Fake Scare About Fake Drugs

Recent customs seizures by some European Union members of Indian-made generic drugs en route to Latin America have caused uproar amongst development NGOs like Oxfam. They claim the EU is using the problem of counterfeit drugs as a pretext to protect the intellectual property of its pharmaceutical industry over the interests of patients in poor countries who need cheap copies.

These claims are not only wide of the mark but dangerous. The activists’ campaign has been so successful that the Indian government has threatened a formal dispute against the EU at the World Trade Organization, claiming such seizures violate the flexibilities written into its Trade-Related Aspects of Intellectual Property (TRIPS) agreement. Such a dispute could derail delicate free trade agreement negotiations between the EU and India, potentially costing the Indian economy US$17bn.¹

This issue has been blown out of all proportion. In their publicity, Oxfam and Health Action International cite 19 inappropriate seizures by Germany and the Netherlands on patent grounds since late 2008. Most of these were subsequently released. But according to EU figures, there were 3,207 seizures in 2008, 93 percent of which were concerned not with patent infringement but with suspected trademark infringement - meaning counterfeits.

Patent-related seizures are therefore a tiny minority, and certainly not the Armageddon for African countries claimed by the activists.

Meanwhile, in the final months of 2008, EU customs seized 34 million fake pills, including 1.6m fake painkillers and 600,000 fake anti-malarials in one haul at Brussels airport alone.

There are very good reasons for seizing fakes that break a trademark. Trademarks tell consumers that what they are about to buy is the real thing. Companies go to a lot of trouble building up the reputation of their brand, which can only be achieved by manufacturing products of a consistently high quality.

When that brand is subverted by trademark infringement, patients cannot know the provenance or the quality of the drug. Such fakes often contain actively harmful substances such as anti-freeze or too little active ingredient. Both are deadly to sick people. For malaria and HIV, counterfeits can hasten drug resistance and disease mutation, making whole classes of therapy useless.

Fake drugs are a rapidly growing menace in low-income countries. We estimate in our study “Keeping It Real” that over 700,000 people avoidably die every year due to fake malaria and TB drugs. Many fakes originate from India: field research by NGO Africa Fighting Malaria in 2008 revealed 35 percent of drugs randomly bought in pharmacies in six African cities to be substandard, with many apparently manufactured in India. The reputation of Indian generics has sunk so low that Nigeria, Uganda and Libya have blacklisted certain companies.

In this context, EU customs authorities are performing a vital public service to developing countries by checking transiting consignments of Indian - and indeed Chinese - generic drugs for trademark infringements.

Such quality control is good for Indian pharmaceutical companies, too. The Indian pharmaceutical industry has long been known as the “medicine chest of Africa” and almost half its revenue now comes from supplying good quality generics to more lucrative markets in North America and Europe.

When unscrupulous counterfeiters exploit those trusted trademarks, it undermines the reputation of India’s entire pharmaceutical sector.

Even anti-intellectual property fundamentalists such as the EU’s Pirate Party agree that trademarks are vital for guaranteeing the quality of drugs. As MEP Christian Engström stated on his blog last week: “The primary function of trademarks is to act as consumer protection. The Pirate Party has no objections in principle to combating counterfeit goods or upholding the existing trademark laws.”

It is unclear why activists are seeking to turn a legitimate health issue into an international trade spat over patents. The most obvious explanation is that they are hoping to derail the forthcoming India-EU free-trade agreement, to which they are publicly hostile. For the Indian government, it presents a good opportunity to have intellectual property requirements removed from the deal, so that certain elements of its pharmaceutical industry can continue to infringe trademarks.

Either way, it would be tragic and perverse if a trade agreement was stifled by false allegations of stifling Indian exports. Emerging economies and developing nations need the benefits of free trade in genuine products - not counterfeits.

Philip Stevens and Julian Harris are analysts at International Policy Network, London, an independent think-tank.

(1) Economic Impact of a Potential Free Trade Agreement (FTA) Between the European Union and India, Cepii – Cirem, Yvan Decreux and Cristina Mitaritonna, 2007, (p.17), available here [pdf]