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FDA Regulated Products: Understanding & Combating Counterfeiters Presented by: Owen J. McKeon Director Gibbons P.C.

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Presentation on theme: "FDA Regulated Products: Understanding & Combating Counterfeiters Presented by: Owen J. McKeon Director Gibbons P.C."— Presentation transcript:

1 FDA Regulated Products: Understanding & Combating Counterfeiters Presented by: Owen J. McKeon Director Gibbons P.C.

2 Topics for Discussion 1.Introduction to anti-counterfeiting & brand protection 2.Counterfeiting of regulated products Spotlight on Tobacco Products 3.Strategies for prevention and investigation 4.Seeking referral for criminal investigation and prosecution Unique aspects of anti-counterfeiting efforts relating to regulated products 5.Civil litigation as an anti-counterfeiting tool

3 How is trademark counterfeiting effecting the economy in the U.S. and abroad? Although precise calculations are impossible, recent studies of counterfeiting activities estimate that so-called “knock-off” goods may cost American businesses more than $200 billion a year. Worldwide, it is estimated that counterfeit goods cost businesses $600 billion annually. Most disturbing, there has been 10,000 percent increase over the past 20 years. Source: International Anti-counterfeiting Coalition; see also, Clifford, Stephanie, “Economic Indicator: Even Cheaper Knockoffs,” The New York Times, 31 July 2010.

4 The International Anti-counterfeiting Coalition (IACC), a non-profit organization devoted to combating product counterfeiting, reports that: Counterfeit merchandise results in the loss of more than 750,000 American jobs. In the past 30 years, the underground economy of counterfeit goods has sky-rocketed from $5.5 billion to approximately $600 billion annually. 5%-7% of the world trade is in counterfeit goods. Counterfeiting poses a threat to global health and safety.

5 Products frequently targeted by counterfeiters include: Apparel Prescription drugs Baby Formula Electronic consumer goods Tobacco products Airplane component parts Seafood products Building materials, ( e.g., plaster, cement, etc.) Household cleaning products Medical devices Luxury goods Automobile component parts, (e.g., brake pads, etc.) Computer software Footwear Cosmetics Batteries

6 Counterfeiting of Regulated Products Threat to the public, threat to the bottom line Although the public often thinks of luxury brand goods when they hear of “knock off” counterfeit products, the counterfeiting of regulated products is an epidemic, impacting food products, over the counter and prescription drugs, medical devices, dietary supplements, cosmetics, and tobacco products. For each of these product types, counterfeiters are actively operating within the United States and in foreign countries worldwide. While most brand owners are focused on the economic impact of counterfeiting, manufacturers of regulated products a primarily focused on the unique health and safety risks, including potential liability.

7 Spotlight: Counterfeit Tobacco Products Perhaps not surprisingly, cigarettes are a long time favorite target of counterfeiters worldwide. Anywhere there is a consumer market for cigarettes, it is a near certainty that counterfeiters have entered the market, attempting to reap the financial rewards of distributing and selling counterfeit cigarettes. Despite the fact that cigarette manufacturers as an industry have developed vigilant, creative and well funded anti-counterfeiting programs, there remains an active worldwide market in counterfeit cigarettes. In addition to cigarettes, other tobacco products are also a focus of counterfeiters.

8 Spotlight: Counterfeit Tobacco Products (cont.) The potential health hazards presented by counterfeit tobacco products are obvious. Regarding cigarettes, counterfeits have been known to include much higher levels of tar, nicotine, carbon monoxide, lead, cadmium, and arsenic than genuine brand-name cigarettes. In response, many manufacturers of tobacco products have developed who departments and labs that focus on testing and identifying counterfeit versions of their particular products and brands.

9 Spotlight: Counterfeit Tobacco Products (cont.) While the health and safety risks of counterfeit tobacco products are most critical, the economic impact on product manufacturers is likewise enormous. Although precise calculations regarding the economic harm are unknown, a 2014 Wall Street Journal article noted that “The estimated $34 billion illicit-tobacco market accounts for more than one in every 10 cigarettes smoked…” Source: Evans, P. (March 25, 2014) Tobacco Firms Step Up Fight Against Cigarette Smuggling, Wall Street Journal. Retrieved from

10 Where are the counterfeiters manufacturing “knock off” products? Although many counterfeit goods found in the United States are imported from foreign countries where cheap labor and weak intellectual property protection laws foster the illicit activities, domestic counterfeiters remain active. Counterfeit goods of some type are likely being manufactured in every state in the United States and nearly every country worldwide. China, India and Russia product large percentages of counterfeit regulated products, those countries by no means have the market cornered. Logically, the particular type of counterfeit products manufactured varies from country to country based on its native industries and resources.

11 Why aren’t imported counterfeit goods intercepted at the U.S. ports of entry? The United States Customs & Border Patrol (USCBP) is responsible for enforcing intellectual property rights at the border, but given the number of imported goods arriving on a daily basis, it opens and inspects no more than 2% of containers coming into the United State. As a result, a companies cannot reasonably expect the USCBP to identify and exclude all imported counterfeit goods.

12 Assessing Counterfeiting Threats Assess what – if anything - is currently being done to protect your or your client’s brands and enforce its intellectual property. Think like a counterfeiter - identify vulnerabilities and counterfeiters’ opportunities. Conduct an internal audit of procedures for ensuring the integrity of brands and intellectual property. Clients should make a point of discussing counterfeiting threats with colleagues to determine whether they have any information to share regarding the threat of counterfeiting.

13 Controlling Counterfeiting Threats Make sure the “prerequisites,” which we will discuss, have been covered. Use technology to make it difficult for counterfeiters to copy products. Conduct an investigation to see whether brands have already been targeted by counterfeiters. Consider whether it makes sense to retain investigative professionals to assist.

14 The Anti-counterfeiting “Prerequisites” –To state the obvious, register trademarks and copyrights. – Counterfeiting threats should be a factor when making business decisions, e.g., choosing vendors, location of manufacturing facilities, licensing partners, resellers, etc. – Utilize sales and marketing resources to predict markets where counterfeiters may see opportunity. – Record your trademarks with U.S. Customs and equivalent agencies in other countries.

15 Utilizing Technology To Prevent Counterfeiting Take advantage of technologies aimed at anti- counterfeiting when designing and manufacturing your products. Examples: –Nanotechnology –Radio Frequency Identification Tags (“RFID”) tagging –Electronic fingerprints –DNA-based tracking w/ online database

16 Investigating Counterfeiters Review historical sales data for unexplained anomalies. Coordinate efforts with internal sales and marketing staff. Conduct basic Internet searches. Search within online retail stores, online auctions and classifieds, social media, e.g., Amazon, CraigsList, eBay, Alibaba, etc. Monitor news and litigation trends in the specific industry to determine whether threats have been identified, e.g., customers, suppliers, competitors, etc. Utilize the services of technology and investigative professionals.

17 Legal Strategies: Combating Identified Counterfeiters Manufacturers of all products have a variety of options, namely: 1.Internal enforcement 2.Referral for criminal investigation and prosecution 3.Commence civil litigation There are “pros” and “cons” that all manufacturers must consider when deciding the best course of action to respond to identified counterfeiters. Most often, the decision involves determining whether the matter is appropriate for civil litigation or an attempted referral for criminal prosecution. Manufacturers of FDA-regulated products, however, have a far higher likelihood of a successful criminal referral due to the health and safety risks unique to their products.

18 Blocking Importation of Counterfeit Goods Record all registered trademarks with USCBP. Develop relationships and meet with USCBP at the ports of entry in order to provide specific information about distinguishing between genuine and counterfeit versions of products. The goal is to educate the agents and raise awareness. If the circumstances call for it, consider filing a 337 Action with the International Trade Commission (ITC) seeking an exclusion order.

19 Criminal Prosecution Pros: Decreased costs Deterrence Publicity Restitution Order Cons: Internal priorities of law enforcement agencies Loss of control Information flow and pacing set by agency Restitution not a certainty

20 Referral Strategies Unique to Regulated Products When seeking to refer a counterfeiting investigation to law enforcement, focus on criminal laws over civil actions, particularly as health and safety risks involved in counterfeit versions of regulated products make criminal referral a near certainty. Consider availability of unique laws applicable to regulated products. For instance, the Family Smoking Prevention and Tobacco Control Act provides numerous provisions specific to counterfeit tobacco products. Develop relationships and report counterfeiting to specific law enforcement agencies and departments focused on the particular regulated products being counterfeited, e.g., FDA’s Office of Criminal Investigations (FDA-OCI), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

21 Criminal Prosecution – Federal Irrespective of the type of goods or services, counterfeiting is a crime under federal law. –The Trademark Counterfeiting Act of 1984, 18 U.S.C. § 2320 –Three main changes to Lanham Act: »Criminalization of trademark counterfeiting (18 U.S.C. § 2320) »Authorization of near mandatory treble damages and attorneys fees in all anti-counterfeiting cases (15.U.S.C. § 1117(b)) »Authorization of ex parte orders for seizures (15 U.S.C. § 1116(d)(1)(A)). –RICO Statute – 18 U.S.C. § 1961 et seq. (counterfeiting is a racketeering activity under RICO); –Other potentially implicated federal laws include: money laundering; conspiracy; false statements; mail fraud; wire fraud.

22 Criminal Prosecution – State By last count, thirty-six (36) U.S. States have laws relating to counterfeiting. Many states have criminal trademark counterfeit laws which can be used to prosecute counterfeiters. For example, N.Y. Penal Law §§ 165.71, 165.72, and 165.73 makes it an A misdemeanor or E or C felony to sell or offer for sale goods which bear a counterfeit trademark if the defendant acts “with the intent to deceive or defraud some other person or with the intent to evade a lawful restriction [of] sale.” Proving that the defendant knew he was selling a counterfeit can be accomplished in a number of ways: (1) prior arrest for same offense (2) low price of goods (3) statement from defendant or arresting officer. In many instances, referring a matter for investigation and prosecution by state or local authorities is less difficult referring to the federal authorities.

23 Civil Litigation – The “Pros” Pros: Plaintiff’s recovery of profits, damages, costs, and attorney’s fees –Plaintiff must prove sales only –Treble damages –Reasonable attorney’s fees –Willfulness Statutory damages - 15 U.S.C. § 1117(c) –Not less than $1000 or more than $200,000 per mark per type of goods –If conduct is willful, up to $2,000,000 per mark per type of goods Destruction of seized items - 15 U.S.C. § 1118

24 Civil Litigation – The “Cons” Cons: Inconvenience of litigation Cost of litigation Collecting awarded damages Risk of Wrongful seizure –Defendant can collect damages for lost profits, costs of materials, and lost goodwill –Punitive damages if bad faith can be proven –Attorney’s fees

25 Civil Remedies – Statutory Law The Laws – U.S. –Civil Laws: The Lanham Act (15 U.S.C § 1114, et seq.) Civil seizures, 15 U.S.C. § 1116 –For counterfeit goods only (not just infringement) –Registered trademarks only –“Identical or substantially indistinguishable” marks on goods registered in the same class as genuine mark holder

26 Civil Remedies Specific Requirements It is critical that the company review the relevant statutes and coordinate with counsel before attempting to seize counterfeit goods by: –Notifying the U.S. Attorney –Application to court must have holder’s affidavit or verified complaint –Posting of bond (wrongful seizure) –Nothing but an ex parte order will suffice –No publicity –Likelihood of success on the merits AND immediate and irreparable injury –Specific identification of location where counterfeit product is located and where seizure will occur –Balancing of harm –Target of seizure would destroy, move, hide goods and documents if proceeding was on notice.

27 Civil Remedies – Court Order Court’s order should include: –Findings of fact and conclusions of law –Description of items to be seized and their location –Seven day window –Amount of bond –Date for confirmation hearing –Gag order Other requirements: –Seizure of books and records (protective order) –Papers filed under seal –Service by a federal, state or local law enforcement officer –Seizure confirmation hearing

28 Thank you for your attention! Owen J. McKeon Director Gibbons P.C.

29 Counterfeiting in the 21 st Century An Industry Perspective Carla Cartwright, Johnson & Johnson Global Regulatory Policy & Intelligence

30 Counterfeiting: The Crime of the 21 st Century Counterfeiting is a large and growing business 2008 estimate of counterfeit and pirated products $650 Billion. Projected 15% growth rate puts 2015 estimate at $1.7 Trillion. (1) Estimate prevalence of counterfeit drugs at 1% in industrialized countries. Africa, Asia and Latin America 30%. (2) >8% of medical devices in circulation are counterfeit (3) >50% of medicines purchased over the Internet from illegal sites that conceal their physical address have been found to be counterfeit. (4) Counterfeit products are found in a diverse range of product categories, in almost every country. (1) BSCAP/Frontier Economics Report - 2011. (2) WHO IMPACT publication “Counterfeit Drugs Kill” -2008 (3) WHO 2010 – News (4) HO Factsheet no 275 - 2012

31 Overview of the Challenge Counterfeiting has become significant global problem fueled by…. Free trade agreements & move towards a global economy Growth and capitalization of emerging markets Counterfeiters are well-funded and technologically advanced Under-resourced regulatory and enforcement agencies Profitability of illicit trade practices - high reward to risk ratio Lack of respect & protection for Intellectual Property in some countries

32 Facilitated by Innovation and Globalization Links between counterfeiters and organized crime networks Internet has facilitated global capabilities for illicit trade –Customers and counterfeiters connect Liberal legislation governing cross border trade Globalization of supply chains Risks from sourcing, API, manufacturing, etc. Inadequate control and visibility of global end to end supply chain

33 Combating Counterfeits – Awareness & Education Important awareness and education work undertaken by international agencies and industry groups – such as –World Health Professions Alliance (WHPA) –World Health Organization (WHO) –Rx360 –ASOP (Alliance for Safe Online Pharmacies) –IACC (International AntiCounterfeiting Coalition) Highlighting risks with powerful educational materials

34 Key Steps to Safe & Secure Supply Chain Identifying brand protection risks across the supply chain, from materials sourcing, manufacturing, distribution, reverse logistics to product destruction. Introduce policies, practices and measures across the supply chain to mitigate risks. New product development -assessment for counterfeit risk and plan measures to mitigate those risks. Active program to utilize security features on product packaging both overt and covert features to help identify suspect product Market monitoring program to proactively detect illicit trade, such as internet monitoring, product buys and market surveys Enforcement strategy which utilizes available legal instruments to take enforcement actions against perpetrators Implement Incident reporting and escalation processes to effectively manage and investigate reported incidents.

35 Johnson & Johnson Position Anti-Counterfeiting

36 Johnson & Johnson Position Anti-Counterfeiting Counterfeiting of health care products is a serious issue, as it puts people’s health and lives at risk and undermines confidence in product safety and effectiveness. It is also a growing problem around the world. Our companies work hard to identify and minimize the risk of counterfeits to help ensure that patients and consumers receive genuine products of the Johnson & Johnson Family of Companies.

37 Johnson & Johnson Position Anti-Counterfeiting: Pre-Market Taking a risk based approach, we use a range of product and packaging security measures that help identify authentic products from those that are counterfeit. We also work to minimize the risk of counterfeit products entering our supply chain, from manufacturing to distribution.

38 Johnson & Johnson Position Anti-Counterfeiting: Post-Market Monitor markets and investigate counterfeiting activities Collaborate with regulatory and law enforcement authorities, as well as our business partners, to help identify and remove counterfeits from the market May prosecute or take civil action against the perpetrators Work with governments and regulatory agencies to identify opportunities to strengthen laws, regulations and enforcement efforts, to help protect and secure the supply chain Take measures to raise awareness among our stakeholders of the dangers of counterfeit health care products

39 DEPARTMENT OF STATE Office of Intellectual Property Enforcement (IPE) Role of Department of State in IP and Counterfeiting Issues

40 The U.S. Is an Innovation Economy ~The competition is keener; the challenge tougher; and that is why innovation is more important than ever. It is the key to good, new jobs for the 21st century ~ President Obama The State Department is committed to protecting intellectual property (IP), which is vital to promoting and encouraging innovation and creativity in the United States. The Economic Bureau works to defend the IP rights of our creators and innovators, to protect consumers from counterfeit goods that threaten public health and safety, support the freedom of the Internet, and encourage the free flow of information across the digital world.

41 How important is innovation to the U.S. economy? In 2010, IP-intensive industries accounted for $5 trillion or 35% of U.S. GDP 61% of total U.S. merchandise exports 40 million American jobs, 28% of all employment in the economy Jobs in IP-intensive industries pay approximately 42% more than positions in non-IP-intensive industries

42 Focus Areas of State’s IP Office Improving legal frameworks & implementation Bilateral, multilateral, plurilateral Policy development and tools Special 301 Report, Notorious Markets Report Outreach through Posts, in Washington Public diplomacy, World IP Day, IVLP IP Training Facilitate overseas law enforcement training Overseas resources Embassy teams

43 IPR Outreach by U.S. Diplomatic Posts KENYA: Coast Girls School students display their new "Save the Nation: Say NO to Counterfeits" bags after participating in a U.S. Embassy-led youth outreach event where the girls learned about counterfeit products.

44 Outreach

45 China Safe Medicine Program Decrease the prevalence of counterfeit and unsafe medicines by: improving the knowledge and skills of health service providers who counsel patients increasing awareness of Chinese journalists, policy makers, and the general public of the harmful effects of counterfeit and unsafe medicines

46 Results Trained 256 grassroots health service providers and 107 pharmacists Disseminated 3,000 safe medicine educational booklets to patients and community residents Used mircroblogs with 1.8 million followers to educate Conducted online safe medicine knowledge competition Published 9 safe medicine articles via Health News, with a circulation of 300,000

47 CAMBODIA - And the winning slogan was…

48 World Anti-Counterfeiting Day

49 INL Training IPE works with State’s International Narcotics and Law Enforcement Bureau to utilize a portion of IPR enforcement training funds for counterfeit medicines. FY2011—training agencies received just under $1.1 million for 8 counterfeit medicine related projects FY2012—agencies received nearly $400,000 to implement four counterfeit med projects in Africa and Bangladesh FY2013--agencies will receive about $1.1m for 6 counterfeit med related projects in Africa, SE Asia and the Middle East

50 International Visitors Leadership Program Journalists – educate about the problem of counterfeits – danger to human health & safety Educators – role of IPR in promoting innovation, educating about IPR Health & Medical Professionals – Counterfeit medicines Women Leaders – Value capture from IPR; role of trademarks Government and Business Leaders – How business works with Govt. to combat counterfeits, increase respect for IPR Scientists & Engineers – Role of IPR in these fields; patents Trade Experts – Increasing competitiveness; role of IPR in business Arts and Sports Professionals – Copyright and trademark issues

51 Thank you! DEPARTMENT OF STATE Office of Intellectual Property Enforcement (IPE) Role of Department of State in IP and Counterfeiting Issues

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