Abstract: Although China seeks to improve its image as a legitimate participant in the global intellectual property ("IP") market, Chinese companies continue to produce more than thirty percent of the counterfeit drugs circulating in the world today. The counterfeit pharmaceutical industry profits from efficient and cost-effective production systems by producing counterfeits at an exceedingly low cost. This poses a serious problem because the production and sale of counterfeit drugs leads to negative economic and social health-related effects. China's existing penalties for counterfeit pharmaceutical production are considered a mere cost of doing business in China, rather than a deterrent from engaging in counterfeiting. China's national government has taken several steps to fight against IP infringement, but despite this effort, the growing power and autonomy of local governments has complicated and exacerbated the problem.
In order to become a legitimate and reputable force in the international economy, China must take greater steps to limit the production and sale of counterfeit pharmaceuticals. First, China must amend its laws to include penalties that will effectively deter actors from entering the counterfeit market. Second, China must allocate a significant amount of resources to the judicial system to ensure that adjudication is effective and efficient. Third, China must fight localized corruption at its source to increase enforcement of IP rights. Specifically, an agency should be created to target local corruption and to disestablish the counterfeit pharmaceutical market. This agency should have investigative and auditing power and should work to educate both the public and the business community on the problems posed by counterfeit pharmaceuticals and the means used to counter them.
The World Health Organization ("WHO") defines a counterfeit drug as "a medicine, which is deliberately and fraudulently mislabeled with respect to identity and/or source."1 China is one of the world's top producers of both legitimate and counterfeit pharmaceuticals.2 In 1980, China took initial significant steps to improve its IP climate when it joined the World Intellectual Property Organization ("WIPO").3 Since this important development, China has adopted and amended its IP law, signed several treaties, and joined international organizations to work towards establishing a "made by China" label, rather than remaining with the "made in China" label.4 These changes have led to fast-paced growth of intellectual property activity.5 In fact, according to a WIPO report, China has become the third largest recipient of patent filings with a filing increase of almost thirty-three percent in 2004 alone.6 Although these numbers seem promising, China's prominent role in the counterfeit drug market reveals its ongoing inability to enforce IP rights or to prosecute infringement through administrative, civil, or criminal mechanisms.7
Worldwide, the counterfeit drug market accounts for approximately forty billion dollars in annual sales.8 China is a lead actor in this market, and its role will arguably only increase in the future.9 Although there are significant profits that can be earned from participation in the counterfeit drug market, counterfeiting also results in physical harm or death to thousands of people globally,10 as well as decreased confidence in the Chinese economy and stifled innovation.11 The Chinese government could arguably approach this problem head-on by amending legislation and increasing enforcement efforts. Additionally, it could work to eliminate the local government corruption that undermines existing counterfeit drug regulations.12
This comment discusses the issues revolving around China's counterfeit drug industry and provides suggestions as to how the Chinese government can better address this problem. Part II discusses the serious health threats posed by counterfeit drugs, introduces a prominent example of drug counterfeiting, and presents the steps China has already taken to fight against IP infringement. …