By Kevin E. Noonan --
The Office of the U.S. Trade Representative (USTR) issued its "2024 Review of Notorious Markets for Counterfeiting and Piracy" on January 8th, directed to "prominent and illustrative examples of online and physical markets that reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial piracy or counterfeiting," having the goal of "motivate[ing] appropriate action by the private sector and governments to reduce piracy and counterfeiting" globally.
The Overview of the Results is focused on pharmaceuticals highlighted in detail in its Issue Focus section. The Overview asserts that "[c]ounterfeit medicines pose a significant health and safety risk to consumers, and the growing market of illicit online pharmacies has increased the spread of these dangerous counterfeits." The remaining sections of the Report involve Positive Developments, Online Markets and Physical Markets; Positive Developments "identifies actions that governments and private entities have taken this past year to reduce piracy and counterfeiting" and the other two Sections highlight two types of markets that "may require further actions."
The USTR justifies this rather critical view of U.S. trading partners and other, less friendly countries by stating that "the scale of infringing activity in these markets can cause significant harm to U.S. intellectual property (IP) owners, workers, consumers, and the economy" and recognizes that some countries have a mixture of legitimate and authorized activities others "openly or reportedly exist solely to engage in or facilitate unauthorized activity." Not all countries identified in the last Report (2023) are included in this one, but some remain because officials have not acted ("failed to address") regarding the flow of counterfeit goods to the U.S. Not being included should not be interpreted as meaning the issues have been completely resolved, the Report warns, noting that "the United States may continue to raise concerns related to these markets on a bilateral basis with the relevant countries." Nor is the Report exhaustive, and the reader's attention is drawn to the Special 301 Report for a more comprehensive analysis.
In the Issue Focus section, the USPR addresses "the risks and growing availability of counterfeit medicines, which has been driven by the proliferation of illicit online pharmacies." These risks and availabilities stem, inter alia, from the popularity of e-commerce generally, providing as it has for many other goods "a convenient solution for individuals who seek easy access to medications from the comfort of their homes." The COVID-19 pandemic resulted in "explosive growth" due to the increased demand for both medical supplies (masks, for example) and prescription medicines. The benefits of legitimate online pharmacies do not escape the USTR's notice, including "fast access to medical information and medications online." But legitimate online pharmacies are licensed throughout the U.S. through state pharmacy boards (which the Report notes also regulate "pharmacists, technicians, suppliers, distributors, and other parties involved in providing medicines to consumers"; the Virginia Board is provided as an example). In addition to these licensing regulations, legitimate online pharmacies require prescriptions and provide licensed pharmacists to counsel patients.
Not so for "bad actors who engage in illegal activities," and with regard to online pharmacies these include those that "are not licensed and operate outside of governing laws, regulations, and inspection systems." These are not so different from other purveyors of counterfeit goods, but the difference of course is the possibility (indeed, likelihood) that the safety and quality of the dispensed drugs are uncertain (this is in addition to patients without a prescription obtaining medicine for which no physician has ascertained the need or benefits of the drug). And there is evidence that drugs sold from illicit online pharmacies are more likely to be counterfeit and made from "substandard, unregulated, and potentially dangerous materials"; see Mackey et al., 2016, "Digital danger: a review of the global public health, patient safety and cybersecurity threats posed by illicit online pharmacies". These dangers arise, the Report notes, because counterfeit medicines are manufactured and sold "outside regulatory oversight, deliberately evading compliance with safety standards and quality control" imposed by FDA in the U.S. As a consequence, such drugs (often bearing trademarks and other false indicia of their purported source) are sold "often" "made with substandard, dangerous, and potentially deadly materials." Such counterfeit drugs bearing U.S. brand identifiers comprise 38% of seizures globally according to recent reports from the U.S. Drug Enforcement Agency and Center for Disease Control.
The Issue Focus is set forth in four sections. The first, entitled "The Prevalence of Illicit Online Pharmacies," provides information developed by the USTR and other agencies to address the extent of the issue (and risks). Much of the information set forth in this section was derived from the Alliance for Safe Online Pharmacies (ASOP), which reports that each day twenty new illicit online pharmacy sites are created. The obvious issue is that these sites "look legitimate [and] purportedly offer[] brand-name drugs at discounted prices, but they bypass regulations designed to protect consumers by operating without a license, selling medications without prescriptions, without safety warnings, and without proper oversight of the drugs being distributed." More remarkably, the statistics reveal that 96% of the 35,000 online pharmacies operating globally are in violation of the law. How these websites appear are effective; further ASOP statistics show that 54% of survey respondents (putatively having experience with such sites) believe them to be compliant with relevant laws and regulations, and 63% of prescription medicine purchasers hold this belief (not surprising due to confirmation bias; after all, how likely is it that someone purchasing medicines online would believe the drugs were unsafe?).
The second section, entitled "The Dangers of Counterfeit Medicines from Illicit Online Pharmacies," cites steps FDA has taken in view of the "risks of purchasing medications from illicit online pharmacies [that] are numerous and potentially life-threatening." These steps include issuing warning letters to identified illicit online pharmacies (without any statistics regarding their effectiveness). The need for FDA and other agencies to take steps is evident from a 2023 ASOP survey showing that "24 percent of Americans with prior experience using online pharmacies reported first-hand exposure to substandard, counterfeit, or harmful medication from an illicit online pharmacy, [which is] an increase of 7 percent from the same survey conducted in 2021." Some of these counterfeits include "inert or substandard ingredients"; the complexities of these products (which would require "[e]xpert chemical analysis" to detect that they are counterfeit) "mak[e] it difficult for consumers to identify the potential for danger." The types of such ingredients can be harmful per se, or be supplied in incorrect dosages, or contain no active ingredient at all. The Report provides a reminder of counterfeit Adderall identified more than 10 years ago was being sold that contained the wrong "active" ingredient and as a consequence was ineffective for treating attention deficit hyperactivity disorder (ADHD). Countering the likely perception that many of these "bad actors" come from abroad the Report imparts the story of a New Jersey man and wife who were (admittedly) selling "misbranded and unapproved drugs" online, which had no therapeutic value.
The third section, entitled "Enforcement Against Counterfeiting," reassures to the extent that there are "[s]trong enforcement measures that exist in the United States to combat the growing threat of counterfeit medicines." Examples include Department of Justice (DOJ) successes in indicting 18 persons "for allegedly selling, manufacturing, and shipping millions of pills disguised as legitimate pharmaceuticals," with conviction providing for "a mandatory minimum of 20 years in prison and a maximum penalty of life in prison." Additional DOJ successes include "seiz[ing] nine website domains used by the defendants and their co-conspirators to sell counterfeit pills and seizing hundreds of pounds of such counterfeits." In another case, the CEO of "a nationwide dark net drug trafficking organization was sentenced to life in prison for the manufacture and sale of more than a half million counterfeit pills throughout the United States," some of which included fentanyl sourced from China. Perhaps less comforting is the outcome of an investigation of several Canadian companies shown to have "circumvented" FDA approval and having shipped "unapproved, misbranded, and counterfeit prescription drugs into the United States"; the penalty was forfeiture of the websites used to order the drugs, five years of probation, and disgorgement of $29 million of proceeds from the sites, with the "leader" fined $250,000 and given five years' probation (with the first six months including home confinement).
One agency responsible for such investigations is the FDA's Office of Criminal Investigations (OCI) Cybercrime Investigations Unit. This agency was responsible in 2017 for seizing 4,229 internet domain names for "selling misbranded, adulterated, and counterfeit devices and drugs, including illicit opioids.
The Report acknowledges that an important challenge to enforcement efforts is that many (but not all) of these illicit online pharmacy websites (and source of the counterfeit drugs) are located abroad. Agencies involved in interdicting importation of counterfeit drugs include U.S. Customs and Border Protection (CBP), which has seized "millions of counterfeit goods (only some of which are drugs); in 2023 such drug counterfeits amounted to more than 1.5 million items. Such seized items are then inspected by FDA. The U.S. Postal Service is also involved in identifying counterfeit drugs sent by mail, and in 2021 FDA received almost 70,000 drug products received at international mail facilities and sent for analysis, some of which were opioids.
Despite these successes, the Report acknowledges that the overseas aspect of the problem limits the regulatory and enforcement capacity for U.S. agencies to be even more effective. Some of these efforts involve "urging its trading partners to provide law enforcement with the tools needed to combat counterfeiting" and to "urge trading partners to undertake more effective criminal and border enforcement against the manufacture, import, export, transit, and distribution of counterfeit goods." These urgings include "bilateral consultations, trade agreements, and international organizations to help ensure that penalties" (which can include monetary fines and imprisonment) as well as seizure and destruction of counterfeit pharmaceuticals identified by such foreign agencies.
This Issue Focus section of the report concludes by reemphasizing the "significant health and safety risk to consumers" posed by the "proliferation of illicit online pharmacies." Moreover:
Like the falsified branding of the medicines they sell, illicit online pharmacies seek to appear as legitimate platforms to exploit the misplaced trust of unaware consumers. Counterfeit medicines are manufactured outside the strict regulatory and inspection systems of genuine pharmaceuticals, and they are then sold through platforms also operating outside the law and evading oversight. Consumers must continue to be made aware of the risks associated with purchasing medications through illicit unlicensed online pharmacies and strong enforcement measures must continue to be implemented to combat the growing threat of counterfeit drugs. Adequate and effective enforcement against counterfeiting plays a key role in reducing the potential dangers of counterfeit products, including counterfeit medicines.
The Notorious Markets Report echoes (with regard to pharmaceutical products) comments made in the 2024 Special 301 Report issued in the spring. These include:
Counterfeit pharmaceuticals remain a particular concern as a growing problem with "important consequences for consumer health and safety [that are] exacerbated by the rapid growth of illegitimate online sales . . . [and] contributes to the proliferation of substandard, unsafe medicines that do not conform to established quality standards." Most of these goods confiscated by the U.S. were sourced from India, Singapore, and China, the Report alleges, and transshipped through China, India, Pakistan, Indonesia, the Philippines, and Vietnam. The Report also states that counterfeit U.S. brand-name medicines amount to 38% of global counterfeit medicine seizures and that "substandard or falsified medical products comprise 10% of total medical products in low- and middle-income countries" (although the Report qualifies this statement with the caveat that "it may not be possible to determine an exact figure" for the latter statistic). These trends are increasingly exacerbated by use of on-line pharmacies, with illicit providers comprising "between 67% to 75% of web-based drug merchants" according to a 2020 study. And these counterfeit items are being distributed by "legitimate express mail, international courier, and postal services to ship counterfeit goods in small consignments" rather than large cargo ships, making detection and enforcement more difficult.
With regard to pharmaceuticals and medical devices and market access for U.S. products, the Report contends that "[t]he COVID-19 pandemic has highlighted the importance of pharmaceutical, medical device, and other health-related innovation, as well as a lack of widespread, equitable distribution of these innovations," including the need for fighting current as well as future pandemics. The Report thus seems to seek to strike a balance between "adequate and effective protection for pharmaceutical and other health-related IP around the world to ensure robust American innovation in these critical industries to fight" in this and future pandemics and "access to medicines in developing economies [that] is important to development itself."
The Report notes that, paradoxically while the USITC Report evinces the reality that "the price of medicines can be untenably high for some countries" another report shows that "low and middle-income countries maintain the highest tariffs on medicines and pharmaceutical inputs among the World Trade Organization (WTO) Members" and that "large developing countries" (Brazil, India, and Indonesia) have the highest tariffs for these products. Exacerbating these problems are "unreasonable regulatory approval delays and non-transparent reimbursement policies" that "discourage the development and marketing of new drugs and other medical products" according to the Report. The U.S. in the past year has monitored, enforced, or engaged with trading partners (China, Canada, Mexico, Japan and India) in efforts to remedy these impediments to efficient global access to medicines while protecting IP rights. The Report notes that stakeholders have "expressed concerns" about practices in Australia, Brazil, Canada, China, Colombia, Japan, Korea, Mexico, New Zealand, Russia, Saudi Arabia, and Turkey "on issues related to pharmaceutical innovation and market access," providing specific examples for each country.
The relevant governmental agencies have identified the problem. Solutions have been more difficult to come by.
These problems are not of course new and are not limited to the U.S.; over 15 years ago the Wall Street Journal reported that such problems were endemic in Venezuela; see "Ironically, It Seems Big Pharma Is Preferred by Venezuelan People".
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