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Looks Can Be Deceiving (and Costly): The Legal Implications of Counterfeit Products to a Pharmaceutical Manufacturer

By Alan Minsk and Richard Gardner
October 05, 2005

The World Health Organization has estimated that drug counterfeiting affects 5-8% of all drugs, representing approximately $10-$15 billion to the U.S. pharmaceutical market alone. The Food and Drug Administration has estimated that approximately 10% of the drugs in worldwide distribution are counterfeit, with most being sold in developing countries. Not surprisingly, the most commonly counterfeited drugs are those with the largest sales, as well as drugs with high profit margins and drugs that are easier to counterfeit.

The FDA has stated that, in recent years, counterfeiting has moved into the area of finished pharmaceuticals, more so than to the counterfeiting of bulk drug ingredients. Moreover, with the increase in sales of drugs over the Internet, the agency is becoming even more concerned about the prevalence of drug counterfeiting, and the increasing ease by which counterfeited drugs may be distributed into the marketplace.

The costs of counterfeit products to pharmaceutical companies can be enormous and the legal implications daunting. Negligence, product liability and breach of warranty are only some legal theories that a plaintiff's lawyer may use to challenge companies when counterfeited versions of their products surface. In addition, manufacturers doing business outside of the United States (particularly in developing countries) must be aware that sales of counterfeit drugs in those countries could lead to legal action being taken against them, where the legal system may be significantly different from that of the United States. Of course, sales of counterfeit drugs outside the United States can also expose a drug company to liability at home.

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