Counterfeiting Looms Large in Global Pharmaceutical Trade

By Patricia Van Arnum - DCAT Editorial Director

May 11, 2016

A recent report by the Office of the US Trade Representative highlights challenges in intellectual property rights protection and enforcement and market access to pharmaceuticals. So what did the report reveal?.

The report highlights problems with respect to the flow of counterfeit pharmaceuticals with some chilling numbers, offering data that show up to 20% of drugs sold in the Indian market are counterfeit. With regard to the entry of counterfeit pharmaceuticals into the US, 97% were shipped from four economies: China, Hong Kong, India, and Singapore. DCAT Value Chain Insights (VCI) examines the problem and efforts by the US and international community to address pharmaceutical counterfeits;

Counterfeit pharmaceuticals on the rise 
The report by the Office of the US Trade Representative (USTR) notes that "the manufacture and distribution of pharmaceutical products and active pharmaceutical ingredients being counterfeit trademarks is a growing problem that has important consequences for consumer health and safety." The report notes that the US is particularly concerned with the proliferation of counterfeit medicines that are manufactured, sold, or distributed in trading partners, such as Brazil, China, Guatemala, India, Indonesia, Lebanon, Peru, and Russia. The report notes although that it is impossible to determine an exact figure, studies have suggested that up to 20% of drugs solid in the Indian market are counterfeit. Ninety-seven percent of all counterfeit medicines seized at the US boarder in fiscal year 2015 were shipped from four economies: China, Hong Kong, India, and Singapore.

The USTR report points out that part of the problem with the movement of counterfeit products, including pharmaceuticals, is that many countries do not provide penalties that deter criminal enterprises engaged in global trademark counterfeiting operations or if they do, the penalties may be low and insufficient. The report points out that the US continues to urge its trading partners to undertake more effective criminal and border enforcement against the manufacture, import, export, transit, and distribution of counterfeit goods, including destroying the counterfeit goods once seized. The US is also working with its trading partners with respect to counterfeit products. For example, in 2015, the US Customs and Border Protection collaborated with Singapore Customs to conduct a joint enforcement operation that focused on addressing the issue of counterfeit pharmaceuticals.

Removing barriers to market access 
The USTR is also involved with removing tariffs, taxes, or other mechanisms the limit access to pharmaceuticals. The USTR report notes that according to some estimates, federal and state taxes can add 38% to the costs of medicines in Brazil and that India maintains the highest tariffs on medicines, pharmaceutical inputs, and medical devices among members of the World Trade Organization. "These tariffs, combined with domestic charges or measures, particularly those that lack transparency or opportunities for meaningful stakeholder engagement or that appear to be exempt domestically developed and manufactured medicines, can hinder government efforts to promote increased access to healthcare products," said the USTR report. In addition, cumbersome regulatory approval processes or delays in regulatory approvals can further limit access to pharmaceuticals by impeding development or market entry of new pharmaceuticals.

According to some estimates, federal and state taxes can add 38% to the costs of medicines in Brazil and India maintains the highest tariffs on medicines.

--The Office of the US Trade Representative, 2016 Special 301 Report, April 2016.

The USTR report notes that the pharmaceutical and medical device industries have expressed concerns regarding the policies of several trading partners, including Algeria, Austria, Belgium, China, Colombia, Czech Republic, Ecuador, Hungary, Italy, Korea, Lithuania, New Zealand, Portugal, Romania, Taiwan, and Turkey. Some examples of issues in these countries include a ban in Algeria of more than 350 imported pharmaceutical product and medical devices, the lack of an effective pharmaceutical manufacturing inspection process in Turkey, proposals in Colombia and Ecuador to enhance domestic manufacturing capacity, and a lack of meaningful stakeholder engagement for reimbursement and pricing policies in several European Union states, including Austria, Belgium, Czech Republic, Finland, Hungary, Italy, Lithuania, Portugal, and Romania.

The US continues to have concerns over China, not only for counterfeit goods, but also about the extent to which China provides effective protection against unfair commercial use of, as well as unauthorized disclosure of, and reliance on, undisclosed tests or other data generated to obtain marketing approval for pharmaceutical products.The USTR report notes that China has undertaken commitments to ensure that no subsequent applicant may rely on the undisclosed test or other data submitted in support of an application for marketing approval for a new pharmaceutical product for a period of at least six years from the date of marketing approval in China. The report, notes, however that there have been reported instances of marketing approvals by the China Food and Drug Administration for generic drugs prior to the expiration of this period or before the originator's product has been approved.

Another area of concern by the US for China is how the country defines "new chemical entity." The US was initially encouraged by China's commitment in 2012 through the US-China Joint Commission on Commerce and Trade (JCCT) to define "new chemical entity" in line with international standards. In March 2016, however, China out into effect a Work Plan for the Reform of Chemical Drug Registration Categories, which limits the definition of "new drugs" to only those drugs for which marketing approval is first sought in China. "The lack of implementation of its 2012 JCCT commitment is a continued concern that China should address," concludes the USTR report.


China's definition of "new drugs" is limited to those drugs for which marketing approval is first sought in China, an area of concern for international intellectual property rights protection.

--The Office of the US Trade Representative, 2016 Special 301 Report, April 2016.

The US was also encouraged by China's commitment in 2012 through the JCCT to reform its regulatory authorization process for pharmaceuticals and to add personnel and funding for its drug approval process, but notes that some proposals related to the implementation of these reforms have raised serious concerns. The USTR report notes that the proposals appear to contain provisions that would provide regulatory incentives for companies to shift manufacturing capacity to China or participate in select national projects and programs. "Proposals such as these may have lasting negative effects on promoting global innovation and would appear more consistent with forced technology transfer industrial polices," said the USTR report.

With respect to India, the USTR report noted some recent actions that cause concerns. For example, India's proposed Patent Rule Amendments would introduce new incentives for patent holders to localize manufacturing in India and require the submission of sensitive business information to India's Patent Office. The report also highlights other issues as they relate to pharmaceuticals: continued irregular application of Section 3(d) of the Patents Act (relating to the patentability of beneficial innovation); the lack of an effective system for protecting against unfair commercial uses; unclear standards as they relate to compulsory licenses; and an effective system for disputes for generics drugs. With respect to Section 3 (d) of India's Patents Act, the US continues to have concerns about the limits or disincentive for certain innovations that would be protected, such as drugs with fewer side effects, decreased toxicity, improved delivery systems, or with temperature or storage improvements. The report points out that India has already applied this standard to deny patents for potentially beneficial innovations. The report also points that that Section 3(d) also creates further uncertainties for patent holders, such as using the provision to challenge patents, either before or after they are granted. The report says that India should reconsider Section 3 (d) of the Patent Act, particularly in light of broader intellectual property rights reform that India is seeking.

Other developments 
This USTR report also highlighted important trade measures in 2015 and 2016 to date. One important measure, which is being debated in the United States, is the Trans-Pacific Partnership (TPP), which was signed in February 2016 by the US, along with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The TPP includes commitments to protect intellectual property and to combat counterfeiting, piracy, and other infringement, including trade secret theft; obligations to facilitate legitimate digital trade; and provisions to promote development and access to both innovator and generic drugs.

With respect to pharmaceuticals, the TPP sets a minimum standard of at least five years of data protection for new pharmaceutical products and requires an extended period of effective market protection for new biologics. The TPP clarifies that the period of protection will start on the date of approval in each market rather than from the first marketing approval in the world. In addition, the TPP requires parties to provide for advance notice, adequate time and opportunity, and procedures for patent holders to seek timely resolution of patent disputes prior to the marketing of an alleged infrining product, according to the USTR report. The TPP also obligates parties to provide an extension of the patent terms when the marketing approval process unreasonably cutes into the effective term of a patent of a pharmaceutical product.

Another development between China and the US is the signing of an intellectual property rights addendum in June 2015 between the US National Intellectual Property Rights Coordination Center and the General Administration of Customs China (GACC) that expanded a memorandum of understanding drafted in 2011 to collaborate on the enforcement of customs law. The addendum is intended to help both countries combat intellectual property rights infringements by tracking violations, sharing information, and monitoring illicit importation, exportation or trafficking of counterfeit trademarked merchandise. The US and China will also conduct joint training operations targeting counterfeit products sent between the two countries that pose a health and safety risk. In addition in December 2015, the US Customs and Border Protection, US Immigration and Customs Enforcement/Homeland Security, and the GACC participated in a bilateral working group meeting and agreed to an ambitious agenda of customs authority-to-custom authority" cooperation for 2016.

The report also noted that several trading partners have or are participating in innovative mechanism that enable government and private sector right holders to donate or license pharmaceutical patents voluntarily and on mutually-agreed terms and conditions as a means to increase access to pharmaceuticals in developing countries. With these arrangements, parties use existing patents to facilitate the diffusion of technology to support public policy goals. For example, the US was the first government to share patents with the Medicines Patent Pool, an independent foundation hosted by the World Health Organization (WHO). In addition, the US, Brazil, and South Africa participate as providers in the WIPO Re:Search Consortium, a voluntary mechanism for making intellectual property rights and expertise available on mutually-agreed to terms to the global research community to find cures for neglected tropical diseases, malaria, and tuberculosis.