The drugmaker is winning more damages with civil suits against makers of fake Viagra and other drugs than it did with criminal prosecution
With the millions he made peddling fake Viagra over the Net, Martin Hickman bought a diamond-studded Rolex, a Bentley, and a beachside villa on Spain's Costa del Sol. Pfizer (PFZ) aims to make sure the Briton never gets to enjoy them.
The spoils of Hickman's crimes helped settle a trademark infringement lawsuit brought by the world's biggest drugmaker. The case is an example of a new approach Pfizer is taking to battle counterfeiting of prescription drugs, an industry scourge that's almost doubled in the past five years to around $75 billion, according to the New York-based Center for Medicine in the Public Interest. Pfizer, whose erectile dysfunction pill Viagra is one of the most copied drugs, once relied on local authorities and criminal courts to hunt down and prosecute offenders. Now it's taken matters into its own hands.
The New York-based drugmaker has hired former U.S. Customs officials, FBI agents, Turkish narcotics experts, and Hong Kong police to track down fakes to their source and assemble evidence that can be used to bring civil suits against the people who make and distribute them. "The point is to make them realize that there's no sense from a business perspective, because if we find you, we're taking your money away," says John P. Clark, a 28-year U.S. law enforcement veteran who now serves as Pfizer's chief security officer.
Since 2007, Pfizer has spent $3.3 million on investigations and legal fees and recovered about $5.1 million. It expects to collect an additional $5.3 million from ongoing cases. Pfizer says it has prevented about 58 million counterfeit pills from reaching patients since 2004.
Hickman was one of the first test cases of Pfizer's tougher stance. The Londoner was sentenced to three months in jail in 2007 after he ignored an earlier court order to stop marketing bogus Viagra and another impotence drug over the Internet. Authorities figure Hickman sold more than $8.9 million in fake meds between 2003 and 2007.
Hickman's website kept operating while he was in jail, says Pfizer. So the company won permission from the High Court in London to raid his home and office and freeze his assets. On the day he was released, Pfizer slapped Hickman with a civil lawsuit for infringing its trademarks. Within weeks, lawyers for the two parties hammered out a $2 million out-of-court settlement, giving Pfizer a $769,600 net gain on the money it spent investigating and suing him. In a second criminal prosecution last year, Hickman received a two-year sentence for money laundering and supplying false medicines. "Hopefully we made an impression on Mr. Hickman as to the consequences of counterfeiting our product," says Clark. Attempts to reach Hickman through his lawyer were unsuccessful.
International criminal syndicates increasingly are turning to prescription drugs because they offer higher returns and lower risks than narcotics. Aline Plançon, an Interpol officer who works with police worldwide on counterfeiting, estimates $1,000 spent making heroin can earn a return of $20,000. The same investment in copied medicines can earn as much as $450,000. Pirates "know that the risks of being punished are low compared to the benefit," Plançon says.
That calculus is starting to change, even in China, the center of the global trade in counterfeit drugs. In December 2008 a Chinese court sentenced Zhou Ju, the head of a manufacturing and distribution network for fake pills, to 17 years in prison, the nation's longest term for the crime, and fined him $732,000. Zhou was arrested during a raid on his factory in Jining, Shandong province, following a 16-month investigation led by Pfizer and the local police. Pictures of Zhou's operation show dirty, dust-covered mixing vats, tubs of blue dye used to color Viagra pills, and rolls of foil used to seal blister packs, printed with the logos of Zithromax, a Pfizer antibiotic, and Lipitor, its best-selling cholesterol drug.
That's evidence of an ancillary industry supplying fake packaging, says Paul Newton, a University of Oxford researcher who studies counterfeits from an office in Vientiane, Laos. "It's not just a one-man show," he says, "it's all interlinked with different nefarious business activities."
The bottom line: Pfizer's new tactics against fake drug peddlers have allowed it to recoup more than $5 million. That's still a fraction of its lost sales.