April 09, 2004 12:00am
Legal Issues Associated with Online Pharmacies
by: Lawrence G. Walters, Esq. & Heather R. Schwarz, Esq. Weston,
As adult webmasters continue to search for new ways to generate revenue and stay competitive, opportunities arise to participate in unique affiliate programs; each filling a perceived consumer need. The latest such craze relates to the online distribution of prescription drugs. Any webmaster considering such an affiliate program should carefully consider the legal and political issues relating to this business model.
Long before the days of the Internet, prescription drug distributors ran tiny advertisements in local newspapers for individuals to order medications directly from the distributors - both with and without a prescription. Now, with just a click of the mouse individuals can order prescription drugs such as diet pills, sleep aids, Viagra, and heart medicine to be dropped off at their front door. This new method of obtaining prescription drugs raises many novel legal issues for drug distributors, affiliates, advertisers and consumers. Given the substantial penalties associated with the illegal distribution of controlled substances, thorough investigation into these issues is warranted before signing up as an affiliate.
Legality of Selling Drugs Online
The Federal Food, Drug and Cosmetic Act ("FFDCA") limits the kinds of drugs that are legal to import into the United States. Most drugs that are imported into the United States violate the FFDCA for reasons including the failure to obtain required approvals, incorrect labeling, and/or the lack of a valid prescription. the FFDCA was enacted by Congress in an effort to create a "closed drug distribution system," which would ensure an effective and safe supply of drugs in the United States. Congress is currently reviewing legislation in an effort to further restrict prescription drug importation as discussed infra. The FFDCA contains provisions for civil and criminal liability under 21 U.S.C. ?? 332 and 333. Aiding and abetting or conspiring to violate the FFDCA is also a criminal violation under 18 U.S.C. ?? 2 and 371. The United States Customs Service, the Food and Drug Administration ("FDA"), and the Drug Enforcement Administration ("DEA") are primarily responsible for overseeing and controlling the importation of prescription drugs.
According to the FDA's guidance entitled "Coverage of Personal Importations," the FDA will allow consumers to buy otherwise illegal prescription drugs over the Internet from other countries if: (1) the drug is purchased for personal use; (2) the pharmacy fulfills a maximum of a ninety (90) day drug supply; (3) the product's intended use is identified; (4) the patient submits in writing that it is for his/her personal use; (5) the patient supplies the name and address of the doctor responsible for treatment; and (6) the product is not a listed controlled or illegal substance. in Opinion Letter No. 03-601 from the FDA, the FDA's Associate Commissioner for Policy and Planning stated the Personal Importation Policy describes the FDA's "enforcement priority," but it in no way alters or modifies the FFDCA.
Some states have made attempts to stop importation of prescription drugs, especially drugs ordered online or through unlicensed pharmacies. Other states have attempted to implement programs which would help enable the importation of prescription medications from Canada for its citizens, which are less expensive due to price controls. However, the FDA's Opinion Letter No. 03-601 states very clearly that individuals and entities in the United States may not import prescription medications from Canada in contravention of the FFDCA. the Opinion Letter also notes that the FFDCA preempts all states from enacting laws that conflict with federal restrictions.
Problems Associated with Online Pharmacies
Many problems and risks are associated with purchasing prescription medications from online pharmacies, such as health risks from faulty or counterfeit medications, customer allergies unknown to the pharmacist filling the prescription, interaction with other medications the consumer is taking, and drug formulations in foreign pharmacies that may be different from what the patient's prescription requires. a doctor can advise regarding side effects; however online pharmacies usually provide little advice regarding prescription drugs purchased from the Internet. Customers of online sites are warned to consult a doctor regarding prescriptions, purchase from licensed online pharmacies, make sure the pharmacy has valid contact information, check the expiration date of the medications ordered, understand the side effects of the prescription, and know what the medication looks like.
The FDA presented its position on online pharmacies in the Summer of 1999, "expressing its concern that the Internet may enable products to be marketed with false health claims and may enable sales of unapproved new drugs, corrupted drugs, or prescription drugs without a valid prescription." According to FDA reports, nearly ninety percent of mail- or Internet-ordered prescription drugs that are stopped at United States borders are dangerous and possibly counterfeit. Warnings regarding ordering counterfeit drugs through the Internet were issued as early as 1998 from the American Council on Science and Health ("ACSH") and continue to be issued today.
Online pharmacies also raise regulatory issues relating to professional standards for pharmacists to dispense and prepare prescriptions. The National Association of Boards of Pharmacy ("NABP"), consisting of state and national pharmacy boards and boards from Canada and Australia, instituted a voluntary certification program called Verified Internet Pharmacy Practice Site ("VIPPS") in 1999 for online pharmacies which uses a verifiable logo indicating that the online pharmacy is certified.
Effect of Spam Legislation
Like many other "gray" online markets, Internet pharmacies rely heavily on bulk email, commonly known as "spam." After years of trying without success, the United States Congress passed the Controlling the Assault of Non-Solicited Pornography and Marketing ("Can-Spam") Act, the first federal anti-spam legislation, which requires email marketers, amongst other things, to accurately identify themselves and to provide an email opt-out option. Since January 1, 2004, all spam has been required to comply with the Can-Spam Act. The Can-Spam Act does not completely ban unsolicited email, but imposes a list of requirements. The requirements include, but are not limited to, banning deceptive messages, forged header information, false email sender accounts, and deceptive subject headings. The Act also requires emails to contain a functioning return address that works for 30 days after the email transmission, spammers to stop transmitting unsolicited emails after users opt-out, and spam email to contain the sender's location along with a physical address. The Act also mandates the creation of a "do not spam" list by the FTC, which likely will doom at least domestic spam. The effects of these new regulations on the industry have yet to be seen, but given the historical reliance on such promotional devices, it could be substantial. This will all likely come down to how aggressive the regulators will be and how effectively they can pursue offshore violators.
States' attorneys generals have been enforcing the regulation of online pharmacies at the state level by filing lawsuits based on undercover investigations of them distributing drugs between states. the states' attorneys general actions against online pharmacies all have been based on similar legal theories concerning violating state licensing laws and laws requiring doctors to prescribe only medications pursuant to bona fide physician-patient relationships. Through those actions, many online pharmacies are being shut down all around the country.
For example, a Florida restaurant owner and her son were sentenced to federal prison for operating an unlicensed Internet pharmacy business, which generated approximately $1.3 million in sales - out of their house. Another South Florida-based business, Rx Network, was fined $68,000 for negligent and excessive filling of drugs ordered off the Internet, and its license was suspended by the DEA. the DEA also suspended the licenses of another Florida-based online pharmacy, Lifeline Pharmacy, and its supplier, C & H Wholesale. the DEA claims that filling orders that are solely determined by users completing online questionnaires without a doctor's physical examination violate federal licensing laws. However, most states do not have laws that say a doctor must physically examine a patient before prescribing a prescription drug.
On the international front, Rx Depot and Rx of Canada, Canadian-based online pharmaceutical companies, were ordered by a federal judge to shut down 85 storefronts due to their violation of federal law and putting the American public's safety at risk. Rx Depot would fax customer's orders from its storefronts to a pharmacy in Canada, which would then mail the medication directly to the customers. the court found that Rx Depot pursued misleading promotions to Americans concerning the safety of unapproved drugs that were potentially harmful and were illegally brought into the United States.
The United States government is being heavily lobbied regarding online pharmacies and the importation of drugs to Americans. Congress has held hearings concerning the risks and benefits of online pharmacies from as early as July 1999, and is currently considering pending legislation concerning re-importing prescription drugs from Canada. the bills, S. 1781 and H.R. 2427, are stalled for the moment as the Senate Committee on Health, Education, Labor and Pensions attempts to resolve differences between these bills. the biotechnology industry, pharmaceutical industry, as well as the FDA, strongly opposes this effort due to the fact that re-importing drugs may jeopardize the safety of Americans since drugs shipped from foreign countries are not subject to the same regulations as those purchased in the United States. On the other hand, imported drugs cost the pharmaceutical companies profits, but allow impoverished Americans to obtain drugs that might otherwise be beyond their means.
Advertising Online Pharmacies
The vast majority of United States-based webmasters involved in the online pharmacy industry are not involved in the manufacture or actual distribution of pharmaceutical medicines. Their participation comes in the form of marketing and promotion of established pharmacy operations. Thus, an evaluation of the liability associated with advertising such operations is appropriate. The First Amendment provides significant protection towards advertising as a form of commercial speech. The government's ability to regulate advertising of online pharmacies is not coextensive with its ability to regulate the distribution of Internet-ordered prescription drugs, themselves. The prevailing test that has continuously been used by the courts to evaluate the legality of any particular advertising equation is known as the Central Hudson Test. Under that Test, the court's first duty is to determine whether the First Amendment applies at all. In doing so, the proper question is whether the advertisement concerns a lawful activity and is not misleading or fraudulent. That produces an interesting conundrum for the future reviewing courts, since the legality of online pharmacies in the United States is currently the subject of proposed legislation and heated controversy. Moreover, if the online pharmacy is legal in the jurisdiction where it is licensed, that may suffice for purposes of this prong of the Central Hudson Test, although that remains undetermined. Once it is determined that the First Amendment applies, the courts employ a three-part analysis that allows commercial speech to be restricted only if: 1) the government's interest in doing so is substantial; 2) the restrictions directly advance the government's asserted interests; and 3) the restrictions are no more extensive than necessary to serve that interest. Attempts by the federal government to regulate the advertisement of online pharmacies would set a dangerous legal precedent, and potentially violate the Free Speech rights of advertisers and affiliates who are promoting a service that is legal and licensed in its forum jurisdiction. Thus far, no controlling legal precedent exists on the issue of advertiser liability in this still developing business model.
In attempting to address its concerns over advertising foreign pharmacies, the Department of Justice could use the aiding and abetting or conspiracy laws as an underlying theory for criminalization of such marketing and promotion. Although there is little legal precedent supporting the theory that mere advertising satisfies the legal standard for either aiding and abetting or conspiracy, the government is currently floating the aiding and abetting theory as a potential means to control the proliferation of online gambling advertisements currently blanketing the Internet. The online gambling industry is currently in a legal showdown with the Justice Department over the legality of both advertising, and the underlying gambling conduct which often takes place in cyberspace using licensed, offshore casinos. The United States Attorney's Office in the Eastern District of Missouri recently circulated a warning letter to the National Association of Broadcasters, and other media trade groups, advising that continued airing of advertisements promoting online gambling activities will be seen as a violation of the Wire Act, through aiding and abetting. Industry leaders immediately refuted that analysis, invoking the First Amendment protections afforded to advertising; however no court action has been taken thus far. A number of subpoenas have been issued in connection with an investigation emanating from the Eastern District of Missouri, however no indictments have been returned nor charges filed pursuant to that investigation. Turning back once again to the online pharmacy industry, it is not difficult to imagine the same theory being used as a means to reign in advertisers of allegedly illegal pharmacies, especially those located in the United States. The online pharmacy industry presumably will be closely following the online gambling advertising crisis as those events play out.
Online pharmacies often operate similar to multi-level marketing firms by encouraging individuals to set up affiliate websites to help promote their products. but when users want to complain or otherwise contact the distributors, they usually have no one to contact. Many of these affiliate sites are not licensed, whereas the legitimate pharmacies will prominently display a seal indicating they meet state licensing requirements. Consequently, many storefront pharmacies have temporarily stopped selling prescription drugs online because of the recent FDA trend in prosecuting online pharmacies. a major United States pharmacy trade group, the National Association of Boards of Pharmacy ("NABP"), is pressuring Web-based search engines to ban advertisements from unlicensed drug retailers, in an effort to clean up ads for prescription drugs that can be ordered over the Internet without a doctor's consent. Paid search terms have emerged as an invaluable source of revenue for the online-advertising industry as companies have opted to bid for the right to be associated with specific key words. Paid searches have produced what many consider a taxing side effect for the online-pharmacy industry. Rogue Internet pharmacies - those that either allow customers to receive a doctor's prescription online without a physical consultation, or do not require a prescription at all - have bid aggressively for preferred placement on Internet search engines, essentially out-pricing legitimate competitors. Since the rise of paid search programs, regulators and the courts are demanding greater accountability from search engines, which have radically revived the online ad market. In compliance with that, both Google and Yahoo! have stated that they would hire third-party companies to evaluate and verify online pharmacies before allowing them to advertise on their sites.
The FDA recently stated the release of the new direct-to-consumer drug advertising guidelines should be released shortly. The new guidelines are expected to revise the rules for listing side effects of prescription medications in print advertising, and may also increase what is required to be disclosed in Internet ads, but other changes remain uncertain amid pressure from many consumer groups to tighten advertising requirements and numerous media organizations to ease them. a draft of the proposed guidelines can be viewed on their Web site, http://www.FDA.gov/cder/guidance/5669dft.pdf and http://www.FDA.gov/cdrh/comp/guidance/ 1513.pdf.
The Future of Online Pharmacies
According to an article in Time Magazine, Americans are spending more on prescriptions than individuals in any other developed country. when comparing the price of the cholesterol reducing drug Lipitor, a single prescription in the United States can cost between $272.00 to $308.00, while in Canada, the same drug can be purchased from between $159.00 to $199.00. the savings are substantial and, with Americans turning to the Internet in hopes of finding cheaper medication, the online pharmaceutical business is proving to be a lucrative one. For example, the online pharmacy Drugstore.com, Inc. made Internet Retailer's Top 50 List of Retailing Web Sites for 2004. Drugstore.com, Inc., is one of the online leading retailers in beauty and pharmacy items. The prescription drugstore's Web site boasts that their prices are, on average, lower than those of the national drug chains, showing you the price you would pay elsewhere. Consumers are turning to online pharmacies for better prescription drug prices.
A number of state and local governments are even exploring the option of importing Canadian drugs. North Dakota may establish its own Web site with links to Canadian pharmacies that state officials have checked and consider to be safe drug suppliers. Howard Anderson, Jr., director of the North Dakota board that licenses pharmacists, said a North Dakota government Web site with links to Canadian pharmacies would be tantamount to encouraging people to break federal drug importation laws. However, North Dakota's Governor John Hoevan and Minnesota's Governor Tim Pawlenty recently discussed Minnesota's Web site to help Minnesota residents buy prescription drugs from Canada. On January 30, 2004, Governor Pawlenty's state-sponsored Web site was up and running, enabling Minnesotans to reduce their drug costs by ordering directly from Canada. Minnesota is the first state to implement this type of Web site, which potentially violates the FFDCA. Rhode Island's Secretary of State also urged Rhode Island to join several cities and states that have plans to buy prescription drugs from Canada, despite a federal prohibition on importing them. The city of Springfield, Massachusetts, already imports Canadian drugs, along with New Hampshire and Illinois, which are among the group of states and municipalities developing various plans for purchasing drugs from Canada. Boston's Mayor Thomas Menino is planning to allow the city's employees and retirees to buy drugs from Canada this year, despite a federal prohibition on importing prescription drugs. the FDA emphasizes the fact that purchasing drugs from Canada may be risky since federal officials cannot guarantee the imported drug's safety and/or potency.
Current United States law and DEA policies appear to prohibit the importation of pharmaceuticals from foreign drug companies, especially from unlicensed pharmacies. Nonetheless, as citizens yearn to take advantage of the substantial savings and convenience associated with purchasing their prescription drugs online, the popularity of these businesses is due to increase. Lobbyists for consumers will continue in their effort to encourage the government to take a more progressive approach to this issue, instead of adopting a policy of absolute prohibition, which will continue to enjoy well-funded support from the pharmaceutical industry. While legitimate health and consumer safety issues are implicated by purchasing drugs online without a face-to-face doctor's visit, the development of a global market for pharmaceuticals, along with all other consumer items, cannot be ignored. Advertisers and affiliates based in the United States bear some risk of criminal and/or civil liability resulting from the advertising of controlled substances coming from another country. They must rely upon the constitutional protections afforded commercial speech in the event the Department of Justice, or state law enforcement authorities, takes an aggressive approach to criminal law enforcement based on pure advertising activity. As with many such things, the devil is in the details, and the terms of the advertising/affiliate agreement between the drug distributor and the promoter may drastically affect the liability analysis. Ultimately, if there is a market for the products, as there clearly is for online pharmaceuticals, some companies will be willing to weather the storm and satisfy the demand.
Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all facets of Internet marketing and media. The firm handles First Amendment cases nationwide, and has been involved in much of the significant Free Speech litigation before the United States Supreme Court over the last 40 years. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.PillLaws.com or AOL Screen Name: "Webattorney."