
triggered without the involvement of IP rights
owners. Most counterfeit drugs in the Brazilian
market come from Asia, usually entering
through Paraguay and Uruguay. Recent joint actions of the Brazilian National Agency for
Sanitary Surveillance (Anvisa) and the federal
police seized nearly two tons of counterfeit drugs
used in the treatment of erectile dysfunctions.
In 2007, Anvisa and the Brazilian federal police
carried out Operation Placebo in 60 different
locations where there was counterfeiting activity.
According to the Brazilian Intellectual Property
Protection Association, there is on average one
arrest for counterfeiting every three days, and
five indictments are filed daily. The picture
is far from perfect, though, with the length
of legal proceedings being an impediment to
prosecution for counterfeiting. Even in a clear
case, it takes much too long for offenders to be
convicted and for IP owners to recover damages,
and in the meantime, the IP owner has to cover
the costs of the proceedings.
The counterfeiting of pharmaceuticals in China
has grown in scope and scale over the last
decade, with a widening range of drugs being
exported and sold domestically. The Internet has
facilitated the globalisation of pharmaceutical
counterfeiting, making it easier for buyers and
sellers to find each other. China is a major source
of finished product and of bulk chemicals used
to manufacture counterfeits in other countries.
The central government has introduced a range
of new measures in response to the fact that
both Chinese drug companies and consumers
are victims, with the level of fakes in the market
sometimes rising as high as 30 percent, and to
the recent international attention generated by
reports of defective pharmaceutical exports.
These include heightened inspection of
pharmaceutical enterprises (which has led to the
closure of hundreds of substandard factories);
more resources for enforcement against larger
counterfeiting rings, including those with
international distribution; greater focus on
syndicates that promote sales globally through the use of the Internet; and consolidation of
the ministries that handle pharmaceuticals
inspections and approvals. Despite these
measures, the scale of pharmaceutical
counterfeiting appears to be increasing, and
pharmaceutical companies are encouraging the
implementation of a wider range of initiatives.
These include:
• establishing more specialised local police
and prosecutor IP enforcement teams, at
least in hot spots such as Chaoyang/Shantou,
Guangzhou and Shenzhen
• increased manpower and resources for police
for deeper investigations of counterfeiting rings
• increased co-operation between Chinese
and foreign customs and police, including by
ensuring that intelligence is communicated
more quickly
• amending the PRC Criminal Code to
eliminate the current thresholds for criminal
prosecution (the lowest currently being
RMB50,000 or $7,000);
• giving administrative enforcement authorities
greater powers and training to investigate
cases more deeply and to facilitate more
effective co-operation with Chinese police
and prosecutors
• introducing more effective administrative
controls on producers of chemicals that are
commonly used for pharmaceuticals, and
on hospitals and pharmacies to minimise
the risks of purchase and distribution of
counterfeit drugs, and
• introducing stringent controls on China-based
websites that offer any type of pharmaceutical
(finished or otherwise) without regulatory
approval.
Pharmaceutical companies must play their
part in the reform process through increased
co-operation over lobbying and by pooling
intelligence on individual targets. Companies
are encouraged in particular to work with
INTERPOL by supplying data on known
and suspected counterfeiters under its new
data collection pilot programme. There are
increasing reports of counterfeiting of Asianbased
pharmaceutical brands, most recently of
anti-malarial preparations widely distributed in
Cambodia. Global pharmaceutical companies
should identify and work with the bigger
victims of counterfeiting among their Asian
counterparts by pooling data and pursuing joint
lobbying initiatives.
Since Brazil has participated in the World
Trade Organization, pharmaceutical IP rights
have been controversial, being highlighted
in the national news and legal debates. The
Brazilian government tends to be aligned with
international trends regarding IP protection,
adopting international rules, but there has been
considerable debate about compulsory licences
of patented pharmaceuticals. This mainly affects
anti-viral drugs, and especially those used in
the treatment of HIV, with pharmaceutical
companies announcing losses of R$1 billionn
($615 million) from compulsory licences.
On the other hand, under the patent pipeline
system, drugs protected by overseas patents may
be protected in Brazil without thorough analysis
by the Brazilian National Institute of Industrial
Property. Pipeline patents can be used to attack
counterfeit medicines, but given the current
controversy, it is hard to predict the actual effect
on the incidence of counterfeit drugs.
Ideally, a manufacturer would be able to
control every stage of the supply chain
between the manufacture of the product
and its delivery to the end user. Any breaks
in the chain allow opportunities for entry of
counterfeits. Parallel imports (grey goods)
provide a route into the supply chain that can
be exploited by counterfeiters, particularly
where repackaging of the product is permitted
to allow entry into a different market. To this
end, the EC Commission’s recent consultation
on counterfeiting of medicines goes so far as
to consider whether a ban on repackaging is
needed. Given that counterfeit products have
been found in the legitimate supply chain via
wholesalers and pharmacies in the UK and
elsewhere, tightening of controls is clearly
needed. The use of sophisticated labelling and
tracking devices can help, but not if the relevant
materials can be removed during repackaging.
Quality control is paramount in any licensing
situation, to ensure that the quality of the
product is consistent and retains the values
associated with the brand. In a pharmaceutical
manufacturing licence, it is a given that the
manufacturing processes must be tightly
controlled. But also necessary are controls over
the packaging and distribution of the product,
to ensure that the product does not become
available outside the legitimate supply chain.
The makers of fake products need supplies of
genuine goods to legitimise their operations
and sell alongside counterfeits, and even surplus
or discarded packaging can be misappropriated
and put to use by counterfeiters. Therefore, all
involved in the manufacture and distribution of
product need to be vigilant to avoid loopholes
for the unscrupulous.
Statistics published by a wide variety of sources
confirm that brand owners are not currently
winning the war against counterfeiting. The
estimated volume of counterfeits as a percentage
of legitimate trade has not materially declined
in recent years, despite the dramatic increase in
overall global trade, and counterfeit medicines
appear to be on the increase. Border agencies
such as US Customs and Border Protection
have not increased the volume of seizures to
substantially reduce the overall levels. One measure that could be taken to improve the
situation would be to impose vicarious liability
on supply chain participants for damage caused
by counterfeiting. Supply chain participants
profiting from counterfeit trade include air/rail/
sea carriers, importers, customs brokers, freight
consolidators, common carriers, port authorities
and terminal operators. Under current law,
recovery of damages from these middlemen is
difficult or impossible.
Application of joint and several liability would
incentivise these supply chain participants to police
their businesses and ensure that they are not profiting
from or facilitating the illegal actions of others.
Realistically, the battle for supremacy over
counterfeiters will probably never be won.
But more priority is clearly needed from
governments for action to counterfeit medicines
and pharmaceuticals. Measures now being
taken in various jurisdictions are helping firms
to navigate the hurdles in an industry constantly
jeopardised by the fraudsters. The catch-up
game must continue.
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Richard Gough
Richard Gough heads the Australian firm’s
pharmaceuticals industry group. He has
20 years’ experience handling IP litigation,
dispute resolution and enforcement for
market-leading companies. This has
involved a wide range of industry sectors,
including pharmaceuticals and medical
devices. Richard edits the firm’s Asia Pacific
Legal Developments Bulletin, and is the
author of the Australian chapters of Trade
Secrets Througout the World (Thomson
West) and the forthcoming Survey Evidence
and the Law Worldwide (Butterworth Lexis-
Nexis). He was named as one of Australia’s
best lawyers in a recent survey published in
the Australian Financial Review. |
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Counterfeiting
investigations
by their nature ,
however , often must
begin with street
level violators ,
and substantial
time and resources
are re quired for
a brand owner to
proceed up the
suppl y chain to
identify larger,
more lucrative
targets.
|
