Counterfeit pharmaceuticals: Product piracy and the transition to stronger intellectual property rights in developing countries

Developing countries are awash in counterfeit pharmaceuticals, and despite historically unprecedented protection for intellectual property rights, the problem is rapidly worsening. Chapter 1 of this work analyzes how increased intellectual property rights and enforcement affect the market for counterfeit pharmaceuticals. Incorporating asymmetric information into a model of vertical differentiation, the analysis establishes the importance of simultaneously strengthening intellectual property rights and increasing enforcement, against both infringing generic producers as well as counterfeiters. The model explores the impact of intellectual property policy decisions on the supply of counterfeit pharmaceuticals, pharmaceutical prices, and the composition of the market. The results reveal that without a concurrent financial and institutional commitment to enforcement, stronger intellectual property rights will exacerbate, rather than solve, the problems of pharmaceutical counterfeiting.Chapter 2 provides an analysis of how pharmaceutical manufacturers should approach the battle against counterfeiters. Multinational pharmaceutical firms have an incentive to bear the costs of establishing legitimacy in the markets of developing countries and the continued prevalence of counterfeit pharmaceuticals points to the need for private strategies in addition to government efforts. Presenting a variety of anti-counterfeiting strategies and an analysis of mitigating factors, the chapter draws on the welfare effects and strategic consequences of the various tactics to provide some direction for firms facing counterfeit versions of their drugs in developing countries.Enriching the analysis of the previous two chapters, the third chapter provides an empirical context for exploring the question, how extensive is pharmaceutical counterfeiting? The chapter describes the market for pharmaceuticals in Brazil and considers the details of the Brazilian case to examine the plausibility of the assumptions of the model presented m Chapter 1. Drawing on a variety of sources, the chapter discusses the specific characteristics that impact the level of counterfeiting and presents an initial estimate of the extent of counterfeiting in the Brazilian market. These details of the Brazilian setting are then used to evaluate the strengths and weaknesses of the assumptions of the model of Chapter 1. This review of the Brazilian market provides a glimpse of the extent of pharmaceutical counterfeiting in an influential and rapidly expanding market.