Ten Tips to Fight Pharmaceutical Counterfeiting

May 28, 2008
The pharmaceutical industry is under extraordinary strain. Facing the wrath of consumers because of the cost of products, constantly answering the questions of state and federal legislators looking to control health care costs, and losing value in the marketplace, the industry’s hands are more than full.

A less discussed but substantial problem impacts all of pharma’s other problems, counterfeiting. The World Health Organization estimates that counterfeit drugs make up about 10 percent of the global medicine market, and more than 25 percent in developing countries. With counterfeit drugs increasingly finding their way into global distribution chains and ultimately into patients' mouths, it is essential that pharmaceutical companies have effective enforcement strategies to combat the manufacture and distribution of counterfeit drugs.

The pharmaceutical industry, however, has difficulty confronting this problem, for very good reasons.  In particular, because the industry is so heavily regulated, admitting that so many drugs are really counterfeit could bring more stringent regulations at a time when pharma cannot afford it.  Still, pharma had better face this problem head on or drown in it as other industries have done.

The first step in solving any problem is identifying it. This requires recognizing it for what it is.  Counterfeiting, whether drugs or any other product, is a crime, period.  Though every civilized jurisdiction in the world recognizes this and has criminal sanctions for such conduct, brand owners are reluctant to treat counterfeiting as a crime.  If people were being attacked on its premises, a pharma brand owner would take measures to deal with such a crime wave.  It is time for the pharmaceutical industry to recognize counterfeiting for what it is, an attack on its product.  Once pharma truly recognizes this simple fact, it can follow these top ten tips below to protect its marks from counterfeiting thieves.

1. Think like a criminal

Once a pharmaceutical company recognizes that counterfeiting is a crime, it is easy to realize that counterfeiters are professional criminals. Just like you, they get up each morning and go to work, but their work is to steal. Protecting your product against counterfeiters should be approached in the same way as protecting your product against any other thief. The first logical step in enforcement against such a thief is to think like one. A mark owner must recognize this very important fact and act accordingly. The other nine tips are based on this premise.

2.  Spend up front

No one wants to hear this, but it is better to pay up front when one can plan for spending than it is to pay later as a result of an unforeseen event when the money needed is less available. If you own very valuable tangible property, you put that property in a safe place and spend money to guard it. When the government builds a prison, it spends money to build it in a way that minimizes escapes. It spends money up front so that it doesn’t have to pay later to catch the criminals. Now that terrorism has become a greater threat to national security, money is spent up front to prevent terrorism so that money must not be spent later to pay for the consequences. 

Especially as profits decrease, pharma does not want to hear that it should spend more money up front to combat counterfeiting, but it better listen.  How should an owner effectively spend his money?  Some of the ways are described below.

3.  Have an anti-counterfeiting program in place

I recently attended a seminar by a major investigation firm on proactive approaches to brand protection, and the first suggestion that was made was that a brand owner needs a unit whose sole responsibility is anti counterfeiting. Many already do, but all should. That unit should not just react to problems once they occur but should also be proactive.  The head of such a unit must be integrated with other aspects of the company.

Certainly, the head of anti-counterfeiting is not the most important person in the company, nor should he or she have a say in every important decision that the company makes.  It is essential, thought, that such a person have access to those who make important decisions, and he or she should meet with those people regularly.  In that way the anti-counterfeiting “tsar” can give advice on how other important decisions affect anti-counterfeiting efforts.  Obviously, it would be foolish to make important decisions solely based on their impact on counterfeiting.  It is equally foolish to make important decisions without considering their consequences on such an important and expensive problem.

4.  Monitor your personnel

As with other kinds of theft, counterfeiters are not all strangers to the victim company.  Most counterfeit operations begin with an insider.  It is important to recognize that the insider could be anyone.  Especially in pharma, that counterfeit insider is more likely to be a lower level worker.  The insider is not necessarily the brains of the outfit, but more likely the method of access to information about the product or to the product itself.

Pharmaceutical companies routinely conduct background checks on their employees, but these checks must include all employees, as well as the employees of contractors, including all cleaning personnel.  Any contract must have audit rights built into it.  Anyone who has access to information or product must be carefully screened.

Checking must not stop once one is hired. Periodic background checks need to be done after hire to make sure that new factors have not created new risks.  In addition, integrity checks may need to be done to ensure the honesty of staff.  Everyone who has access to information or product has the ability to be a counterfeiter, either as a principal or as an accomplice.  Pharma has to recognize this and act on it.

5.  Monitor your product

Monitoring your personnel leads to monitoring your product. A former investigator for a major pharma informs me that theft that led to counterfeiting was rampant at a particular plant. Better supervision was needed to make sure that rejected product was not stolen, allowing it to enter the market as a counterfeit product.

Another method of counterfeiting was to make fake product but package it in real packaging that was stolen. A system must be in place to closely monitor inventory of everything. Nothing should be left to chance.

Another possible source of counterfeit product stems from the lackadaisical monitoring of legitimate samples. Their distribution by the sales staff must be closely monitored so that legitimate samples do not make their way to the illegitimate. Such samples can provide legitimate packaging for illegitimate product. They can also be cut and mixed with illegitimate product so that counterfeiters can produce more of the product, though the new product does not have the ingredients in the right percentage.

6.  Monitor the product of the counterfeiters

A pharmaceutical company must be vigilant in searching for counterfeit product. The most obvious way of doing this is monitoring the Internet.  Someone should be charged with each day searching the Internet for counterfeit product and then acting to shut down sales of the counterfeit product. eBay, for example, is very responsive to shutting down a site whenever a brand owner claims that the product being sold on it is counterfeit.

Of course, counterfeiting is not limited to the Internet.  A pharmaceutical company should also systematically go to stores and shop for pharmaceuticals.  There are statistical experts whom you can hire who can determine where you should buy so that you can obtain the most effective sampling.

7.  Learn about counterfeiters and counterfeiting

Though owners are reluctant to share their problems and solutions with their competitors, counterfeiting should be an exception to this.  It is important for members of pharma to truly share its experiences with each other.

More generally, the easiest way to learn about counterfeiting is to review government websites dedicated to the topic, such as www.stopfakes.gov, a website of the United States Patent and Trademark Office (USPTO).  The USPTO is a great resource on counterfeits and counterfeiting.  The USPTO regularly conducts free “radshows” on hot topics in the counterfeit field.  One caveat: make sure that you register early because these programs do sell out fast.

8.  Educate the public better

It is not that the pharmaceutical industry is not trying to gain public support for its efforts, but it is clear that it is not winning the public relations war.  What can the industry do differently?  Again, this goes back to pharma’s quite legitimate concern that more public awareness of its counterfeiting problem will bring greater scrutiny by regulators and a decrease in public confidence and support. 

Pharma has to admit its problem to the public and show how it is trying to combat it.  Companies should publicize examples of problems, even deaths, caused by counterfeit drugs.  Let the public know, using spokespersons with credibility, that a consumer may only have a 50/50 chance of buying legitimate drugs if he or she buys on the internet. They should also notify the public of who is selling drugs that have been found to be counterfeit.  It is only when the public truly recognizes the risks involved in purchasing drugs from other than legitimate sellers that the public will decrease such purchases.

By the same token, a pharmaceutical company should also inform the public where its legitimate drugs are sold and make sure that that information is accurate.  And educating the public doesn’t have to be limited to bad news.  In light of the complaints concerning the costs of legitimate drugs, it might be helpful if a pharma informed its consumers where legitimate best prices are available, mindful of the positive impact that Kris Kringle provided to MACY’S in Miracle on 34th Street. 

9.  Cooperate with law enforcement

The cheapest way to combat counterfeiting is to cooperate with law enforcement in its efforts to combat counterfeiting.  Law enforcement does not have the resources to go after every counterfeiter, but, luckily for pharma, counterfeit drugs are a priority because of their danger.  I have personally worked with law enforcement on a number of counterfeit cases, and law enforcement has been a big factor in the successes that I have had in those matters.

First, if law enforcement takes a case, the costs to the brand owner are minimal.  Law enforcement conducts the investigation and therefore foots the bill.  One caveat: law enforcement thus controls any resulting litigation, not the brand owner.

Even when law enforcement does not ultimately charge a counterfeiter, the brand owner is helped in two ways.  The fact of law enforcement’s involvement may drive an appropriate settlement.  Also, the work done by law enforcement usually proves beneficial to the brand owner.

10.  Hire a former prosecutor to handle your counterfeiting issues

The best person to hire to catch a criminal is someone who has done so for a living, a former prosecutor.  I do not say this because I am a former prosecutor, but because it is true.  Look at the tips that I have shared with you above.  Who better to think like a criminal, monitor/investigate, and cooperate with law enforcement than someone who has done this successfully? 

If you do not believe me, listen to the words of Tim Trainer, president of Global Intellectual Property Centre and former president of the International Anti Counterfeiting Coalition (IACC): “Companies that hire former prosecutors get more done.”  Former prosecutors have the contacts that are needed to get more done, and they know how to talk to the people whom they need to get more done.

Recent changes in the law have been helpful, but the best way to protect your goods from criminals is to think like a criminal.

About the Author

Mr. Castello’s practice emphasizes complex civil and criminal litigation, including trade secret matters, patent infringement cases, anti-counterfeiting enforcement, and white collar criminal defense. His anti-counterfeiting enforcement practice includes persuading federal and state prosecutors to actively pursue counterfeiters on behalf of his clients as well as filing appropriate actions seeking civil remedies against counterfeiters.

About the Author

Raymond P. Castello | Principal