Counterfeit Drugs and Internet Smarts

Whatever happened to caveat emptor? Consumers are indeed put at serious risk when they buy counterfeit drugs over the Internet. But sweeping restrictions on Web-based drug sales stand to worsen their ills.

The problem is getting worse. Take Britain, which has Europe's worst problem with H1N1 or 'swine' flu, with around 64,000 new cases every week and 182 deaths--about a third of Europe's total fatalities. The flu's pandemic status has scared many people into stockpiling the two key antiviral drugs, Roche's Tamiflu and GlaxoSmithKline's Relenza. Manufacturers have increased supply, but couldn't keep pace with soaring demand. To fill the gap, criminal gangs have sold fake versions over the Internet, defrauding millions of dollars and endangering lives. For while H1N1 thankfully has a low fatality rate, poorly-made drugs--many produced in filthy conditions in India, China and Russia--could be far more lethal.

British security software firm Sophos has found thousands of fake drug web sites and millions of bogus promotional materials, many being generated by Russian criminals. In a statement last week, the company said some criminals were claiming to be making "more than $100,000 every day" from gullible buyers of fake flu drugs. Not only will the drugs not work, the identities of the purchasers may be stolen as criminal networks use their credit card details to further defraud them.

Tens of millions of fake treatments make it into Europe every year.

In response, the Council of Europe is preparing a new international convention against counterfeit medical products, with a special focus on the Internet. It is expected that it will begin collecting country signatories next year. It has a laudable aim--to increase awareness of the danger of buying drugs over the Internet--and many poorer nations do need to criminalize the manufacture and sale of fake drugs and enforce those laws. However, if history is a guide, the convention may well be overly bureaucratic and wind up stifling competition, increasing drug prices, and won't be enforced by countries where fake drugs are a major problem. All that, and it will not remove the biggest threat in Europe and the U.S.: inattentive Internet shoppers.

Last week, the draft convention was discussed at the Internet Governance Forum in Sharm el Sheikh, Egypt. The Council on Europe sponsored the event and its choice of location may have been a smart way to give Egyptians some kind of ownership of the demands of the convention, because Egypt is increasingly one of the favored entry points into Europe of fake drugs from India and China. Drugs leave by ship from the port of Alexandria, cross the Mediterranean, and are picked up by local boats as they approach Europe. Tens of millions of fake treatments make it into Europe every year. EU officials manage to catch some of them, seizing 2.5 million bogus drug packages last year--five times the seizures of 2005--largely through trademark enforcement, but much still slips through.

The Internet is indeed a source of these fake drugs, but it doesn't have to be. My own research team's study of drugs bought over the Internet showed that as long as the sites were approved by a government agency, like U.S. Food and Drug Administration (FDA) or a private credentialing agency like pharmacychecker.com, one runs almost no risk. In our procurement of five different drugs from a stratified sample of 26 web sites, only those sites that did not have a physical address and where we could not contact anyone directly did any of the drugs fail quality tests (fake Viagra from China and India were the only quality concerns). It was admittedly a small sample, but ongoing research leads to the inevitable conclusion that the Internet as a medium is not the problem. Indeed, some countries, notably Turkey, already ban all Internet drug sales, but there is no evidence this helps Turkish patients, and it certainly restricts their choices.

Although convenient for patients, many drug companies do not like Internet sales because they let patients buy drugs at lower prices than they can get domestically, especially if they live in U.S. The FDA only approves web companies buying American-made drugs, whose prices are often the same as a neighborhood pharmacy, whereas some sites approved by pharmacychecker.com will sell good quality products from Europe that are usually far cheaper. Anyone living in the U.S. and buying from such a Web site is technically risking arrest for breaking the law. In our study about a third of the drugs we bought were illegally diverted from Europe (notably Turkey, Germany and the U.K.) and all passed quality tests. We found out what millions of Americans seem to know already: That they may be breaking the law but they are probably not endangering their health.

There are sound economic reasons to be against such product diversion--allowing companies to segment markets is both efficient and equitable. But patients and most politicians do not care about that, they just want cheaper drugs. As a result, those opposed to product diversion rely on fear of fake drugs to reduce Internet sales. This energizes interventionist politicians to push an anti-Internet drug convention. Drug companies are right to want to prevent much drug diversion, but scaring people about the Internet is not the answer.

A dangerous flu pandemic is still a real possibility and allowing people to buy drugs quickly and safely over the Internet could be important--especially since the last thing you want a contagious person to do is visit a busy pharmacy and infect others. That is why it is vital that any convention does not fatally undermine Internet drug sales.

The Internet is currently a source of danger and profit for criminals, but it need not be that way. We have most of the required laws in place, at least in Europe and America: Web sites credentialed by trusted entities (private or public), oversight and random testing from agencies like the FDA, search engines which are beginning to monitor the sites they access (although they should do more), vigilant customs agents, drug companies which protect their brands, and increasing common sense from most consumers. A little bit more public education would help--a convention restricting Internet trade will not.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

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