Faking It

Travis Johnson of International Anti-Counterfeiting Coalition talks to NGP about the global problem of counterfeit pharmaceuticals.

Counterfeiting is a major problem across many industries, and it's getting worse. According to Travis Johnson, Vice President and Director of Legislative Affairs and Policy for the International Anti-Counterfeiting Coalition, in the 30 years since the association was formed, there has been significant growth both in terms of volume and diversification of counterfeited items. "Back in the 1970s and 1980s counterfeiting was largely a concern for apparel companies and luxury goods brands," he says.

"The stereotype of the fake handbag, or $20 Rolex that someone would be selling on the street corner. Since then we've seen the expansion of the counterfeiting problem into every possible product sector. We have members from the automotive section, the music industry, video games, movies, computer software – and pharmaceuticals. Any product sector you can think of, even things like toothbrushes and shampoo."

If it seems surprising that anyone would bother to counterfeit a toothbrush, Johnson explains that at a basic level, counterfeiting is not so much about the product but about the name attached to it. "In many cases, companies have spent millions of dollars and many years developing a brand name that consumers recognize and that they place trust in. If someone can copy a product closely enough, and use the name and the good will that the legitimate companies have developed, a consumer may be more willing to buy that product than a no-name brand. Unfortunately, the more popular your brand is, and the more well-trusted it is, the more likely someone could be fooled into buying a fake product."

Johnson explains that the easiest way to spot a counterfeit product is traditionally the fact that you're paying significantly less than you would expect to be paying for it - that, and the location where it's being sold. He cites pharmaceuticals as a good example of this. "You wouldn't normally expect to see someone selling prescription drugs unless they're a pharmacist, no matter what the outlet, whether it's a bricks-and-mortar traditional type store or over the internet. If you buy prescription drugs over the internet without a prescription, that's an obvious tip-off that it's not a legitimate product. They're either selling counterfeit product, or stolen or misdirected product. In any case it's a product that you have no way of knowing whether it was properly stored whether it's been tampered with or diluted. Many people think they're getting a good bargain and don't really consider all of the other facts, unfortunately, sometimes with very bad consequences."

A big problem

When asked about the scale of the counterfeiting problem within the pharmaceutical industry, Johnson demurs. He says it's one of the most common questions he is asked, and also one of the most difficult to answer.

"Of course, the counterfeit market is an illegal black market activity," he points out. "Obviously, the people selling counterfeit items tend to not file things like their tax returns, or a statement of profit. In many cases they're not declaring any income from it, which ties into another issue of depriving the government of legitimate tax revenue.

"This in turn gets back to consumers in the form of reduced availability of government services. Back in 2004, the comptroller of New York had did a study that estimated that lost tax revenue from the sale of counterfeit and pirated goods, whether it was unpaid sales tax, unpaid business income tax or unpaid employment taxes, was upwards of $2 billion for the state, and in excess of $1 billion for the city. To make that a bit easier to grasp, the tax revenue they lost out on could have been used to hire up to 40,000 new public school teachers."

Johnson says that worldwide, across all industries, the estimates of the value of counterfeit trade range from over $200 billion a year, to as high as $700 billion a year. However, he reiterates that it's very difficult to know how close these figures are to the actual number, since the only real source of hard data is the amount of counterfeit product seized by customs agencies and other law enforcement agencies.

"Last year in the United States, seizures of pharmaceutical products alone were up over 150 percent from the previous year," he points out. "While we would like to think that that's a result of improved work by law enforcement and customs, and a good portion of it may be, I think it's a fair assumption that the increase in seizures is closely tied to an increase in the overall traffic as well. One of the problems that we run into with the seizure of counterfeit and illicit goods is that the easiest way, and probably the most accurate way of identifying shipments is the physical inspection of the goods.

"In many cases, when individuals are importing illicit goods like they falsify documentation, they attempt to disguise the original source of the goods, which makes it significantly more difficult for customs personnel to spot a red flag and know that this is a shipment they should take a closer look at. With the quantity of goods moving around the word, the amount of manpower it would take to physically inspect all of the goods and significantly improve the possibility of detecting and intercepting those shipments would is mind-boggling."

Drug specific

While the methods used by counterfeiters of pharmaceutical products don't differ significantly from those used in other industries, Johnson explains that there are some additional challenges in the ability to identify product as legitimate or counterfeit. "With counterfeit drugs, we have a couple of different categories that we see. There is product that has the right active ingredient, but not necessarily the right amount, or the right formulation. Then there is have product that has no active ingredient whatsoever, and has no medicinal affect. With those sorts of product, whether it's a small amount of the active ingredient, or a product with no active ingredient tend to be the formulations that are favored by the counterfeiters, because you may get a slight medical benefit from using those products, or no benefit whatsoever, but at least there is no negative effect.

"Obviously if people start showing up dead, the likelihood of scrutiny is going to significantly increase. But if somebody has high cholesterol or high blood pressure, and they're taking a pharmaceutical they think is real but there's no real medicinal effect from the product, then if they happen to die there's a high likelihood that it'll just be attributed to the fact that they were already sick."

In pharmaceuticals, Johnson explains, there are also products are not exactly counterfeit as such, but that may have been moved into a gray market area; for example, where product that was intended for sale in one particular region has been diverted to a third country. In some cases, there are also formulations that are slightly different, which may not have been tested or approved for distribution in that particular market. The labeling may be different and may not contain all of the information, or it may not be in the right language for that country.

"With the diversion of medicines, we also see in some instances the dilution of product," Johnson says. "Particularly with medications that come in a liquid form, whether glass ampoules or vials you'll see a single dose of the product diluted down to create a significantly less powerful version of the drug, which can be sold as ten dosages, or 100 dosages. This would of course provide far less medical benefit if any benefit at all. In some cases, the weaker form of the drug may end up leading to a more resistant strain of the disease it is meant to treat.

Despite the significance of these issues, Johnson says that in the past there have been complaints that the pharmaceutical industry hadn't been vocal enough about counterfeiting. "The World Health Organization released statistics suggesting that as much as ten percent of the world drug supply could be composed of either counterfeit or diluted pharmaceutical products. It's been less an issue in the more developed countries, but in some countries, such as Nigeria, we've seen rates of upwards of 80 percent of counterfeit or tainted pharmaceuticals, which means that some of the people who are in most need of medicines are being helped the least.

"In the past few years, the pharmaceutical industry has begun taking steps to educate the public about the risks of counterfeit products, working with groups like the Pharmaceutical Security Institute, which collects and aggregates data from pharmaceutical companies about enforcement and the international trafficking of counterfeit drugs. Or the Partnership for Safe Medicine, which does a fantastic job of providing public awareness information, alerts about reports of medications that have shown up in certain areas.

Work needed

"Pharmaceutical companies have taken significant steps in dealing with the issue," Johnson concedes. "I think they should be commended for it. However, there's still quite a bit of work to do, both in the pharmaceutical industry and industry in a broader sense. There are still many people who are not aware that counterfeiting is an issue."

Johnson quotes a Gallup survey that showed that upwards five to eight percent of respondents were either certain or fairly sure that they had purchased counterfeit pharmaceuticals. Although the drugs may have been purchased from such unlikely sources as street vendors or flea markets, those surveyed seemed to have few concerns about the safety or effectiveness of the drugs. Their overriding concerns instead being lower cost, and the ability to buy treatments for potentially embarrassing medical conditions without the need to get a prescription or consult a doctor. Johnson points to the 'embarrassment factor' as one explanation for the growth in counterfeit drug sales over the internet.

"In the past, we would see the general trafficking of counterfeit pharmaceuticals that have been manufactured in one country and shipped to another country, where another individual would deal with the rest of the distribution chain from the large shipment down to the individual buyer. Now, with the ease of access that the internet offers, individuals can just hop online, do a search on Google, and find any number of places where they can obtain what they think are in many cases, the real thing.

"In many cases, they are sadly disappointed – but they are also fairly lucky, assuming that what they're getting doesn't cause serious complications or medical problems. I think they're far happier to get ripped-off even though they may end up with a serious medical problem resulting from the fact that they didn't want to pay for the real thing."

Future outlook

Johnson feels that the situation for counterfeit pharmaceuticals is at a bit of a crossroads. Laws around the world have improved and the industry has made a major forward in acknowledging and addressing the problem. He does believe, however, that there are areas require additional focus on in the coming years.

"One of the main areas we need to look at is continuing to educate the public. Last year in the US, approximately $30 million worth of counterfeit pharmaceuticals were intercepted by customs out of $300 million in total counterfeit goods that came into the country. Some of the economic estimates for the actual total market for counterfeit goods in the United States is upwards of $200 billion.

"There's clearly a demand from consumers for cheap products. If that demand wasn't there, it wouldn't matter how many factories were operating whereever in the world producing the products, the would have nowhere to sell them.  By educating the public and letting them know, the real reasons why they should not be using counterfeit products, whether pharmaceuticals or otherwise, could go a long way in making a dent in that number.

"Many people look at it as simply an economic issue, and mainly a concern for large corporations. They don't see how the counterfeit trade is affecting them personally; they don't think about things like the loss of tax revenue, or the fact they're missing out on government services because the government can't afford to hire new teachers, or to fix the roads, or provide other important services. They often don't think about the fact that the factories that are producing these things often use like child labor, for example. There's a sense of 'me first' and the idea that big companies can afford to lose a little money. They're not aware of the true cost of counterfeit products, both to themselves and to society as a whole.

"We need to bring the message to consumers about all the reasons why they should not be supporting counterfeiters, whether it's their own health and safety, or the fact that people are losing their jobs, or the impact on the economy. By doing that, we can make a real impact on the spread of counterfeiting.

Travis Johnson is Vice President and Director of Legislative Affairs and Policy for the International Anti-Counterfeiting Coalition. He serves as the principal lobbyist for the association, both with Congress and state legislatures, with a particular focus on issues related to trademark enforcement, including counterfeiting and infringement.

Internationally, he tackles issues such as trade enforcement and international trade policy, including cooperative work for trade enforcement between the US government and other governments, and customs rules and regulations in the United States and the EU.

301 Report

Travis Johnson on the government's international trade report:

The Special 301 Report is produced each by the Office of the United States Trade Representative puts out every year, and focuses on international intellectual property enforcement and general trade enforcement throughout the world.

It's often referred to as the US government's blacklist, because it's focus in the past has been fairly critical of countries where intellectual property protection was not seen as robust as it is in the United States and most of western Europe.

The list is broken down into several tiers, the highest being priority foreign country. Any country that is declared a priority foreign country on the 301 watch list requires the US Trade Representative to initiate an investigation and potentially bring a trade case against them. Countries like China and Russia generally top the list.

IACC history

The International Anti-Counterfeiting Coalition was founded in 1979, in Washington, DC. Its mission is to combat counterfeiting and piracy by promoting laws, regulations and directives designed to render the theft of intellectual property undesirable and unprofitable. It serves as an umbrella organization, offering anti-counterfeiting programs designed to increase protection for patents, trademarks, copyrights, service marks, trade dress and trade secrets

The association began as a collaboration between a number of apparel and luxury goods companies in the US and Europe. These companies were seeing more and more counterfeit products entering the market, and they decided that the problem had become so large that no individual company had the time or resources to be able to devote to it. The founder companies decided to pool their resources and work together to push for positive legislative change, and to raise the profile of the issue with government officials and law enforcement.

One of the coalition's first successes was the passage of the Trademark Counterfeiting Act of 1984, which was the first federal criminal law regarding trademark counterfeiting.