PhRMA comments to USTR on ACTA

Written by James Love
Wednesday, 09 July 2008

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA (PhRMA) ANTI-COUNTERFETING TRADE AGREEMENT (ACTA) COMMENTS 

March 21, 2008

By E-Mail

Office of the U.S. Trade Representative 600 17th Street, N.W.

Washington, D.C. 20508

Attention: Rachel Bae

Re: Anti-Counterfeiting Trade Agreement – PhRMA Response to Request for Written Comments 73 Fed. Reg. 8910 (Feb. 15, 2008)

Dear Ms. Bae:

The Pharmaceutical Manufacturers of America (PhRMA) appreciates the opportunity to comment on the Anti-Counterfeiting Trade Agreement ("ACTA") in response to the above­ referenced Federal Register notice. As a representative of America's leading research-based pharmaceutical and biotechnology companies, PhRMA strongly supports' the objectives of ACTA and urges USTR to develop a framework of commitments that will serve as a gold standard for pharmaceutical anti -counterfeiting enforcement efforts throughout the world.

I. Background on Pharmaceutical Counterfeiting

Counterfeit medical products are manufactured, marketed and sold with the deliberate intent to deceive purchasers as to the source or nature of the product. As such, they pose a very serious risk to the health and safety of consumers worldwide. In 2006, for example, the U.S. Food and Drug Administration alerted the American public to the existence and threat of fraudulent flu remedies. And over the past decade, thousands of deaths have resulted from counterfeit vaccines (Niger), cough medications (Haiti) and antimalarials (Cambodia), disproportionately afflicting the world's poorest and most vulnerable persons. These examples are merely the tip of the iceberg and represent the small percentage of cases actually known and reported.

Although the volume of counterfeit drugs in today's global market is difficult to quantify, the problem appears to be growing in magnitude, scope and sophistication. One report estimates that counterfeit drug sales will reach US$75 billion globally in 2010, an increase of more than 90% from 2005.¹ According to the WHO, the prevalence of counterfeit drugs ranges from 10 to 30 percent in developing markets that lack adequate oversight and enforcement, to less than 1 percent in developed markets with rigorous drug safety controls. Nevertheless, even the most tightly regulated drug supply chains are not impervious to counterfeits. The United States and European Union have witnessed a significant increase in counterfeit drug imports in recent years. The U.S. FDA investigated 53 cases of drug counterfeiting in 2006 (up from 32 cases in 2005),² and the U.S. Immigration and Customs Enforcement has initiated close to 200 criminal investigations of counterfeit pharmaceutical smuggling since 2003. U.S. customs seizures of counterfeit pharmaceuticals surged in 2007 to over $11.1 million in illicit imports, an almost 500 percent increase over the previous year.³ European customs reported seizures of 2.7 million articles of counterfeit medicines in 2006 alone, an increase of 384 percent from 2005.⁴

The Internet plays a large role in the increased domestic and international sales of counterfeit medicines.⁵ According to U.S. Immigration and Customs Enforcement (ICE), the Internet has become the primary tool for criminals organizations to sell, and the primary mechanism for consumers to find, counterfeit medicines.⁶ The WHO estimates that medicines purchased from rogue Internet sites that conceal their actual physical address are counterfeit in over 50 percent of cases.⁷ Investigations by the U.S. FDA suggest an even greater risk of counterfeit drugs. For example, in 2005 the FDA found that 85 percent of Internet drugs from so-called "Canadian" websites actually came from 27 other countries, including India, Costa Rica and Vanuatu.⁸ Recent research by the European Alliance for Access to Safe Medicines indicates that 93% of online pharmacies do not have a named, verifiable pharmacist to answer questions, and 95% are not licensed by a pharmacy board or listing.⁹ The anonymous and unregulated nature of the Internet provides a fertile breeding ground for sellers of counterfeit and illegal medicines.

However, the counterfeit drug trade is not limited to Internet purchases or illicit channels of commerce. By exploiting parallel trade and weaknesses in drug distribution oversight, counterfeiters can penetrate all stages of the otherwise legitimate distribution chain.

As drug counterfeiting activities have expanded in volume and reach, so too have the types of pharmaceutical products impacted by counterfeiting. In the poorest markets, counterfeiters more often target anti-infectives, such as anti-malarial drugs, HIV therapies and vaccines. In developed countries, the range of counterfeit products is often broader- including cancer therapies, cardiovascular medicine, and "lifestyle" drugs because of the lure of high profits with little risk of detection and punishment. With that said, counterfeiters do not discriminate; they will prey on any patient in need of treatment, no matter their resources, age, illness or geographic location.

To help combat the spread of counterfeit drugs, PhRMA and its member companies are actively engaged in a broad range of domestic and international outreach and educational activities. In addition, our members utilize anti-counterfeiting technologies that help secure legitimate products and distribution channels and make it more difficult for counterfeiters to evade detection. However, while these technologies are helpful in resisting counterfeiting, they are by no means a silver bullet and cannot secure the safety of the global drug market. Anti­counterfeiting markers on packaging are most effective as deterrents when supported by interactive processes that interrogate the package or product and verify the trade as legitimate as soon after the transaction takes place as possible (i.e., electronic pedigree systems).

Private sector initiatives must be complemented by active government oversight and enforcement of each link in the drug supply chain, fmm the supply of bulk chemicals to the export of finished products. It is equally critical that governments expressly address and prioritize drug counterfeiting as a serious health and safety offense that warrants administrative and criminal liability, rigorous enforcement and tough, deterrent penalties. To succeed, the war against counterfeit drugs demands the same commitment of law enforcement resources, interagency coordination and multilateral cooperation that we bring to other global organized crime activities.

Despite the very serious dangers of counterfeit drugs, very few countries have enacted laws that expressly address pharmaceutical counterfeiting, per se, or the full range of upstream and downstream activities that contribute to the manufacture and supply of counterfeit medicines. Instead, drug counterfeiting activities are typically covered by a patchwork quilt of laws and. regulations typically administered by different agencies and law enforcement authorities. The most significant of these are the drug safety laws that regulate the pharmaceutical supply chain and the trademark laws that guard against infringing uses of pharmaceutical brands.

However, neither trademark nor drug safety laws are an adequate substitute for measures specifically targeting drug counterfeiting offenses. The hallmark of a counterfeit medicine is deception as to identity or source, which often but not always entails the unauthorized use of another party's trademark or use of a trademark that is confusingly similar thereto. Moreover, while trademark laws provide a valuable weapon against drug counterfeiters, pharmaceutical counterfeiting has significant public health ramifications far beyond issues of brand integrity. Even in countries with strong IP regimes, trademark laws are inherently incapable of protecting drug distribution channels against the full spectrum of activities that contribute to the proliferation of counterfeit medicines.

Similarly, drug safety laws are designed to regulate legitimate manufacturers and domestic supply channels, and thus are typically ill-equipped to combat the underground criminal organizations that manufacture and distribute counterfeit medicines throughout the world. These entities operate outside the framework of the health and safety regulatory environment. Moreover, the effectiveness of such laws is often undermined by non-deterrent penalties, inadequate enforcement and weak coordination among drug regulators, customs and criminal law enforcement authorities. Also problematic is the fact that many countries limit administrative and/or criminal remedies to "substandard", "adulterated" or "harmful" drugs. These limitations significantly slow, and in many cases prevent, effective enforcement against pharmaceutical counterfeiters and ignore the inherent dangers of any deceptively labeled medicine.

Finally, there is very little oversight of the upstream suppliers of bulk chemicals and downstream wholesalers and pharmacies that contribute to the manufacture and flow of counterfeit medicines, and virtually no attention paid to the cross-border activities of these entities, particularly with respect to Internet distribution channels. Existing laws and associated border measures are typically focused solely on domestic supply channels, ignoring altogether the fact that the majority of counterfeit medicines and bulk chemicals are destined for export markets.

ACTA provide an important opportunity for the U.S. Government to address each of these deficiencies and lay the foundation for stronger drug counterfeiting laws and remedies throughout the world. With that goal in mind, we urge USTR to ensure that ACTA expressly address pharmaceutical counterfeiting offenses and, in particular, incorporates each of the measures recommended below.

II. Recommendations to Strengthen Enforcement against Pharmaceutical Counterfeiting

A.  Define Counterfeit Medical Products and Expressly Prohibit Related Counterfeiting Offenses

Recommendation: Require ACTA parties to (i) codify a definition of counterfeit medical products that encompasses any unauthorized pharmaceutical product or medical device that is deceptively misidentified as to the source or nature of the product, and (ii) prohibit all activities involving the manufacture, sale, distribution, import and export of counterfeit medical products.

Very few countries have codified a comprehensive definition of counterfeit medical products that encompasses any deceptively misidentified drug or medical device. Similarly, few jurisdictions prohibit all activities involving the manufacture, sale, distribution, importation and exportation of counterfeit medical products.

Without an explicit, comprehensive definition of counterfeit medical products and pharmaceutical counterfeiting offenses, it is all but impossible to wage a coordinated attack against each link in the counterfeit supply chain, and very difficult to report and track drug counterfeiting activity. To provide adequate enforcement against drug counterfeiting activities, it is essential that ACT A members agree to establish a framework of laws and remedies that specifically targets drug counterfeiting offenses.

i. Definition of Counterfeit Medical Products

As a starting point, ACT A should require each member state to codify a definition of counterfeit medical products that encompasses any unauthorized pharmaceutical product or medical device that is deceptively misidentified as to the source or nature of the product. Both the WHO definition of "counterfeit medicines" and the U.S. definition of a "counterfeit drug" serve as potential models for ACTA.

The WHO defines a counterfeit medicine as "one which is deliberately and fraudulently mislabeled with respect to identity and/or source" (emphasis added).¹⁰ The WHO further notes that “[c]ounterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient active ingredients or with fake packaging.”¹¹This same approach is reflected in the U.S. Food, Drug, and Cosmetic Act (“FDCA”), which defines a “counterfeit drug” as:

"a drug which, or the container or labeling of which, without authorization, bears the trademark, trade name, or other identifying mark, imprint, or device, or any likeness thereof, of a drug manufacturer, processor, packer, or distributor other than the person or persons who in fact manufactured, processed, packed, or distributed such drug and which thereby falsely purports or is represented to be the product of, or to have been packed or distributed by, such other drug manufacturer, processor, packer, or distributor."

Thus, under both the WHO and FDCA definitions, an unapproved drug need not be adulterated or substandard to qualify as a "counterfeit" medical product (though many, in fact, are). Instead, the key feature of a counterfeit medical product is deceptive misidentification of the product, no matter what form that deception may take. Counterfeiters are keenly aware of drugs under development and often seek exclusive "marketing" opportunities by offering fake formulations of such drugs prior to regulatory approval in one or more markets. Moreover, each of these definitions clearly excludes legitimate, authorized medical products that fail to comply with GMP or other quality standards. GMP violations by legitimate manufacturers are more appropriately dealt with under drug safety laws and should not be treated as counterfeiting offenses.

PhRMA recommends that ACTA adhere to these same definitional standards, i.e" the definition of a counterfeit medical product should include any deceptively, misidentified pharmaceutical or medical device, without the need to prove physical or qualitative differences, and the definition should exclude authorized products that fail to meet regulatory drug safety standards.

ii. Explicit Prohibitions against Pharmaceutical Counterfeiting Offenses

As noted above, the fact that few countries recognize pharmaceutical counterfeiting as a specific administrative offense or crime, separate from trademark or drug regulatory violations, is one of the chief obstacles to effective enforcement against drug counterfeiting activities. To rectify this deficiency, ACTA should require each member to prohibit expressly all activities involving the manufacture, sale, distribution, importation and exportation of counterfeit medical products.

Here again, both WHO guidelines and the U.S. FDCA provide a potential model for ACTA. In particular, under model legislative principles recently adopted by the WHO International Medical Products Anti-counterfeiting Task Force ("IMPACT"), member: states are encouraged to recognize the following pharmaceutical counterfeiting offenses, regardless of the monetary value or volume involved.¹²

• manufacture a counterfeit product,

• own, possess or control counterfeit medical products in transit, trans-shipment, free trade zones, bonded-warehouses and other situations of international commerce,

• introduce into the distribution chain any counterfeit medical product by any means, including but not . limited to, selling, delivering, distributing, importing, exporting, donating, storing or otherwise supplying others with a counterfeit medical product;

• own, possess or control counterfeit medical products that are likely to enter the distribution chain;

• design, produce, print, sell, deliver, distribute, import, export, donate or otherwise supply others with any packaging material or labels, intended for a counterfeit medical product;

• manufacture, transport, or distribute any equipment, materials, components (including genuine articles) or documentation used in the production of, or to accompany the distribution of, counterfeit medical products with the knowledge or being reckless to the fact that they be used for such purposes;

provide services such as on-line services, electronic-sale platforms, electronic payments, or transportation when providers have reasonable grounds to believe or notice has been given to them by the appropriate authorities of such services being exploited by persons engaged in any of the offences described above; and

• conspire to commit, attempt to commit, aid, abet, counsel, facilitate, or incite any of the offences set forth in these provisions.

In a more concise manner, the FDCA recognizes the following drug counterfeiting offenses:

• Making, selling, disposing of, or keeping in possession, control, or custody, or concealing any punch, die, plate, stone, or other thing designed to print, imprint, or reproduce the trademark, trade name, or other identifying mark, imprint, or device of another or any likeness of any of the foregoing upon any drug or container or labeling thereof so as to render such drug a counterfeit drug; and¹³

• The doing of any act which causes a drug to be a counterfeit drug, or the sale or dispensing, or the holding for sale or dispensing, of a counterfeit drug.¹⁴

In each case, the goal of the WHO guidelines and U.S. law is to capture the full range of domestic and cross-border activities that contribute to the national and international proliferation of counterfeit medical products. ACTA should reflect an equally comprehensive approach to pharmaceutical counterfeiting offenses.

B.  Provide Strong Administrative and Criminal Penalties for Pharmaceutical Counterfeiting Offenses

Recommendation: Provide effective administrative and criminal remedies and tough, deterrent penalties for all offenses involving counterfeit medical products, without the need to prove threatened or actual harm or meet other burdensome evidentiary requirements.

Pharmaceutical anti-counterfeiting enforcement efforts are hindered by weak and sometimes nonexistent administrative and criminal remedies, inadequate penalties and burdensome evidentiary requirements. To provide a solid foundation of enforcement tools, it is imperative that ACTA require each member state to provide both criminal and administrative remedies for drug counterfeiting offenses, without the need to prove threatened or actual harm, accompanied by tough, deterrent penalties. In addition, such laws must provide administrative and criminal law enforcement officials with the full range of enforcement tools needed to investigate and defeat sophisticated counterfeiting operations. It should be noted that the enforcement involvement of the legitimate brand owner or IP right holder is constrained by the fact that they do not have legal or regulatory control over the disposition of counterfeit goods. Therefore, immediate and decisive response by enforcement authorities is the best means of protecting the consumer.

In that regard, we strongly support USTR's stated goal to build within ACTA the types of IP enforcement provisions found in the U.S. Free Trade Agreements ("FTAs"), and we urge that comparable enforcement measures apply to offenses involving counterfeit medical products.

C.  Provide Effective Border Enforcement against the Importation and· Exportation of Counterfeit Medical Products

Recommendation: Provide customs officials with explicit authority to stop the importation, exportation and transshipment of counterfeit medical products.

Customs officials are a critical line of defense against cross-border trade in counterfeit medical products, and yet all too often lack explicit authority to seize inbound and outbound shipments of counterfeit pharmaceuticals and medical devices. Here again, PhRMA recommends that ACTA include the strong border enforcement measures found in the U.S. FTAs and extend all such measures to the importation and exportation of counterfeit medical products. Furthermore, PhRMA recommends that where health and safety are at stake, appropriate authority should be vested in customs and border protection agencies to intervene or intercept medical products that are being moved through a country through a free trade zone or transshipment area to a destination where such product would be illegal. Appropriate mechanisms should ° be put in place to share information on a timely manner between rights holders, marketing license holders, health ° regulatory agencies, and customs agencies to address these types of shipments. Border enforcement authority should extend to free trade zones, which are often used to make, market or re-label counterfeit drugs, and to counterfeit imports and components destined for transshipment. Of course, this increase in authority implies that customs personnel are equipped with the knowledge to spot counterfeits as goods, are inspected. PhRMA members routinely work with customs agents to provide the training and product information needed for them to properly distinguish genuine from fake medical products. In some instances, illegal product is sent back to the original sender only to be resent into the destination country by the suspect party. If the shipment of a product across a border is illegal, customs authorities should have adequate authority, resources and facilities to destroy such product in a timely manner.

Moreover, without effective controls against diversion, parallel trade in pharmaceuticals becomes a potential pathway for the introduction of counterfeit medical products. ACTA members should also be required to prohibit the distribution of medical products diverted from legitimate distribution channels and such distribution of diverted products should be treated as a counterfeiting offense.

D. Strengthen Enforcement against Each Link in the Drug Counterfeiting Channel

Recommendation: Ensure that criminal and administrative remedies extend to all upstream and downstream links in the drug counterfeiting channel, including the supply of unauthorized bulk chemicals and the distribution of finished counterfeit products.

Effective anti-counterfeiting enforcement depends critically upon law enforcement's ability to block so-called chokepoints in the counterfeiting manufacture and distribution channel, from the upstream supply of raw materials to the downstream distribution of finished products. In the case of counterfeit medical products, this holistic approach to enforcement necessitates effective enforcement tools and remedies to stop the unauthorized manufacture and supply (both domestic and international) of the bulk chemicals used to produce counterfeit medical products, as well as measures to prevent the unauthorized wholesale and retail distribution of counterfeit products.

To address the supply of bulk chemicals and other materials used to produce and market counterfeit medical products, ACTA should require members to recognize as an administrative and criminal offense the manufacture, transport, distribution, importation and exportation of any equipment, materials, components or documentation used in the production or distribution of counterfeit medical products, consistent with the WHO guidelines specified above. Similarly, ACTA should expressly prohibit all acts involving the wholesale or retail distribution of counterfeit medical products, whether through traditional brick and mortar operations or Internet pharmacies or other online outlets. .

E.  Establish liability for Internet Service Providers and Other Operators that Facilitate Trade in Counterfeit Medical Products

Recommendation: Expressly prohibit online activities that directly or indirectly facilitate trade in counterfeit medical products and provide legal incentives for ISPs and online intermediaries to cooperate with legitimate manufacturers in combating counterfeiting activities.

Much of the explosive growth in sales of counterfeit medical products can be attributed to Internet pharmacies, spammers and other online distribution and marketing activities. Thus, in order for ACTA to achieve its stated goals, it must expressly address the full range of online activities that facilitate marketing and distribution of counterfeit medical products.

It may be appropriate to require some form of registration or licensure for Internet pharmacies and to require them to meet minimum requirements that protect against counterfeits, using standards in place for brick-and-mortar pharmacies.

Because of the anonymous and unregulated nature of the Internet, enforcement efforts are very difficult and often resemble the carnival game "whack a mole". Efforts must be targeted toward intermediaries that facilitate online commerce. Search engines should be required to remove from search results (natural and sponsored) websites pages advertising counterfeit medicines. Payment service providers (credit card companies) should be required to stop processing financial transactions for illegal online pharmacies. ISPs hosting illegal pharmacy sites should be required to disable Internet access to those sites.

We note that Korea recently implemented a system for taking down web sites selling counterfeits, and recommend examination of that system for possible adaptation and use in other countries to combat online counterfeit medicines. Legitimate online pharmacies should be easily identifiable by prospective purchasers by maintaining their official registration through a third party database. In addition, Internet pharmacies should be required to verify that all orders are initiated by a licensed prescriber not associated with the site.

Beyond penalizing Internet pharmacies and other online operators that knowingly and directly engage in drug counterfeiting offenses, ACTA members should provide legal incentives for Internet service providers to cooperate with legitimate manufacturers in deterring the unauthorized distribution and marketing of counterfeit medical products. Such measures, which would be analogous to U.S. FTA provisions on online piracy and could include immunity from liability for claims arising from such cooperation, would significantly enhance the ability of legitimate drug manufacturers to combat deceptive online practices that facilitate the counterfeit drug trade.

F. Promote Cooperation Among Law Enforcement Officials, Educate Consumers, and Create Tracking and Reporting Mechanisms

Recommendations: Develop international programs to (i) facilitate cooperation among law enforcement officials tasked with drug counterfeiting enforcement; (li) educate all stakeholders about the inherent dangers of counterfeit medicines; and (iii) develop harmonized, international mechanisms to report and track drug counterfeiting activity and enforcement actions worldwide.

The United States is at the forefront of global efforts to promote training of, and cooperation among, law enforcement officials responsible for IP enforcement efforts. However, international programs of this type typically have not focused on, or included all agencies tasked with, drug counterfeiting enforcement. To address the clear need for greater expertise and multinational coordination among officials tasked with enforcement against pharmaceutical counterfeiting offenses, ACTA should require international law enforcement programs that specifically address the unique aspects of the drug counterfeiting trade and bring together all responsible officials, including IP and criminal law enforcement officers, drug regulatory authorities, customs agents and legitimate manufacturers. Similarly, ACTA members should include among their outreach efforts programs designed to educate all public and private stakeholders, particularly consumers and healthcare providers, on the inherent dangers of counterfeit medical products.

Finally, to better understand the scope, source and impact of drug counterfeiting activities and assess the effectiveness of ACTA-related enforcement efforts, it is imperative that ACTA members develop harmonized systems for tracking and reporting incidences of counterfeit medical products, resulting investigations and prosecutions, and the ultimate administrative or judicial resolution of such cases.

* * *

In conclusion, PhRMA commends USTR for its leadership in developing a framework of strong, harmonized enforcement tools and remedies to combat the global proliferation of counterfeit medical products. PhRMA and its member companies look forward to working with U.S. Government officials as the ACTA negotiations proceed, and stand ready to provide any additional information that might be useful to support the negotiations.