EU Customs Blockade of India’s Generic Medicines

By Diane E. Harper, Ph.D.

7 May 2011 23:26 | Articles, Business, International

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Image Copyright isafmedia (Flickr), 2011

EU CUSTOMS BLOCKADE OF INDIA’S GENERIC MEDICINES:

CLAIMS OF COUNTERFEITING TAKE ADVANTAGE OF A LOOPHOLE IN TRIPS

Diane E. Harper, Ph.D.^*

ABSTRACT

On over twenty occasions between 2008 and 2010, customs authorities in the Netherlands have detained consignments of Indian-manufactured generic medicines that were in transit to developing countries. Each time the containers reached Dutch ports, the medicines were apprehended based on claims that the goods were counterfeit. While India has yet to file a complaint with the World Trade Organization (“WTO”), many have accused the European Union (“EU”) of impeding legitimate trade in affordable medicines and putting patients in low-income countries at risk. In its defense, the EU maintains that it has legal authority under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) to apply its own anti-counterfeiting regulation, EC Regulation 1383/2003, to detain in-transit consignments suspected of trademark violation. This Comment examines whether the Dutch seizures, as well as EC Regulation 1383/2003, violate the international trade rules of the General Agreement on Tariffs and Trade (“GATT”) and TRIPS. This Comment also highlights the potential hazards that are created by seizing in-transit generic medicines under the suspicion of counterfeiting, rather than on violation of patent rights, and why both international trade agreements and policy regulations that control the policing of counterfeit medicines need to be changed.

INTRODUCTION

On December 4, 2008, a 570 kilo consignment of Indian-manufactured generic medicines en route to Brazil was detained by Netherlands customs officials in port.¹ The medicine detained was losartan potassium, a product that is not patented in either the country of origin or in the country of destination, and was not meant for domestic use within the European Union (“EU”).²
Again, on March 4, 2009, a forty-nine kilo shipment of generic abacavir sulfate, a second-line HIV/AIDS medication, en route from India to Nigeria was detained by Dutch customs authorities under the claim that it contained counterfeit goods.³ The shipment was not counterfeit and did not infringe intellectual property rights (“IPRs”).⁴
Shippers, recipients, NGOs, and developing countries alike are concerned that these actions by Dutch customs authorities towards Indian-produced generic medications are putting poor patients in the developing world at risk.⁵ Due to the high cost of brand pharmaceuticals and the lack of manufacturing capacities, low-income countries rely heavily on the availability of generic versions of medicines essential for treating the illnesses from which their populations suffer.⁶
The EU defended the Netherlands’ actions. In light of the millions of counterfeit pills that the EU caught in 2007 and the fact that one-third came from India, the EU claims that the Dutch seizures were in line with international trade rules and were consistent with the Dutch government’s responsibility to provide for the general benefit of public health by halting trade of poor quality medicines.⁷ The EU further asserts that their anti-counterfeiting regulation, EC Regulation 1383/2003,⁸ permits EU customs authorities to directly take action against counterfeit goods by intercepting foreign goods in transit.⁹
Within the past two years and under the mantle of anti-counterfeiting, the EU detained generic medications originating from India nearly twenty times.¹⁰ The obvious question arises as to whether the EU has discovered a loophole with respect to counterfeiting in two of the main international trade agreements—the General Agreement on Tariffs and Trade (“GATT”)¹¹ and the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).¹² If so, whether this loophole permits EU customs authorities to actively target and detain in-transit medicines produced by a select foreign competitor, such as India, in order to protect the economic interests of European pharmaceutical companies.
Historically, one of the main reasons why the European community, along with other developed countries, made the long, nearly ten-year push for the TRIPS Agreement was to impede the production of cheap, patent-free generic pharmaceuticals.¹³ The battle between generic and brand-name medicines began in 1970, when India, after struggling to provide affordable medicines to its public, enacted its Patent Act, 1970, which deliberately denied patent protection to all pharmaceutical inventions.¹⁴ The result was India’s flourishing generics manufacturing industry.¹⁵ In the 1980s, generic medicines were introduced onto the world market, and since then, generics have not only been a low-cost alternative to brand-name pharmaceuticals, but have also forced European pharmaceutical giants, such as Roche¹⁶ and Bayer AG¹⁷ to reduce their patented drug prices substantially in order to remain competitive.¹⁸ In 2005, when the international community forced India to recognize pharmaceutical patent rights under its TRIPS Agreement obligations,¹⁹ India was the fourteenth largest exporter of drugs in the world, exporting $3.2 billion worth of medicines to more than 65 countries.²⁰ Thus, the recent Dutch seizures may readily be seen as a retaliatory effort by the EU. To date, India is the only country to have its medicines blocked in transit.²¹ A closer look at the situation, however, gives two causes for alarm.
First, while it is important to question whether the Netherlands violated international trade agreements, an equal, if not more important issue arises from the particular IPR violation on which the EU bases its reasoning. The EU claims that the seizures of India’s generic medicines were legal, not because of patent right violations, but because the medicines were counterfeit.²² By claiming that goods are counterfeit, the Dutch and the EU transformed nature of IPR infringement claim from patent infringement to trademark infringement. The consequences are profound. Patent rights are exclusionary rights granted for a defined period, and will expire.²³ Trademark rights, on the other hand, can last indefinitely, as long as the rights are renewed.²⁴ In changing the IPR violation from patent right infringement to trademark infringement, the EU appears to have created a means underwhich seizure of generic medicines potentially never expires. As long as the trademark for a medication is in good standing, the EU can find shipments of generic versions to infringe on trademark rights, and be seized as counterfeit goods.
Second, for the past ten years, the EU has aggressively campaigned against counterfeiting. From 2001 to 2005, EU countries experienced a 900% growth in the number of seized counterfeits cases, and the EU claims that this is just the tip of the iceberg.²⁵ During this time the EU placed its customs authorities at the forefront of this battle in order to protect the economy, the health, and the security of citizens worldwide.²⁶ Europe, however, is not alone in its obsession with stamping out counterfeiting. Since October 2007, developed nations²⁷ have renewed their focus on counterfeits. The United States, the European Community, Switzerland, and Japan (all developed countries) have actively negotiated the newly created Anti-Counterfeiting Trade Agreement Act (“ACTA”).²⁸ This Agreement provides a framework of “improved international standards” for intellectual property rights enforcement, with the goal of preventing large-scale IPR infringements. The cornerstone provision states that “Each Party shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting . . . on a commercial scale. . . . [which] include[s] at least those carried out as commercial activities for direct or indirect economic or commercial advantage.”²⁹ Apparently the negotiations failed to address the current need for developing countries to be ensured their ability to trade in and have access to legitimate generic medicines. Instead, ACTA serves to further strengthen the Dutch approach of blockading generic medicines manufactured by foreign competitors under the guise of protecting the world from harmful counterfeits—an approach, as noted above, that gives customs authorities a never-expiring ability to target and seize any and all generic medicine consignments in transit.
This Comment provides an in-depth analysis of the recent Dutch customs authorities’ in-transit seizures of India’s generic medications in order to reveal whether these current threats to international trade are a legitimate legal maneuver by the EU in their efforts to take an increasingly aggressive stance against counterfeiting. This discussion proceeds in five parts and begins in Part I with a critical examination of whether of the Netherlands’ seizures are in compliance with international trade agreements—GATT and TRIPS. The validity of each side’s legal arguments are analyzed, and an opinion is proffered as to whether goods in transit may be detained by third parties over concerns of trademark violation and whether a WTO Member State can apply its own nation’s anti-counterfeit laws to goods in transit between two other nations. In this Part, a brief look is made to a 2009 British court ruling on whether EU customs authorities are bound by the European anti-counterfeiting regulation, EC Reg. 1383/2003, to detain counterfeit goods in transit.³⁰ Here, a distinction is made between the option and the obligation to detain in-transit goods, and the proposition is proffered that the level of the custom authorities’ duties may depend on whether consignments of medicines are involved.
The next two Parts of this Comment are devoted to analysis of whether the European anti-counterfeiting regulation, EC Reg. 1383/2003, on which the EU relies in its defense of blockading goods in transit, violates the TRIPS Agreement. Part II examines the legal history behind the Regulation in order to discern whether the EU intended for customs officials to protect European economic interests by targeting foreign trade in generic medicines. Part III compares EC Reg. 1383/2003 to the relevant TRIPS Agreement provisions that set forth required, minimum guidelines which Members must adhere to when drafting anti-counterfeiting border-control measures. The discovery is made that while past EU border-control legislation has been approved by the TRIPS Council, EC Reg. 1383/2003 has not. Although the EU anti-counterfeiting regulation is on most accounts “in conformity” with TRIPS, Council action is still required for several reasons.
Part IV reviews recent international border-control measures initiated by the EU and other developed countries. Such measures increase the powers given to customs authorities and place this agency at the forefront of the battle to stop trade in counterfeit medicines. Part V explores why customs officials are not sufficiently equipped to detain medicines in-transit, and suggests alternatives to placing customs authorities in sole control over IPR infringement actions.
If customs authorities’ are not better supervised, the danger remains that legitimate generic medicines in transit will continue to be detained at a third-party ports for nationalistic reasons under the guise of counterfeit violations. It is urged that developed countries do not adopt the new plurilateral Anti-Counterfeiting Trade Agreement because it fails to incorporate lessons from the Dutch customs authorities’ actions and only promulgates the risks that exist when customs authorities are placed in positions of unchecked control over the flow of goods merely passing through their ports.