Vol. 1 Anti-Counterfeiting Trade Agreement (ACTA) Public Comments (USTR)

Statistics are one thing; useful statistics are quite another. Empirical, reliable and transparent statistics about drug counterfeiting are virtually non–existent. In an excellent article, Robert Cockburn and his co–authors examined the paucity of transparent data and called for mandatory public reporting.9 Drug companies are reluctant to release information that might harm the marketing efforts for their branded products.10 The only comprehensive global collection point for counterfeit drug information is the Pharmaceutical Security Institute (PSI), a trade organization established by the security directors of 14 major global drug companies.11 In October 2004, one of us (KO) asked PSI for access to their database as a researcher, but was told they do not release information to the public.12 Instead, I Websites Selling Counterfeit Contraceptive Patches (Feb. 12, 2004), available at http://www.fda.gov/bbs/topics/NEWS/2004/NEW01023.html.

5 HHS TASK FORCE ON DRUG IMPORTATION, U.S. DEP’T OF HEALTH AND HUMAN SERVICES, REPORT ON PRESCRIPTION DRUG IMPORTATION IX–X (Dec. 2004), available at http://www.hhs.gov/importtaskforce/Report1220.pdf.

6 See Anthony F. Andrisano, Jr., To the U.S. Government: Whether or not Reimportation Is the Answer, Something Must Be Done to Help Americans Afford Their Necessary Prescription Drugs!, 23 PENN STATE INT’L L. REV. 897, 900 (2005) (discussing generally the advent of counterfeit drug sales over the Internet); see also Bryan A. Liang, International Drug Importation: Issues in Public Policy, Patient Safety, and the Public Health, 36 CAL. W. INT’L L.J. 1, 4–5 (2005) (explaining that Americans spend approximately $800 million in medicines from across the Mexican border, much of which is counterfeit).

7 See Liza Gibson, Drug Regulators Study Global Treaty to Tackle Counterfeit Drugs, 328 BRIT. MED. J. 486 (2004), available at http://bmj.bmjjournals.com/ cgi/content/full/328/7438/486-c (stating that the counterfeit drug trade affects between 5% and 7% of the worldwide market).

8 See, e.g., Judith A. Oulton, Commentary, Counterfeits Kill—What Are We Doing About Them?, 52 INT’L NURSING REV. 91 (2005), available at http://www.icn.ch/INR/INR52-2%20InsideView.pdf (stating that “[c]ounterfeit medicines make up more than 10% of today’s global medicines”).

9 Robert Cockburn et al., The Global Threat of Counterfeit Drugs: Why Industry and Governments Must Communicate the Dangers, 2 PLOS MEDICINE 302, 303 (2005), available at http://medicine.plosjournals.org/archive/1549- 1676/2/4/pdf/10.1371_journal.pmed.0020100-L.pdf.

10 Id. at 302–04. See Robert Cockburn, Death by Dilution, AM. PROSPECT, Dec. 20, 2005, available at http://www.prospect.org (describing a situation where GlaxonSmithKline refused to release information about potential counterfeits because of the negative effect it would have on business).

11Pharmaceutical Security Institute, About PSI, http://www.psi- inc.org/about.cfm (last visited Oct. 1, 2006).

12 See E-mail from Dr. Sebastian J. Mollo, Pharmaceutical Security Institute, to Kevin Outterson (on file with author).

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III. A NEW PHARMACEUTICAL LEXICON IS NEEDED

One of the most important challenges is unpacking what is meant by the terms fake or counterfeit drugs. The WHO has a widely–disseminated definition which emphasizes deliberate mislabeling as to identity or source.27 Less precise terms are used in press accounts28 and by the U.S. and E.U. drug regulatory agencies.29 In some cases, the terms fake or

27 See WHO FACT SHEET, supra note 3:
“Counterfeit medicines are part of the broader phenomenon of substandard pharmaceuticals. The difference is that they are deliberately and fraudulently mislabeled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products and counterfeit medicines may include products with the correct ingredients but fake packaging, with the wrong ingredients, without active ingredients or with insufficient active ingredients.”

The FDA definition is broader, including drugs with improper dosages, sub– potent or super–potent ingredients, or contamination. COUNTERFEIT DRUG TASK FORCE, U.S. FOOD DRUG AND ADMIN., COUNTERFEIT DRUG TASK FORCE INTERIM REPORT (Oct. 2003), available at http://www.fda.gov/oc/initiatives/counterfeit/ report/interim_report.html [hereinafter COUNTERFEIT DRUG TASK FORCE INTERIM REPORT]. This definition conflates counterfeits with poorly manufactured or stored products.

28 See, e.g., Prescription for Danger Counterfeit Drug Trade Grows, CBS NEWS, Aug. 2, 2001, available at http://www.cbsnews.com/stories/2002/01/31/ health/main327265.shtml (“There’s no single definition for counterfeit drugs. They may contain dangerous substitutes instead of the real ingredients. Or they may be much like ‘the real thing’—only expired, or not approved for sale in the [United States].”).

29 See Importation of Prescription Drugs into the U.S. and the use of the Internet: Hearing Before the S. Comm. on the Judiciary, 108th Cong. (2004) (statement of William K. Hubbard, U.S. FDA Associate Comm’r for Policy and Planning), available at http://www.fda.gov/ola/2004/importeddrugs0714.html [hereinafter William K. Hubbard]; Heather Won Tesoriero, Fake–Drug Sites Keep a Step Ahead: One is Busted for Selling Bogus Pharmaceuticals; New Vendor Grabs Address, WALL ST. J., Aug. 10, 2004, at D4 (describing generic versions which were substituted for brand name drugs still patented in the United States as counterfeits); see also Options for Safe and Effective Prescription Drug Importation: Hearing Before the S. Comm. on Commerce, Science & Transportation, 108th Cong. (2004) (statement of Mark McClellan, Comm’r of the Federal Drug Administration), available at http://commerce.senate.gov/hearings/testimony.cfm?id=1105&wit_id=3132 (discussing “unapproved, imported pharmaceuticals,” “unsafe and illegal drugs,” and “ineffective, counterfeit drugs”) [hereinafter Mark McClellan]; COUNTERFEIT DRUG TASK FORCE INTERIM REPORT, supra note 27 (“Counterfeit drugs pose significant public health and safety concerns. They may contain only inactive ingredients, incorrect ingredients, improper dosages, sub–potent or super– potent ingredients, or be contaminated.”); Position Paper, Eur. Fed’n of Pharm. Indus. & Ass’ns, International Exhaustion of Trade Mark Rights (Apr. 2001), available at http://www.efpia.org/4_pos/legal/protecpatients.pdf [hereinafter EFPIA](describing the range of products that may be considered counterfeit by counterfeit have included a wide range of drug products, from those resulting in criminal acts of homicide, to placebos, to safe and effective drugs from Canada.

These terms are frequently conflated in unhelpful ways. For example, an August 10, 2004 article on Internet drug purchases in the Wall Street Journal used the words fake or counterfeit many times before mentioning that FDA lab tests “showed that most of the drugs contained too much active ingredient, making the fakes potentially harmful.”31 These drugs may be poorly produced, or too strong by U.S. standards, but they should not be lumped together with criminal counterfeits.32 Each of these categories feature distinct causes, effects, and potential remedies. Conflating these categories needlessly confuses the issues. The following sections begin the process of building a pharmaceutical lexicon that is more descriptive and helpful.

A. The Good

Good drugs are safe, effective and less expensive, but can violate some technical requirement of U.S. law.33 A prime example is prescription drugs purchased by U.S. citizens from

the WHO and the European Pharmaceutical Trade Association and those groups’ corresponding concerns).

30 See Paul N. Newton et al., Editorial, Murder by Fake Drugs: Time for International Action, 324 BRIT. MED. J. 800, 801 (2002), available at http://bmj.bmjjournals.com/cgi/content/full/324/7341/800; Carmen Catizone & Peter Wyckoff, Should Consumers be Allowed to Buy Drugs From Canada?, AARP BULLETIN, May 2003, available at http://www.aarp.org/bulletin/faceoff/ a2003-06-25-shouldconsumers.html.

31 Tesoriero, supra note 29, at D4; see also Mark McClellan, supra note 29 (discussing “unapproved, imported pharmaceuticals” and “unsafe and illegal drugs” with “ineffective, counterfeit drugs”). McClellan was the Commissioner of the Food and Drug Administration at the time; he currently heads the Centers for Medicare and Medicaid Services.

32 The trade association of European pharmaceutical research companies and the WHO use the broader definition. EFPIA, supra note 29 (explaining that “‘[c]ounterfeiting can apply to both branded and generic products and … may include products with the correct ingredients, wrong ingredients, without active ingredients, with insufficient quantity of active ingredient or with fake packaging’.”). My point is not to argue whose definition is “right,” but to demonstrate the analysis which is possible when using a narrower definition.

33 See Internet Drug Sales: Hearing Before the H. Comm. on Gov’t Reform, 108th Cong. (2004) (statement of William K. Hubbard, Associate Comm’r, Federal Drug Administration), available at http://www.fda.gov/ola/ 2004/internetdrugs0318.html (noting that legitimate Internet pharmacies provide important services to patients but some sell unapproved drugs, drugs without a required prescription or drugs to patients without valid health problems). Brick and mortar pharmacies in Canada.34 The purchase is legal, but the FDA states that bringing these drugs back into the United States violates federal law.35 These are safe and effective drugs purchased in person in Canada, but the consumer violates the U.S. personal importation rule by bringing them back to the United States for personal use.

In many important respects these drugs should not be confused with contaminated products peddled by criminal gangs. The first difference is safety and efficacy.37 Canadian drugs are just as safe and effective as drugs sold in the U.S. market.38 In fact, they are cheaper which makes them more effective because patient compliance with prescription drug regimes is higher when the drugs are affordable.39

The FDA studiously avoids this important point about financial access to drugs, despite the fact that financial access is the primary reason for the Canadian cross–border prescription

34 Donna Young, FDA Clarifies Importation Law As Internet Pharmacies Proliferate, AM. SOC’Y OF HEALTH-SYS. PHARMACISTS, April 15, 2003, available at http://www.ashp.org/news/ShowArticle.cfm?id=3365) (last visited Oct. 30, 2006).

35 Id.; 21 U.S.C. § 331(a), (d), (t) (2000 & Supp. III 2004); 21 U.S.C. § 381(d)(1) (2000 & Supp. III 2004).

36 Young, supra note 34; 21 U.S.C. § 331(a), (d), (t); 21 U.S.C. § 381(d)(1); see also OFFICE OF REGULATORY AFFAIRS, U.S. FOOD AND DRUG ADMIN., REGULATORY PROCEDURES MANUAL CH. 9: IMPORT OPERATIONS/ACTIONS, SUBCHAPTER: COVERAGE OF PERSONAL IMPORTATIONS (2002), available at http://www.fda.gov/ora/compliance_ref/rpm_new2/ch9pers.html. (Chapter 9 is currently under revision as of Jun. 21, 2006). Many critics conflate this foot– traffic market, which is undoubtedly safe, with purchasing from Internet sites claiming to be from Canada. These are entirely different markets, with very different profiles on safety and efficacy.

37 See Patricia Barry, Prescription Drugs: The Rush to Buy Canadian, AARP BULLETIN, May 2004, available at http://www.aarp.org/bulletin/prescription/ a2004-05-12-buycanadian.html (reporting that a recent study revealed no difference in the active ingredients in drugs purchased from a Canadian Internet pharmacy and those purchased in the U.S.).

38 Id. Drugs purchased from Canada may actually be safer than similar drugs purchased in the U.S. RAM KAMATH & SCOTT MCKIBBIN, OFFICE OF SPECIAL ADVOCATE FOR PRESCRIPTION DRUGS, ILL. DEP’T OF CENT. MGMT. SERVICES, REPORT ON FEASIBILITY OF EMPLOYEES AND RETIREES SAFELY AND EFFECTIVELY PURCHASING PRESCRIPTION DRUGS FROM CANADIAN PHARMACIES 18 (2003) (finding Canadian and U.S. systems equivalent for most aspects, but finding the Canadian system superior in preventing the introduction of counterfeit drugs and incident reporting for internal process errors).

39 See In re Petition: to Provide Certification to Congress Under Section 804(l) of Chapter VII of the Federal Food, Drug and Cosmetics Act, and to Authorize a Pilot Program for Importation of Prescription Drugs in the State of Illinois: Before the Dep’t of Health and Human Services, 108th Cong. (2004) (aff. of Alan Sager, Ph.D.). Drug trade.40 This leads to the second distinction: this trade is not driven by criminals.41 United States residents fill prescriptions in Canada because the products appear fungible with a transparent price differential.42

The primary negative effect of Canadian cross–border foot traffic is the lost pharmaceutical patent rents.43 The patent– based pharmaceutical companies make a smaller profit when the prices are lower.44 Evaluation of whether this trade is socially positive must balance the benefits from more affordable drug access (static gains) against the potential dynamic losses from reduced patent rents.45 The dynamic effects may be positive if indeed current U.S. prices are supra–optimal.46 Social welfare is improved if the market expands by selling therapeutically- equivalent drugs to lower–income populations with highly elastic demand curves.47 Whether parallel trade is a net gain is

40  See Young, supra note 34 (noting that consumers will continue to purchase drugs from Canada until the United States can lower drug prices).

41 See id. (indicating that professional organizations made up of physicians and pharmacists are among those promoting the purchase of prescription drugs from Canada).

42 See Christopher Rowland, U.S. Steps Up Seizures of Imported Drugs; Warnings Sent for Prescriptions, BOSTON GLOBE, Mar. 26, 2006, at A1 (discussing how one American consumer was purchasing prescription drugs from a Canadian Internet pharmacy because it was less expensive, even with Medicare coverage).

43 See Kevin Outterson, Nonrival Access to Pharmaceutical Knowledge, Submission to the WHO Commission on Intellectual Property Rights, Innovation & Public Health, (Jan. 3, 2005), available at http://www.who.int/intellectualproperty/submissions/KevinOutterson3january.p df (indicating that patents allow drugs to be priced above the marginal cost of production).

44 See Marcia Angell, Excess in the Pharmaceutical Industry, 171 CAN. MED. ASS’N J. 1451 (2004) available at http://www.cmaj.ca/cgi/reprint/171/12/1451.pdf (stating “[e]xcess profits are, of course, the result of excess prices”); see also Barry, supra note 37 (quoting U.S. Senator Chuck Grassley who reported that drug companies “do not want to see their lower–priced products from other countries coming into the U.S. It undermines their profits here, and they will want to do everything they can to stop drug importation.”).

45 See Drug Importation: Would the Price Be Right?: Hearing Before the S. Comm. on Health, Education, Labor and Pensions, 109th Cong. (2005) (statement of Kevin Outterson, Associate Professor, West Virginia University College of Law), available at http://help.senate.gov/Hearings/ 2005_02_17/outterson.pdf (last visited Oct. 1, 2006).

46. 46  Pharmaceutical Arbitrage, supra note 25, at 197.
47. 47  Id. at 195; see generally Outterson, supra note 43 (explaining how charging

higher prices to low–income populations often results in mortality for those unable to afford the drugs).

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unknown.48 Most studies ignore the effect of lower prices in improving access,49 as well as the larger question of global optimality of pharmaceutical patent rents.50

A second example of a good drug is the unlicensed generic antiretroviral (ARV) drugs produced to address the AIDS treatment crisis in low– and medium–income countries. The Brazilian health minister threatened to issue a compulsory license for a second generation AIDS drug, Kaletra.51 US trade officials responded with quite intemperate language. A compromise was reached before the compulsory license was issued.52 Likewise, access to ARVs in Africa and other low– income populations was made possible when several companies and groups produced and used unlicensed generic ARVs.53 Many of these drugs were pre–qualified by the WHO.54 Some have now even been approved by the FDA,55 and yet they violate intellectual property (IP) law. These drugs provide affordable access to millions of people with AIDS.56

B. The Bad

Bad drugs include blatant attempts to defraud consumers by selling placebos lacking the correct active ingredient and drugs

48. 48  Pharmaceutical Arbitrage, supra note 25, at 195–96, 206.
49. 49  PETER WEST & JAMES MAHON, YORK HEALTH ECON. CONSORTIUM, BENEFITS

TO PAYERS AND PATIENTS FROM PARALLEL TRADE (May 2003), at http://www.york.ac.uk/inst/yhec/downloads/ParallelTrade_ExecSumm.pdf (estimating direct savings of 631 million in 2002 from legal pharmaceutical arbitrage (parallel trade) within the EU); Panos Kanavos et al., The Economic Impact of Pharmaceutical Parallel Trade in European Union Member States: A Stakeholder Analysis 15–16 (London Sch. of Econ. Political Sci., Special Research Paper, Jan. 2004), available at http://www.lse.ac.uk/collections/ LSEHealthAndSocialCare/pdf/Workingpapers/Paper.pdf.

50. 50  See Outterson, supra note 43.
51. 51  Todd Benson, Brazil to Copy AIDS Drug Made by Abbott, N.Y. TIMES, June

25, 2005, at C12.

52 Todd Benson, Brazil and U.S. Maker Reach Deal on AIDS Drug, N.Y. TIMES, July 9, 2005, at C2.

53 See Kevin Outterson, The Vanishing Public Domain: Antibiotic Resistance, Pharmaceutical Innovation and Intellectual Property Law, 67 U. PITT. L. REV. 67, 74 (2005) [hereinafter Vanishing Public Domain]; Ben Hirschler, Generic Drugs Key to Uphill AIDS Fight, WHO Says, REUTERS NEWMEDIA, June 21, 2005, available at http://www.aegis.org/news/re/2005/RE050646.html.

54 See Vanishing Public Domain, supra note 53, at 73; Hirschler, supra note 53.

55. 55  Hirschler, supra note 53.
56. 56  Vanishing Public Domain, supra note 53, at 73–74.
57. containing negligent or deliberate contaminants or poisons.57

Bad drugs are produced and marketed by criminals. The products are at best placebos and at worst positively dangerous. Patients derive no therapeutic benefit whatsoever; all money spent on them is wasted. Nothing of social value is produced. This trade deserves the enhanced criminal sanctions that Bryan Liang and others call for.58 However, applying these criminal laws to Good or Ugly drugs would be a mistake, and would misdirect resources to attack a market with some social value.

C. The Ugly

Ugly drugs are generally safe and effective but come to the consumer through an insecure supply chain or with other deficiencies which may or may not represent a safety risk.59 Ugly drugs are intended to be therapeutic and legitimate, but are sub– standard in some way, such as labeling which complies with Canadian or EU law but not U.S. FDA standards.60

Ugly drugs present an entirely different profile than Bad drugs. These manufacturers and wholesalers are not criminals. They may be resource–constrained or require enhanced procedures at the plant and in the supply chain.61 They may even be negligent by US standards; but they are not criminals.

Foreign drugs which are imported into the US with foreign– language labeling present an example of an Ugly drug with possibly positive social value. About 12 million people in the United States are linguistically isolated.62 For limited English proficiency (LEP) populations, receiving a prescription with the proper U.S. FDA labels is practically useless.63 For example, it

57 Bryan A. Liang, Fade to Black: Importation and Counterfeit Drugs, 32 AM. J.L. & MED. (forthcoming 2006).

58. 58  Id.
59. 59  See William K. Hubbard, supra note 29.
60. 60  See Press Release, U.S. Food and Drug Admin., Recent FDA/U.S. Customs

Import Blitz Exams Continue to Reveal Potentially Dangerous Illegally Imported Drug Shipments (Jan. 27, 2004) available at http://www.fda.gov/bbs/topics/NEWS/2004/NEW01011.html [hereinafter FDA Press Release].

61 See id.

62 US CENSUS BUREAU, LANGUAGE USE AND ENGLISH–SPEAKING ABILITY: 2000 (Oct. 2003). A linguistically isolated person is one who lives in a household in which no person over age 14 speaks English “very well.” Id.

63 See 21 C.F.R. § 201.15(c) (2004) (requiring labels to appear in English); see also Leighton Ku & Glenn Flores, Pay Now Or Pay Later: Providing Interpreter Services In Health Care, 24 HEALTH AFF. 435, 436 (Mar/Apr 2005);

would be better for a recent LEP immigrant from the Philippines to import a drug from home because not only is it cheaper, but the label in Tagalog is both readable and culturally competent. The indicated solution here would either be to permit importation in foreign language labels for LEP communities or to permit dual–language labeling for these communities.64

Ugly drugs might also include products imported from legitimate Internet pharmacies.65 Empirical evidence suggests that virtually none of the Internet drugs arriving in the United States are non–functional counterfeits; their importation simply violates technical restrictions on parallel importation, FDA labeling, or similar rules.66 Instead, most of the non–functional counterfeit drugs in the United States appear to have domestic origins or domestic networks.67 The cause of this trade is simply the price differentials across borders.68 The preferred solution of the FDA is to shut the trade down.69 Criminal counterfeiting must be recognized as a major threat to the integrity of our health care system and must be shut down. But the Ugly drug trade is not necessarily a criminal enterprise. An alternative is to legalize and regulate it, bringing this trade out of the grey market. The Dorgan-Snowe Bill in Congress70 and State–based

& Sheetal Matani, Left Out: Immigrants’ Access to Health Care and Insurance, 20 HEALTH AFF. 247, 254 (Jan./Feb. 2001) (noting that language problems are “the leading barrier to child health services” by Latino parents and this may increase medical errors due to “misdiagnosis and misunderstanding of physicians’ orders”).

64 See Ku & Flores, supra note 63, at 437 (pointing out that LEP patients with interpreters or bilingual providers are better informed and, sometimes, have less pain and better physical functioning).

65 See National Association of Boards of Pharmacy, VIPPS, http://www.nabp.net/vipps/intro.asp (last visited Oct. 1, 2006) (providing certification for legitimate pharmacy practices on the Internet).

66 See, e.g., FDA Press Release, supra note 60 (mentioning many categories of unapproved drugs but never indicating that any of them contained no active ingredient); COUNTERFEIT DRUG TASK FORCE INTERIM REPORT, supra note 27 (noting that counterfeit drugs may “pose significant public health and safety concerns,” as they “may contain only inactive ingredients, incorrect ingredients, improper dosages, sub–potent or super–potent ingredients, or be contaminated.”); EFPIA, supra note 29 (describing the range of products that may be considered counterfeit by the WHO and the European pharmaceutical trade association and corresponding concerns).

67 Gilbert M. Gaul & Mary Pat Flaherty, U.S. Prescription Drug System Under Attack: Multibillion–Dollar Shadow Market Is Growing Stronger, WASH. POST, Oct. 19, 2003, at A1.

68. 68  See Pharmaceutical Arbitrage, supra note 25, at 277–80.
69. 69  See William K. Hubbard, supra note 29 .
70. 70  Pharmaceutical Market Access and Drug Safety Act of 2005, S. 334, 109th

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importation plans, such as I-Save Rx,71 are prominent examples of this approach. Mindlessly conflating criminal placebos with importation under Dorgan-Snowe only serves the interest of drug company profits rather than a serious discussion of public health.

IV. INTELLECTUAL PROPERTY LAWS ARE AN UNDERLYING CAUSE OF COUNTERFEIT DRUGS

One outcome of enhanced lexical precision will be a sharper focus on the most dangerous areas of concern: bad drugs sold by criminals. It also permits us to focus on an underlying cause, which is the legal system of intellectual property (IP) for patented drugs.

An underlying cause of counterfeit drugs is the IP system, particularly patents and trademarks.72 Criminals follow the money. They typically counterfeit expensive patented drugs rather than generics.73 The IP system creates the opportunity that counterfeiters exploit.74

The marginal cost of producing most name–brand drugs is a small fraction of the commercial price. An annual supply of a well–known anti–retroviral triple combination drug regime in the United States costs over $12,000.75 The marginal price is not publicly known, but can be estimated. Unlicensed generic companies sell the same drugs in sub–Saharan Africa for under $200 per year.76 These drugs are sold at 60 times their marginal

Cong. (2005) (A bill to amend the Federal Food, Drug, and Cosmetic Act with respect to the importation of prescription drugs, and for other purposes).

71. 71  See 29 Ill. Reg. 7108 (2005) (discussing the I–Save Rx program).
72. 72  See Vanishing Public Domain, supra note 53, at 91.

73 See Parry, supra note 24. In some uncompetitive generic drug markets,

even generics might sell at a substantial premium over the marginal cost of production, and thus attract counterfeiters. This uncompetitive market may well be related to a hang–over effect from related pharmaceutical laws, even with the expiration of the patent. See Pharmaceutical Arbitrage, supra note 25, at 254–55 (citing an example of a generic drug which has been counterfeited and sold at a price considerably above the actual value).

74 Vanishing Public Domain, supra note 53, at 91 (discussing how the Medical R&D Treaty would diminish exploitation of the IP system by counterfeiters by lowering the cost of pharmaceuticals).

75 Drugstore.com, Trizivir, http://www.drugstore.com/pharmacy/prices/ drugprice.asp?ndc=00173069100&trx=1Z5006 (last visited Oct. 1, 2006) (listing the price of the antiviral anti–HIV medication Trizivir® based on a two pill per day dosage as $12,773.56).

76 MEDECINS SANS FRONTIERES, UNTANGLING THE WEB OF PRICE REDUCTIONS: A PRICING GUIDE FOR THE PURCHASE OF ARVS FOR DEVELOPING COUNTRIES 9 (8th ed. 2005), available at http://www.accessmed-msf.org/documents/ untanglingtheweb%208.pdf.

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cost (a “pricing ratio” of 60:1).77 This ratio would not be possible 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 (see Table 1). Industry estimates suggest that the average variable cost of patented drugs accounts for an average of 15% of the final price,78 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 264:1.79 Others have found pricing ratios of 200:1 in global markets for vaccines and contraceptives.80

77 See Drugstore.com, supra note 75; MEDECINS SANS FRONTIERES, supra note 76 (showing that the price charged in the United States is approximately sixty times the price charged in sub–Saharan Africa for the same drug).

78 Tomas J. Philipson & Anupam B. Jena, Dividing the Benefits from Medical Breakthroughs: The Case of HIV/AIDS Drugs, THE MILIKEN INSTIT. REV. 46, 51 (2006).

79 Pharmaceutical Arbitrage, supra note 25, at 254.

80 Ellen ‘t Hoen & Suerie Moon, Pills and Pocketbooks: Equity Pricing of Essential Medicines in Developing Countries 222 (Medecins Sans Frontieres, DND Working Group 2001), available at http://www.accessmed-

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By way of comparison, one of us (KO) has previously estimated the pricing ratio for cocaine at 25:1.81 The potential returns from parallel importation of some patented drugs are higher than cocaine by an order of magnitude.82 Patented drugs are especially attractive if the markets are less crowded and law enforcement is less diligent.83

The story gets worse. These ratios are built by comparing safe and effective versions of a drug sold in different markets.84 All of these pricing ratios assume that the criminal intends to deliver actual functional pharmaceuticals.85 This assumption is generally true in illegal narcotic markets. When criminals market cocaine, they need to deliver the expected (and observable) biochemical effect: customers want to get high. Delivering a placebo will not only destroy customer loyalty and repeat business, but it may also result in violence.

However, many patented drugs do not deliver an effect that is immediately observable to the patient. If a patient takes a placebo instead of a drug such as atorvastatin calcium (Lipitor), the patient may not notice the lack of therapeutic effect for months.86 By the time it is noticed, it may be very difficult to re– trace the supply chain to the point where the counterfeit was introduced.87 Some commentators reluctantly acknowledge that

msf.org/prod/publications.asp?scntid=20920021811218&contenttype=PARA& (last visited Oct. 1, 2006).

81 See Pharmaceutical Arbitrage, supra note 25, at 262 (comparing the street price in producing countries and the street price in the US).

82 See id. at 254 (showing that the Cipro pricing ratio is 246:1 as opposed to cocaine at a ratio of 25:1).

83 Liang, supra note 57. Brian Liang and others have decried the poor law enforcement resources dedicated to pharmaceutical counterfeiting.

84 See Pharmaceutical Arbitrage, supra note 25, at 263–64 (discussing a case where patented drugs were packaged for the African market but sold to the European market).

85 Liang, supra note 57.

86 See, e.g., Brown, supra note 21 (recounting an incident where it took several weeks before a patient became aware that the Epogen he was taking was counterfeit, even where there were noticeable side effects). For other drugs, such as analgesics or erectile dysfunction drugs, it may well be possible for the patient to quickly identify the therapeutic failure. But if the counterfeit drug was introduced into the supply chain at an unknown point, it might still be difficult to find the counterfeiter. Gaul & Flaherty, supra note 67, at A1, A15.

87 See Brown, supra note 21 (noting that one victim’s counterfeit drugs changed hands “at least 11 more times” after it first entered the marketplace).

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counterfeit drugs are something of a “perfect crime.”88
For drugs that do not produce an immediately observable therapeutic effect, criminals need not go to the trouble to procure and ship the actual drugs. Any placebo will do, at a fraction of the cost of either obtaining the correct API to manufacture pills, or obtaining cheaper versions of the medicine via parallel trade.89 Criminal enterprises may be increasingly involved in

pharmaceutical counterfeiting.90
At this point the reader may complain that blaming the IP

system for counterfeiting is akin to blaming the law for crime.91 That position may not be as controversial as it may first appear. The Apostle Paul, writing to the Church in Rome said: “And where there is no law there is no transgression”92 and “Indeed I would not have known what sin was except through the law. For I would not have known what coveting really was if the law had not said, ‘Do not covet.’”93 However, we are not opening a discussion of law and sin. The narrower point is that if the ostensible goal of pharmaceutical IP law is to promote innovation, then counterfeiting demonstrates that the law is ill– suited to achieving that goal.94 This is especially true if alternatives are available which fund R&D without creating the pricing ratios found attractive by counterfeiters.

88 LEW KONTNIK, PHARMACEUTICAL COUNTERFEITING: PREVENTING THE PERFECT CRIME 1, available at http://www.fffenterprises.com/web_pages/ anticounterfeiting.html, at 1 (last visited Oct. 1, 2006).

89 Brown, supra note 21 (discussing methods used to create counterfeit drugs). See Pharmaceutical Arbitrage, supra note 25, at 205–06 (explaining that parallel trading involves purchasing drugs in lower–priced markets and re–selling them in higher-priced markets).

90 FDA Eyes New Tactics Against Fakes, CBS NEWS, Oct. 3, 2003, available at http://www.cbsnews.com/stories/2003/09/26/health/main575354.shtml (last visited Oct. 1, 2006) (indicating that organized crime groups are attracted to the sale of counterfeit pharmaceuticals because of financial incentive).

91 ALLIANCE AGAINST COUNTERFEITING & PIRACY, PROVING THE CONNECTION 7, available at http://www.allianceagainstiptheft.co.uk/Proving-the-Connection.pdf (last visited Oct. 1, 2006) (noting various incentives for selling counterfeit products).

92. 92  Romans 4:15 (New International Version).
93. 93  Id. at 7:7.
94. 94  See Carsten Fink & Patrick Reichenmiller, Tightening TRIPS: The

Intellectual Property Provisions of Recent US Free Trade Agreements, TRADE NOTE 20 (World Bank Group/Int’l Trade Dep’t) Feb. 7, 2005, at 9, available at http://siteresources.worldbank.org/INTRANETTRADE/Resources/Pubs/TradeNo te20.pdf (explaining that the lack of flexibility when attempting to overcome drug patents “can have a detrimental impact on public health.”).

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2006] COUNTERFEIT DRUGS

A. Counterfeiting Is A Major Threat To Pharmaceutical Innovation

541

Counterfeits are an imminent danger to innovation. While the FDA still considers it a relatively rare practice,95 counterfeiting is nevertheless growing rapidly in the United States and in other high–income markets.96 In 2000, the estimated value of EU pharmaceutical counterfeiting was more than 1.5 billion Euros.97 In 2003, the United Kingdom–based Anti–Counterfeiting Group estimated that 5.8% of pharmaceutical company annual revenue is lost due to counterfeiting,98 and recent estimates range even higher.99 Given a pharmaceutical global market exceeding $500 billion, the total lost to counterfeiting may exceed $30 billion per year.100 If true, counterfeiting is a major threat not only to public health, but also to innovation, far outstripping the limited potential damage from government reimbursement systems and equitable access programs.

95 COUNTERFEIT DRUG TASK FORCE INTERIM REPORT, supra note 27.

96 The FDA estimates that pharmaceutical counterfeiting has increased in the past few years. See, e.g., Mary Pat Flaherty & Gilbert M. Gaul, Anti– Counterfeit Steps by Drugmakers Sought: Legislators’ Goal Is To Halt Illegal Sales, WASH. POST, Jan. 17, 2004, at A11; Mary Pat Flaherty & Gilbert M. Gaul, Miami Man Charged with Selling Counterfeit Lipitor, WASH. POST, Dec. 6, 2003, at E1; Mary Pat Flaherty & Gilbert M. Gaul, Lax System Allows Criminals to Invade the Supply Chain, WASH. POST, Oct. 22, 2003, at A1. These articles were part of a series of articles on counterfeit drugs by Mary Pat Flaherty and Gilbert M. Gaul that ran in the Washington Post during Fall 2003/Winter 2004. The Wall Street Journal has also covered the story. Anna Wilde Mathews & Heather Won Tesoriero, Bogus Medicines Put Spotlight on World of Drug Distributors, WALL ST. J., Sept. 29, 2003, at A1.

97 Pharmaceutical Arbitrage, supra note 25, at 269–70.

98 THE ANTI–COUNTERFEITING GROUP, WHY YOU SHOULD CARE ABOUT COUNTERFEITING 14 (2003), available at http://www.a-cg.com/guest_ frames.html.

99 See Bryan A. Liang, supra note 57 (stating that expenditures in the U.S. for prescription drugs is about $230 billion, while the worldwide sales of counterfeit drugs equals approximately $32 to $35 billion dollars annually, meaning an average loss of 13% of sales revenues to the counterfeit markets).

100 See David Greising & Bruce Japsen, Pharmaceutical Companies Feeling Potent Effect of Fakes, CHICAGO TRIB., Nov. 20, 2005, available at http://www.chicagotribune.com/business/chi-0511200306nov20,1,2099145.story ?coll=chi-business-utl (last visited Oct. 1, 2006) (citing a World Health Organization study finding that counterfeit drugs cost the pharmaceutical industry $32 billion a year; Global Pharmaceutical Market Grew 7% in 2005 to $602 Billion; Emerging Markets in Asia, Latin America and Eastern Europe Gain Strength, FINFACTS IRELAND, Mar. 22, 2006, available at http://www.finfacts.com/irelandbusinessnews/publish/printer_1000article_1000 5271.shtml.

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542 ALB. L.J. SCI. & TECH. [Vol. 16

B. Government Reimbursement Systems In High–Income Countries Are A Less Significant Threat

The patent–based drug industry argues that European–style government reimbursement systems threaten pharmaceutical innovation.101 The industry and the US Department of Commerce have attacked high–income countries for their price– conscious reimbursement systems for drugs, labeling these efforts as “price controls.” 102 Name calling of this sort ignores the fact that many US government programs employ similar or more restrictive techniques, including Medicaid, the US Public Health Service, the Veterans’ Administration, or the Federal Supply Schedule.103 The sum of the allegedly lost patent rents equals no more than $7.5 billion per year,104 and is likely to be much smaller, as low as $355 million.105 In any case, these numbers are much smaller than the pharmaceutical patent rents lost to counterfeiting.106

C. Alternatives To Patent–Based R&D Cost Recovery May Eliminate The Incentive To Counterfeit

A possible solution to reduce the incentive to counterfeit would be to remove R&D costs from the retail pricing system. Generally, these proposals fund R&D as a global public good through a variety of approaches. A prominent example of this approach is the Hubbard-Love R&D Treaty.107 Broadly similar

101 See innovation.org, Preserving Incentives for Innovation, http://www.innovation.org/index.cfm/InnovationToday/KeyIssues/Preserving_In centives_for_Innovation (last visited Oct. 1, 2006).

102 INT’L TRADE ADMIN., U.S. DEP’T OF COMMERCE, PHARMACEUTICAL PRICE CONTROLS IN OECD COUNTRIES: IMPLICATIONS FOR U.S. CONSUMERS, PRICING, RESEARCH AND DEVELOPMENT, AND INNOVATION viii (2004), available at http://trade.gov/td/chemicals/drugpricingstudy.pdf.

103. 103  Kevin Outterson, supra note 45 at 55–56.
104. 104  Id. at 58.
105. 105  Id. at 59 (stating that a report based on industry data estimates increased

revenues from raising foreign prices would result in $5.3 to $8 billion in additional Research and Development (R&D), but pointing out the controversial nature of the feasibility of raising prices and predicting the potential revenue increases will be limited to approximately 1?4 of that estimated by the industry).

106 See infra Part III.A. (stating that approximately $30 billion is spent annually on counterfeit medication which could otherwise be spent on licensed pharmaceuticals which would increase R&D funds by approximately $9 billion, assuming, as the Department of Commerce did, that 1/3 of profit increases will be reinvested into R&D).

107 See, e.g., Tim Hubbard, Remarks at Colombia Univ.: Alternatives to the Price System (Dec. 4, 2003), available at

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2006] COUNTERFEIT DRUGS 543

approaches are currently being discussed at the WHO Executive Board.108 Supporters generally seek to enhance financial access to patented pharmaceuticals by low and medium income populations.109

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 it 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.

V. CONCLUSION

Very little is really known about the scope and nature of counterfeit drugs. Congress should obtain real facts before it criminalizes behavior which may be socially valuable. We need data on counterfeiting which is free from industry control and bias. Our primary focus should be protecting our pharmaceutical supply chain from criminal counterfeiters that serve no positive social value. This problem also presents an opportunity to re– evaluate the foundations of the pharmaceutical IP systems to see if a better world is possible.

http://www.earthinstitute.columbia.edu/cgsd/accesstomedicines_papers.html; James Love, Remarks at Colombia Univ.: A New Trade Framework For Global Healthcare R&D (Dec. 4, 2003), available at http://www.earthinstitute.columbia.edu/cgsd/accesstomedicines_papers.html. A recent treatment of these subjects was done by Peter Drahos. Peter Drahos, An Alternative Framework for the Global Regulation of Intellectual Property Rights, AUSTRIAN J. OF DEV. STUDIES (forthcoming 2006) available at http://cgkd.anu.edu.au/menus/workingpapers.php.

108 WORLD HEALTH ORG., GLOBAL FRAMEWORK ON ESSENTIAL HEALTH RESEARCH AND DEVELOPMENT, EXECUTIVE BD. RES. 13 (Jan. 27, 2006) available at http://www.who.int/gb/ebwha/pdf_files/EB117/B117_R13-en.pdf (last visited Oct. 1, 2006).

109 Id.

TELEPHONE (202) 783-6900

LAW OFFICES OF

DEKIEFFER & HORGAN SUITE 800
729 FIFTEENTH STREET, N.W. WASHINGTON, D.C. 20005

July 8, 2008

FACSIMILE (202)783-6909

Stanford K. McCoy
Acting Assistant USTR for Intellectual Property Office of the U.S. Trade Representative Washington, D.C.

Dear Mr. McCoy:

Re: Anti-Counterfeiting Trade Agreement/ Request for comments

Your February 15th Federal Register notice does not provide much detail concerning the differences between the proposed ACTA and existing TRIPs obligations. Nevertheless, there are some areas where an expansion of TRIPs would be helpful.

By way of example: Last month, I was a guest lecturer for CLDP (U.S. Department of Commerce) at a program in Ukraine for that country’s IP enforcement authorities (Customs and National Police). The Ukrainians are clearly trying hard to comply with the conditions of their WTO accession, and have a rather comprehensive program which is generally TRIPs-compliant.

I was surprised to discover, however, that the Ukrainian IP law does not distinguish counterfeiting and piracy from other forms of infringement. While there are criminal penalties for counterfeiting, there is no way for enforcement authorities to tell whether a dispute is a simple infringement claim or outright counterfeiting. The result has been to refer almost all cases to the judiciary as if they were civil infringements. This makes actual enforcement almost impossible for front-line authorities, and renders the criminal sanctions (or even seizures) very difficult.

I know that many countries’ codes have similar problems. However tough penalties might be for counterfeiting and piracy, they become meaningless unless Customs and national police have the explicit authority to act against clear violations without serial referral to the courts to determine the distinctions between counterfeiting and infringement.

If nothing else, ACTA should address this problem, since other provisions of such agreements will be moot if counterfeits and pirated goods cannot be clearly identified as a matter of law.

I appreciate the opportunity to comment on this matter, and invite you contact me if you

have any questions or comments.

Very truly yours,
/s/
Donald E. deKieffer

March 21, 2008

Ms. Rachel S. Bae
Director for Intellectual Property and Innovation Office of the United States Trade Representative

By email: ACTA@ustr.eop.gov
Re: Anti-Counterfeiting Trade Agreement — Request for Public Comments

Dear Ms. Bae:

On behalf of the Distilled Spirits Council of the United States, Inc. (DISCUS or Council) and its member companies, I am pleased to submit these preliminary comments in response to USTR’s request for comments (73 Fed. Reg. 8910 (Feb. 15, 2008)) concerning the specific matters that should be the focus of the proposed Anti-Counterfeiting Trade Agreement (ACTA). As you may be aware, the Distilled Spirits Council is a national trade association representing U.S. producers, marketers, importers and exporters of distilled spirits products. In 2007, U.S. imports of distilled spirits exceeded $5 billion in value (CIF); U.S. exports in 2007 were valued at more than $1 billion (FAS value). Measured by retail sales prices, the total value of the global distilled spirits market exceeded an estimated $288 billion in 2006.

The vast majority of globally-traded distilled spirits are high value, branded products with widespread consumer recognition. Counterfeiting is a serious problem in some overseas markets. As a consequence, DISCUS and its members wholeheartedly endorse USTR’s proposal to negotiate the ACTA and we urge the United States and the other participants to commence formal negotiations as soon as possible. We also encourage USTR to solicit the broadest possible participation among key trading partners, including countries where counterfeiters operate. Indeed, multilateral negotiations such as the ACTA negotiations may provide an avenue for governments grappling with serious counterfeiting problems to participate in a constructive way toward identifying and remedying the problems they – and we – face.

At this early stage of the negotiations, we have identified four specific matters that we strongly urge be reflected in the ACTA. These are based broadly on the spirits industry’s experiences in tackling counterfeiting problems in a number of countries. This list is not intended to be exhaustive, but merely to suggest a few general principles that we believe are central to anti-counterfeiting efforts in the distilled spirits sector. The points are:

• Inclusion of a provision making the counterfeiting of foods and beverages a criminal offense under public health or food safety laws, with mandatory jail terms for persons

DISCUS • 1250 Eye Street, N.W. • Suite 400 Washington, D.C. 20005-3998 202/628-3544 • FAX:202/682-8888

A FACT ABOUT ALCOHOL CONTENT:

convicted of manufacturing, distributing or retailing dangerous foods or beverages that threaten health or safety;

• Incorporation of a “zero tolerance” principle, i.e., the elimination of thresholds for criminal penalties, where counterfeiting involves foods or beverages, since consumption of such products involves potentially serious risks to health and safety;
• Requirement for the establishment of clear and transparent standards for the imposition of criminal penalties, with escalating and substantially increased fines and penalties for repeat infringers. It has been the spirits industry’s experience that many countries provide for minimum penalties for infringement of intellectual property rights, but these “minimums” become, in effect, the ceiling for penalties since authorities often do not impose fines or penalties that exceed the minimum penalty specified, except in the most egregious cases; and
• Designation in each participating country of a high-level officer or task force responsible for coordinating anti-counterfeiting initiatives across ministries and agencies, together with a commitment to provide the officer or task force with adequate resources, funding and authority to mount an effective anti-counterfeiting effort. The designated officer or task force would serve as a coordination point internally (ideally ensuring more efficient allocation of resources and improved information-sharing) and externally (to provide a single point of contact for companies/industries that are encountering problems with counterfeit goods).These suggestions represent our initial thoughts concerning the specific matters that, in our view, should be reflected in the ACTA. We look forward to providing additional views as the negotiations proceed. We would be pleased to provide any additional information that USTR may find helpful.Sincerely,

  Deborah A. Lamb
  Senior Vice President International Issues and Trade

2

ELECTRONIC FRONTIER FOUNDATION SUBMISSION TO OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE ON PROPOSED ANTI- COUNTERFEITING TRADE AGREEMENT

The Electronic Frontier Foundation (EFF) is pleased to submit the following comments to the Office of the United States Trade Representative (USTR) in response to the Request for Public Comments on a Proposed Anti-Counterfeiting Trade Agreement, published in the Federal Register of February 15, 2008 (Volume 73, Number 32, pages 8910-8911).

Executive Summary

Part III of the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPs Agreement), together with the 1996 WIPO Copyright Treaty and Performances and Phonograms Treaty, Model Provisions of the World Customs Union, and bilateral cooperation agreements, provide WTO Member States with a sophisticated array of remedies to enforce intellectual property rights both within, and across, WTO members’ national borders. In addition, U.S. bilateral free trade agreements since 2002 have routinely required foreign trading partners to comply with a set of specific enforcement obligations beyond the internationally agreed standards embodied in the TRIPs Agreement.

EFF believes that no empirical evidence has been provided justifying the creation of a new TRIPs-plus plurilateral intellectual property enforcement treaty backed by the sanctions of international trade law. However, if the USTR decides to negotiate such a treaty, at a minimum it should (1) protect the fundamental privacy rights and freedom of expression of citizens of the U.S.A. and its trading partners, and (2) facilitate a global environment that fosters interoperability and is conducive to technology innovation.

Most importantly, any treaty on enforcement of intellectual property must balance the needs of all stakeholders. As treaty proponents have stated, a key part of effective enforcement is citizens’ respect for copyright and other intellectual property laws. That is not just a matter of education in the narrow sense of telling consumers about the content of statutes. It is instead a matter of social value and fairness. In short, citizens will only respect a copyright system that is balanced, and serves the interests of all stakeholders. In the effort to curtail genuine commercial-level copyright infringement, the USTR must avoid harming other important public policy priorities, including in particular, citizens’ privacy and expression rights, and technology innovation. If enforcement mechanisms are perceived to undermine the traditional balance embodied in the copyright system, it is inevitable that there will be less respect for, and correspondingly lower compliance with, copyright law.

Lack of Transparency

Unfortunately, the Request for Public Comments published in the Federal Register on February 15, 2008 contained very little information about the substance of the proposed trade agreement. EFF is aware of the existence of a “Discussion Paper” on the proposed

substance of such an agreement, which is apparently circulating among content industry representatives, but is not aware of any substantive information about the agreement emanating from the Office of the USTR. In the absence of a specific text to comment upon, these comments focus on the appropriate scope of any proposed agreement, and three aspects of recent copyright enforcement activity that have raised significant public policy concerns, and which we anticipate could form part of the content of any proposed treaty.

1. Scope of Treaty

Part III of the TRIPs Agreement reflects the current level of international agreement about standards and methods for enforcement of intellectual property rights. We understand that the proposed agreement would cover the same scope – namely “counterfeit trademarked goods” and “pirated copyright goods” as those terms are used in Part III of TRIPs and defined in footnote 14 to the TRIPs Agreement:

(a) “counterfeit trademark goods” shall mean any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation;

(b) “pirated copyright goods” shall mean any goods which are copies made without the consent of the right holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation.

Accordingly, we understand that the agreement would not apply to all copies of copyrighted works, but instead only to those copies (a) that would be an infringement of one of the exclusive rights granted to copyright holders by section 106 of the U.S. copyright statute, (b) that are made willfully, with the intent to commit copyright infringement, and (c) are made for the purpose of commercial gain. Thus, “counterfeit” goods do not include unauthorized but permitted uses of copyrighted works, such as uses that would be considered “fair use” under U.S. copyright law.

For the sake of clarity, we note that the internationally agreed definition of “counterfeit” works set out in the TRIPs agreement differs markedly from the broader definition used by particular entertainment industry groups calling for a new enforcement treaty, which would appear to encompass all unauthorized uses of works, including uses that are lawful

but not specifically authorized by rightsholders, such as non-infringing fair use under U.S. copyright law1.

2. Internet Intermediary Liability

The U.S. Copyright statute contains four “safe harbors”, limiting Internet intermediaries’ liability for secondary copyright infringement for routine activities: acting as a conduit of Internet communications, caching of material, hosting of user created content, and provision of information location and search tools (17 U.S.C. §512). This regime has created a relatively stable environment for innovation and facilitated the development of robust hosting platforms, which have made possible a comprehensive and free worldwide encyclopedia (Wikipedia), a rich world of user created content (YouTube, MySpace), global economic enterprises (eBay, Amazon.com) and powerful search tools (Google, Yahoo!). There is no international harmonization of secondary copyright liability concepts and standards across countries. However, in recognition of the economic importance of the safe harbor regime to the U.S. telecommunications industry, this regime has been exported to the legal regimes of U.S. trading partners through the enforcement chapter of all bilateral and regional free trade agreements signed since 2002, as a specific implementation of Article 41 of the TRIPs Agreement.

The stable innovation environment resulting from harmonized limitation of liability regimes in the U.S., EU and elsewhere, is now under threat from various sources. Copyright owner industry groups have attempted to overturn the balance struck in the U.S. copyright safe harbor regime, in efforts to clamp down on perceived widespread online copyright infringement by Internet users. These efforts endanger fundamental privacy rights of Internet users and threaten the end-to-end principle that is central to the Internet’s open architecture. Reflecting the decision in Religious Technology Centre v. Netcom On-line Communication Services, Inc., 923 F. Supp. 1231 (N.D. Cal, 1995), the U.S. safe harbor regime specifically states that Internet Service Providers (ISPs) and Online Service Providers are not required to monitor, nor affirmatively search for evidence of potential infringement on their networks (17 USC §512(m)).

Major film and music copyright industry groups in Europe have recently advocated for a suite of proposals that seem to jeopardize this foundational principle. A memorandum produced by the International Federation of Phonographic Industries circulated to European Parliament staffers in November 2007 calls on the European Parliament to mandate that ISPs block communications using particular Internet protocols, install network-level filtering, and block access to websites that facilitate copyright infringement.2 In December 2007, a proposed amendment to a European Parliamentary committee report would have required ISPs to filter their networks and monitor customer communications in order to find evidence of potential copyright infringement.

1 See International Federation of Phonographic Industries webpage entitled “What is Piracy?”, visited 19 March 2008:
<http://www.ifpi.org/content/section_views/what_is_piracy.html>
2 <http://www.eff.org/files/filenode/effeurope/ifpi_filtering_memo.pdf>

If adopted, these proposals are likely to dramatically alter the current nature of the Internet. ISPs and Internet intermediaries will be obliged to monitor their networks in an unprecedented manner. This directly threatens’ citizens’ privacy rights and makes it more likely that ISPs will be deemed to have constructive knowledge of online copyright infringement taking place on their networks, thus disqualifying them from the safe harbors that have previously safeguarded their businesses. At the same time, adopting such filtering measures is not likely to be technologically effective because they can be defeated by encrypting communications. Thus, mandatory network filtering is not likely to reduce online copyright infringement, but is likely to lead to file-sharing going “underground”.

At the request of a major music industry rightsholder group3, France and the United Kingdom have proposed draft legislation for a “graduated response” requiring ISPs to send a warning notice to alleged infringing subscribers, to suspend those customers’ access on a second warning, and to terminate the Internet access of customers on the basis of a third rightsholder allegation of copyright infringement, independent of any judicial review. The French proposal also requires ISPs to create and exchange lists of “blacklisted” Internet users to whom Internet service cannot be provided.

In the digital age, as more of citizens’ civic and cultural life takes place in online fora, excluding citizens from the ability to connect to, and communicate on the Internet, amounts to social exclusion from the knowledge economy. This is a disproportionate response to the harm in issue. As highlighted by the recent rejection of a similar termination proposal by Members of the Swedish Parliament, the penalty of exclusion from the Internet is far more severe than traditional copyright monetary sanctions, both for the individual involved, and also for society at large. It is likely to divide society into two communities – one, highly networked and able to take advantage of the educational, social and economic benefits that flow from access to the Internet, and a second, unable to access the Internet’s rich informational resources nor utilize it for communications.

Imposing such an Internet access termination obligation via the proposed enforcement agreement, in order to meet the perceived needs of one group of rightsholder, is likely to create social division, and will certainly slow the momentum of technology innovation and impede the development of the Internet’s global infrastructure.

Recommendation:

Any proposed agreement should respect countries’ distinctive national legal regimes and not seek to impose secondary liability on ISPs and Internet intermediaries where none might otherwise exist under national law. The proposed agreement should incorporate remedies for rightsholders that are proportionate to the harm suffered from an incident of copyright infringement, and should not require Internet intermediaries to engage in

3 See 2008 IFPI DIGITAL MUSIC REPORT, Introduction: Making ISP responsibility a reality in 2008, and Section 5: Time for Governments and ISPs to Take Responsibility, available at: <http://www.ifpi.org/content/library/DMR2008.pdf>

mandatory termination of Internet access for their subscribers unless ordered to do so by a competent court, following a comprehensive judicial review.

3. Preserving Due Process and Copyright Enforcement

Article 47 of TRIPs allows, but does not require, WTO members to provide judicial authorities with the ability to order infringers to disclose the identity of third parties involved in an act of infringement, but only if this would not “be out of proportion to the seriousness of the infringement.” EFF is disturbed by reports that major film and music copyright owner industry groups are seeking to include a mandatory obligation on ISPs to disclose to rightsholders information about the identity of alleged copyright-infringing file-sharers in the proposed agreement. An extra-judicial mandatory disclosure obligation raises very substantial privacy and due process concerns.

U.S. law does not currently provide an extra-judicial mechanism forcing disclosure of the identity of individuals allegedly engaged in file-sharing activity.4 However the absence of such a mechanism has not provided any obstacle to U.S. copyright holders’ ability to enforce their rights against alleged file-sharers, as evidenced by the more than 20,000 lawsuits brought against individuals since 20035.

By comparison, the European Union introduced a mandatory disclosure obligation in the “right of information” enshrined in Article 8 of the 2004 Intellectual Property Enforcement Directive (2004/48/EC). National courts in the European Community have for some time been making determinations about requests for customer data made by European rightsholder organizations, taking into consideration EU Directive 2004/48/EC and the EU Information Society directive 2001/29/EC, the EU Electronic Commerce directive (2000/31/EC) and European personal data protection and privacy law (2002/58/EC).

However, following the European Court of Justice’s decision in the Productores de Mu?sica de Espan?a (Promusicae) v. Telefo?nica de Espan?a6 case where an ISP was not required to disclose customers’ identity data, reports have surfaced that entertainment industry groups are seeking to incorporate a mandatory identity disclosure obligation in the proposed anti-counterfeiting trade agreement. From the public policy perspective, mandating divulgence of customer data from intermediaries without providing appropriate due process and judicial review threatens citizens’ privacy and personal data protection rights and is ripe for misuse by unscrupulous parties.

4 USC §512(h) provides an expedited subpoena process, but this does not extend to obtaining the identity of alleged file-sharers extra-judicially. See Recording Industry Association of America, Inc. v. Verizon Internet Services, Inc., 351 F.3d 1229 (D.C. Cir. 2003).
5 EFF Report, RIAA v. The People: Four Years Later, available at: <http://w2.eff.org/IP/P2P/riaa_at_four.pdf>

6 European Court of Justice 2008/C 64/12, 29 January 2008, Case C-275/06 referred from Juzgado de lo Mercantil No 5 de Madrid, available at: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:064:0009:0010:EN:PDF>

Recommendation

The proposed treaty needs to provide balanced solutions that recognize and respect the fundamental rights of all stakeholders in the information society. At a minimum, any disclosure obligation must incorporate adequate due process and be conditioned on a process of judicial review.

4. Criminal sanctions for IP infringement

There is widespread agreement that actual commercial enterprise-scale counterfeiting and piracy are unlawful and harmful to investment in research and development, technology innovation and consumer protection. This is embodied in Article 61 of TRIPs, which requires WTO Members to provide criminal sanctions for willful copyright piracy and trademark counterfeiting done on a commercial scale.

It was well understood at the time of negotiation of TRIPs that criminal sanctions would be reserved for only the most serious, and commercially motivated, cases of IP infringement. While there is agreement for measures addressing genuine enterprise level infringement done willfully and with commercial motivation, there is no public policy justification for changing the contours of current copyright law and penalizing non commercial activities of individuals and legitimate business practices.

The last 10 free trade agreements entered into by the United States have required trading partners to introduce criminal sanctions for a broader set of purposes than required by the TRIPs Agreement, including for acts that are not done with commercial motive or intent of financial gain, mirroring the language introduced into 17 USC §605 by the No Electronic Theft Act.

Criminal sanctions are intended to be a deterrent. While they are appropriate in the case of commercial-scale wilful infringement, applying criminal sanctions to non commercially motivated and unintentional infringement serves no public policy purpose. At the same time, it will harm consumers and the environment for technology innovation.

Recommendation:

Criminal sanctions should be reserved for actual commercial-level profit-motivated infringement. The terms “commercial-scale” and “wilful” should be defined narrowly, as originally intended, and should not be expanded to encompass non-commercially motivated infringement. If the real intent behind introducing expanded criminal sanctions is to address infringement on the Internet, this provision is not likely to accomplish that, but is likely to cause significant collateral harm to consumers.

Given the very significant numbers of individuals who regularly engage in file-sharing, it would be more effective to promote new business models focused on licensing of content exchanged on the Internet, rather than creating new legal rules that would criminalize millions of individuals. U.S. copyright law already contains criminal sanctions for certain

behavior. As the experience of the last five years, and over 20,000 lawsuits against individual filesharers in the United States has shown, legal sanctions have had little or no appreciable impact on the volume of file-sharing taking place on public and private networks across the globe. There is no reasonable basis for believing that adding criminal sanctions in the proposed trade agreement will change this situation. On the contrary, all indications are that filesharers will migrate to encrypted communication channels, evading detection and prosecution by current procedures.

At the same time, adopting legal rules that criminalize the behavior of such a significant proportion of the population, for what is widely perceived to be a market failure, is likely to lead to a lessening of respect for copyright law. The proposed trade agreement should avoid undermining the normative force of intellectual property law.

We would be pleased to provide further information on any of the above issues. Thank you for your consideration.

Gwen Hinze
International Policy Director Electronic Frontier Foundation Email: gwen@eff.org

Via email: ACTA@ustr.eop.gov

Ms. Rachel Bae
Director for Intellectual Property & Innovation Office of the U.S. Trade Representative
600 17th Street NW
Washington, DC 20508

March 21, 2008

Subject: Anti-Counterfeiting Trade Agreement (ACTA): Request for Public Comments 73 Fed. Reg. 8910 (February 15, 2008)

Dear Ms. Bae:

The Entertainment Software Association (ESA) makes this submission in response to the Federal Register Notice (FRN) dated February 15, 2008, requesting comments on specific matters that should be the focus of the Anti-Counterfeiting Trade Agreement (ACTA) negotiations between the U.S. government and a number of its trading partners.

The ESA is the U.S. association exclusively dedicated to serving the business and public affairs needs of companies that publish entertainment software for game consoles, personal computers, and the Internet. ESA members collectively account for more than 90 percent of the $9.5 billion in entertainment software sold in the United States in 2007, and billions more in export sales of entertainment software.

The FRN requested that comments be addressed to three areas to be covered by ACTA: (1) international cooperation; (2) enforcement practices; and (3) legal framework. ESA’s comments highlight aspects of international cooperation that our association and members find valuable and hope to be advanced by this agreement. We also identify certain elements that should be made part of the legal framework of ACTA participants as we deem each necessary to the continued provision of effective and adequate protection of intellectual property rights in our members’ products.

Before proceeding to specifics in that regard, ESA and its members also address concerns over the general framework for ACTA. Undoubtedly, the negotiation of ACTA will require significant effort, and it is important to weigh that against the value of the reforms that can realistically be achieved. In recent years, the U.S. government has achieved great success in concluding free trade agreements that embody high standards of intellectual property rights protection. It is important that ACTA negotiations be pursued along the lines of the concluded free trade agreements, continuing the success that has

Entertainment Software Association • 575 7th Street, NW • Suite 300 • Washington, DC 20004 • 202/223-2400 • 202/223-2401 FAX

already been achieved in these agreements as well as benefits to be gained from their implementation and enforcement.

Recommendations

(1) International Cooperation

ACTA will offer USTR a valuable opportunity to promote cooperative IP enforcement in a more geographically comprehensive way than is currently the norm and practice. It should strengthen cross-border cooperation of law enforcement against various forms of IP crime, including the manufacture, sale and export of infringing product from outside the U.S., as well as online violations.

International piracy rings are a particular challenge. These groups have spread their tentacles into multiple countries and coordinate their efforts on a global scale. Combating this piracy requires a global strategy, one that equips law enforcement with the tools they need to pursue criminals across national borders. ACTA has the potential to make a genuine improvement in this area if negotiators succeed in developing a high-level standard for cross-border cooperation on investigation and enforcement of IP-related crimes.

We appreciate that international cooperation on criminal matters is a delicate issue, and that the establishment of any international standards must take into account the autonomy of local law enforcement. If some trading partners are unwilling to take on heightened cooperation commitments, that would be an unfortunate setback for ACTA. Such a result would greatly diminish the overall value of ACTA to right holders and call into question the usefulness of the proposed agreement to achieve meaningful improvements where they are needed the most.

(2) Improvements to Legal Framework

With respect to standards to be included in the legal framework of partner countries, the ESA wishes to highlight the critical importance of including specific obligations governing 1) the protection of technological protection measures, and 2) ISP responsibility in the online environment (modeled on the FTA provisions).

1. Technological Protection Measures (“TPMs”) which prevent unauthorized access to, or use of copyright materials, are indispensable in today’s global electronic marketplace to differentiate products to meet consumer demands, and to prevent unauthorized exploitation and transmission of valuable software. The entertainment software industry has long used TPMs and other forms of digital rights management (DRMs) to protect its products, and these measures have contributed to the phenomenal growth ofthe video game industry. However, no matter how sophisticated, creative and innovative the technological protections employed, none are entirely foolproof. Many can be circumvented through the application of specially developed software and hardware

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applications which descramble, decrypt, bypass or deactivate TPMs without the authority of the copyright owner. Unfortunately, there remains a rich and growing demand for such devices and services precisely because of the role that they play in facilitating and enabling piracy. “Mod chips,” for example, make possible the play of a wide variety of pirated videogames that are currently made available through pirate sites or P2P services on the Internet. “Game copiers” contain copyrighted code that is extracted from cartridge-based games enabling users to upload pirated games to the Internet and download pirated games onblankmemorycartridgemediaforuseinthegamedevices. Becauseoftheirusesin connection with piracy, manufacturers and vendors of these circumvention devices can command a premium, for both the devices and the provision of services to install such devices into video game hardware, though they themselves might not be involved in the production of infringing copies.

Given the harm done by entities engaged in the manufacture, distribution and sale of devices used to circumvent TPMs, it is imperative that the ACTA enforcement chapter contain provisions obliging partner countries to enact prohibitions specifically addressed to the act of circumvention and to trafficking in circumvention devices, as well as provide deterrent criminal and civil remedies against those engaged in the provision of services and tools that circumvent TPMs. Such provisions will also serve to flesh out the commitment to adequate and effective enforcement of anti-circumvention obligations that most major trading nations have taken on in acceding to the WIPO Internet Treaties.

2. Internet service providers (ISPs) play a critical role in the online environment, and their assistance is vital in combating online piracy. Given the extent of online piracy, and the rise of digital distribution methods, it is critical that the ACTA enforcement chapter contain the elements necessary to providing an effective framework for enforcementagainstonlinepiracy. ACTApartnercountriesshouldbeobligedtoprovide incentives for ISPs to cooperate with right holders when informed of infringing activity occurring on their networks, to adopt measures to facilitate right holder action against online piracy (including mechanisms that will allow the disclosure of repeat infringer information to right holders as well as mechanisms that will facilitate the termination of repeat infringer accounts), and particularly in light of the growth of P2P piracy, adopt measures that would provide more effective enforcement against P2P services and other sites that facilitate unauthorized downloading. As technology evolves, it is possible that technical approaches to online piracy may yield useful results. IP legal regimes should be sufficiently flexible to encourage reasonable cooperation between ISPs and right holders in exploring streamlined mechanisms for curbing online piracy. With many copyright-based industries moving to online distribution methods, it is critical that they be able to deploy the necessary tools to protect their works, and they be able to count on meaningful cooperation from ISPs, since the latter benefit financially from, and play a key role in the delivery of, content online.

Conclusion

In sum, ESA calls for the negotiation of an agreement that significantly enhances the existing legal framework in certain prospective ACTA partners. ESA appreciates the

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opportunity to provide comments at this initial stage of the negotiations, and welcomes additional opportunities for comment as the negotiations progress.

Sincerely,

Stevan Mitchell
Vice President, Intellectual Property Policy

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Essential Action
P.O. Box 19405 Washington, D.C. 20036

March 21, 2008

Rachel S. Bae
Director for Intellectual Property and Innovation Office of the United States Trade Representative 600 17th Street, N.W.
Washington, DC 20508

Re: Comments of Essential Action on the Proposal for an Anti-Counterfeiting Trade Agreement

Dear Director Bae,

Essential Action submits the following comments to the Office of the United States Trade Representative (USTR) concerning a proposed Anti-Counterfeiting Trade Agreement (ACTA).

Essential Action is a project of Essential Information, a non-profit 501(c)(3) organization based in Washington, D.C. We are concerned generally with protecting the public domain and the information commons. A key organizational area of focus is promoting access to medicines, including in the United States and especially in developing countries. While we recognize that many other important issues are implicated by the proposed treaty, our comments focus particularly on concerns about the proposed ACTA in the context of the public health priority of ensuring access to safe and affordable medicines to patients around the world, regardless of income or wealth.

ACTA priorities

USTR’s fact sheet and ACTA materials conflate patent, copyright and trademark infringement, “piracy” and counterfeiting. An agreement based on, or reflecting, such a conflation of distinct concepts is likely to be overly broad, proscribing behavior that cannot correctly be identified as counterfeiting and that is not necessarily detrimental to the public interest. For example, commercially interested parties sometimes cast compulsory licensing for medicines — legal under national legislation and World Trade Organization rules — as patent theft or “piracy,” but no one can argue these practices bear any resemblance to counterfeiting. At the same time, an agreement focused on patent, copyright and trademark infringement is likely to overlook important options to control counterfeiting, including by requiring companies to disclose knowledge of counterfeit products.

A multilateral counterfeiting treaty should concern itself specifically and uniquely with the dangers and harms posed to the public by counterfeit goods. Paramount among these

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concerns is the proliferation of unsafe and ineffective products. Sub-standard drugs, for example, threaten patient health worldwide. Notably, however, these dangers are not limited to counterfeit products: legitimate businesses, as well, commonly sell drugs with inappropriate amounts of the active ingredient, and a large percentage of brand-name drugs sold in the United States use raw materials manufactured in India, China and other countries in factories that are inadequately inspected by the Food and Drug Administration. The public interest in anti-counterfeiting, then, is not as a subset of patent, copyright and trademark enforcement, but rather a subset of state actions to ensure product safety and efficacy. At least as regards medicines, this suggests counterfeiting should be considered in a broader framework than the ACTA proposes.

Further, patents, trademarks and copyrights are private rights subject to private enforcement actions. While provided for in public laws, it is generally the responsibility of private parties to identify alleged violations of patents, copyrights and trademarks and bring suit. As proposed, ACTA would harness considerable public resources to strengthen the enforcement of these private rights. This use of public means for private ends is not only tangential to the legitimate public goals of protecting consumers from unsafe and ineffective products, it may also come at significant financial cost to taxpayers.

“Piracy”

ACTA’s use of the term “piracy” also suggests an interest in capturing a much broader pattern of conduct than counterfeiting. Piracy as a term is not technically descriptive, but is instead broadly applicable and useful in the art of persuasion. Its inclusion in ACTA would open the agreement to abuse, and it should be eliminated. Conduct ACTA intends to regulate or discourage should be described in precise terms.

International cooperation: sharing of information and disclosure

USTR seeks input concerning the sharing of information between parties and cooperation of law enforcement agencies. Equally important is the sharing of counterfeiting information by legitimate private companies, which often have the first or most complete accounts of counterfeit products. Without private companies disclosing their knowledge, agencies will be handicapped in their law enforcement efforts.

For example, although pharmaceutical companies depend on law enforcement and public resources to locate counterfeits and maintain consumer confidence in their brands, companies do not always disclose what they know about counterfeits in the market. Reportedly, the Pharmaceutical Security Institute (PSI), formed by fourteen pharmaceutical companies in 2002, recorded 76 cases of counterfeiting in 2004. The FDA only knew of 58.1 PSI’s counterfeiting database is considered the world’s best, yet

1 “Counterfeit medicines – What are the problems?” Pharma-Brief Special, BUKO Pharma-Kampagne, a member of Health Action International (2007) at 5.

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it “is not accessible to the WHO, health authorities or the public.”2 Industry groups seem to favor general public awareness of the counterfeiting problem, which may lead to public assistance in enforcement, but sometimes disfavor public knowledge of specific counterfeited products.

For example, in 1995, GlaxoSmithKline allegedly asked the Ghanaian government not to alert the public of the presence of fake halofantrine antimalarial syrup in the market, for the sake of the company’s reputation.3 In 2002 in Kansas City, BMS and Eli Lilly settled for $72 million with the families of deceased victims of counterfeit drugs, seemingly to avoid the precedent that drug companies could be held liable for failing to disseminate information about counterfeits.4

Governments should require companies to disclose any information they obtain about the existence of dangerous counterfeit products. If the public is to incur expenses combating counterfeiting, the public should at least have a right to the best information available so its enforcement activities are effective. We are concerned that proposals for mandatory disclosure requirements are absent from the available materials on the ACTA.

There are at least two existing proposals for statutory disclosure requirements. Cockburn et al. propose a model based on the United Kingdom Civil Aviation Authority’s reporting requirements for suspected unapproved aircraft parts.5 Companies would be required to report suspected counterfeits to regulatory agencies. The agency would then take responsibility for confirming the report and deciding whether and when to alert law enforcement and the public. Meanwhile, legislation introduced by Representative Steve Israel (2nd District of New York) proposed requiring drug companies to notify the FDA within two days of learning of a counterfeit threat.6

Enforcement practices: public/private advisory groups

USTR’s ACTA fact sheet mentions provisions for advisory groups assisting in enforcement practices. It is important that any such advisory groups consist of balanced memberships representing not only industry, but also consumers, and, in the case of medicines, generics firms as well as brand-name companies. Overrepresentation of patent, copyright and trademark-dependent industries in anti-counterfeiting enforcement

2 “The global threat of counterfeit drugs: why industry and governments must communicate the dangers.” Robert Cockburn, Paul N. Newton, E. Kyeremateng Agyarko, Dora Akunyili, Nicholas J. White, Public Library of Science (PLoS) Medicine, April 2005, Volume 2, Issue 4, at 305.

3 BUKO, supra, and PLoS, supra. GlaxoSmithKline also was reluctant to share information about fake syrup with the authors of the PLoS article.

4 PLoS, supra. There are, of course, counterexamples. “In 2002, Johnson and Johnson issued 200,000 letters to health care professionals in the US warning them of fake Procrit…within one week of being notified of a severe counterfeit problem.” PLoS.

5 PLoS, supra at 307.
6 H.R. 2345, 109th Congress.

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agencies could lead to enforcement priorities and expenses out of step with the public’s interest in safe and effective products and a competitive marketplace.

Role of market forces

There is broad consensus that high prices of some legitimate products drive both supply and demand in markets for counterfeits. For example, according to the World Health Organization, “When the prices of medicines become excessively high and unaffordable, patients tend to look for cheaper sources. Such situation [sic] encourages counterfeiters to produce cheaper counterfeit drugs. … When price differences exist between identical products, patients and consumers go for the cheaper ones. This creates a greater incentive for counterfeiters to supply cheap counterfeit medicines.” 7 Despite a relatively well-controlled drug supply, high prices make the United States an especially attractive target. “America has become the go-to market for counterfeiters because we pay the highest prices of anyone in the world,” states Katherine Eban, author of “Dangerous Doses: How counterfeiters are contaminating America’s drug supply.”8 Public Citizen commented to the FDA, “In our opinion, as the costs Americans pay for prescription drugs continue to skyrocket and as the disparity in these prices continues to grow in comparison to other countries the economic incentives for counterfeiting and selling substandard drugs increases proportionally. This incentive is now greater than ever before.”9

Patent regimes, which often allow exclusive rights holders to set high prices without fear of competition, create incentives both to innovate and to counterfeit. The high cost of research and development is reflected in each consumer’s purchase of a bottle of brand- name pills. By contrast, a prize system, in which medicines could be sold at marginal cost, with innovators compensated through prizes rather than marketing monopolies, would create incentives only to innovate. Counterfeiters would be forced to compete with low-price legitimate sales reflecting only the low overhead and manufacturing costs of each pill. Incentives to trade in fakes would dwindle. There are other possible measures to reduce prices, and which would also reduce incentives to counterfeit.

A treaty focused on counterfeiting should not fail to address the role of the high prices for medicines in promoting counterfeiting. We recommend that this matter be discussed in the context of any treaty negotiation, and that any resulting treaty include provisions for a study and review of the interconnections between high price and counterfeiting, and possible measures to contain prices.

Sincerely,
7 “What encourages counterfeiting of drugs?” World Health Organization Counterfeits FAQ, available at:

http://www.who.int/medicines/services/counterfeit/faqs/16/en/index.html. 8 Harcourt (2005).

9 “Comments on the Final Rule implementing the Prescription Drug Marketing Act of 1987/PDUFA,” Comments of Public Citizen’s Health Research Group, October 27, 2000.

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Peter Maybarduk Staff Attorney Essential Action

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