Volume 86 Issue 1 | pp. 18-19
Issue Date: January 7, 2008

Fighting Fakes

U.S., trading partners boost efforts against intellectual property theft
Department: Government & Policy
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Phony Meds
Industry Global sales of counterfeit medicines are $35 billion to $40 billion a year, according to World Health Organization estimates.
Credit: Shutterstock
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Phony Meds
Industry Global sales of counterfeit medicines are $35 billion to $40 billion a year, according to World Health Organization estimates.
Credit: Shutterstock

WITH A STRONG PUSH from the pharmaceutical industry and other U.S. businesses, the federal government is expanding its efforts to combat the counterfeiting of American-made products and other intellectual property (IP) violations, such as copyright piracy.

Bipartisan legislation introduced last month by the leaders of the House Judiciary Committee could be a catalyst in the ongoing campaign to reform laws governing IP rights in the U.S. The sweeping 69-page bill, introduced on Dec. 5, 2007, by Chairman John Conyers (D-Mich.) and ranking member Rep. Lamar Smith (R-Texas), would increase criminal and civil penalties for copyright and trademark infringement and create several new government positions with the authority to enforce the statute.

"This legislation is an important and necessary step in the fight to maintain our competitive edge in a global marketplace," Conyers says. "By providing additional resources for enforcement of IP, we ensure that innovation and creativity will continue to prosper in our society."

The bill (H.R. 4279) would create an IP enforcement representative, who would report to the White House, and establish a separate division within the Department of Justice to help investigate and prosecute IP crimes. The proposal is "an important first step by Congress to address an issue plaguing nearly every American manufacturer," says John Engler, president and chief executive officer of the National Association of Manufacturers (NAM), the nation's largest industrial trade association.

Trade in counterfeit goods typically brings to mind high-priced designer handbags and brand-name footwear, but modern-day pirates counterfeit everything from life-saving drugs to auto parts. "In an increasingly competitive global marketplace, protection of U.S. IP is vital for the long-term growth of American industry," Engler says. "But it is also important for the health, safety, and welfare of every American consumer. Americans have a right to safe and legitimate products—not substandard fakes," he declares.

According to the International Chamber of Commerce, global trade in counterfeit goods now exceeds $500 billion annually. It costs the U.S. economy between $200 billion and $250 billion a year in lost sales and is responsible for the loss of more than 750,000 American jobs. The pharmaceutical industry, in particular, faces a difficult challenge. The U.S. Food & Drug Administration (FDA) estimates that more than 10% of the drugs sold around the world today are fake.

Drug counterfeiting is a "growing worldwide epidemic," says Billy Tauzin, president and CEO of the Pharmaceutical Research & Manufacturers Association (PhRMA), the brand-name drug industry's trade group. "Never before have we seen a counterfeit threat this vast and this alarming," Tauzin asserts. "The counterfeit crisis puts at risk the health of patients around the world, hurts the U.S. economy, and jeopardizes American jobs."

FDA DEFINES counterfeit drugs as those sold under a product name without proper authorization, where the identity of the source of the drug is knowingly and intentionally mislabeled in a way that suggests it is the authentic approved product. Counterfeiting can apply to brand-name drugs, generics, or the bulk ingredients used to make the finished product. Counterfeits often look authentic, but might lack any of the active ingredients, might contain too much or too little of the active ingredients, or might include contaminants that are potentially dangerous to the consumer's health.

Many counterfeits are produced by criminals with sophisticated equipment capable of duplicating near-perfect copies of the original packaging. Counterfeit medicines are known to exist in both developed and developing countries. Although the extent of the problem is difficult to measure and quantify, the World Health Organization (WHO) estimates that the prevalence of fake pharmaceuticals ranges from less than 1% of the total drug supply in the U.S. and other industrialized countries with effective regulatory systems to more than 30% in many African nations and in parts of Asia and Latin America.

International trade in counterfeit drugs is extremely lucrative, making it attractive to criminal networks. WHO estimates that global sales of counterfeit medicines are in the $35 billion to $40 billion a year range, and the U.S.-based Center for Medicines in the Public Interest predicts the market will reach $75 billion in 2010. But the cost of counterfeiting goes far beyond money. "People don't die from carrying a fake handbag or wearing a fake T-shirt. They can die from taking a counterfeit medicine," says Howard A. Zucker, WHO's assistant director-general for health technology and pharmaceuticals.

"These fakes don't produce any of the health benefits of the authentic prescriptions they mimic and in some cases are actually poisonous," notes John Theriault, vice president of global security at Pfizer, the world's largest drugmaker. "We've seen counterfeit product coming out of Latin America that actually contained boric acid, highway paint, and floor polish. The product looked very nice, but the contents were disastrous."

While IP piracy has been a long-standing concern for the business community, the issue has been getting more attention on Capitol Hill recently as reports of counterfeit toothpaste contaminated with ethylene glycol and fraudulent medicines from China continue to make headlines.

FDA reform legislation (H.R. 3580) that was signed into law by President George W. Bush in September includes language crafted by Rep. Mike Rogers (R-Mich.) that will require the agency to develop and recommend standards to encourage the adoption of anticounterfeiting technologies. "Counterfeit medications create life-threatening situations for Americans who depend on a safe supply of prescription drugs," says Rogers, a former Federal Bureau of Investigation agent who currently sits on the House Energy & Commerce Subcommittee on Health. "While there is no single solution to this growing threat, technology can enhance prescription drug security and frustrate the introduction of counterfeit products. We are setting up FDA for the future to implement various counterfeit strategies and set up a diverse technological capacity."

Rogers is pushing for adoption of legislation he cosponsored with Rep. Gene Green (D-Texas) that would strengthen criminal penalties against the illegal production, distribution, and sale of counterfeit medicines. The proposal (H.R. 780) would increase the punishment for counterfeiting a prescription medicine from three years in jail to 20 years and add a life sentence if a fake drug causes a death. "We need to make sure criminals don't a get a mere slap on the wrist for putting Americans with heart problems, AIDS, diabetes, or many other illnesses at risk from fake drugs," Rogers remarks.

ON THE DIPLOMATIC front, the Bush Administration and several major trading partners have begun negotiating an agreement to bolster the international fight against counterfeit products. "This is a global problem that robs individuals and businesses of billions of dollars and puts public health and safety at risk," says U.S. Trade Representative Susan C. Schwab. The plan, she explains, will not involve any changes to multilateral trade agreements under the World Trade Organization (WTO), but will seek to step up enforcement efforts against counterfeit goods. "The crooks are fast, so we need to be faster in this knowledge-driven global economy," Schwab remarks.

The proposed agreement calls for countries with advanced economies that already share a strong commitment to protection of IP rights to establish common legal standards and enforcement practices and to expand international cooperation to stop product piracy. It is hoped that negotiation of an agreement among a small group of like-minded trading partners will proceed more quickly and productively than a global agreement with all 151 WTO member nations.

"The goal is to set a new, higher benchmark for enforcement that countries can join on a voluntary basis," Schwab states. "The negotiations represent a cooperative effort by the governments involved and will not be conducted as part of any international organization." U.S. trading partners engaged in discussions so far, she says, include Canada, the European Union (EU) with its 27 member states, Japan, South Korea, Mexico, New Zealand, and Switzerland.

"A new international anticounterfeiting treaty will strengthen global cooperation and establish new international norms, helping to create a new global gold standard on [IP rights] enforcement," EU Trade Commissioner Peter Mandelson says.

Both members of Congress and industry groups welcome the initiative. "IP thieves aren't just stealing American ideas, they're stealing dollars from U.S. businesses and stealing jobs from U.S. workers," says Senate Finance Committee Chairman Max Baucus (D-Mont.). "Ideas are America's true currency, and if we want to be economically competitive, strong protections for U.S. IP are key."

Frank Vargo, NAM's vice president for international economic affairs, calls the proposed agreement "a compelling idea that provides us with a great opportunity to make real headway against the growing problem of international counterfeiting that is hurting so many U.S. manufacturers." The envisioned anticounterfeiting treaty is consistent with existing law, he says, so no new legislation should be required to implement it. "We expect to see rapid progress," Vargo remarks.

PhRMA's Tauzin stresses that counterfeiting is increasingly a global enterprise that requires international cooperation to combat. "This treaty is recognition of the importance of fighting the counterfeit issue across national boundaries. Over time, we would like to see additional signatory countries added to the agreement that have the same commitment to fighting counterfeit medicines," he says. "We believe the treaty could serve as a model for the types of legislation and enforcement practices required to adequately address counterfeiting."

Notably absent from the list of countries participating in the talks is China, which is regarded as one of the epicenters of the counterfeit medicine trade. China has begun taking steps to address the issue, particularly since its WTO accession in 2001, but significant problems remain. In April 2007, the U.S. filed a complaint with the organization's Geneva-based trade arbiter claiming that Beijing's legal regime for protecting and preventing IP theft is too weak and does not comply with WTO rules.

"Over the last several years, the Chinese government has become a stronger partner in the fight against counterfeit medicine, particularly in investigating potential drug counterfeiting activity," PhRMA Senior Vice President Ken Johnson says. "However, despite the Chinese government's best efforts to combat drug counterfeiting, the prevalence of counterfeit medicines within and originating from China continues to grow and is supplied by an increasingly sophisticated network of criminals."

 
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