Technology is a great facilitator, albeit a neutral one. One on hand, it enables ease of trade, transport and transactions, while on the other, it facilitates commission of crime, pollutes the environment and poses a danger to health and safety. The counterfeiting of pharmaceutical drugs and their sale is one such technology-facilitated crime.
The Covid pandemic led to a scramble for medicines, protective equipment and sanitizers. With the imposition of lockdowns and curbs on the movement of people, the online world rushed in to fulfill the demand. Virtual marketplaces for commodities in demand mushroomed, which also allowed for fake and counterfeit goods’ supply chains to rapidly grow and scale to global proportions, much beyond the reach and jurisdiction of respective national law enforcement agencies. With the involvement of organised crime networks, pharma counterfeiting has become a serious issue facing consumers, industry, and governments alike.
SCALE, EXTENT AND ECONOMIC IMPACT
The World Health Organization (WHO) estimates that counterfeit medicine accounts for 10 percent of the $300 billion pharma industry and that the increasing public use of online pharmacies has widened the market for counterfeit drugs.
A study by Sanofi says that medicine counterfeiting is more profitable than narco trade—$1,000 invested in falsified drugs can result in profits of $500,000, compared to profits of around $20,000 dollars for heroin trafficking.
National governments also bear the costs of pharmaceutical counterfeiting in three ways: the loss of tax revenues, the higher cost of healthcare due to the adverse effects of fake drugs, and the increased regulatory and enforcement cost of securing the legitimate supply chain.
The impacts of pharma counterfeiting are pernicious in many ways. More than 200,000 people, including children, die every year just due to fake medication for pneumonia and malaria. Those who survive are severely compromising on their medical and healthcare needs. Similarly, the costs of lost revenue are huge for economies and governments, running into billions of dollars worldwide. The loss of sales and reputational damage to legitimate producers is also significant as intellectual property rights are also infringed upon.
There is a double victimization of the patients who consume counterfeit medication as they suffer adverse health consequences and have to be treated for them. The social costs associated with organised crime, enforcement efforts and loss of jobs are significant, and so are the environmental impacts resulting in pollution and release of toxic chemicals from an unregulated activity.
COUNTERFEITING OVER INTERNET PLATFORMS
The trade of counterfeit goods via the Internet is the fastest growing area of illegal trade. Thus, the sale of counterfeit goods via the Internet is considered to be a contemporary security challenge. In order to ensure that: 1) illicit offers do not appear on the Internet; 2) if they do appear, they are taken down as quickly as possible; and 3) in any event, rapidly enough to prevent further transactions from taking place, few measures (operate simultaneously in real-time) that can be adopted are as under:
A. It is crucial that all entities—customers, sellers and buyers—understand the counterfeiting phenomenon, its immanent risks to consumers and detrimental effects on IPR owners. Consumers can be active parties to eliminate counterfeiting. Internet platforms should explain that offering counterfeit goods is illegal and suggest precautions that buyers should take to avoid buying them. B. ‘Proactive and Preventive Measures’ (PPMs) seek to ensure that offers of counterfeit goods do not appear online. They are a timely and adequate response to attempts to seek counterfeits, either before an offer is made available to the public or shortly after. By taking such measures, IPR owners and Internet platforms try to reduce online offers of counterfeit goods. Such measures may be technical and/or procedural and often require human intervention.
C. Despite customer information and PPMs, counterfeit goods may still become available to the public on an Internet platform and, therefore, there is the Notice and Takedown System. The purpose of the Notice and Takedown System is to offer an uncomplicated, fair and expeditious procedure to remove online offers of counterfeit goods. In that case, IP right owners and consumers can notify the Internet platform concerned of the existence of such offers. This notification allows the platform to take appropriate action, including taking down the offer from the concerned website.
IP SYSTEM AND ITS IMPACT
One of the causes of counterfeit drugs is the prevalent worldwide IP system. Criminals typically counterfeit expensive patented drugs rather than generics as they follow money. One can say that the IP system has created the opportunity which criminals/counterfeiters exploit. Also, when the ostensible goal of the pharmaceutical IP system is to promote innovation then counterfeiting demonstrates that the law is ill-suited to achieving that goal. This is especially true if alternatives are available which fund R&D without creating the pricing ratios found attractive by counterfeiters. The marginal cost of producing most name-brand drugs is a small fraction of the commercial price. An annual supply of a well-known antiretroviral triple combination drug regime in the United States costs over $11,000. The marginal price is not publicly known, but can be estimated. Unlicensed generic companies sell the same drugs in sub-Saharan Africa for $244 per year. These drugs are sold at 45 times their marginal cost (a “pricing ratio” of 45:1). This ratio would not be possible without absent IP laws and the related branding efforts of drug companies. High pricing ratios attract counterfeiters.
This is not an isolated example. Many patented drugs exhibit this profile. Industry estimates suggest that the average variable cost of patented drugs accounts for an average of 15% of the final price, yielding an average pricing ratio of more than 6:1. Some pricing ratios are much higher: generic ciprofloxacin is sold in some places at less than 0.4% of the price of the most expensive sources in the U.S., a pricing ratio of 246:1. Others have found pricing ratios of 200:1 in global markets for vaccines and contraceptives. In some uncompetitive generic drug markets, even generics might sell at a substantial premium over the marginal cost of production, thus attracting counterfeiters. This uncompetitive market may well be related to a hang-over effect from related pharmaceutical laws, even with the expiration of the patent.
A possible solution to reduce the incentive to counterfeit would be to remove R&D costs from the retail pricing system. Fund R&D as a global public good through a variety of approaches which will enhance financial access to patented pharmaceuticals by low and medium income populations. If R&D cost recovery is removed from the retail price system, then the pricing ratios described above collapse. All medicines would be sold essentially as generics. This result satisfies the access needs of the poor and also destroys the vast majority of the incentive to counterfeit. The best solution to the scourge of counterfeit drugs may involve radical examination of our society’s reliance on IP law for recovery of pharmaceutical R&D costs.
TECHNICAL MEASURES TO PREVENT
Anti-counterfeiting security measures include technologies for detection of manipulation or tamper evidence, authentication or verification, replication which makes it difficult or expensive to copy, and traceability by verification of origin, authenticity and quality attributes.
Tamper evidence works by irreversibly indicating, through naked eye screening or automated alarm systems, any attempt at removing and substituting or breaking and concealing nameplates, product marking, or a seal placed on packaging or other housing, etc. Authentication involves several security features placed on marked products, packages, documents, etc. features for authentication, both overt and covert. Replication refers to the degree of difficulty involved in replicating a similar package and the security features on it, including covert features. Traceability is the ability to trace products or components in supply chains to preserve security by verification of origin, authenticity and quality attributes.
Ideally, anti-counterfeit technology should possess a high level of security which is non-cloneable, higher product application and authentication speed, and it should adhere to proven standards, be difficult to remove and reapply, easy to check, have automatic authentication, be useable by consumers, and must be legally compliant by the industries.
NETWORKS OF COUNTERFEITERS AND ITS DISRUPTION
The manufacturing of counterfeit products is carried out on all continents both on an industrial scale and on a smaller and less sophisticated scale. The printing of medicine packaging and manufacturing of the medicines often takes place in different countries and then shipped to a final destination where they are assembled and distributed. The ongoing continuous change of hands masks the provenance of counterfeit medicines thus making tracing almost unachievable and making it hard to identify who is making the counterfeit drugs. Industry sources also indicate that counterfeiters engage in deceptive practices, marketing generic products as products manufactured by the original proprietary manufacturer. They are also known to remove and sell legitimate products from genuine packaging and replacing the products with counterfeit items. The legitimate products are then sold in grey markets.
Usually, it is seen that the counterfeiters disguised the activity by splitting the consignment, sending blister packs of tablets in one box and flat-packed cartons in which the blisters were to be packaged in another. Both were labelled as containing mobile phone covers, which was the case, while the falsified tablets and packaging were buried underneath the phone covers. The seized medicine contained no active ingredient.
MEASURES ADOPTED WORLDWIDE
The US STOP Act, enacted in October 2018, requires foreign postal authorities to provide advance electronic data (AED) on all packages or packets under 2 kg containing goods sent to the United States. AED includes the sender and recipient’s name and address and weight and value of the package and its contents, and this data is passed on to Customs and Border Protection.
In order to meet the emerging and future legislative, security and customs requirement in overseas destinations, the Royal Mail in the United Kingdom, since 1 January 2019, has required shippers to provide electronic customs data when sending items (other than correspondence) to destinations outside the European Union.
The Council of Europe has developed the MEDICRIME Convention, which provides countries with a model legal framework for dealing with falsified medicines and other types of pharmaceutical crime that threaten public health. Under the said convention, dated January 2016, intentionally manufacturing, supplying, offering to supply and trafficking of falsified medicines is considered a criminal act. This treaty calls for a multilateral collaboration across nations, disciplines and sectors, and lays the ground for cooperation with and between international bodies such as INTERPOL, Europol, UNODC, the WCO and WHO, in order to put a stop to this international threat to public health.
CONCLUSION
Pharma counterfeiting by various estimates is more lucrative than illicit trade in narcotics. This coupled with inadequate regulation, enforcement, and sanctions, loopholes within the regulatory architecture and insufficient criminal penalties create a safe haven for counterfeiters and organised criminal gangs.
With the Covid pandemic increasing medicine demand, while simultaneously disrupting logistics for supply chains, counterfeiters and fraudsters are quick to take advantage of this windfall opportunity as law enforcement faces constraints on manpower and resources.
Apart from legal measures, the use of technology, better enforcement and securing of distribution networks, it is essential to perform a root cause analysis of the pharmaceutical counterfeiting trade. It may also be imperative to re-evaluate the foundations of the pharmaceutical IP systems to see if a better world is possible, which ensures that the necessitous afford the medicines and pharma companies do not profiteer of genuine human privation.
Brijesh Singh, IPS is an author and IG Maharashtra and Khushbu Jain is a practisng advocate and founding partner of the law firm, Ark Legal.
