Even as Senators continue to consider “Graham-Cassidy,” the latest Affordable Care Act (ACA) repeal legislation, insurance markets are already reacting to uncertainty and instability brought about by persistent GOP efforts to upend the post-ACA insurance landscape. Between the Trump Administration’s ongoing refusal to commit to long-term funding of the ACA’s cost-sharing reductions (CSRs) and legislative overtures to repeal key portions of the ACA, premiums have increased, insurers have exited state exchanges, and access to health care coverage has been compromised.
As the Congressional Budget Office (CBO) recently estimated, insurers are expected to “raise premiums for marketplace plans in 2018 by an average of roughly 15 percent, largely because of uncertainty about whether the federal government will continue to fund CSR payments and because of an increase in the percentage of the population living in areas with only one insurer.” Speaking to the latter factor, CBO notes that a number of insurers have withdrawn from healthcare exchanges established under the ACA, spurred, at least in part, by “uncertainty about the enforcement of the individual mandate, and uncertainty about the federal government’s future payments for [CSRs].” Although ACA proponents’ (and critics’) most dire predictions were narrowly avoided – that some counties would have no insurers offering marketplace plans – there is little doubt that insurer participation has been adversely impacted by market uncertainty, with pocketbook repercussions for policy-holders.
The turbulent political climate is also likely to reduce the number of insured individuals in 2018. CBO and the Joint Committee on Taxation anticipate lower insurance enrollment as a result of reductions in federal-sponsored advertising and outreach. Department of Health and Human Services officials recently indicated that the advertising budget for the open enrollment period commencing in November would be reduced to $10 million, amounting to a 90% reduction when compared to spending in the last year of the Obama Administration. Grants to “navigators” – nonprofit groups that assist people with marketplace insurance plan enrollment – will be reduced from approximately $63 million to $36 million.
Whether or not the worst is yet to come will hinge on the fate of Graham-Cassidy and the presently-stalled efforts to reach consensus on a bipartisan ACA stabilization bill. In what is turning out to be a recurring theme in 2017, we may have to wait several weeks for the dust to settle and reasoned prognostication to be possible.
On September 11th, Tesla announced the opening of Supercharger stations in downtown Boston and Chicago, representing the first step in the company’s effort to expand its Supercharger network into urban areas. The company currently operates 951 Supercharger stations worldwide, primarily along major highways to provide quick recharging on long trips. By bringing the network of charging stations into city centers, Tesla hopes to service growing demand among urban dwellers without immediate access to home or workplace charging.
Unlike the Destination Charging connectors at hotels and restaurants meant to replicate the longer home-charging process, Superchargers quickly deliver 72 kilowatts of power to each car for short-term boosts, resulting in charging times around 45-50 minutes. The new stations will be installed near supermarkets, shopping centers, and downtown districts, making it easy for drivers to charge their car while running errands. The Boston Supercharger station will be located at 800 Boylston Street and include 8 charging stalls.
Tesla announced plans to double its national charging network to 10,000 stations by the end of 2017. The company is bringing urban Superchargers to New York, Philadelphia, Washington, Los Angeles, and Austin by the end of this year. The expansion accompanies Tesla’s release of the Model 3 this summer, which boasts a lower starting price of $35,000 that is expected to bring more buyers to the brand.
A spike in Tesla sales would fall in line with the trend of increased demand for electric vehicles (EV) across the country. The year 2016 saw EV sales in the United States increase by 37% over 2015. Total EV sales topped out at roughly 160,000, with five different models (Tesla Model S, Tesla Model X, Chevrolet Volt, Nissan Leaf, and Ford Fusion Energi) selling at least 10,000 units. These sales, coupled with the expanding ease of access to charging station’s like Tesla’s, bode well for continued innovation and growth in the electric auto sector.
The Corporate Transparency Act: A Proposal to Expand Beneficial Ownership Reporting for Legal Entities, Corporate Formation Agents and – Potentially – Attorneys
In late June, Representatives Carolyn Maloney and Peter King of New York introduced The Corporate Transparency Act of 2017 (the “Act”). In August, Senators Ron Wyden and Marco Rubio introduced companion legislation in the Senate. A Fact Sheet issued by Senator Wyden is here. Representative King previously has introduced several versions of this proposed bipartisan legislation; the most recent earlier version, entitled the Incorporation Transparency and Law Enforcement Assistance Act, was introduced in February 2016. Although it is far from clear that this latest version will be passed, the Act is worthy of attention and discussion because it represents a potentially significant expansion of the Bank Secrecy Act (“BSA”) to a whole new category of businesses.
The Act is relatively complex. In part, it would amend the BSA in order to compel the Secretary of the Treasury to issue regulations that would require corporations and limited liability companies (“LLCs”) formed in States which lack a formation system requiring robust identification of beneficial ownership (as defined in the Act) to themselves file reports to the Financial Crimes Enforcement Network (“FinCEN”) that provide the same information about beneficial ownership that the entities would have to provide, if they were in a State with a sufficiently robust formation system. More colloquially, entities formed in States which don’t require much information about beneficial ownership now would have to report that information directly to FinCEN – scrutiny which presumably is designed to both motivate States to enact more demanding formation systems, and demotivate persons from forming entities in States which require little information about beneficial ownership.
However, there is another facet to the Act which to date has not seemed to garner much attention, but which potentially could have a significant impact. Under the Act, formation agents – i.e., those who assist in the creation of legal entities such as corporations or LLCs – would be swept up in the BSA’s definition of a “financial institution” and therefore subject to the BSA’s AML and reporting obligations. This expanded definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.
Clearly attempting to gain steam from last year’s Panama Papers scandal – although the Act’s various predecessor bills were introduced before that scandal erupted – the “Findings” section of the Act lays out the case for its passage. According to that section, the Act is necessary because:
- Few States obtain meaningful information about the beneficial owners of entities formed under their laws, and often require less information than is needed to obtain a bank account or driver’s license;
- Many States have automated procedures which allow the formation of a new entity within 24 hours of the filing of an online application;
- Some Internet Web sites highlight the anonymity provided by certain State incorporation practices as a reason to incorporate in those States, along with offshore jurisdictions;
- Criminals have exploited these weaknesses to conceal their identities and use newly formed entities to promote terrorism, drug trafficking, money laundering, tax evasion, securities fraud, and foreign corruption;
- The lack of beneficial ownership information has stymied law enforcement;
- The Financial Action Task Force (“FATF”), described as “a leading international anti-money laundering organization,” has criticized the U.S. for failing to obtain timely access to adequate, accurate and current ownership information;
- In contrast to the U.S., every country in the European Union requires formation agents to identify the beneficial owners of the corporations formed in those countries.
In the media, the backers of the Act have latched onto another argument to advocate for its passage: national security. They say that the Act will assist in battling terrorist financing and unseemly conduct such as the alleged interference by Russia in the 2016 U.S. election for President. In the press releaseaccompanying the proposed House legislation, Representative King catalogued the various anti-corruption/transparency groups which are backing the bill, such as Global Witness. Although the support of such groups is not surprising, the press release also highlights the support of a prominent banking industry group, The Clearing House Association (whose President, Greg Baer, has appeared as a guest blogger here on the topic of reforming the current AML regulatory regime).
If passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for AML-related reporting. As we have blogged, this ongoing campaign has included FinCEN creating reporting requirements for title insurance companies involved in cash purchases of high-end real estate; FinCEN issuing regulations which require covered financial institutions to identify the beneficial ownership of new accounts opened by legal entity customers; Congress recently introducing the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, which in part seeks to expand cross-border reporting requirements under the BSA; and the FATF issuing in December 2016 its Mutual Evaluation Report on the Unites States’ Measures to Combat Money Laundering and Terrorist Financing, which (again) found that that a continued lack of timely access to adequate, accurate, and current information on the beneficial owners of entities represented a “fundamental gap” in the U.S. AML regulatory regime. As suggested by its Findings section, the Act also would represent a partial response by the U.S. Congress to international critiques, such as those posed by the FATF and the European Parliament, that the United States has become a haven for suspected money launderers and tax evaders and is lagging behind other nations in AML compliance.
In our next post, we will describe the proposed Act’s details and its potential implications for a new category of defined “financial institution” – formation agents, which might include attorneys.
Updates to Chapter 15: Company Name and Address, include removing non-label related instructions on submitting address change requests and updating the National Pesticide Information Center’s contact information, including new hours of operation. Updates to Chapter 16: Graphics and Symbols, include adding hyperlinks to graphic and logo examples and allowing a QR (Quick Response) code as an acceptable symbol when used only for retail pricing.
EPA states that the Label Review Manual, which began as a guide for EPA label reviewers, serves as a tool to assist registrants in understanding the pesticide labeling process and assists registrants in understanding approaches for how labels should generally be drafted. Pesticide product labels provide critical information about how to safely and legally handle and apply pesticides. EPA directs registrants to submit questions or comments on the Label Review Manual by using its Pesticide Labeling Questions & Answers — Form.
U.S. State Department Contractor to Resolve Allegations of Improper Vetting with $5 Million Settlement
On September 14, 2017, Pacific Architects & Engineers Incorporated (PAE) settled a whistleblower lawsuit alleging the company did not follow proper vetting procedures for its personnel that performed and billed work to the U.S. State Department. The $5 million settlement resolves allegations without any determination of liability of contract violations.
PAE is a company originally incorporated in California in 1955. The company first served the rebuilding of Japan after WWII and has since grown to participate in projects and government contracts globally. In 2007, already a contractor with the U.S. State Department, PAE was assigned the task of training U.S. personnel in Afghanistan and conducting extensive background checks and documentation for those in high-risk positions. Reporting the names, nationalities and background information on contract employees in these positions was a requirement of the contract for work between PAE and the U.S. government.
After its investigation, the U.S. Justice Department alleged that “PAE was aware of these contractual requirements but did not comply with them for extended periods.”
Robert Palombo, the former PAE manager, filed this whistleblower lawsuit against his employer alleging that this was the case and that PAE continued billing for work done under the contract.
PAE, however, contends that “The invoices specifically identified the names of employees for whom the lawsuit alleges that requisite notice was not made. The employees whose background investigations were allegedly inadequate were not involved in any security incidents or injuries. The services called for under the contract were provided in full.”
Without admitting fault or liability, PAE has decided to settle these allegations of improper vetting by paying the U.S. government $5 million, $875,000 of which whistleblower Robert Palumbo is entitled to receive.
For more legal analysis go to The National Law Review
Bridges crumbling in Texas. Houses turned to toothpicks in the USVIs. Newly-formed rivers ravaging the streets in South Florida. The devastating destruction from the recent hurricanes that have pummeled the U.S. has uprooted many peoples’ homes and lives, but we have only begun to feel the impact of the surge.
Massive relief efforts have begun, national fundraising, news coverage, responsive legislation, and building codes to name a few. A litigation surge is swelling as well. We have seen several types of cases and class actions churn from a hurricane’s aftermath. Here are some of the types of cases, coverage issues, and expert needs you may see after the storm.
Property Damage and Meteorological Causation
|Insurance companies insuring the Southern United States are bracing for the waves of claims that will soon be flooding in. Just as it was following Hurricanes Katrina, Ivan, and Sandy, the hotly-debated issue of whether the damage was caused by wind or water will be the likely focus. While most homeowner insurance policies will cover water damage that was caused by a roof or window that was compromised by wind and allowed water intrusion, most do not cover water that rises from the ground level and enters the home. Experts will be relied upon to determine how water got into a structure, even when it is entirely obliterated.|
Insurance companies and attorneys will be looking for experts in meteorology, often with advanced degrees and testifying experience, who can opine on the types of weather conditions that might have existed at a given time in a given place (i.e., Key West when Hurricane Irma struck). The experts could come from academia or environmental institutes and societies. They will be asked to review various data points and speak on weather conditions at a particular time and place to support causation for insurance coverage. Structural engineers will also be needed, preferably with experience in standard insurance practices, procedures, and protocols in evaluating damage caused by hurricanes. They will need to have an understanding of insurance claims handling and will be asked to review various reports and data, some from other engineers, discussing damage caused to structures by the hurricane and opine as to whether or not the reports and data are accurate.
Structural Failures and Faulty Design/Construction
While many large, concrete commercial buildings and bridges are designed to withstand 150+ mph winds and flooding, they can still be left severely damaged after a storm blows through. Structural failure of buildings, roofs, bridges, and roadways that were expected to withstand hurricane winds will lead to litigation over damage caused by the failure. Structural engineers with expertise in the types of structures at issue, likely licensed engineers, will be needed to examine damage patterns through photos, video, or via a post-storm on-scene inspection. They will also need to use meteorological wind information to determine the cause of the failure and the quality of the design or construction.
Class Actions for Coverage Determinations
Often, the core issues in insurance-related storm damage cases are similar across a wide span of policyholders. These cases will vary depending on the coverage matter at issue, but the most sought-after experts will be familiar with insurance claims standards, protocols, and policy interpretation. Construction experts may also be needed to opine on the necessity and extent of certain repairs required after a storm. Also, standard practices and interactions between contractors and insurance companies during the re-build process will come into question. Class actions may be filed as well, simply as placeholders to toll certain claims-filing deadlines or allow broader bad faith discovery against insurance companies who refuse to pay mass claims.
Litigation Over Price-Gouging
One of the worst scenarios to follow a storm is wide-scale price-gouging and scamming by companies trying to capitalize on the desperation and vulnerability of storm victims. Before the storm, many people preparing for power outages or evacuation will see unfair spikes in essentials such as water and gas. After the storm, shady contractors and tree-removers often flood in, lie about their licensing and credentials, and charge exorbitant fees while performing shoddy, haphazard work, or no work at all. Many states, including Florida, have made it a crime for any service provider to offer or sell essential commodities for an amount that “grossly exceeds the average price” during the thirty days following a declaration of emergency. In the days before Hurricane Irma’s approach, many reported price-gouging for essentials such as water, ice, batteries, and gas when thousands of Floridians were stocking up or evacuating. Class actions alleging price-gouging will likely occur following the storm. Experts in standard industry pricing, manufacture costs, and storm clean-up and repair may be called in to opine on the “average price” of certain essential commodities and post-storm services.
In the wake of Hurricanes Harvey and Irma, we are gearing up for the incumbent waves of litigation and expert requests we anticipate will follow. What types of cases, class actions, and expert needs are you expecting?
The Mississippi Gaming Commission held a Special Interim Meeting on Thursday, September 14, 2017, at 10:00 a.m. in the Biloxi office of the Mississippi Gaming Commission. Executive Director Allen Godfrey, Chairman Al Hopkins, and Commissioner Jerry Griffith were in attendance. The following matters were considered:
Riverboat Corporation of Mississippi d/b/a Golden Nugget Biloxi Hotel and Casino received approval of the following:
Registration of Golden Nugget, Inc. as a Holding Company of Riverboat Corporation of Mississippi
Registration of Landry’s Gaming, Inc. as a Holding Company of Riverboat Corporation of Mississippi
Transfer of the Equity Interests or Securities of Riverboat Corporation of Mississippi
Pledges of Equity Interests or Securities in Connection with the Credit Facility
Imposition of Equity Restrictions Including Negative Equity Pledges in Connection with the Credit Facility
These approvals were in connection with a restructuring of the ownership of the Golden Nugget companies in order to facilitate the acquisition of the Houston Rockets NBA basketball team.
Now available from the ABA: Business, Human Rights, and Sustainability Sourcebook
The Business, Human Rights and Sustainability Sourcebook addresses the intersection of human rights law with the conduct of business, in light of sustainability mandates and the UN Guiding Principles on Business and Human Rights.
This sourcebook can be used as a standalone reference, or combined into a set as a companion volume with the Center on Human Right’s International Human Rights Law Sourcebook and The International Humanitarian Law Sourcebook.
Available for purchase here.
Athletes and Employees Speak Out: Do Your Employment Practices Drop the Ball in Addressing Diversity, Controversial Speech, or Tensions at Work?
With the 2017-18 National Football League (NFL) regular season and National Basketball Association (NBA) pre-season underway, many spectators are excited to don their favorite players’ jerseys and cheer on their teams. Yet in recent years, many fans also find themselves equally entrenched in controversial debates that have little to do with who wins or loses the game.
Rather, these dialogues relate to the frequent media coverage over the alleged “blacklisting” of former San Francisco 49ers quarterback Colin Kaepernick after he took a knee during the national anthem last season to protest police brutality against minorities, related demonstrations held in front of the NFL’s corporate offices, and actions of solidarity on football fields across the country by athletes like Marshawn Lynch and members of the Cleveland Browns virally trending with the hashtag #ImWithKap. Most recently ESPN sports host, Jemele Hill, drew the attention of the White House and placed her own employment in the cross-hairs by stating in a series of tweets that President “Donald Trump is a white supremacist who has largely surrounded himself w/ other white supremacists” and is “unqualified and unfit to president.” and in In response, the White House press secretary called Hill’s statements a “fireable offense.”
As athletes and other public figures use their careers to bring awareness to social movements and other world events such as the Charlottesville tragedy, the implications of social movements on employee relations remains a hot topic that poses challenging issues for employers related to diversity, inclusion, and free speech. Here are a few of those related topics and some practical suggestions of ways employers can address these issues in the workplace:
Does the First Amendment Apply to Athletes or Employees Generally?
People often mention their First Amendment guarantees without understanding that this right is not without certain limitations, especially in the employment context. Specifically, while this protection covers federal, state, and local government employees, courts have held that First Amendment protections do not generally extend to the employees of private-sector employers.
Does Social Media Change Things?
As evidenced by legendary athletes Dale Earnhardt Jr.’s and Kareem Abdul-Jabbar’s Twitter posts in response to the Charlottesville tragedy, many athletes and employees use social media to vocalize their positions on social issues. The National Labor Relations Board (NLRB) has taken on cases where employers have fired or taken disciplinary actions against employees who have engaged in certain protected speech via various social media platforms. On the agency’s website, the NLRB states: “The National Labor Relations Act protects the rights of employees to act together to address conditions at work…. [t]his protection extends to certain work-related conversations conducted on social media”.
This raises the question: Can an employee be disciplined for making racially- or politically- charged speech via social media?
The standard that the NLRB considers is whether the employee is engaging in “protected concerted activity” involving the terms and conditions of employment. Courts have used a multi-factor assessment to determine whether discipline or discharge violates Section 8(a)(1) of the NLRA, which evaluates whether:
- the activity in which the employee was engaged was “concerted” within the meaning of Section 7 of the NLRA;
- the employer knew of the concerted nature of the employee’s activity;
- the concerted activity was protected by the NLRA; and
- the discipline or discharge was motivated by the employee’s protected, concerted activity.
If the employer alleges that an employee engaged in misconduct during otherwise protected activity, the NLRB generally considers four factors in determining whether speech is protected:
- the place of the discussion;
- the subject matter of the discussion;
- the nature of the employee’s outburst; and
- whether the outburst was, in any way, provoked by an employer’s unfair labor practice
In many instances, purely individual speech about a social or political topic that in no way involves an employee’s work conditions will not be protected by the NLRA. Because of the fact-specific nature of the inquiry, a determination must be made on a case-by-case basis.
So What Now?
Even employers not covered under the First Amendment and NLRA’s protections are finding themselves examining some weighty questions. For example:
- Although there may be legally sanctioned limitations to free speech in the workplace, does the modern day work culture require employers to facilitate an employment experience that goes beyond what the law requires?
- Are employers tasked with creating a workplace that is inclusive but also allows people to express unique (and sometimes controversial) viewpoints on social or political issues?
- If so, how does this work and does it ultimately help the business to thrive long term?
Last year the NBA and the NBA’s Players Association (NBAPA) appeared to have answered this question in the affirmative and implemented this approach with its players. Despite having player agreements with language that can, in some cases, regulate players’ conduct, NBA athletes have expressed their positions on social issues both on and off the court. For example, during pre-game warm ups LeBron James wore a t-shirt stating “I Can’t Breathe,” bringing awareness to the death of Eric Garner. Similarly, Carmelo Anthony and Dwyane Wade made a social action appeal during the 2016 ESPY awards.
Many players have been so outspoken that last year NBA Commissioner Adam Silver and NBPA Executive Director Michele Roberts penned a letter noting that both organizations were addressing the best ways they could move forward in “developing substantive ways . . . to come together and take meaningful action.” The letter noted that, in recent weeks, many teams had reached out to the organizations to figure out how they could “create positive change” and garner support with team efforts.
Employers may want to take note of the ways that the NBA and the NBAPA are attempting to address this topic. Additionally, employers may also want to review the following considerations.
Be Aware of Blacklisting Laws
Many states have blacklisting laws that, generally, prohibit employers from limiting former employees’ opportunities. The following are a handful of state laws regulating blacklisting:
- North Carolina law prohibits employers from preventing or attempting to prevent any “discharged employee from obtaining employment with any other person, company, or corporation” whether by verbal or written action.
- The California Labor Code also prohibits any person from preventing or attempting “to prevent the former employee from obtaining employment” by misrepresentation and punishes any manager or employee who knowingly “fails to take all reasonable steps to prevent” such action.
- Indiana law makes it illegal for an employer to prevent a “discharged employee from obtaining employment with any other person” or employer.
- Florida law makes it illegal for two or more people to “agree, conspire, combine or confederate together for the purpose of preventing any person from procuring work . . . or to cause the discharge of any person.” The law also prohibits verbal, written, or printed communication that “threaten[s] any injury to life, property or business of any person for the purpose of procuring the discharge of any worker . . . or to prevent any person from procuring work”.
- New York Labor Law says it is an unfair labor practice “[t]o prepare, maintain, distribute or circulate any blacklist of individuals for the purpose of preventing any of such individuals from obtaining or retaining employment because of the exercise by such individuals of any of the rights guaranteed by section seven hundred three,” which discusses the right to join a labor organization or to bargain collectively.
- Arizona law explicitly defines the term “blacklist” as “any understanding or agreement whereby the names of any person or persons, list of names, descriptions or other means of identification shall be spoken, written, printed or implied for the purpose of being communicated or transmitted between two or more employers of labor, or their bosses, foremen, superintendents, managers, officers or other agents, whereby the laborer is prevented or prohibited from engaging in a useful occupation. Any understanding or agreement between employers, or their bosses, foremen, superintendents, managers, officers or other agents, whether written or verbal, comes within the meaning of this section and it makes no difference whether the employers, or their bosses, foremen, superintendents, managers, officers or other agents, act individually or for some company, corporation, syndicate, partnership or society and it makes no difference whether they are employed or acting as agents for the same or different companies, corporations, syndicates, partnerships or societies.”
Do not wait for your company to become the next trending hashtag on social media as a result of a workplace controversy! Instead, be prepared and take proactive measures in the event employees take a stand on controversial issues. Some options are to proactively address and be sensitive to diversity issues, and to recognize and understand the benefits of workforce diversity both as a source of varied ideas and a competitive advantage. Employers may also want to consider hiring a Chief Diversity and Inclusion Officer or diversity and inclusion team responsible for addressing equity issues.
Consider reviewing your employee handbooks, in addition to contracts you might have with individual employees (or athletes) and third parties to ensure your company’s policies regarding diversity and inclusion, nondiscrimination and harassment, and professional development are up to date. Employers may also want to consider evaluating successes and areas for growth in the following areas:
- the recruitment, hiring, promotion, and advancement of diverse employees;
- the availability of alternative work schedules for working parents;
- the evaluation of salaries and compensation levels of all employees in terms of current pay equity principles; and
- the stemming attrition rates of diverse employees.
Finally, employers may want to examine records to determine whether all employees, especially management employees, have participated in appropriate diversity and inclusion trainings, particularly on implicit or unconscious bias.
Employer-created bans on any socially- or politically-related speech rarely if ever actually work and may create exposure to liability under the First Amendment, the NLRA, or state-specific laws. Rather than imposing an outright ban on certain conduct, employers may want to slow down and engage in careful thought at the outset prior to taking any action on behalf of the organization. Employers may also find it beneficial to acknowledge that what happens in the world impacts the workplace. Accordingly, employers may want to develop affinity or employee resource groups, and/or maintain a diversity committee that facilitates well-thought-out inclusion initiatives. With many issues at play from reducing the risk of unlawful discrimination charges to preventing social media reputational harm, planning ahead may help to avoid potential risks.
While the concept of “fake news” continues to trigger Twitter followers and grab headlines, the trade in counterfeit drugs is a worldwide problem of significant scale. This article discusses the problem and talks about some things trademark owners are doing to address the public safety issues posed by fake drugs.
Trademark counterfeiting? Most think of fake Rolex watches sold on city street corners or faux designer purses sold in suburban kitchens. While knock-off luxury goods may seem harmless, the economic harm inflicted on legitimate businesses—and the workers they employ—is enormous. The Federal Bureau of Investigation estimates that the dollar value of counterfeit goods sold in the U.S. at $200-250 billion annually. Many of North Carolina’s leading industries, including tobacco, furniture, apparel and pharmaceuticals, are among the most frequent targets of trademark counterfeiting. Also, according to Interpol, trademark counterfeiting often provides for a source of income and reliable import channel for those with other nefarious purposes, such as illegal drug or human trafficking and potentially even terror activities.
In addition to these very negative economic consequences, there is a particular level of harm associated with certain kinds of trademark counterfeiting. Counterfeit goods aren’t subject to the same regulatory standards and safety inspections as items produced by legitimate manufacturers. So, in areas of manufacture where quality control is important, counterfeit products fall short. Consider, for example, the potential harm that could be caused by substandard, bogus automobile tires or airplane parts.
Counterfeit pharmaceutical drugs are clearly an area where public safety concerns are paramount. Counterfeit medicines have been found in all areas of the globe, including the highly regulated U.S. market, and extend to medicines, vaccines, testing and diagnostic equipment, and other medical devices. Both branded and generic pharmaceutical products can be falsified. And sales are not just limited to the black market—such products make their way to hospitals and pharmacies, often through internet sales trade channels.
Lifestyle or “popular” drugs are often counterfeited, and there have been recent increases in cosmetic, weight loss and opioid drugs. However, such drugs are not limited to such trends—counterfeit malaria vaccines, cholesterol medications and cancer treatments can also be found in the U.S. The World Health Organization (WHO) estimates that an average of up to 10% of medicines are counterfeit, and in developing countries, that percentage is considerably higher.
The Center for Medicine in the Public Interest estimates the annual worldwide dollar value of counterfeit pharmaceuticals at $200 billion annually and rising. Sadly, the damage is far greater than lost sales. WHO estimates that approximately 200,000 people die each year as the result of ineffective counterfeit anti-malarial drugs.
Counterfeit medicines also may cause adverse affects or allergic reactions, and they may not effectively treat the ailment for which prescribed. They may promote drug resistant disease strains or contain no active ingredient, the wrong active ingredient, or the incorrect strength (too much or too little) or dosage of the intended ingredient. According to a WHO investigation, approximately 1/3 of such drugs contain no effective ingredient. Given the lack of inspection of counterfeit manufacturing facilities, such products are often produced under non-sterile circumstances, resulting in bacterial or other contamination. Clearly, the ways in which counterfeit drugs can cause serious negative patient outcomes are extensive and extreme.
Combating the Problem.
Drug companies, and their attorneys and security departments, take a multi-pronged approach to combating counterfeiting. Many of these efforts are used to combat counterfeiting generally, but some have been developed with particular focus toward the nuances of the counterfeit pharmaceutical market.
The counterfeiting problem can appear daunting, given an array of unknown manufacturing sources, the breadth of possible sales outlets, and the strong consumer preference for the “cheap but name brand” combination. Successful anti-counterfeiting practices do not generally follow a reactive “Whack-A-Mole” approach, attempting to squelch every low-level advertisement or email blast that comes out. Rather, systematic and strategic prosecution, akin to practices used in the intelligence community, is preferred. Investigations of networks and relationships, rather than merely products and sellers, can help identify high-payoff targets, the disruption of which can have positive effects across several echelons of the counterfeit trade. Focusing limited enforcement resources on valuable choke points which contribute to an ecosystem response can often be the most fruitful and strategic approach.
Counterfeit pharmaceuticals in particular, given their specific methods of typical advertisement and sale, are prone to certain forms of interdiction over others. It is well known that counterfeit pharmaceuticals are advertised heavily on both internet ads and email “spam” messages, all of which attempt to direct a prospective purchaser to a product-ordering website. Attempting to interdict the advertising messages, which are often sent by botnets or third-parties through a referral-affiliate relationship, or to shut down specific websites, is a losing proposition. This is the case because there are hundreds of thousands or more of each, and the costs to re-establish a confiscated website are negligible compared to the significant enforcement costs. However, academic researchers working with industry and enforcement contacts identified several potential chokepoints on which these sorts of pharmaceutical sales pathways rely. See Dharmdasani et al., “Priceless: The Role of Payments in Abuse-advertised Goods,” CCS ’12, October 16–18, 2012, Raleigh, N.C. One key chokepoint relationship for online transactions is a seller’s host bank, nearly always non-U.S. and non-EU, that is willing to accept abusive credit card transactions related to these unlawful goods from card processors such as Visa and MasterCard.
Nearly all online counterfeit pharmaceutical revenue can flow through these concentrated banking relationships, and researchers discovered that intercepting just one or two of these banking relationships, and seizing related funds, could have ripple effects disrupting thousands of drug transaction websites and referral affiliates. For example, a 2011 study determined that across 95% of spam e-mail for pharmaceuticals and similar goods, only three acquiring bank institutions were used. Id. This research demonstrates a guiding principal of anti-counterfeiting efforts: enforcement is most successful where the “termination cost [to the counterfeiter] is inevitably far higher— in fines, in lost holdback, in time and in opportunity cost—than the cost of the intervention itself [by the rights holder]. … [R]elatively concentrated actions with key . . . institutions can have outsized impacts.” Id.
Targeted investigations and enforcement are only one aspect of a comprehensive anti-counterfeiting approach. Successful rights holders employ a broad-based strategy, involving secured supply chain management, thorough technology and distribution agreements with market partners, and high-tech security solutions such as secure packaging, microchips, holograms, and the like. The combination of many of these controls can make enforcement actions easier and more productive, and thus reduce the prevalence and success of counterfeit competitors. In addition, it is important to inform consumers and retailers about both the dangers of counterfeits and the value of accessing authentic products. Pharmaceutical companies should engage in advertising to alert the marketplace to the dangers of counterfeit pharmaceuticals and to also assist others in identifying counterfeit drugs – including examination of packaging and medicines for quality, condition, spelling and grammar; and checking manufacturing and expiration dates and batch numbers on both exterior and interior packaging.
The problem of fake drugs is in fact very real news and companies here in North Carolina and around the world are taking steps to defend their brands and protect their customers in the marketplace.
Authentic Vial Counterfeit Vial
This article originally was published in the August 2017 edition of the Newsletter of the Board of Legal Specialization, a publication of the North Carolina State Bar.