April editorial - counterfeiting and pharmaceutical products

Seeking effective remedies for the growing epidemic of counterfeit pharmaceutical products 

Carina Gommers

During the course of 2016 the European Observatory on Infringements of Intellectual Property Rights (‘Observatory’) released several studies on the economic costs of IP rights’ infringement. The task of the Observatory is indeed to improve the understanding of IP rights and the negative consequences of infringement upon such rights.

The studies on the economic costs of infringement were carried out in nine sectors which are considered intensive in the registration and use of IP, ie: cosmetics and personal care; clothing, footwear and accessories; sports goods; toys and games; jewellery and watches; handbags; recorded music; spirits and wine; and, last but not least, pharmaceuticals.

The sectorial report on pharmaceuticals was published on 29 September 2016. The full report can be found on the website of the Observatory (at https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study9/pharmaceutical_sector_en.pdf).

The aim of these types of report is to provide empirical data on the costs of IP infringement. It takes into account the direct costs (effects in terms of lost sales and loss of employment), as well as indirect costs, including reduced sales and job losses in other sectors (eg sectors that supply to the pharmaceutical sector) and impact on public finances due to the losses in tax revenues.

The report reveals that in 2013 the production within the EU of pharmaceuticals was worth EUR 284 billion at wholesale prices. Employment in the sector was good for 1.1 million people in the EU. The principal countries involved in the production and trade of pharmaceuticals in the EU appear to be Germany, Ireland, France, and Italy.

The report contains data on a EU-wide level, as well as per EU country. From an EU-wide perspective the estimated total direct effect in terms of sales lost due to counterfeiting is €10.2 billion. When legitimate manufacturers and traders are confronted with lesser sales, this will of course have an impact on employment. As to the indirect effect, the report adds a further estimated €7.1 billion loss of sales in other sectors. The report estimates the total loss of employment at no less than 90,900 jobs in the EU. Finally, it is estimated that the total loss for public finances amounts to €1.7 billion.

Taking the above into account, it is important to continue the fight against counterfeiting. This is particularly so in the pharmaceutical sector, where not only economic interests are at stake but also possible health issues for patients and consumers alike. In this respect the Convention on the counterfeiting of medical products and similar crimes involving threats to public health of the Council of Europe (also known as the Medicrime Convention) is a step forward. The Medicrime Convention dates back to 2011 and already at that point in time emphasized that the pharmaceutical sector increasingly faced the problem of counterfeiting, among other things, because of the relatively low risk of detection and prosecution of trade in counterfeit products on the one hand, and the potential of high financial gains on the other.

The Medicrime Convention has so far been ratified by a handful of EU Member States, ie Spain, Hungary, Belgium, and France. The principal countries involved in the production and trade of pharmaceuticals in the EU, as established in the Observatory report have unfortunately not yet ratified.

The Medicrime Convention can however be a helpful tool in combatting counterfeit trade in pharmaceutical products, in that it not only provides criminal sanctions, but also preventive measures and protection of victims in a uniform and harmonized fashion. Furthermore, it promotes both cooperation between different authorities of the same Member States as well as international cooperation. For instance, it contains a provision according to which Member States shall consult each other to determine the proper venue for prosecution in case several Member States have jurisdiction. It could then be agreed that one Member State will be the sole prosecutor, thus avoiding duplication of procedures and rendering the combat against counterfeiting more efficient. Another interesting provision is the possibility to take foreign judgments into account when dealing with recidivism.

As the Observatory study reveals that combatting counterfeiting in the pharmaceutical sector remains an important battle, not only for the pharmaceutical companies holding IP rights, but also for consumers, patients and the public sector alike, future ratifications of the Medicrime Convention would therefore be applauded.

© The Author(s) 2017. Published by Oxford University Press. All rights reserved.

Editorial: counterfeiting and terrorism - what is the link?

Our latest editorial, masterfully crafted by Marius Schneider, explores the link between counterfeiting and terrorism, arguing that the former is frequently a low-risk, high-reward funding source for terrorists. Could a stronger and more efficient approach to counterfeiting be an effective measure against terrorism?

Counterfeiting and terrorism 

Marius Schneider
Attorney-at-law at the Brussels and Mauritius bar.
Email: ms@cew-law.be;office@ipvocateafrica.com.

Identifying and cutting off terrorists' access to funding has become a key priority for the international community. It is thus not surprising that while the United Nations, the European Union, G8 and others present action plans to dry up financial sources for terrorists, right-holder organizations remind the authorities and policymakers of the links between counterfeiting and terrorism. 

The French right-holders' association Union des Fabricants (Unifab) has presented a report on ‘Counterfeiting & Terrorism’ (available at:http://www.unifab.com/images/Rapport-A-Terrorisme-2015_GB.pdf) in which they highlight the proven links between counterfeiting and terrorism. The thoroughly documented report presents the involvement of several terrorist organizations in counterfeiting activities, explains the reasons for this choice and recommends further actions. 

We learn, for example, that Mokhtar Belmokhtar the leader of Al-Qaeda in the Maghreb (Aqmi), responsible for several recent attacks in West Africa, has the nickname ‘Mr Marlboro’ because large parts of his activities are financed by counterfeit and contraband tobacco products. 

What is more astonishing is that the Kouachi brothers—the terrorists involved in the Paris attacks on Charlie Hebdo—were under the surveillance of the French anti-terrorist police, until the monitoring of their telephone conversations revealed that they were setting up a business involving counterfeit clothing and sports shoes. This is when the police surveillance was stopped because, according to the officers, they were leaving the terrorist world to focus on petty crime. Only a few months later the Kouachi brothers burst into the newsroom of Charlie Hebdo. Some of the weapons used in the attacks were financed by the counterfeiting activity and the Director-General of French Customs confirmed that in this particular case there were ‘close links between counterfeiting and the financing of terrorism’. This specific example shows how regrettable it is that public authorities categorize counterfeiting as a ‘petty crime’ while in reality, it represents a major funding method for organized crime in general and terrorism in particular. 

The Unifab report shows that the conflict in Syria is partially financed by the traffic of counterfeit amphetamines, which are very popular with consumers in the Middle East and those fighting in the conflict. In Syria, the money obtained from the sale of these counterfeit amphetamines enables forces to arm themselves, while the—albeit fake—medicine is used by fighters who see it as a way to withstand many hours in battle, without fear or fatigue. 

In relation to the Paris attacks of 13 November 2015, the links are less obvious: the report points out that some of the terrorists come from the Belgian city Molenbeek, which is considered as a notorious place of radicalization, and the report cites the mayor of Molenbeek, who expressly links delinquency such as drug trafficking, counterfeiting and offences to social law with the phenomenon of radicalization. 

In this particular case one can only ‘feel the link’, but the suspicions are not established beyond reasonable doubt. Then again, this is probably due to the fact that both terrorism and counterfeiting remain illegal activities which are carried out underground. To stay with the example of Molenbeek—which I know very well since I regularly assist my clients with seizures of counterfeit products in this part of Brussels—it is clear that counterfeiting and other delinquency are widespread in this community. However, to conclude from there that this leads to radicalization and ultimately to terrorism is less obvious. Having said that, there will inevitably be instances where candidates for the jihad engage in counterfeiting or piracy to make ‘quick money’ to finance a trip to terrorist camps or for their terrorist ventures like the Kouachi brothers did in France. 

The Unifab report clearly shows why counterfeiting is a ‘logical choice’ for terrorists—and other malicious individuals—who are out for quick money while taking a low risk. The report demonstrates that counterfeiting is a highly lucrative activity in comparison to other criminal activities, such as drug dealing or human trafficking, while the stakes are low for those who are caught. This is due in part to the fact that the legislation in place in most countries is not sufficiently dissuasive, that penalties are rarely enforced and are often well below the maximum that the law provides for. 

The report rightly concludes that the gap between the reality of counterfeiting and its treatment by national, European and international institutions is almost unreal! 

© The Author(s) (2016). Published by Oxford University Press. All rights reserved.

Criminal enforcement of counterfeiting in post-sale contexts

Author: Jesus Ivan Mora Gonzalez (Post-Doctoral Researcher, Max Planck Institute for Innovation and Competition)

United States v Foote, 413 F 3d 1240 (10 Cir, 2005) 6 July 2015

Journal of Intellectual Property Law & Practice (2015) doi: 10.1093/jiplp/jpv145, first published online: September 2, 2015

The Court of Appeals for the Tenth Circuit, in United States v Foote, holds that the statutory elements, ‘likely to cause confusion’ ‘to cause mistake’ or ‘to deceive’ (s 2320, Title 18 of the United States Code), are not restricted to instances in which direct consumers are misled by the counterfeit goods, but extends to post-sale contexts where the general public could be confused about their commercial origin.

Legal context and facts

In 2002, Mr Jerome Foote was convicted in the District Court of Kansas of trafficking in counterfeit goods based on the selling of one single counterfeit Mont Blanc in violation of the s 2320, Title 18 of the United States Code. The court sentenced Mr Foote to thirty-seven months' imprisonment, three years of supervised reliance and a fine of US$104.000. Mr Foote appealed to the Court of Appeals for the Fourth Circuit claiming that he had openly advertised that he sold counterfeit merchandise, which he called ‘replicas’, and that he had informed each customer that his merchandise was fake. Because his customers were never misled into thinking that they were purchasing authentic merchandise, the s 2320 should not be applicable to his conduct.

The Court of Appeals rejected Mr Foote's claim and confirmed the conviction and sentence based on the following arguments:

Section 2320, Title 18, of the United States Code defines a counterfeit mark as a spurious mark that is likely to cause confusion, mistake or deceive, which includes post-sale confusion, that is, the proof of likelihood of consumer confusion is not restricted to the point of sale where direct purchasers are confused or deceived by the counterfeit goods.

The trade mark holder's ability to use its mark to symbolize its reputation is harmed when potential customers see counterfeit goods and identify these goods with the trade mark holder in post-sale contexts.

The correct test to be applied in the commercialization of counterfeit goods is whether the defendant's use of the mark was likely to cause confusion, mistake or deception in the general public.

Analysis

The decision of the Court of Appeals highlights the normative controversy over trafficking genuine fake goods and the best normative strategy to forbid its commercialization. For those who sell ‘replicas’ to consumers, the legal justification of this conduct could be explained as follows. A system of exclusive entitlements for distinctive signs implies a restriction in free competition that cannot be legitimized by itself since that would mean putting ‘the cart before the horse’, ie, trade mark exclusive rights must identify the public interest that justifies any restriction in free competition. If a trade mark is defined as a distinctive sign that communicates the real origin of goods to consumers, the reliability of this information has the ability to justify trade mark exclusive rights by means of protecting the consumer interest in not being misled about the real source of the goods. Consequently, if consumers know that they are buying counterfeit goods and wish to acquire them as reasonable substitutes at a lower price, the trade mark reputation of the original source would not be damaged and the commercialization of ‘replicas’ should be regarded as fair competition.

Trade mark holders obviously reject this normative approach, claiming that counterfeiting is always unfair competition and the place where goods are sold should not be taken into account as the paradigm to delegitimize the criminal law enforcement of trade mark exclusive rights. According to the post-sale confusion test, the statutory element ‘likely to cause confusion’ should not be examined from the perspective of the average consumer who buys reasonable substitutes at the point of sale, but from the general perspective (real and potential purchasers) in post-sale contexts where the proof of consumer confusion at the point of sale is irrelevant since the defendant's use of the mark could lead individuals, other than the real purchasers, to mistakenly believe that a product was manufactured by the trade mark holder.

In most federal cases where post-sale confusion has been proved, the trade mark holder's loss is justified through the potential damage to trade mark reputation, that is, when manufacturers of counterfeit goods offer these goods to consumers, those manufactures allow consumers to acquire the prestige of owning what appears to be the more expensive product. A loss in the trade mark reputation, therefore, could occur when a sophisticated buyer purchases a knockoff or ‘replica’ and passes it off to the public as the genuine article, thereby confusing the viewing public and achieving the status of the genuine article at a knockoff price.

The aim of the post-sale confusion test, therefore, seems very clear. If the point of sale is the main obstacle to forbidding the selling of counterfeit goods, the point of sale must be removed and replaced by a post-sale context that enables trade mark holders to prove the existence of the risk of consumer confusion. This approach, however, faces serious difficulties when mens rea is a key element to justify a prison sentence:

The scope of trade mark exclusive rights is extended to futuristic consumer behaviour where those who have bought counterfeit goods could interact with other individuals that could be potential purchasers of genuine goods. Any evidence of ‘likely to cause confusion’, therefore, is examined in a context where the point of sale has no legal value, but this context is simply hypothetical. At the point of sale, consumers are not only misled about the real origin of the goods, they also wish to acquire them in order to get reasonable substitutes at a lower price. Would it be reasonable to extend the evidence of mens rea to hypothetical contexts where the statutory element ‘likely to cause confusion’ is easier to prove?

The proof of ‘likely to cause confusion’ is transformed dramatically. The traditional relationship between consumer and trade mark holder is replaced by a peer-to-peer consumer inter-relationship regarding the ability to buy social distinctiveness, that is, the proof of ‘likely to cause confusion’ should be based on who is really able to consume original goods. Is it reasonable to justify a prison sentence based on the evidence of mens rea in those situations where some consumers could ‘cheat’ other consumers about their ability to buy social distinctiveness?

The person who commercializes ‘replicas’ knows simply the circumstances of the point of sale as the meaningful context for those consumers who are willing to acquire those products. Would it be reasonable to extend the proof of mens rea beyond the real context where the ‘replicas’ are sold?

The counterfeit goods' capability to be viewed and examined by the general public becomes a discriminatory approach to marginalize all those cases where consumers decide to not display those goods. How could mens rea be proved when consumers decide not to show off the ‘replica’ in front of other potential consumers?

Practical significance

The post-sale confusion test highlights that any normative reasoning based on the evidence of likelihood of consumer confusion gives unsatisfactory solutions when mens rea must be proved in order to justify a prison sentence against those who commercialize genuine fake goods. If the target of selling ‘replicas’ is not to mislead consumers about the real origin of goods, but to be a parasite on trade mark reputation by offering substitute goods at a lower price, the proof of ‘likely to cause confusion’ is not an efficient strategy, unless it is accepted as distortion in the source theory.

The key thing to be discussed is not the point of sale and what kind of argumentative strategy based on the proof of likelihood of consumer confusion is more efficient to solve that problem, but the incorrect use of this paradigm for situations that demand an alternative approach to protect the trade mark holder's interests. This is especially relevant when trade mark holders have to face the trafficking of genuine fake goods with the ability to challenge the traditional justification of trade mark exclusive rights based on the indication of origin. The post-sale confusion test appears as an easy way to prove the ‘likely to cause confusion’ when there is not consumer confusion at the point of sale; however, that easy way brings serious difficulties justifying a prison sentence.

An alternative approach could be the removal of ‘likely to cause confusion’, ‘to cause mistake’ or ‘to deceive’ as a necessary statutory element, but this removal would raise another important question: What is the legal justification of trade mark exclusive rights? This raises two additional key questions. Who is responsible in the event that a product injures consumers? Would trade mark holders be responsible in the event that counterfeit goods injured consumers? The concept of implicit representation of product safety in the marketplace protected by trade mark holders could be a new path for the criminal enforcement of trade mark exclusive rights when the aim is not to mislead consumers but to take unfair advantage of the reputation of famous marks.

April comes early with a special issue on Counterfeiting

Bristling with goodies, featured below is the contents list for the April 2015 issue of JIPLP -- which you can also check out online here.  This issues focuses on counterfeiting and what to do about it, as the guest editorial by seasoned practitioners Marius Schneider and James Bikoff explains (this editorial will be posted in full, for the benefit of all readers, later today on this weblog). As usual, all of the items listed below are already available to our electronic subscribers, but the print version will be available shortly.  Even if you don't subscribe to JIPLP, you can still purchase short-term access to individual items via the journal's website.

The April issue looks like this:

Guest Editorial

• Select this article
  • Marius Schneider and
  • James Bikoff

  Counterfeiting in the 21st century

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 227-228 doi:10.1093/jiplp/jpv045

Current Intelligence

• Select this article
  • Mark Daniels

  Patents: Court of Appeal provides guidance on claim construction and priority

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 229-230 doi:10.1093/jiplp/jpv008
• Select this article
  • Emma K. Tuck

  Patents: Court of Appeal confirms that Lantana's software is not patentable

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 230-232 doi:10.1093/jiplp/jpv009
• Select this article
  • Joel Smith, 
  • Sarah Burke
   
  • and Silja Nordmeyer-Andrez

  Trade marks: Validity of the Rubik's Cube as a shape mark upheld

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 232-233 doi:10.1093/jiplp/jpv010
• Select this article
  • Leigh Smith

  Trade marks: General Court finds no likelihood of confusion between ALDI and Alifoods device mark

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 233-235 doi:10.1093/jiplp/jpv012
• Select this article
  • Valentina Torelli

  Trade marks: Cutting-edge trade mark and business name litigation with LAGUIOLE

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 235-236 doi:10.1093/jiplp/jpv014
• Select this article
  • Uğur Akteki̇n, 
  • Güldeniz Doğan Alkan
   
  • and Zeynep Çağla Özcebe

  Trade marks: Evaluation of the likelihood of confusion between weak trademarks

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 237-238 doi:10.1093/jiplp/jpv006
• Select this article
  • Alexander Borthwick

  Trade marks: Thomas Pink wins PINK trade mark dispute

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 238-240 doi:10.1093/jiplp/jpu252
• Select this article
  • Pessi Honkasalo and
  • Jussi Latola

  Copyright: Too right: government proposes amendments to the Finnish Copyright Act

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 240-242 doi:10.1093/jiplp/jpv013
• Select this article
  • Nedim Malovic

  Copyright: High Court employs ‘intention to target’ approach to determine application of UK copyright law

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 242-243 doi:10.1093/jiplp/jpv007
• Select this article
  • Pablo Palazzi and
   
  • Marco Rizzo Jurado

  General: Search engine liability for third party infringement: a keenly awaited ruling

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 244-245 doi:10.1093/jiplp/jpv018

Articles

• Select this article
  • James L. Bikoff, 
  • David K. Heasley, 
  • Valeriya Sherman
   
  • and Jared Stipelman

  Fake it ’til we make it: regulating dangerous counterfeit goods

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 246-254 doi:10.1093/jiplp/jpv016
• Select this article
  • Michele Ferrante

  E-commerce platforms: liability for trade mark infringement reflections on Chinese courts' practice and remedies against the sale of counterfeits on the internet

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 255-261 doi:10.1093/jiplp/jpv027
• Select this article
  • Marius Schneider and
  • Christophe Maillefer

  How Europe deals with private imports of counterfeit and pirated goods

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 262-268 doi:10.1093/jiplp/jpv031
• Select this article
  • Vanessa Ferguson and
  • Marius Schneider

  Enforcement of intellectual property rights in Africa

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 269-279 doi:10.1093/jiplp/jpv034
• Select this article
  • Geraldina Mattsson

  Anti-counterfeiting concerns of the vehicle manufacturing sector

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 280-284 doi:10.1093/jiplp/jpv036
• Select this article
  • Amanda Wilson Denton

  International copyright enforcement: the lasting value of 20th century tools, and the tools of the next generation

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 285-291 doi:10.1093/jiplp/jpv046
• Select this article
  • Bruce Foucart

  The IPR Center: America's response to global intellectual property theft

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 292-299 doi:10.1093/jiplp/jpv047

From GRUR Int.

• Select this article
  • Frederik Thiering

  Cases before the CJEU and the BGH on trade mark law since 2013 (part II)

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 300-309 doi:10.1093/jiplp/jpv028
• Select this article
  • Dr Tanja Dörre

  Current case law on Creative Commons licences

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 310-312 doi:10.1093/jiplp/jpv037

IP in Review

• Select this article
  • Birgit Clark

  No riddles or ambiguities

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 313-314 doi:10.1093/jiplp/jpv023
• Select this article
  • Roland Kunze

  A suitable introduction for IP novices?

  Journal of Intellectual Property Law & Practice (2015) 10 (4): 314-315 doi:10.1093/jiplp/jpv025